<PAGE>
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM 8-K/A
AMENDMENT NO. 1
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
NOVEMBER 18, 1996
DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED)
----------------
ACCESS HEALTH, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
----------------
DELAWARE 0-19758 68-0163589
(STATE OR OTHER (COMMISSION FILE NUMBER) (I.R.S. EMPLOYER
JURISDICTION OF IDENTIFICATION NO.)
INCORPORATION)
11020 WHITE ROCK ROAD
RANCHO CORDOVA, CALIFORNIA 95670
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
----------------
(916) 851-4000
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
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<PAGE>
This Amendment No. 1 to the Current Report of Access Health Inc.
("Registrant" or "Access Health") on Form 8-K dated November 18, 1996 (the
"Report"), relates to the Registrant's completion of the acquisition of
Informed Access Systems, Inc., a corporation organized and existing under the
laws of the State of Delaware ("Informed Access"), by means of a merger (the
"Merger") of Access Acquisition Corp., a corporation organized and existing
under the laws of the State of Delaware and a wholly-owned subsidiary of the
Registrant ("Merger Sub"), with and into Informed Access, pursuant to the
Agreement and Plan of Reorganization, dated as of September 3, 1996 (the
"Merger Agreement"), among the Registrant, Merger Sub and Informed Access. The
purpose of this Amendment is to amend Item 7(a) to provide the financial
statements of Informed Access and Item 7(b) to provide the required pro forma
financial information relating to the business combination between the
Registrant and Informed Access on November 18, 1996 which were impracticable
to provide at the time the Registrant filed this Report.
Total Number of Pages: 27.
Exhibit Index on Sequentially Numbered Page: 8.
ITEM 7: FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial Statements of Business Acquired.
See Exhibit 20.1 for Informed Access' financial statements.
(b) Pro Forma Financial Information.
The following pro forma financial information is being filed herewith:
The following unaudited pro forma condensed combined financial statements
assume a business combination between Access Health and Informed Access
accounted for on a pooling of interests basis. The pro forma condensed
combined financial statements are based on historical financial statements and
the notes thereto of Access Health included in the annual report on Form 10-K
for the period ended September 30, 1996 and the historical financial
statements and notes thereto of Informed Access included herein.
The pro forma condensed combined balance sheet combines Access Health's
September 30, 1996 consolidated balance sheet with Informed Access'
September 30, 1996 consolidated balance sheet, giving effect to the merger as
if it had occurred on September 30, 1996. The pro forma condensed combined
statements of operations combine Access Health's historical consolidated
statements of operations for the fiscal years ended September 30, 1994, 1995
and 1996 with Informed Access' historical results of operations for the years
ended December 31, 1994, December 31, 1995 and September 30, 1996,
respectively, giving effect to the Merger as if it had occurred at the
beginning of the earliest period presented.
The pro forma information is presented for illustrative purposes only and is
not necessarily indicative of the operating results or financial position that
would have occurred if the Merger had been consummated at the beginning of the
earliest period presented, nor is it necessarily indicative of the future
operating results or financial position.
These pro forma condensed combined financial statements should be read in
conjunction with the historical consolidated financial statements and the
related notes thereto of Access Health and the financial statements and the
notes thereto of Informed Access included herein.
1
<PAGE>
ACCESS HEALTH, INC. AND INFORMED ACCESS SYSTEMS, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
YEARS ENDED SEPTEMBER 30, 1994, 1995 AND 1996
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
INFORMED ACCESS
ACCESS HEALTH, INC. SYSTEMS, INC. (NOTE 1) PRO FORMA COMBINED
------------------------- ------------------------- -------------------------
1994 1995 1996 1994 1995 1996 1994 1995 1996
------- ------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Commercial revenue..... $16,355 $31,553 $62,073 $ 125 $ 2,957 $ 8,668 $16,480 $34,510 $70,741
Development program
with related party.... 2,274 -- -- -- -- -- 2,274 -- --
------- ------- ------- ------- ------- ------- ------- ------- -------
Total revenue........ 18,629 31,553 62,073 125 2,957 8,668 18,754 34,510 70,741
Costs and expenses:
Cost of commercial
revenue............... 12,741 20,712 33,122 96 2,773 6,042 12,837 23,485 39,164
Product and other
development........... 1,085 1,708 3,841 1,123 1,460 2,577 2,208 3,168 6,418
Development program.... 2,541 -- -- -- -- -- 2,541 -- --
Sales and marketing.... 3,767 3,651 6,766 729 1,640 2,509 4,496 5,291 9,275
General and
administrative........ 2,602 3,456 6,255 596 1,002 3,546 3,198 4,458 9,801
------- ------- ------- ------- ------- ------- ------- ------- -------
Total costs and
expenses............ 22,736 29,527 49,984 2,544 6,875 14,674 25,280 36,402 64,658
------- ------- ------- ------- ------- ------- ------- ------- -------
Income (loss) from
operations............. (4,107) 2,026 12,089 (2,419) (3,918) (6,006) (6,526) (1,892) 6,083
Non-operating income
(expenses):
Interest and other
income................ 612 661 1,490 43 205 139 655 866 1,626
Interest and other
expense............... (153) (91) (37) (5) (32) (140) (158) (123) (177)
------- ------- ------- ------- ------- ------- ------- ------- -------
Income (loss) before
income taxes........... (3,648) 2,596 13,542 (2,381) (3,745) (6,007) (6,029) (1,149) 7,532
Provision (credit) for
income taxes........... (1,352) 1,056 5,417 -- -- -- (2,231) (471) 3,014
------- ------- ------- ------- ------- ------- ------- ------- -------
Net income (loss)....... $(2,296) $ 1,540 $ 8,125 $(2,381) $(3,745) $(6,007) $(3,798) $(678) $ 4,518
======= ======= ======= ======= ======= ======= ======= ======= =======
Net income (loss) per
share (Note 2)......... $ (0.24) $ 0.14 $ 0.61 $ (0.66) $ (0.73) $ (1.06) $ (0.31) $ (0.05) $ 0.25
======= ======= ======= ======= ======= ======= ======= ======= =======
Shares used in per share
calculation............ 9,456 11,145 13,340 3,605 5,118 5,675 12,365 14,207 18,332
</TABLE>
See accompanying notes to unaudited pro forma condensed combined financial
statements.
2
<PAGE>
ACCESS HEALTH, INC. AND INFORMED ACCESS SYSTEMS, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
SEPTEMBER 30, 1996
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
INFORMED
ACCESS ACCESS PRO FORMA
HEALTH, INC. SYSTEMS, INC. COMBINED
------------ ------------- ---------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and equivalents.................... $25,655 $ 657 $ 26,312
Available-for-sale securities........... 14,126 -- 14,126
Accounts and licenses receivable........ 10,789 1,894 12,683
Prepaid expenses and other current
assets................................. 4,757 234 4,991
------- ------- --------
Total current assets.................. 55,327 2,785 58,112
Property and equipment, net.............. 14,469 2,004 16,473
Investment in AHN........................ 5,000 -- 5,000
Other assets............................. 4,035 131 4,166
------- ------- --------
Total assets.......................... $78,831 $ 4,920 $ 83,751
======= ======= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable........................ $ 3,375 $ 775 $ 4,150
Accrued payroll and related expenses.... 2,944 438 3,382
Other accrued expenses.................. 4,348 1,777 6,125
Current portion of long-term debt....... -- 599 599
Deferred revenue........................ 3,068 1,168 4,236
Deferred income taxes................... 665 -- 665
Accrued merger-related expenses......... -- -- 10,800
------- ------- --------
Total current liabilities............. 14,400 4,757 29,957
Long-term debt........................... -- 1,344 1,344
Mandatorily redeemable convertible
preferred stock......................... -- 10,995 --
Stockholders' equity:
Common stock............................ 53,715 140 67,050
Retained earnings (deficit)............. 10,716 (12,316) (14,600)
------- ------- --------
Total stockholders' equity............ 64,431 (12,176) 52,450
------- ------- --------
Total liabilities and stockholders'
equity............................... $78,831 $ 4,920 $ 83,751
======= ======= ========
</TABLE>
See accompanying notes to unaudited pro forma condensed combined financial
statements.
3
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED
FINANCIAL STATEMENTS
NOTE 1. BASIS OF PRESENTATION
The unaudited pro forma condensed combined statements of operations combine
the historical statements of operations of Access Health for the years ended
September 30, 1994, 1995 and 1996 with the historical statements of operations
of Informed Access for the years ended December 31, 1994, December 31, 1995
and September 30, 1996, respectively.
No adjustments have been made in these pro forma financial statements to
conform the accounting policies of the combining companies. The nature and
extent of such adjustments, if any, are not expected to be significant.
NOTE 2. PRO FORMA NET INCOME (LOSS) PER SHARE
The number of Access Health common shares issued in exchange for the
outstanding shares of Informed Access Capital Stock was based on the final
exchange ratio. The final exchange ratio of .80685 was used in preparing the
pro forma combined financial data and the following table which provides the
pro forma number of shares issued in connection with the Merger:
<TABLE>
<S> <C>
Informed Access Common Stock and Preferred Stock outstanding as
of September 30, 1996......................................... 5,767,186
Common exchange ratio.......................................... .80685
----------
Number of Access Health common shares exchanged for Informed
Access stock.................................................. 4,653,254
Total number of Access Health common shares outstanding as of
September 30, 1996............................................ 12,595,824
----------
Number of Access Health common shares outstanding after
completion of the Merger...................................... 17,249,078
==========
</TABLE>
The pro forma combined net income (loss) per share is based on the combined
weighted average number of common and dilutive common equivalent shares of
Access Health and Informed Access and the final Common Stock exchange ratio as
of September 30, 1996 of .80685 shares of Access Health Common Stock for each
outstanding share of Informed Access Capital Stock.
Share and per share information applicable to prior periods for Access
Health have been restated to reflect a three-for-two stock split which was
effective on February 15, 1996. The net loss per share for Informed Access
reflects the conversion of the Informed Access Preferred Stock into Informed
Access Common Stock on an "as if converted" basis from the time of issuance.
NOTE 3. PRO FORMA ADJUSTMENTS
Access Health and Informed Access incurred merger-related expenses of
approximately $13 million, consisting primarily of transaction costs for
financial advisory fees, attorneys, accountants and financial printing and
other one-time charges related to the transaction. Approximately $2.2 million
of the Merger related expenses was paid from escrow to the financial advisors
of Informed Access in the form of 64,500 shares of Access Health Common Stock.
The pro forma condensed combined balance sheet gives effect to such expenses
as if they had been incurred as of September 30, 1996; however, in accordance
with Regulation S-X the pro forma condensed combined statements of operations
do not give effect to such expenses.
The pro forma condensed combined financial statements include pro forma
adjustments to reflect the combined tax liability as if Access Health and
Informed Access had filed consolidated income tax returns. As a result,
combined income tax expense has been reduced by $879,000, $1,527,000, and
$2,403,000 for the years ended September 30, 1994, 1995, and 1996,
respectively.
The pro forma combined balance sheet data gives effect to the automatic
conversion of redeemable Informed Access Preferred Stock into 3,734,151 shares
of Access Health Common Stock based on the final exchange ratio.
4
<PAGE>
(c) Exhibits.
The following exhibits are filed in accordance with Item 601 of Regulation
S-K as part of this Report:
2.1 Agreement and Plan of Reorganization dated as of September 3, 1996,
entered into by and among Access Health, Inc., a Delaware corporation,
Informed Access Systems, Inc., a Delaware corporation, and Access
Acquisition Corp., a Delaware corporation (incorporated by reference to
Annex A to the Prospectus contained in Access Health's Registration
Statement on Form S-4 (File No. 333-13930)).
20.1 Informed Access Systems, Inc. audited financial statements at December
31, 1993, 1994 and 1995 and the unaudited financial statements at
September 30, 1995 and 1996.
23.1 Consent of Arthur Andersen LLP, Independent Public Accountants.
5
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this amendment to the Current Report on Form 8-K/A
to be signed on its behalf by the undersigned hereunto duly authorized.
ACCESS HEALTH, INC.
/s/ Julie A. Brooks
By: _________________________________
Name: Julie A. Brooks
Title: Senior Vice President and
General Counsel
Dated: January 31, 1997
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
PAGE
EXHIBIT DESCRIPTION NUMBER
------- ------------------------------------------------------------- ------
<C> <S> <C>
2.1 Access Health, Inc. Agreement and Plan of Reorganization
dated as of September 3, 1996, entered into by and among
Access Health, Inc., a Delaware corporation, Informed Access
Systems, Inc., a Delaware corporation, and Access Acquisition
Corp., a Delaware corporation (incorporated by reference to
Annex A to the Prospectus contained in Access Health's
Registration Statement on Form S-4 (File No. 333-13930)).
20.1 Informed Access Systems, Inc. audited financial statements at
December 31, 1993, 1994 and 1995 and the unaudited financial
statements at September 30, 1995 and 1996.................... 9
23.1 Consent of Arthur Andersen LLP, Independent Public
Accountants.................................................. 27
</TABLE>
<PAGE>
EXHIBIT 20.1
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
INFORMED ACCESS SYSTEMS, INC.
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Arthur Andersen LLP, Independent Auditors........................ 1
Consolidated Balance Sheets at December 31, 1994 and 1995 (audited) and
September 30, 1996 (unaudited)............................................ 2
Consolidated Statements of Operations for the years ended December 31,
1993, 1994, and 1995 (audited) and the nine months ended September 30,
1995 and 1996 (unaudited)................................................. 4
Consolidated Statements of Mandatorily Redeemable Convertible Preferred
Stock and Stockholders' Equity (Deficit) for the years ended December 31,
1993, 1994, and 1995 (audited) and the nine months ended September 30,
1996 (unaudited).......................................................... 5
Consolidated Statements of Cash Flows for the years ended December 31,
1993, 1994, and 1995 (audited) and the nine months ended September 30,
1995 and 1996 (unaudited)................................................. 6
Notes to Consolidated Financial Statements................................. 8
</TABLE>
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Informed Access Systems, Inc.:
We have audited the accompanying consolidated balance sheets of INFORMED
ACCESS SYSTEMS, INC. (a Delaware corporation) and subsidiary as of December
31, 1994 and 1995, and the related consolidated statements of operations,
mandatorily redeemable convertible preferred stock and stockholders' deficit
and cash flows for each of the three years ended December 31, 1995. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Informed Access Systems,
Inc. and subsidiary as of December 31, 1994 and 1995, and the results of their
operations and their cash flows for each of the three years ended December 31,
1995, in conformity with generally accepted accounting principles.
Arthur Andersen llp
Denver, Colorado,
March 12, 1996
1
<PAGE>
INFORMED ACCESS SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------- SEPTEMBER 30,
1994 1995 1996
---------- ---------- -------------
(UNAUDITED)
<S> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents.......... $1,036,717 $3,246,102 $ 656,884
Accounts receivable, net of
allowance for doubtful accounts of
$0, $32,002 and $50,735 at
December 31, 1994 and 1995 and
September 30, 1996, respectively.. 24,000 753,641 1,813,269
Related party receivables.......... 4,688 23,395 81,276
Prepaids........................... 47,006 37,565 212,570
Other.............................. 27,006 31,392 20,972
---------- ---------- ----------
Total current assets............. 1,139,417 4,092,095 2,784,971
---------- ---------- ----------
PROPERTY AND EQUIPMENT, at cost:
Computer hardware and software..... 490,262 848,236 1,781,308
Furniture, fixtures and equipment.. 176,586 482,973 858,459
Leasehold improvements............. -- 38,738 177,959
---------- ---------- ----------
666,848 1,369,947 2,817,726
Less--Accumulated depreciation..... (123,250) (406,953) (813,904)
---------- ---------- ----------
Property and equipment, net...... 543,598 962,994 2,003,822
PATENT COSTS AND OTHER INTANGIBLE
ASSETS,
net of accumulated amortization of
$0, $1,342 and $8,782 at
December 31, 1994 and 1995 and
September 30, 1996, respectively.... -- 124,730 43,909
OTHER................................ -- -- 87,205
---------- ---------- ----------
Total assets..................... $1,683,015 $5,179,819 $4,919,907
========== ========== ==========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these balance sheets.
2
<PAGE>
INFORMED ACCESS SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
DECEMBER 31, PRO FORMA
------------------------ SEPTEMBER 30, SEPTEMBER 30,
1994 1995 1996 1996
----------- ----------- ------------- -------------
(UNAUDITED) (UNAUDITED)
(NOTE 2)
<S> <C> <C> <C> <C>
CURRENT LIABILITIES:
Accounts payable....... $ 152,390 $ 502,945 $ 775,318
Accrued salaries....... 71,251 118,933 228,223
Accrued vacation....... 33,594 92,164 210,154
Other accrued
liabilities........... 13,009 188,977 276,604
Customer deposits...... 50,000 70,000 217,214
Deferred revenue....... 65,334 508,990 950,655
Convertible notes
payable to
stockholders.......... 1,000,000 -- --
Notes payable to
founders.............. -- -- 1,500,000
Note payable--other.... 32,128 -- --
Current portion of
capital leases
payable............... 15,239 56,011 419,096
Current portion of long
term note............. -- -- 180,053
----------- ----------- ------------
Total current
liabilities......... 1,432,945 1,538,020 4,757,317
CAPITAL LEASES PAYABLE... 35,450 133,352 932,611
NOTES PAYABLE............ -- -- 410,806
COMMITMENTS AND
CONTINGENCIES
(Notes 8 and 11)
MANDATORILY REDEEMABLE
CONVERTIBLE PREFERRED
STOCK, $.001 par value,
aggregate liquidation
and redemption
preference of $3,635,368
at December 31, 1994,
$10,635,423 at December
31, 1995 and $10,995,423
at September 30, 1996;
4,783,040 authorized;
3,048,688, 4,568,061 and
4,628,061 issued and
outstanding as of
December 31, 1994 and
1995 and September 30,
1996, respectively, and
none issued and
outstanding on an
unaudited pro forma
basis .................. 3,635,368 10,635,423 10,995,423 --
STOCKHOLDERS' EQUITY
(DEFICIT):
Common stock, $.001 par
value; 6,892,165
shares authorized;
909,375, 1,121,875 and
1,139,125 shares
issued and outstanding
at December 31, 1994
and 1995 and September
30, 1996,
respectively, and
5,767,186 on an
unaudited pro forma
basis................. 909 1,122 1,139 5,767
Additional paid-in
capital............... 14,041 94,138 581,647 11,572,442
Deferred stock
compensation.......... -- -- (443,286) (443,286)
Accumulated deficit.... (3,435,698) (7,222,236) (12,315,750) (12,315,750)
----------- ----------- ------------ ------------
Total stockholders'
equity (deficit).... (3,420,748) (7,126,976) (12,176,250) (1,180,827)
----------- ----------- ------------ ------------
Total liabilities and
stockholders' equity
(deficit)........... $ 1,683,015 $ 5,179,819 $ 4,919,907 $ 4,919,907
=========== =========== ============ ============
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these balance sheets.
3
<PAGE>
INFORMED ACCESS SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED
FOR THE YEAR ENDED DECEMBER 31, SEPTEMBER 30,
----------------------------------- --------------------------
1993 1994 1995 1995 1996
--------- ----------- ----------- ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUE:
License and license
site
implementation fees.. $ 46,586 $ 125,086 $ 1,011,743 $ 700,208 $ 1,007,806
Call center and client
implementation fees.. -- -- 1,379,542 639,959 4,787,670
Communications and
other fees........... -- -- 565,511 165,072 1,420,970
--------- ----------- ----------- ------------ ------------
46,586 125,086 2,956,796 1,505,239 7,216,446
--------- ----------- ----------- ------------ ------------
COST OF SALES:
License and license
site
implementation fees.. -- 95,781 708,450 236,509 441,057
Call center and client
implementation fees.. -- -- 1,664,409 728,519 3,535,460
Communications and
other fees........... -- -- 400,275 129,962 1,070,113
--------- ----------- ----------- ------------ ------------
-- 95,781 2,773,134 1,094,990 5,046,630
--------- ----------- ----------- ------------ ------------
GROSS PROFIT............ 46,586 29,305 183,662 410,249 2,169,816
--------- ----------- ----------- ------------ ------------
OPERATING EXPENSES:
General and
administrative....... 45,268 596,222 1,001,681 662,458 1,708,236
Bonuses to founders... -- -- -- -- 1,500,000
Selling and
marketing............ 66,107 728,927 1,640,253 1,401,342 1,943,797
Research and
development.......... 875,585 1,122,830 1,459,802 1,304,739 2,068,081
--------- ----------- ----------- ------------ ------------
Loss from
operations......... (940,374) (2,418,674) (3,918,074) (2,958,290) (5,050,298)
OTHER INCOME (EXPENSE):
Interest income....... 28,283 42,387 204,552 159,218 81,015
Interest expense
(including $0,
$3,287, $16,658,
$16,658
and $0, respectively,
to related parties).. -- (4,335) (26,401) (22,357) (135,927)
Other income
(expense), net....... -- (618) (4,904) (8,194) 11,696
--------- ----------- ----------- ------------ ------------
NET LOSS................ $(912,091) $(2,381,240) $(3,744,827) $ (2,829,623) $ (5,093,514)
========= =========== =========== ============ ============
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements.
4
<PAGE>
INFORMED ACCESS SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF MANDATORILY REDEEMABLE CONVERTIBLE PREFERRED STOCK
AND STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
STOCKHOLDERS' DEFICIT
--------------------------------------------------------
MANDATORILY
REDEEMABLE
CONVERTIBLE
PREFERRED STOCK COMMON STOCK ADDITIONAL DEFERRED
------------------------ ----------------- PAID-IN STOCK ACCUMULATED
SHARES AMOUNT SHARES AMOUNT CAPITAL COMPENSATION DEFICIT
---------- ------------ --------- ------ ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCES, December 31,
1992................... -- $ -- 446,875 $ 447 $ 563 $ -- $ (98,915)
Common stock issued on
February 1, 1993 for
cash and exchange of
stock................. -- -- 187,500 187 3 -- --
Series A redeemable
convertible preferred
stock issued in
February 1993 for cash
at $1.00 per share.... 1,635,000 1,635,000 -- -- -- -- --
Mandatorily redeemable
convertible preferred
stock issuance costs.. -- -- -- -- -- -- (26,627)
Common stock granted in
October 1993 to three
officers for services,
valued at $.05 per
share................. -- -- 275,000 275 13,475 -- --
Net loss............... -- -- -- -- -- -- ( 912,091)
---------- ------------ --------- ------ ----------- --------- ------------
BALANCES, December 31,
1993................... 1,635,000 1,635,000 909,375 909 14,041 -- (1,037,633)
Series B mandatorily
redeemable convertible
preferred stock issued
in March 1994 for cash
at $1.42 per share.... 1,413,688 2,000,368 -- -- -- -- --
Mandatorily redeemable
convertible preferred
stock issuance costs.. -- -- -- -- -- -- (16,825)
Net loss............... -- -- -- -- -- -- (2,381,240)
---------- ------------ --------- ------ ----------- --------- ------------
BALANCES, December 31,
1994................... 3,048,688 3,635,368 909,375 909 14,041 -- (3,435,698)
Series C mandatorily
redeemable convertible
preferred stock issued
in March 1995 for cash
of $5,980,110,
conversion of notes
payable of $1,000,000
and accrued interest
of $19,945 at $4.61
per share............. 1,519,373 7,000,055 -- -- -- -- --
Mandatorily redeemable
convertible preferred
stock issuance costs.. -- -- -- -- -- -- (41,711)
Issuance of common
stock for cash upon
exercise of stock
options in March,
October and November
1995 at $0.14 per
share................. -- -- 54,500 55 7,575 -- --
Common stock issued for
acquisition of assets
in November 1995, at
$0.46 per share....... -- -- 50,000 50 22,950 -- --
Issuance of common
stock in consideration
for discharge of
obligation, at $0.46
per share............. -- -- 108,000 108 49,572 -- --
Net loss............... -- -- -- -- -- -- (3,744,827)
---------- ------------ --------- ------ ----------- --------- ------------
BALANCES, December 31,
1995................... 4,568,061 10,635,423 1,121,875 1,122 94,138 -- (7,222,236)
Issuance of common stock
for cash upon exercise
of stock options in
February, April and May
1996 (unaudited)....... -- -- 37,250 37 10,779 -- --
Series C Mandatorily
Redeemable Preferred
Shares sold to
employees in August
1996 (unaudited)....... 60,000 360,000 -- -- -- -- --
Shares repurchased under
the terms of the
acquisition agreement
in August 1996
(unaudited)............ -- -- (20,000) (20) -- -- --
Deferred stock
compensation........... -- -- -- -- 476,730 (476,730) --
Amortization of deferred
stock compensation..... -- -- -- -- -- 33,444 --
Net loss (unaudited).... -- -- -- -- -- -- (5,093,514)
---------- ------------ --------- ------ ----------- --------- ------------
BALANCES, September 30,
1996 (unaudited)....... 4,628,061 10,995,423 1,139,125 1,139 581,647 (443,286) (12,315,750)
Pro Forma Adjustments
(unaudited) (Note 2)... (4,628,061) (10,995,423) 4,628,061 4,628 10,990,795 -- --
---------- ------------ --------- ------ ----------- --------- ------------
Pro Forma BALANCES,
September 30, 1996
(unaudited)............ -- $ -- 5,767,186 $5,767 $11,572,442 $(443,286) $(12,315,750)
========== ============ ========= ====== =========== ========= ============
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements.
5
<PAGE>
INFORMED ACCESS SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE NINE MONTHS
FOR THE YEAR ENDED DECEMBER 31, ENDED SEPTEMBER 30,
----------------------------------- ------------------------
1993 1994 1995 1995 1996
--------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM
OPERATING ACTIVITIES:
Net loss.............. $(912,091) $(2,381,240) $(3,744,827) $(2,829,623) $(5,093,514)
Adjustments to
reconcile net loss to
net cash used in
operating
activities--
Depreciation and
amortization......... 20,332 102,043 289,763 198,951 476,737
Stock compensation.... 13,750 -- -- -- 33,444
Loss on disposal of
equipment............ -- -- 2,997 87 215,033
Provision for doubtful
accounts receivable.. -- -- 32,002 24,000 24,200
Common stock issued in
consideration for
discharge of
obligation........... -- -- 49,680 -- --
Conversion of interest
expense to preferred
stock................ -- -- 16,658 16,658 --
Notes payable issued
for bonuses.......... -- -- -- -- 1,500,000
Change in operating
assets and
liabilities--
(Increase) decrease
in accounts
receivable.......... (35,168) 11,168 (746,361) (570,899) (1,082,894)
Increase in related
party receivables... -- (4,688) (18,707) (30,052) (57,881)
Increase (decrease)
in prepaids and
other............... (10,250) (27,762) 8,379 28,173 (252,257)
Increase in accounts
payable............. 65,542 86,848 345,784 160,743 272,373
Increase in accrued
liabilities......... 34,603 78,440 266,151 99,385 391,275
Increase in deferred
revenue and customer
deposits............ -- 115,334 385,468 109,656 588,879
--------- ----------- ----------- ----------- -----------
Net cash used in
operating
activities......... (823,282) (2,019,857) (3,113,013) (2,792,921) (2,984,605)
--------- ----------- ----------- ----------- -----------
CASH FLOWS FROM
INVESTING ACTIVITIES:
Purchase of property
and equipment........ (161,146) (449,859) (553,533) (571,763) (293,639)
Proceeds from sale of
property and
equipment............ -- -- 16,290 6,765 450
Patent costs.......... -- -- (34,921) -- (17,770)
--------- ----------- ----------- ----------- -----------
Net cash used in
investing
activities......... (161,146) (449,859) (572,164) (564,998) (310,959)
--------- ----------- ----------- ----------- -----------
CASH FLOWS FROM
FINANCING ACTIVITIES:
Proceeds from issuance
of mandatorily
redeemable
convertible preferred
stock................ 1,635,000 2,000,368 5,980,110 5,980,110 360,000
Proceeds from issuance
of common stock...... 190 -- -- -- --
Stock issuance costs.. (26,627) (16,825) (41,711) (41,711) --
Proceeds from
convertible notes
payable to
stockholders......... 30,000 1,000,000 -- -- --
Proceeds from note
payable.............. -- -- -- -- 680,089
Principal payments on
notes payable to
stockholders......... (94,636) (31,556) -- -- --
Principal payments on
note payable--other
and capital leases... -- (5,053) (51,467) (43,367) (344,539)
Payments to repurchase
common stock......... -- -- -- -- (20)
Proceeds from the
exercise of stock
options.............. -- -- 7,630 2,451 10,816
--------- ----------- ----------- ----------- -----------
Net cash provided by
financing
activities......... 1,543,927 2,946,934 5,894,562 5,897,483 706,346
--------- ----------- ----------- ----------- -----------
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements.
6
<PAGE>
INFORMED ACCESS SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE NINE MONTHS
FOR THE YEAR ENDED DECEMBER 31, ENDED SEPTEMBER 30,
------------------------------- -----------------------
1993 1994 1995 1995 1996
--------- ---------- ---------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
NET INCREASE (DECREASE)
IN CASH AND CASH
EQUIVALENTS............ $ 559,499 $ 477,218 $2,209,385 $ 2,539,564 $(2,589,218)
CASH AND CASH
EQUIVALENTS, beginning
of period.............. -- 559,499 1,036,717 1,036,717 3,246,102
--------- ---------- ---------- ----------- -----------
CASH AND CASH
EQUIVALENTS, end of
period................. $ 559,499 $1,036,717 $3,246,102 $ 3,576,281 $ 656,884
========= ========== ========== =========== ===========
SUPPLEMENTAL DISCLOSURE
OF CASH FLOW
INFORMATION:
Cash paid for
interest.............. $ 10,589 $ 1,048 $ 9,743 $ 9,743 $ 121,354
========= ========== ========== =========== ===========
SUPPLEMENTAL DISCLOSURE
OF NONCASH INVESTING
AND FINANCING
ACTIVITIES:
Issuance of common
stock to officers for
services.............. $ 13,750 $ -- $ -- $ -- $ --
========= ========== ========== =========== ===========
Telephone equipment
acquired with capital
lease................. $ -- $ 51,870 $ -- $ -- $ --
========= ========== ========== =========== ===========
Financed insurance
premiums.............. $ -- $ 36,000 $ -- -- $ 76,368
========= ========== ========== =========== ===========
Conversion of notes
payable to related
parties to preferred
stock................. $ -- $ -- $1,000,000 -- $ --
========= ========== ========== =========== ===========
Conversion of accrued
interest to preferred
stock................. $ -- $ -- $ 19,945 $ -- $ --
========= ========== ========== =========== ===========
Deferred compensation
recorded related to
the issuance of
options in May and
July 1996............. $ -- $ -- $ -- $ -- $ 476,730
========= ========== ========== =========== ===========
Equipment acquired with
capital lease......... $ -- $ -- $ 158,013 $ -- $ 1,341,284
========= ========== ========== =========== ===========
In November 1995, the
Company acquired
certain assets in
exchange for the
assumption of certain
liabilities and the
issuance of 50,000
shares of the
Company's common
stock, valued at
$23,000. The
allocation of the
purchase price to the
assets acquired and
liabilities assumed
(at their fair market
value) is as follows--
Accounts receivable.... $ 15,282
Prepaid expenses and
other................. 3,324
Property and
equipment............. 15,558
Intangibles............ 91,151
Accounts payable....... (4,771)
Accrued liabilities.... (19,356)
Other obligations
assumed............... (78,188)
----------
Issuance of stock to
seller................ $ 23,000
==========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements.
7
<PAGE>
INFORMED ACCESS SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF SEPTEMBER 30, 1996, AND FOR THE NINE MONTHS
ENDED SEPTEMBER 30, 1996 IS UNAUDITED)
(1) ORGANIZATION AND BUSINESS
Organization
Informed Access Systems, Inc., a Delaware corporation, was formed on
February 2, 1993 to develop software-based solutions for managing health care
resources, and is a successor corporation to a Texas corporation of the same
name formed on March 30, 1992. In connection with the formation of the
Delaware corporation, the shareholders of the Texas corporation exchanged all
of their stock for stock in the Delaware corporation. Accordingly, the
accompanying consolidated financial statements include the accounts of
Informed Access Systems, Inc. and its wholly owned subsidiary, (collectively,
the "Company"), on a consolidated basis from the inception of the Texas
corporation. All significant intercompany transactions have been eliminated in
the accompanying consolidated financial statements.
Business
The Company is currently developing and marketing innovative information
management services and products designed to manage demand for medical
services and, as a result, reduce medical expenses for its customers (HMO's,
insurance carriers, medical groups, etc.). The Company emerged from the
development stage in the first quarter of 1995.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cash Equivalents
For purposes of reporting cash flows, the Company considers all highly
liquid investments with original maturities of ninety days or less to be cash
equivalents.
Property and Equipment
Property and equipment are stated at cost. Depreciation of property and
equipment is computed on a straight-line basis over the estimated useful lives
of three to five years for computer hardware and software, and five to seven
years for furniture, fixtures and equipment. Leasehold improvements are
capitalized and amortized over the shorter of the lease term or their
estimated useful life.
Revenue Recognition
The Company generates revenue from call center fees, licenses of its
software products, implementation services, and communication products. The
Company recognizes revenue as follows:
. Call Center--The Company generally charges its customers a per member per
month fee based on the customers' utilization of the Company's call center.
The Company recognizes call center revenue when earned.
. License Fees--The Company charges its customers a license fee for the use of
certain products and support in its customers' call centers. The Company
recognizes revenue ratably over the term of the contract starting from the
date that the software product is delivered to and accepted by the customer,
and it is determined that no significant Company obligations remain.
. Implementation Services--The Company charges its call center and license
customers an implementation fee for system set-up, installation, limited
product modifications and training services. The Company recognizes revenue
as these services are performed.
8
<PAGE>
INFORMED ACCESS SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1996, AND FOR THE NINE MONTHS
ENDED SEPTEMBER 30, 1996 IS UNAUDITED)
. Communications Fees--The Company charges its customers a fee for developing,
printing and mailing customized brochures to its customers' members. These
brochures describe the Company's services. The Company recognizes revenue in
the period the Company has completed its obligations to its customers and
the printed materials are available for shipment to the customers' members.
Research and Development
Research and development costs are expensed as incurred and consist
primarily of salaries, travel, supplies and contract services related to the
development of the Company's products and services.
Patents
The Company capitalizes direct, external costs associated with patent
applications and filings. Capitalized costs will be written off at such time
it becomes known that an application will not be successful or when a
particular patent is deemed to no longer be of value. Costs associated with
successful applications are amortized using the straight-line method over five
years beginning with the date of issue.
Interim Results (Unaudited)
The accompanying balance sheet as of September 30, 1996, and the statements
of operations and cash flows for the nine months ended September 30, 1995 and
1996, and the statements of stockholders' equity (deficit) for the nine months
ended September 30, 1996 are unaudited. In the opinion of management, the
statements have been prepared on the same basis as the audited financial
statements and include all adjustments, consisting only of normal recurring
adjustments, necessary for the fair statement of the results of the interim
periods. Operating results for the nine months ended September 30, 1996 are
not necessarily indicative of the results that may be expected for the year
ending December 31, 1996.
Concentration of Credit Risk
The Company has no significant off balance-sheet concentrations of credit
risk such as foreign exchange contracts, options contracts or other foreign
hedging arrangements. The Company maintains the majority of its cash with
financial institutions, in the form of demand deposits.
The Company performs ongoing evaluations of its customers' financial
condition and generally does not require collateral. Its accounts receivable
balances are primarily domestic and are concentrated among institutions within
the health care and insurance industries. (See Note 10).
Intangibles
The excess of consideration paid and liabilities assumed over identifiable
assets acquired (intangibles) of $91,151 is being amortized using the
straight-line method over three years. The Company reviews its recorded
intangibles for impairment whenever events or changes in circumstances
indicate that the carrying amount of intangibles may not be recovered and
provides currently for any indicated impairment.
In September 1996, the Company determined that goodwill related to the
acquisition of Bacharach Systems, Inc. had become impaired due to the
Company's decision to discontinue support of Bacharach Systems products and
services. Accordingly, an impairment write-off of approximately $72,000 was
recorded in September 1996 to fully write-off this asset.
9
<PAGE>
INFORMED ACCESS SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1996, AND FOR THE NINE MONTHS
ENDED SEPTEMBER 30, 1996 IS UNAUDITED)
Fair Value of Financial Instruments
The Company's financial instruments consist of cash, short-term trade
receivables and payables and capital leases payable. The carrying values of
cash and short-term trade receivables and payables approximate fair value. The
fair value of capital leases payable is estimated based on current rates
available for similar debt with similar maturities and securities, and at
December 31, 1995, approximates the carrying value.
Unaudited Pro Forma Information
Upon completion of the merger (Note 11), all of the mandatorily redeemable
convertible preferred stock outstanding at the closing date was exchanged for
shares of Access Health, Inc.'s common stock at the same ratio as the
Company's common stock. The unaudited pro forma stockholders' equity (deficit)
data as of September 30, 1996, reflects the exchange of outstanding
mandatorily redeemable convertible preferred stock at September 30, 1996 for
4,628,061 shares of common stock.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions. These estimates may affect the reported amounts of assets and
liabilities, disclosure of contingent assets and liabilities at the date of
the financial statements, and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Recently Issued Accounting Standards
In March 1995, the Financial Accounting Standards Board issued SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to be Disposed Of" ("SFAS No. 121"). SFAS No. 121 requires that long-lived
assets and certain identifiable intangibles to be held and used by an entity
be reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable and long-
lived assets and certain identifiable intangibles to be disposed of be
reported at the lower of carrying amount or fair value less cost to sell. SFAS
No. 121 also establishes the procedures for review of recoverability, and
measurement of impairment if necessary, of long-lived assets and certain
identifiable intangibles to be held and used by an entity. The Company will be
required to adopt SFAS No. 121 for its year ended December 31, 1996.
Management believes that the adoption of SFAS No. 121 will not have a material
affect on the Company's reported consolidated financial position and results
of operations.
In October 1995, the Financial Accounting Standards Board issued SFAS No.
123, "Accounting for Stock-Based Compensation" ("SFAS No. 123"). SFAS No. 123
establishes financial accounting and reporting standards for stock-based
compensation, including stock-based employee compensation plans. The Statement
defines a fair value-based method of accounting for an employee stock option
or similar equity instrument. However, it also allows an entity to continue to
measure compensation cost for those plans using the intrinsic value-based
method of accounting prescribed by APB Opinion No. 25, "Accounting for Stock
Issued to Employees" ("APB Opinion No. 25"). Entities electing to remain with
the accounting in APB Opinion No. 25 must make pro forma disclosures of net
income and earnings per share, as if the fair value-based method of accounting
defined in the Statement had been applied. The Company will be required to
adopt SFAS No. 123 for its year ended December 31, 1996. Management believes
that the Company will continue to follow the accounting prescribed by APB
Opinion No. 25 and make the pro forma disclosure as allowed by SFAS No. 123.
10
<PAGE>
INFORMED ACCESS SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1996, AND FOR THE NINE MONTHS
ENDED SEPTEMBER 30, 1996 IS UNAUDITED)
Earnings Per Share
Historical earnings per share data have not been presented by Informed
Access because they are not considered meaningful due to the significant
additional shares of common stock which would be represented by Informed
Access' mandatorily redeemable convertible preferred stock upon their
conversion.
Income Taxes
The Company accounts for income taxes using the provisions of Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS
No. 109"). SFAS No. 109 requires recognition of deferred income tax assets and
liabilities for the expected future income tax consequences, based on enacted
tax laws, of temporary differences between the financial reporting and tax
bases of assets, liabilities and carryforwards. SFAS No. 109 also requires
recognition of deferred tax assets for the expected future effects of all
deductible temporary differences, loss carryforwards and tax credit
carryforwards. Deferred tax assets are then reduced, if deemed necessary, by a
valuation allowance for the amount of any tax benefits which, more likely than
not based on current circumstances, are not expected to be realized (see Note
7).
Reclassifications
Certain reclassifications have been made to prior period balances to conform
with the current year presentation.
(3) MANDATORILY REDEEMABLE CONVERTIBLE PREFERRED STOCK
The Company is authorized to issue 4,783,040 shares of mandatorily
redeemable preferred stock. Under the articles of incorporation, shares of
mandatorily redeemable preferred stock may be issued from time to time in one
or more series with designations, rights, preferences and limitations
established by the Company's board of directors (the "Board of Directors").
Mandatorily redeemable preferred stock outstanding at December 31, 1994 and
1995 and September 30, 1996, is summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31 SEPTEMBER 30,
------------------------------------------ ---------------------
1994 1995 1996
-------------------- --------------------- ---------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
--------- ---------- --------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
Preferred stock, $.001
par value, 4,783,040
shares authorized,
stated at redemption
value:
Series A mandatorily
redeemable convertible
preferred stock,
1,635,000 shares
authorized, entitled
to a preference in
liquidation of
$1,635,000............ 1,635,000 $1,635,000 1,635,000 $ 1,635,000 1,635,000 $ 1,635,000
Series B mandatorily
redeemable convertible
preferred stock,
1,431,356 shares
authorized, entitled
to a preference in
liquidation of
$2,000,368............ 1,413,688 2,000,368 1,413,688 2,000,368 1,413,688 2,000,368
Series C mandatorily
redeemable convertible
preferred stock,
1,716,684 shares
authorized, entitled
to a preference in
liquidation of
$7,000,055............ -- -- 1,519,373 7,000,055 1,579,373 7,360,055
--------- ---------- --------- ----------- --------- -----------
3,048,688 $3,635,368 4,568,061 $10,635,423 4,628,061 $10,995,423
========= ========== ========= =========== ========= ===========
</TABLE>
11
<PAGE>
INFORMED ACCESS SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1996, AND FOR THE NINE MONTHS
ENDED SEPTEMBER 30, 1996 IS UNAUDITED)
On May 31, 1996, the Board of Directors approved the sale of 60,000 shares
of Series C preferred stock to certain employees at $6.00 per share which
shares were issued in August 1996.
Holders of mandatorily redeemable preferred stock are entitled to annual
noncumulative dividends at 10% per share, when and if declared by the Board of
Directors. No distributions may be made to holders of common stock until all
dividends declared on the preferred stock have been paid.
In connection with the Series C mandatorily redeemable convertible preferred
stock offering, the Company amended its Certificate of Incorporation to
provide, retroactive to the inception of the Company, that Series A and B
accrue dividends only when and if declared by the Board of Directors. The
financial statements have been adjusted retroactively to reflect the effect of
the change. No such dividends have been declared. Previously, the Certificate
of Incorporation provided that a 10% per annum dividend accrue whether or not
declared by the Board of Directors.
Effective July 19, 1996, the Company restated its Certificate of
Incorporation. The terms and provisions of the restated certificate with
regard to the Company's mandatorily redeemable convertible preferred stock
have been reflected below.
Each share of mandatorily redeemable preferred stock is convertible, at the
option of the holder, into one share of common stock. The conversion rate is
subject to adjustment in the event the Company issues stock or other
securities at a price below the original issuance price of the mandatorily
redeemable preferred stock. The mandatorily redeemable preferred stock will
automatically be converted into common stock upon completion of a $10 million
or greater firmly underwritten initial public offering meeting certain
conditions, or immediately upon conversion of 60% of all of the shares of
mandatorily redeemable preferred stock.
In the event of liquidation, no distributions may be made to common
stockholders until an amount equal to $1.00, $1.42 and $4.61, plus declared
and unpaid dividends, if any, for each share of Series A, B and C,
respectively, has been distributed. Each holder of shares of common stock will
then be entitled to receive their pro rata share of a pool equal to $.50 per
share for each share of common stock, plus all accrued and unpaid dividends on
common stock, if any. Finally, any remaining assets will be ratably
distributed to holders of preferred and common stock on an as-converted to
common stock basis. Any holder of mandatorily redeemable preferred stock may
require the Company, out of funds legally available, to redeem the mandatorily
redeemable preferred stock on a pro rata basis with any other holders
requesting redemption, at the redemption price of $1.00, $1.42 and $4.61,
respectively, (plus any declared but unpaid dividends) on or after each of the
dates and in accordance with the percentage set forth below:
<TABLE>
<CAPTION>
REDEMPTION DATES PERCENTAGE
---------------- ----------
<S> <C>
On or after February 9:
1999.......................... 25%
2000.......................... 33%
2001.......................... 50%
2002.......................... 100%
</TABLE>
In July 1996, the Company issued a warrant to a customer to purchase 80,000
shares of the Series C mandatorily redeemable preferred stock at $12.50 per
share. The warrant becomes exercisable when (1) the customer waives its right
to terminate its FirstHelp contract in September 1997 and (2) when a minimum
number of members have been enrolled under the FirstHelp contract. The
warrants became exercisable in November 1996, upon negotiation with the
customer to extend the early termination date from twelve months to eighteen
months after contract start.
12
<PAGE>
INFORMED ACCESS SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1996, AND FOR THE NINE MONTHS
ENDED SEPTEMBER 30, 1996 IS UNAUDITED)
(4) STOCKHOLDERS' EQUITY
Common Stock
In November 1995, the Company discharged an obligation related to the
founding of the Company by issuing 108,000 shares of common stock. An amount
equal to $49,680, the fair market value of these shares, has been reflected as
general and administrative expense in the accompanying 1995 statement of
operations.
On October 26, 1993, the Company granted 275,000 shares of common stock to
three officers in consideration for past services to the Company. Compensation
expense of $13,750 has been recorded to reflect the fair market value of this
issuance.
Stock Option Plan
The Company has adopted a stock option plan (the "Plan") to provide
directors, officers, other employees and consultants options to purchase up to
700,000 at December 31, 1995 and 950,000 at September 30, 1996 shares of the
Company's common stock. Under the terms of the Plan, the Board of Directors
may grant either "nonqualified" or "incentive" stock options, as defined by
the Internal Revenue Code and regulations. Under the terms of the Plan, the
purchase price of the shares subject to an incentive stock option will be the
fair market value of the Company's common stock on the date the option is
granted. The purchase price of a nonqualified option will not be less than 85%
of fair market value. If the grantee owns more than 10% of the total combined
voting power or value of all classes of stock on the date of grant, the
purchase price of an incentive stock option shall be at least 110% of the fair
market value at the date of grant and the exercise term will be up to five
years from the date of grant. All other options granted under the Plan are
exercisable up to ten years from the date of grant. All options granted to
date are exercisable up to a five year period.
During May and July 1996 certain options were granted with exercise prices
below the applicable fair market value (as determined by an independent
appraisal) on the date of grant, resulting in deferred stock compensation of
approximately $477,000. The deferred stock compensation will be amortized into
expense ratably over the four year vesting term of the related options. At
September 30, 1996, the unamortized balance of deferred stock compensation was
approximately $443,000.
The activity relating to the Plan is as follows:
<TABLE>
<CAPTION>
NUMBER OF SHARES PER SHARE
---------------------- EXERCISE
NONQUALIFIED INCENTIVE PRICE
------------ --------- ----------
<S> <C> <C> <C>
BALANCES, December 31, 1993 -- -- --
Granted.................................... 10,000 184,000 $.14
------- -------- ----------
BALANCES, December 31, 1994.................. 10,000 184,000 .14
Granted.................................... 7,500 319,300 .14-$ .46
Exercised.................................. (17,500) (37,000) .14
Canceled................................... -- (105,000) .14
------- -------- ----------
BALANCES, December 31, 1995.................. -- 361,300 .14- .46
Granted.................................... 102,500 407,600 .46- 3.00
Exercised.................................. (20,500) (19,750) .14- .46
Canceled................................... (21,000) (80,750) .14- .46
------- -------- ----------
BALANCES, September 30, 1996 (unaudited)..... 61,000 668,400 $.14-$ .46
======= ======== ==========
EXERCISABLE, September 30, 1996.............. 1,875 48,700 $.14-$1.50
======= ======== ==========
</TABLE>
13
<PAGE>
INFORMED ACCESS SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1996, AND FOR THE SIX MONTHS
ENDED SEPTEMBER 30, 1996 IS UNAUDITED)
(5) NOTES PAYABLE, CAPITAL LEASE OBLIGATIONS AND OTHER TRANSACTIONS
During October 1995, the Company entered into a term facility agreement (the
"Agreement") whereby the Company may borrow, in one or more borrowings, an
amount not to exceed $1,500,000 in the aggregate, subject to certain
conditions set forth in the Agreement. This commitment is in the form of a
$680,089 note payable facility, which had not been drawn upon at December 31,
1995, and a $819,911 capital lease facility. At December 31, 1995, cumulative
borrowings under the lease facility totaled $158,013. The Company has granted
a first perfected security interest in certain of its equipment, furniture and
fixtures as collateral to these borrowings. At December 31, 1995, the total
remaining commitment under this agreement was $1,341,987.
The amounts payable under the Agreement at December 31, 1995, bear interest
at 14.48% and are due in varying dates through June 1999, and require monthly
payments of principal and interest totaling $4,300.
In connection with the Agreement, the Company issued a warrant to the
lender. Under the terms of the warrant, the lender may acquire a number of
shares of Series C preferred stock, equal to $131,250 divided by an exercise
price calculated under the terms of the Agreement. The warrant is exercisable
for ten years after the date of issuance or five years after the date of an
initial public offering is completed by the Company, whichever is longer. The
value attributable to this warrant was not material.
During December 1994, the Company entered into a capital lease obligation
for telephone equipment totaling $51,870. As of December 31, 1995, the Company
had remaining obligation totaling $35,480 for this equipment. The net book
value of this equipment at December 31, 1995 is $31,350.
During 1994, the Company entered into a bridge loan with preferred
stockholders. Such notes payable to stockholders totaled $1,000,000 and
accrued interest at 8% per annum. On March 17, 1995, these notes payable and
related accrued interest were converted into shares of Series C Preferred
Stock at $4.61 per share.
During 1994, the Company financed insurance premiums totaling $36,000
through the issuance of short-term financing. Such financing was paid in full
as of August 1995.
During May 1996, the Company entered into an amendment to the agreement to
increase the amount that it may borrow to $2,000,000. At September 30, 1996,
cumulative borrowings under the agreement were $1,543,420. At September 30,
1996, the total remaining commitment under the amended agreement was $124,034.
In connection with the amendment, the Company issued a warrant to the lender
under similar terms as the original agreement. The lender may acquire a number
of shares of Series C Preferred Stock equal to $40,750 divided by an exercise
price calculated under the terms of the agreement.
On September 3, 1996, the Board of Directors approved bonuses totalling $1.5
million payable to four members of management, who are also stockholders, who
have been instrumental in the growth of Informed Access during 1996. The bonus
was paid in the form of promissory notes which are payable in installments in
March 1997 and September 1997. The payment of the notes is not contingent on
the closing of the Merger. Informed Access also approved the payment of
bonuses totalling $200,000, payable to two such individuals to induce them to
stay with Informed Access through March 31, 1997, and a $300,000 bonus payable
to Informed Access's president upon the closing of the Merger in recognition
of his efforts in initiating and negotiating the proposed merger. The Company
recognized a charge of $1.5 million in the September 1996 quarter for the
performance bonus.
14
<PAGE>
INFORMED ACCESS SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1996, AND FOR THE NINE MONTHS
ENDED SEPTEMBER 30, 1996 IS UNAUDITED)
The following is a schedule of future minimum lease payments under capital
leases, together with the present value of net minimum lease payments, as of
December 31, 1995:
<TABLE>
<S> <C>
1996.......................................................... $ 81,235
1997.......................................................... 78,433
1998.......................................................... 57,815
1999.......................................................... 21,236
--------
238,719
Less: amount representing interest and taxes.................. (49,356)
--------
Present value of future minimum lease payments.............. 189,363
Less: current portion......................................... (56,011)
--------
Capital less obligations, long-term......................... $133,352
========
</TABLE>
(6) ACQUISITION
In November 1995, the Company acquired certain assets and assumed certain
liabilities of Bacharach Systems Inc. ("Bacharach"), a software business
located in Texas. This transaction was accounted for using the purchase method
of accounting, and the results of Bacharach's operations have been included
with the Company's since that date. As consideration for the assets
transferred to the Company, the Company assumed certain liabilities as of the
date of the transaction. Additionally, the Company issued 50,000 shares of
stock to this individual, valued at $0.46 per share. The 50,000 shares are in
the form of restricted common stock. This common stock is subject to
repurchase by the Company in certain circumstances, based on the occurrence of
certain events, as follows. In December 1995, the Company's right to
repurchase 10,000 shares terminated upon the Company's acceptance of a
deliverable specified by the Company. The Company's rights as to the remaining
40,000 shares will terminate in equal amounts over the next four years. If the
Company's right to repurchase is exercised, the shares still subject to the
right may be purchased, at the Company's option, for a nominal amount. This
transaction resulted in $91,151 of intangible assets. In August 1996, the
Company exercised its right to repurchase 20,000 shares issued under the
purchase agreement for $20. In September 1996, goodwill resulting from the
acquisition was written down by approximately $72,000 due to the Company's
decision to discontinue supporting Bacharach products and services.
(7) INCOME TAXES
From its inception, the Company has generated losses for both financial
reporting and tax purposes. Accordingly, for income tax return reporting
purposes, the Company may utilize approximately $6,700,000 of net operating
loss carryforwards and approximately $211,000 of research and development tax
credits, which expire at various dates through the year 2010. The Internal
Revenue Code contains provisions which may limit the net operating loss
carryforwards available to be used in any given year if certain events occur,
including significant changes in ownership interests.
The tax benefit of the net operating loss carryforward is approximately
$2,500,000 as of December 31, 1995. This benefit has been fully offset by a
valuation allowance as it does not satisfy the realization criteria set forth
in SFAS No. 109, primarily due to the Company's history of operating losses.
15
<PAGE>
INFORMED ACCESS SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1996, AND FOR THE NINE MONTHS
ENDED SEPTEMBER 30, 1996 IS UNAUDITED)
(8) COMMITMENTS AND CONTINGENCIES
Operating Leases
The Company leases office space for its call center and operations. Total
rent expense for December 31, 1993, 1994 and 1995 and the nine months ended
September 30, 1996 was $70,334, $70,334, $185,950 and $336,931, respectively.
Future minimum lease obligations under these agreements are as follows as of
December 31, 1995:
<TABLE>
<S> <C>
1996............................ $248,502
1997............................ 228,202
1998............................ 226,752
1999............................ 226,752
--------
$930,208
========
</TABLE>
The Company is subject to various claims and business disputes in the
ordinary course of business. Management does not anticipate that the ultimate
outcome of these issues will have a material impact on the Company's financial
position or results of operations.
(9) PROFIT SHARING PLAN
On October 1, 1994, the Company established the Informed Access Systems
Retirement Plan (the "401(k) Plan"). Under the 401(k) Plan's provisions,
eligible employees may contribute an amount up to but not exceeding 20% of
their compensation. The Company can make matching contributions of up to 100%
of an employee's contribution, but will not match employee contributions
beyond 4% of the employee's compensation. As of December 31, 1995 and 1994 and
September 30, 1996, the Company had not committed to make matching
contributions.
(10) SIGNIFICANT CUSTOMERS
Below is a listing of major customers, each of which comprised more than 10%
of revenue:
<TABLE>
<CAPTION>
FOR THE NINE MONTHS
FOR THE YEAR ENDED DECEMBER 31, ENDED SEPTEMBER 30
------------------------------------------------ ----------------------
1993 1994 1995 1996
--------------- --------------- ---------------- ----------------------
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
------- ------- ------- ------- -------- ------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Customer 1.............. $ -- -- $ -- -- $604,539 20% $ -- --
Customer 2.............. -- -- -- -- 403,924 14% -- --
Customer 3.............. -- -- -- -- 286,882 10% -- --
Customer 4.............. -- -- 41,420 33% -- -- -- --
Customer 5.............. 10,000 21% 20,000 16% -- -- -- --
Customer 6.............. -- -- 18,000 14% -- -- -- --
Customer 7.............. 8,611 18% 16,666 13% -- -- -- --
Customer 8.............. -- -- 14,000 11% -- -- -- --
Customer 9.............. 20,000 43% 15,000 12% -- -- -- --
</TABLE>
16
<PAGE>
INFORMED ACCESS SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1996, AND FOR THE NINE MONTHS
ENDED SEPTEMBER 30, 1996 IS UNAUDITED)
(11) SUBSEQUENT EVENTS (UNAUDITED)
On November 18, 1996, Informed Access merged with Access Health, Inc, under
an Agreement and Plan of Reorganization ("Merger Agreement"), and Informed
Access became a wholly owned subsidiary of Access Health, Inc. (the "Merger").
The Merger Agreement provided, among other things, the mode of effecting the
merger and the manner and basis of converting each issued and outstanding
share of capital stock of Informed Access into shares of common stock of
Access Health, Inc. The Merger is a tax-free reorganization within the meaning
of Section 368(a) of the Internal Revenue Code of 1986 and will be accounted
for as a pooling of interests pursuant to Opinion No. 16 of the Accounting
Principles Board.
17
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
report dated March 12, 1996, included in Access Health, Inc.'s Form 8 K/A
dated January 31, 1997. It should be noted that we have not audited any
financial statements of the company subsequent to December 31, 1995 or
performed any audit procedures subsequent to the date of our report.
ARTHUR ANDERSEN LLP
Denver, Colorado
January 31, 1997
