FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the fiscal year ended December 31, 1996
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from to
Commission file number 0-20183
MEDIC COMPUTER SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
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North Carolina 56-1306083
(State or other jurisdiction of incorporation or organization ) (I.R.S. Employer Identification No.)
8601 Six Forks Road, Raleigh, North Carolina 27615
(Address of principal executive offices) (Zip Code)
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Registrant's telephone number, including area code: 919-847-8102
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock ($.01 Par Value)
(Title of class)
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
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.
The aggregate market value of the voting stock held by non-affiliates of
the registrant based upon the closing price of the Common Stock on March 26,
1997, on the NASDAQ National Market System was approximately $385,845,000 as of
such date. Shares of Common Stock held by each officer and director and by each
person who owns 10% or more of the outstanding Common Stock have been excluded
in that such persons may be deemed to be affiliates. This determination of
affiliate status may not be conclusive for other purposes.
As of March 26, 1997, the registrant had outstanding 25,723,004 shares of
Common Stock ($.01 par value).
DOCUMENTS INCORPORATED BY REFERENCE
1. Portions of the Company's Proxy Statement for the 1997 Annual Meeting of
Shareholders are incorporated herein by reference into Part III hereof.
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PART I
ITEM 1. BUSINESS.
Medic develops, markets and supports integrated practice management
systems, clinical information systems, and related services to Managed Care
Organizations (MCOs), Management Services Organizations (MSOs), Integrated
Delivery Networks (IDNs) and physician practices. The Company believes that it
is the nation's leading provider of physician practice management systems, both
in terms of revenues and number of physicians served. The Company's core
product, the +Medic PM System, is designed to manage the financial,
administrative, practice management and clinical requirements of group medical
practices of various sizes, from single physician practices to large healthcare
providers. In 1995, Medic introduced +MEDIC Vision, a suite of applications
designed for large practices and hospital and physician management services
organizations. In addition, the Company has developed and sells clinical
information management system products designed principally to automate the
recording, maintenance and management of patient medical records. The Company
also sells transaction-based electronic data interchange ("EDI") network
solutions, which include electronic patient billing, insurance claims processing
and patient payment posting. The Company also sells hardware, peripherals, a
full range of networking services, training and installation support, forms and
supplies, and software and hardware maintenance services.
INDUSTRY BACKGROUND
The Company estimates that there are more than 570,000 physicians in
private practice and more than 150,000 medical practices in the United States.
The economic pressures and informational demands upon physicians and medical
practices have increased significantly during the past decade. At the same time,
the increased power and decreased cost of computers have made computers an
effective information processing solution for a broader range of medical
practices and healthcare systems. Approximately 87% of physician practices now
use computers or computer related services for at least some of their
information processing requirements.
The demand for more comprehensive and accurate information processing
solutions is expected to continue. Healthcare cost containment efforts have
greatly increased the amount and complexity of required information. At the same
time, increased competition has resulted in a greater focus on demonstrating the
quality of care delivered to patients. Practice management systems help care
provider organizations reduce the costs and improve the quality of delivering
healthcare services by automating patient care and administrative processes,
ensuring timely access to relevant information, streamlining the storage and
retrieval of information and matching patient needs with available resources.
The ongoing pressure to contain healthcare costs is also changing the
structure of healthcare providers and their practice management system
requirements. In the private sector, managed care techniques such as Health
Maintenance Organizations (HMOs) and Preferred Provider Organizations (PPOs)
have become increasingly significant components of the healthcare system. In
addition, the number of third-party payor organizations has increased. At the
same time, federal and state governments, which are estimated to be responsible
for approximately 30% of physician claims for patient charges as a result of
Medicare, Medicaid and other programs, have imposed pricing and reimbursement
regulations. These regulations significantly complicate billing procedures and
increase the amount of patient medical information a practice must maintain.
Furthermore, healthcare payors are increasingly transferring the economic risk
of healthcare delivery to providers by shifting from the traditional
fee-for-service reimbursement model to managed care reimbursement models, such
as payment based on capitation. Under capitation, providers are paid an annual
fixed fee per individual to deliver all healthcare services required by that
individual. This reimbursement model encourages healthcare providers to modify
their emphasis from not only treating illness, but also maintaining wellness.
The expansion in the number of managed care and third-party payor organizations,
as well as additional governmental regulation and the change in reimbursement
models, has greatly increased the complexity of pricing methods, billing
procedures and reimbursement policies impacting medical practices.
Other factors are also increasing the demand for more comprehensive and
accurate information systems. The growing administrative burdens placed on
medical practices have caused physicians to join together in group practices to
share administrative costs and achieve economies of scale. The Company believes
this market consolidation has
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accelerated the trend toward automation because group practices require the
greater efficiency and productivity of an automated system. Not only has there
been a movement toward group practices, but more recently group practices have
been combining to form even larger group practices. In addition, hospitals are
buying and/or managing physician practices and networking them into one common
system. The establishment of Community Health Information Networks (CHINs) and
Integrated Delivery Networks (IDNs) has also helped to stimulate the demand for
comprehensive information systems. The general increase in the size and
complexity of medical practices also has resulted in a greater need for analysis
of data and production of timely management information reports that allow
physicians and other healthcare providers to reach informed conclusions
regarding the quality and appropriateness of various procedures and practices.
Technological advances have made more comprehensive, cost-effective
computer solutions available to physician practices. While early systems
concentrated principally on patient billing and collection activities, current
systems can record and store clinical information, automate the processing of
insurance and third-party payor claims, and integrate the operations of
physician practices with larger healthcare organizations such as hospitals,
MCOs, MSOs and IDNS. The Company believes that these various factors cause
medical practices to seek additional and more comprehensive computer-based
solutions to their information processing needs.
STRATEGY
Medic's objective is to be the leading provider of integrated healthcare
information systems. Medic's products and services are designed to improve the
productivity and efficiency of medical practices and other healthcare providers.
The Company's strategy includes the following key elements:
o PROVIDE SOPHISTICATED, COMPREHENSIVE PRACTICE & CLINICAL MANAGEMENT
SYSTEMS. The Company's strategy is to provide easy-to-use yet
comprehensive medical practice management software that meets the
information processing requirements of substantially all medical
specialties and practices operating in the United States. The +Medic PM
System and +MEDIC Vision systems are designed to manage the financial,
administrative, practice management, managed care and clinical
requirements of medical group practices, hospitals, MSOs and Physician
Hospital Organizations (PHOs). Medic's automated medical records
product, AutoChart, allows physician groups to create, store, and
retrieve medical records through an intuitive graphical interface.
AutoChart features an Informix relational database, automated chart
dictation, electronic prescriptions, an online drug database,
integration with practice management systems through industry standard
interfaces, document imaging technology, business intelligence tools
for reporting and analysis, and point-of-care access via a PC or
wireless portable pen computer. AutoChart helps improve patient care,
increase productivity, reduce costs, and allows for more informed
clinical decision making. Medic also offers EDI Network Solutions
including electronic patient billing, insurance claim processing,
patient payment posting, insurance eligibility verification, reminders
and automated collection processing.
o LEVERAGE EXISTING CUSTOMER BASE. The Company's strategy is to maximize
revenue from its existing customers. In 1996, system upgrades, add-on
software and hardware, software and hardware maintenance, forms and
supplies, and other services sold to existing customers accounted for
approximately 70% of the Company's total net revenue. The Company's
strategy is to generate additional revenues from existing customers by
marketing maintenance and other products and services, including EDI
services, system upgrades and additional software applications.
o EXPAND NATIONAL DIRECT SALES ORGANIZATION. The Company believes a
direct sales organization is the most effective way to market its
products. The Company's strategy is to expand its direct sales
organization to market to a larger number of medical practices,
hospitals, management service organizations and practice management
consultants. The Company has sales representatives concentrating on new
systems sales, existing customer sales and sales to hospitals, MSOs and
other large healthcare providers. In addition, the Company continues to
seek and engage in strategic corporate alliances to deliver enterprise
solutions and networks for emerging integrated healthcare
organizations. See "- -Strategic Alliances".
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o LEVERAGE REFERRAL NETWORK. Management believes that the decision-making
process of physicians to purchase practice management systems is
frequently influenced by recommendations from other physicians and
medical practice management consultants. The Company devotes
significant resources to developing and maintaining relationships with
its existing physician customers and with practice management
consultants. In 1996, the majority of new systems sales were referred
to the Company by existing customers or practice management
consultants.
o EXPAND THROUGH STRATEGIC ACQUISITIONS. The Company believes that, due
to the pressures and demands on healthcare providers and the fragmented
nature of the practice management system industry, there may be
opportunities to increase its customer base and improve its position in
the market through acquisitions of complementary businesses, products,
services and technologies. Medic continued to increase its customer
base by acquiring CompuSystems, Inc. in May 1996 and Computer Business
Systems, Inc. and Home Care Information Systems, Inc. in February 1997.
As part of its business strategy, the Company frequently evaluates
potential acquisitions of additional complementary businesses,
products, services and technologies. Although Medic has acquired
businesses and effectively integrated their operations into the Company
in the past, there can be no assurance that the Company will be able to
continue to identify attractive targets and make successful
acquisitions in the future or that any such acquisitions will be
effectively integrated into the Company's operations.
PRODUCTS AND SERVICES
PRACTICE MANAGEMENT SOLUTIONS
+MEDIC PM SYSTEM
The Company's core product is the +Medic PM System. The +Medic PM System
includes software applications which automate the financial, administrative,
practice management and clinical information requirements of medical group
practices. The +Medic PM System is modular to facilitate the addition of new
applications. The +Medic PM System modules are designed to collect, process,
report and electronically transmit data. The +Medic PM System operates on IBM's
UNIX-based (AIX) RISC System/6000 ("RS/6000"), which meets the needs of
different size practices from the small group practice to the large MSO.
Management believes the +Medic PM System meets the information requirements
of most traditional medical specialties and practices in the United States. The
price of the +Medic PM System depends upon a number of factors, including size
of physician practice and number of system users, and ranges from approximately
$20,000 to over $1,000,000. The +Medic PM System includes a software license,
hardware, installation and training and a limited warranty on hardware and
software through the manufacturer's warranty and 60 days' free maintenance, if
applicable, on hardware and 90 days' free maintenance on software provided by
the Company.
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The +MEDIC PM software includes basic business applications modules as
standard features, as well as advanced applications modules for an additional
fee. These modules include, but are not limited to:
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+MEDIC PM SYSTEM CAPABILITIES
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FINANCIAL APPLICATIONS
Patient Billing.................. Prepares patient statements. Accommodates family billing or individual patient
billing and open item billing.
*FastBill........................ Electronically receives patient billing information from medical practices,
then processes, prints and mails bills and provides billing reports to the
practice.
Insurance Processing............. Processes and prints insurance claims. Coordinates benefits when multiple
insurance carriers are involved. Tracks payment and aging of all claims.
Recognizes date sensitive pricing from up to 900 charge slots.
Refund Processing................ Prints refund checks for all credit balances owed to the patient, insurance
company or guarantor, and automatically posts adjusting entry to patient
account.
Collections...................... Monitors the effectiveness of collection efforts. Standardizes in-house
adjusting entry collection procedures.
*Collection Download............. Creates a sequential file of collection information for submission to a third
party collection agency.
*Electronic Claims Submission.... Electronically submits insurance claims to payor.
*FastClaim....................... Electronically receives insurance claims from medical practices and submits
them, either electronically or on paper, to the appropriate payors for payment.
*Electronic Remittance........... Electronically posts insurance payments to claims.
*ANESTHESIA...................... Recognizes and collects anesthesia specific information such as CRNAs and
start/stop time, prepares claim information accordingly and tracks concurrent
services.
ADMINISTRATIVE APPLICATIONS
Appointment Scheduling........... Automates appointment scheduling. Provides on-line patient cancellation history
and outstanding balances due.
Correspondence................... Integrates word processor with database to allow user to create form and other
types of repetitive correspondence.
*Patient Manifest................ Tracks a patient's movement between departments or sections within a medical
facility.
+*CodeLink....................... Automates the lookup/research functions of selecting CPT-4 and ICD-9 codes. Can
be supplemented by the inclusion of Context codes.
*MPI/MMI......................... Links patient and demographic information between multiple companies in order
to maintain real time information updates.
PRACTICE MANAGEMENT APPLICATIONS
Management Reporting............. Generates reports including aged accounts receivable, aged insurance claims,
physician financial analysis, audit report, receipts analysis, service
analysis, HMO financial and procedure analysis.
Inform Report Generator.......... Generates statistical reports from +MEDIC database in customer-designed formats
for practice management analysis.
Graphic Analysis................. Produces graphs displaying practice management information.
HMO Tracking..................... Tracks HMO charges and analyzes them for profitability to help the practice
monitor treatment patterns.
*Managed Care Module............. Designed to allow practices to track incoming and outgoing referrals, verify
eligibility more efficiently and collect co-pays. Generates reports to allow
practices to analyze profitability.
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+*Companion Report Writer........ Allows customer to design reports needed for management and financial
analysis. Can consolidate information from multiple databases and format
information for importing into other products and allows for user interaction
when processing reports.
*DIAGRAM......................... Collects, displays and reports data related to certain +MEDIC functions.
*AutoPilot....................... Allows customer to automate system functions, such as reports, for execution at
a later time.
CLINICAL APPLICATIONS
Patient Medical History.......... Stores and allows retrieval of patient medical history such as allergies,
current and past diagnoses, medications previously prescribed and chronic
illnesses, disabilities or restrictions.
*Patient Surveillance............ Allows automated treatment plan and tracks patient compliance.
DATA COMMUNICATIONS AND TRANSFERS CAPABILITIES
*Medic HL7 Real-time Bi-directional
Interfaces....................... Support data exchange using the industry standard HL7 interface specification.
Allow practices to send and receive patient demographic, encounter, financial
and appointment information from the third party and Hospital Information
Systems.
*Medic Batch Interface Options.... Support a variety of options for interfacing data in a batch mode. Practice may
optionally send full historical information or daily additions and updates of
patient demographic, encounter, financial and appointment information.
*Medic Terminal Emulation........ Provides access to a host computer at a hospital over an SNA network or
asynchronous dial-up connection. Provides users on the +Medic PM System the
ability to sign on and use the hospital application directly from a +MEDIC
terminal.
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* Available for an additional fee but not as a standard feature in the +Medic PM
System software.
+ A third-party product the Company integrates with the +Medic
PM System software.
Enhancements to the +Medic PM System software completed in 1996 and in the
first quarter of 1997 include Date Sensitive Pricing, Electronic Remittance
enhancements, CodeLink 7.0.1 integration and Companion Report Writer, as
described above. The MPI/MMI module is currently in release.
In addition to its ongoing efforts to upgrade and enhance the existing
+Medic PM System, the Company has developed a new practice management product,
the +MEDIC Vision System.
+MEDIC VISION SYSTEM
To meet the complex information needs of Integrated Delivery Systems
(IDSs), Management Services Organizations (MSOs) and large medical groups, Medic
Computer Systems has developed the +MEDIC Vision System. This powerful suite of
applications, along with Medic's technology, can unite a complicated network of
healthcare providers into a single integrated organization. The +MEDIC Vision
System is designed to work in both managed care and fee-for-service
environments, and allows for effective control and integration of financial,
administrative, managed care and clinical data within the organization and
healthcare community. The +MEDIC Vision System builds on the power of each
individual product through a shared database and internal and external
integration -- providing resources to increase productivity, enhance service
levels, and control and reduce costs. The product runs on the RS/6000 which
permits multiple provider locations and a large physician base allowing for
creation of community-based networks and streamlining the process of
centralizing management information needs. +MEDIC Vision System generally
includes software licensing, hardware, installation and training, integration,
networking, data conversion and a hospital system interface; additionally, we
offer service and maintenance.
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The table below briefly describes the basic features of +MEDIC Vision product
suite of products.
+MEDIC VISION SYSTEM CAPABILITIES
Informix Relational Database....... Provides quick access to data and
greater analysis capability. One
of the leading relational database
management systems, Informix is
also open database compliant
(ODBC), in keeping with Medic's
commitment to open architecture.
4GL Development Environment........ Written in a fourth generation
programming language. Reduces time
and costs associated with updates
and enhancements.
Single Patient Database............ Provides internal integration among
MEDIC Vision products. This
single database is a central
depository for a patient's
demographic, financial, clinical
and managed care information.
Security.......................... Controlled access into the
applications and the database. A
comprehensive and restrictive
security system includes a "view
only" mode which allows users to
query without the ability to edit.
Audit Trails..................... Track data entry at the user level,
automatically logging all changes
made to files. View who made the
change, when the change was made
and review what the entry was prior
to the change.
Standard and Customized External
Links........................... Allow for controlled exchange of
critical information within and
outside the +MEDIC Vision network,
regardless of communications
protocols or host system.
IBM RS/6000 and AIX Operating
System.......................... Utilizes Reduced Instruction Set
Computing (RISC) to provide
enhanced processing speed and
performance capabilities. The
system is expandable in memory,
storage and terminal/printer
counts.
+MEDIC Vision System is a comprehensive healthcare information system. The
fully integrated software applications include:
(Bullet) +MEDIC Vision/PM -- Practice Management Application
(Bullet) +MEDIC Vision/MCO -- Managed Care Organization Application
(Bullet) +MEDIC Vision/IQ -- Business Intelligence Tools
(Bullet) +MEDIC Vision for Windows -- Graphical User Interface
(Bullet) +MEDIC Vision/Link -- Industry Standard Interfaces
(Bullet) +MEDIC GPI -- Global Person Index
(Bullet) EDI Network -- Electronic Data Interchange Network Services
+MEDIC VISION/PM is the foundation of the +MEDIC Vision System and provides a
comprehensive package of patient management, administrative and managed care
applications. +MEDIC Vision/PM is built on the concept of a single patient
database, providing a patient-centered approach to practice management. +MEDIC
Vision/PM integrates with other products in the +MEDIC Vision System, including
+MEDIC Vision/MCO and AutoChart, to provide a single system for efficiency and
convenience, with all data in the same database.
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+MEDIC VISION/PM CAPABILITIES
Customizable Patient
Registration...................... Supports the registration workflow
of each practice. Screens are
presented based on user-defined
parameters and request only the
information specified by the
practice.
Appointment Scheduling............ Allows for scheduling preferences
based on user login. Access is
from multiple points and is
designed for large environments
with multiple departments and
locations. A wait list is also
available.
Patient Accounting................ Integrated billing, insurance
claims, adjustments and collections.
Reporting......................... Through standard reports and
standard SQL, providing a range of
query tools to meet the needs of
both novice and expert users.
Audit Trails...................... Track data entry at the user level,
automatically logging all changes
made to files. View who made the
change, when the change was made
and review what the entry was prior
to the change.
Managed Care...................... Helps track insurance and managed
are requirements to ensure
compliance and reimbursement.
Features include: Insurance
contracts and rules; Capitation
monitoring; Eligibility
notification; and Referral
tracking.
Personal User Profile............ To customize workflow at the
individual user level.
Job Server........................ An automated assistant for
repetitive tasks, such as running
a specified set of reports at a
particular time of day.
Forms Designer.................... To customize the full range of
forms included with +MEDIC
Vision/PM and all other +MEDIC
Vision products.
+MEDIC VISION/MCO is a management application designed specifically for use in a
full or partial risk environment. The real power and benefits are realized when
participating physicians incorporate +MEDIC Vision/PM, AutoChart and other
+MEDIC Vision products into a single system. However, an open, flexible
architecture enables companies with other applications to utilize +MEDIC
Vision/MCO throughout their organization.
+MEDIC VISION/MCO CAPABILITIES
Automated Workflow Management...... Automatically routes referral
requests and claims based on
user-defined parameters. Enables
you to better manage workflow -
directing denied, pending or failed
claims for follow-up or flagging
referral requests for additional
information. Eliminates the paper
chase and the need for additional
data entry.
Benefits Management................ Integrates with +MEDIC Vision/PM
allowing a Single Person Index
containing demographic, insurance
and financial information.
Includes electronic updates, edit
tracking history for member
information, and correspondence
capabilities. Also provides
employer products management.
Referral Management................ Provides a paperless follow-up and
management referral process.
Handles referrals for physicians
using +MEDIC Vision/PM and uses
ANSI X(12) link for referrals
outside the +MEDIC Vision network.
Includes plan-specific rules for
automatic adjudication,
auto-approval capability and
automatic notification to members
as well as requesting and
receiving providers.
Incurred But Not Realized (IBNR)
Calculations........................ Allow estimating the cost of
referrals for services prior to
the actual performance.
Integration with Appointment
Scheduler.......................... Shares files with +MEDIC Vision/PM
to allow users instant access to
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authorization requirements,
provider information, PCP
information, member benefit
limits, insurance product rules
and required co-pay amount.
Management Reporting and
Analysis...................... Includes over 30 standard reports.
Can also use an SQL report writer
or +MEDIC Vision/IQ for ad hoc
reporting.
Claims Processing............. Provides automatic review of
patient eligibility, insurance,
product benefits, limitations and
reimbursement rules. Allows for
user-defined contractual
agreements. Provides for automatic
claim entry and payment to
providers with +MEDIC Vision/PM
and sites outside the +MEDIC
Vision network.
Risk Management/Capitation........ Incorporates user/contract defined
rates as the basis for payment of
capitation to providers (both
Primary Care and specialty).
Features capitation rate tables,
stop loss limits for each plan,
user-defined withholding tables and
check processing
Utilization Management............. Enables tracking and analysis of
referral and claim activity with
an extensive range of sort and
selection criteria.
+MEDIC VISION/IQ is a set of Windows-based tools for data analysis and
reporting. The tool-set includes two business intelligence applications from
Cognos -- PowerPlay,(R) for On-line Analytical Processing and Impromptu,(R) for
interactive database reporting. +MEDIC Vision/IQ also includes customized
DataMaps which allow you to use these powerful tools with the +MEDIC Vision
database.
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+MEDIC VISION/IQ CAPABILITIES
Object-Oriented Architecture... Ensures control, global changes
and administrative consistency.
CognosScript................... For building powerful macros.
Custom applications can be created
using CognosScript(TM) or any
environment that supports OLE
Automation.
Information Catalog............ Insulates users from technical
aspects such as SQL syntax and
cryptic table and field names.
This LAN-based repository of
business knowledge and data-access
rules protects the database from
repeated queries and unnecessary
processing.
InstantReporting............... Makes it easier for users to build
and run reports. Predefined report
templates and headstarts (page and
screen formatting) let users
simply add data to Impromptu.
Standard Reporting............. For creaton and distribution of
standard reports.
Interactive Reporting.......... Unifies querying and reporting in a
single interface. Uses frames as
the basis to build reports quickly
and easily.
PowerCubes..................... Provide analysis capability for
managers. Source data is highly
compressed to create a compact PC
data file, which enables faster
exploration of data.
Easy-to-use Interface.......... To find, view and manipulate data
with the click of a mouse.
Flexibility and Scalability.... To process enterprise data on
server platforms for unmatched
data and resource manageability.
DataMaps...................... Make Cognos tools valuable and
relevant to the +MEDIC Vision
System by providing catalogs for
+MEDIC Vision data.
Training and Assistance....... To learn the Cognos tools and
customize reports.
+MEDIC VISION FOR WINDOWS is an optional graphical interface for +MEDIC
Vision/PM. Developed for Windows 95 and Windows NT, the interface provides the
ability to customize the front-end of +MEDIC Vision/PM to meet practice
procedures requirements. The interface is based on a workflow concept which
allows assignment of specific application activities and workbooks.
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+MEDIC VISION FOR WINDOWS CAPABILITIES
Activities..................... All the functions of the
application structured in a flat
list. Activities are specific tasks
performed at a practice or
administrative office, such as Book
Patient Appointment, Charge Entry
or Payment Entry. Activities can
also be specific topics of
information that need to be
tracked, such as Patient
Demographics, Immunizations or
Claim History.
Workbook.................... A grouping of select Activities
used to organize a user's workflow.
For example, if a user typically
performs a specific set of
Activities when checking-in a
patient, those Activities would be
assigned to the Check-in Workbook
for easy access and flow.
Pre-Defined Workbooks......... Containing a suggested
framework of Workbook names and
their related Activities for common
workflows. These can be used "as
is," making the initial set-up
easier and more efficient.
Workflow Customization........ Allows definition of a specific
step-by-step sequence for each
business process based on practice
procedures (i.e., new patient
registration, patient check-in,
etc.), by assigning related
Activities to Workbooks.
User Customization............ Provides further refinement, by
allowing the definition of the
Activities in a Workbook on an
individual user basis. (i.e.,
Patient Check-in Workbook can be
defined to not display payment
history to front-desk personnel.)
Security....................... Through controlled access to
information. With customization,
users follow a pre-defined sequence
and are not presented with the
option to access data outside of
their clearance level.
Intuitive Windows Interface..... Provides point-and-click, icons,
check boxes and pull downs for
easy data entry and navigation.
Also features keyboard accelerator
and shortcut keys for users who
prefer keyboard rather than mouse
control.
On-Line Help.................... Includes complete on-line help for
the application with Help Topics,
Index and Find features;
automatically displayed field
level help messages on the status
bar; and context sensitive help
for feature-specific assistance.
+MEDIC VISION/LINK provides industry standard interfaces which enable the
exchange of information with other healthcare information systems. The links are
compliant with HL7, ANSI X(12) and ASTM standards. +MEDIC Vision/Link
facilitates sharing information with hospitals, pharmacies, labs, physicians,
insurers and employers.
+MEDIC VISION/LINK CAPABILITIES
HL7 Bi-directional Demographic
Link.............................. A real time bi-directional
interface of patient demographic
data. The interface supports
optional data for employers,
responsible parties, primary
patient insurance and patient
diagnosis.
HL7 Bi-directional Charge/Payments
Link.............................. A real-time bi-directional
interface of patient financial and
encounter data. Typically used for
inloads of charge data from lab and
radiology systems.
HL7 Appointment Scheduler Link..... A real-time bi-directional
interface of appointment scheduling
data. Also includes a Batch
Outbound Appointment Scheduling
Link, a one-way batch interface out
of Vision, which allows for the
creation of batch files listing
future appointments. (The one-way
batch link is also available
separately.)
ANSI X(12) Eligibility/Membership
Link............................... A real-time bi-directional
interface which exchanges member,
insurance coverage dates, insurance
plan limits, procedure level
eligibility and primary care
physician information. (Includes
BATCH
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Eligibility/Membership link.)
ANSI X(12) BATCH
Eligibility/Membership Link....... A batch inload of eligibility
information from an Employer or
Insurance payer.
ANSI X(12) Referral Link........... A real-time bi-directional
interface which processes incoming
and outgoing referrals with a
pre-determined sequence of
approval status. This supports
pre-certification of outgoing
referral patients and allows for
the import of incoming patient
referrals.
ANSI X(12) Batch Referral Link...... A batch interface of outgoing
referrals by insurance company.
This interface creates a list of
outgoing referrals that are sent to
another system for approval. This
interface also includes incoming
referral requests and approved
referrals from the external system.
+MEDIC GPI is the global or master person index for the entire Integrated
Delivery System (IDS), providing the healthcare community with a repository of
demographic and encounter data for patients, responsible parties, employers,
providers and other "persons." +MEDIC GPI interfaces not only with all +MEDIC
products, but also with other healthcare information systems throughout the IDS;
including hospitals, labs, pharmacies and home health.
+MEDIC GPI CAPABILITIES
Interface Engine Independence...... Although the GPI requires an
interface engine be used for
extended translation capabilities
and message routing, the GPI is
not dependent on the functions of
any specific interface engine.
Electronic Data Inload............. A batch inload that allows
participating foreign systems to
populate the GPI with existing
data.
Person Matching Algorithm.......... Ensures persons/patients are not
duplicated within the GPI
database.
Person Identifier Table............. Maintains the identifier and
usage for each person for each
foreign system.
Industry Standard HL7 Interface..... For all data exchanges.
Extended Code and Mapping
Tables.............................. Are provided within the GPI,
placing minimal requirements on
participating foreign systems.
Lookup Function..................... Standard HL7 queries to the GPI
which allow foreign systems to
retrieve lists of patients
matching selected criteria and/or
detailed demographic and encounter
information.
Add/Update Function................. Allows adding to or updating the
GPI through the GPI File
Maintenance function, or
real-time, or via HL7 with either
a batch download or the File
Maintenance function on a foreign
system.
Broadcasting of Updates............. From the GPI to
foreign systems. This is an
optional feature, and the method of
broadcast is configurable by the
GPI administrator on a
system-by-system basis.
Accessibility...................... Can access the GPI through a
foreign system or directly through
a separate Windows GUI application
which provides access to GPI data
and functionality.
Scalability........................ With three-tier client/server
architecture for application
partitioning across multiple
application servers to handle high
transaction volume. Informix
database accommodates large
healthcare communities.
Transaction Logs................... To record and track
inbound and outbound transactions.
As data is received, it is placed
in the logs sequentially and
processed accordingly. Transactions
can be flagged to prioritize
requests.
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OTHER PRACTICE MANAGEMENT SOLUTIONS
The Flexible Package is the principal product acquired in the acquisition
of Elcomp and runs primarily on the RS/6000 under AIX.
Excalibur Practice Management System ("Excalibur") is the primary product
acquired in the acquisition of Execu-Flow. Excalibur runs on Intel Pentium
Servers under SCO-UNIX and XENIX operating systems.
BASEMED is the principal product acquired in the acquisition of Compudata
and runs on Intel Pentium System PCs under SCO-UNIX.
MED-1 is the primary product acquired in the acquisition of National
Medical. MED-1 is DOS-based and runs on Intel Pentium PCs.
Script, the practice management product acquired from Infomed, runs on
RS/6000 and Intel Pentium Servers under SCO-UNIX.
CS Med is the practice management product acquired from CompuSystems,
runs on Intel Pentium PCs under Novell Netware.
The Company also offers EZ-Cap, a managed care information system designed
by Fred Rothenberg & Associates. EZ-Cap is a PC/network-based software product
consisting of eight modules that can be sold separately. Modules include
applications for eligibility and benefit plan management, electronic download of
eligibility information from an HMO, referral tracking, claims adjudication,
report writer, capitation, electronic claim inload and electronic referral
inload.
CLINICAL SOLUTIONS
The Company has developed and sells clinical information management system
products to address specific needs of medical group practices and other
healthcare providers. These clinical information management system products can
be integrated with the Company's practice management system products to enhance
the capabilities of those practice management system products. The Company's
clinical information management system products include AutoChart, AutoImage and
FasTracker.
AUTOCHART is a computer-based, patient record system that reduces the time
needed to create, store and retrieve patient medical records. This point-of-care
(POC) product runs on a PC or on a wireless portable pen unit, capturing the
clinical data for the +MEDIC Vision database which resides on the system server.
AUTOCHART CAPABILITIES
Problem-Oriented Summary........... Allows for access, review and
print sections from a patient
record, highlight current problem
list, current medications, test
results, allergies, vital signs,
recent chart notes, special chart
entries, hospital admission /
discharge data and other pertinent
information.
Automated Chart Dictation........... Utilizes templates and glossaries
that enable physicians to point and
click to document 80-95% of a
typical visit with pre-defined
text, creating a comprehensive
medical record while reducing
documentation time.
Automated Correspondence............ Inserts patient demographic data
and medical notes from the
patient's chart into standard
letter templates. Letters can be
printed for mail, faxed or
transmitted electronically.
Automated Prescriptions............. Allows for automatic printing and
faxing of prescriptions.
Automated Drug Information.......... Through Medi-Span Electronic Drug
File. Provides information on
approximately 87,000 variations of
medications. Allows for drug-drug,
drug-food and drug-allergy
interactions checks. Shows
contra-indications based on disease
state, duplicate therapy and
inappropriate dosage.
+MEDICLab........................... Optional clinical laboratory
interface software which
substantially reduces the time
spent on daily lab activities by
automating lab requisition and
results recording into AutoChart.
Internal Integration................ Shares a common patient record
with +MEDIC Vision/PM and +MEDIC
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Vision/MCO.
External Integration................ Uses batch download and file-server
interfaces to integrate with sites
using other practice management
systems.
Powerful Reporting Capability....... With +MEDIC Vision/IQ.
Radio Frequency Portable Pen
Unit................................ Provides a mobile point of
care system, with built-in
transmitter that provides wireless
communications anywhere in the
practice.
AUTOIMAGE is a computerized document management system which scans paper
documents into electronic files for storage, indexing and retrieval. When used
with the AutoChart patient record system, AutoImage allows the linkage of a
scanned document to a patient's electronic chart record.
AUTOIMAGE CAPABILITIES
Bar-code Recognition................ Supports recognition of one and two
dimensional bar-codes, and can
recognize over 2,000 characters per
bar-code.
OCR Scanning Software............... For document indexing. Allows
set-up of templates for automatic
extraction of key information for
documents that share a similar
format.
Scanner..............................Supports Simplex and Duplex; Video
and SCSI scanners.
Fax..................................Supports both inbound and outbound
fax transmission.
Scan Rates...........................Supports up to 40 pages per
minutes. Scans singly or in batch
mode.
Standard Image Support...............Includes TIFF, PCX, DCX and JPEG
file formats.
New enhancements to AutoChart include Work Flow, Order Entry and Preventive
Health Maintenance. Work Flow features a Provider Information Manager (PIM) that
allows users to track daily schedules, To Do lists, messages, and clinical
information such as x-rays and lab results. Order entry allows users to
electronically generate and print orders (lab, x-ray, etc.) in a standard
format. Preventative Health Maintenance provides caretakers the ability to
monitor patients and administer care based on clinical preventive service
guidelines established by the U. S. Preventive Services Task Force (USPSTF).
EDI NETWORK SOLUTIONS
CURRENT EDI SOLUTIONS
Medic has developed software allowing it to offer transaction-based EDI
network solutions, including electronic patient billing, insurance claim
processing and patient payment posting. These services address the needs of
patients, physicians and third-party payors to increase efficiency and reduce
overall costs. In 1996, revenues from EDI services accounted for almost 19% of
Medic's total net revenues. The Company provides EDI solutions to customers for
a transaction-based fee and/or monthly flat fees. The Company's EDI services are
processed through its computer network based in Austin, Texas. The Company
outsources to third parties certain non-proprietary portions of its EDI
services, such as printing bills and providing lockbox services.
Current EDI services include:
<TABLE>
<CAPTION>
EDI SERVICES CAPABILITIES
<S> <C>
FastClaim........................ Electronically receives insurance claims from medical
practices and submits them, either electronically or on
paper, to the appropriate payors for payment.
FastBill......................... Electronically receives patient billing information from
medical practices, then processes, prints and mails bills
and provides billing reports to the practice.
FastCollect...................... Electronically processes a variety
of professionally written
collection memos and letters, all
of which meet the necessary legal
requirements. Documents
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<PAGE>
are transmitted through the EDI network,
printed and mailed first-class within 24 hours.
FastReceipt...................... Receives patient payments, records them and places a
record in the medical practice's electronic mailbox for
retrieval. Automatically posts payments to the practice
upon its retrieval of the record.
</TABLE>
NEW EDI SOLUTIONS
New EDI products anticipated in 1997 include: FastEligibility, which is
designed to allow the verification of patient eligibility for insurance benefits
directly from our practice management application; FastReminder, an automated
patient medical appointment reminder; FastScript, designed to allow electronic
processing of patient prescriptions from within Medic applications directly to
participating pharmacies; and FastRemit, designed to collect insurance
explanation of benefits reports electronically, giving the medical practice the
ability to automatically post insurance payments to their patient accounts.
All of these products are currently in beta testing and are expected to be
released in the second or third quarter of 1997.
SUPPORT SERVICES
As of December 31, 1996, the Company had approximately 670 employees
providing hardware and software maintenance, systems installation, training and
support. Support teams assist customers throughout the course of their
relationship with the Company, providing services which include installation
planning, installation, ongoing training and support.
The Company provides software maintenance to approximately 90% of its
customers and hardware maintenance to approximately 74% of its customers under
software and hardware maintenance contracts. These services include software
enhancements, phone support, hardware repair and field support.
The Company's products are installed on hardware and tested by Company
service technicians prior to delivery. On-site installation assistance includes
system design, file builds, planning the equipment environment, site preparation
and training. Company-designed procedures are used to instruct the customer in
data entry. The Company's service technician finalizes the system assembly and
tests the system at the conclusion of the installation.
Two days of comprehensive classroom training are generally included in
the training package for an average +Medic PM System. Training is available at
20 centers across the country. In addition to the classroom training, five or
more days of on-site training are provided in connection with the purchase of
the +Medic PM System. Advanced seminars and one-day review classes are also
offered. Follow-up seminars provide additional training on the +Medic PM System
and update the user on software enhancements. Medic offers an extensive
curriculum to help all levels of +MEDIC Vision users become more proficient
and productive. Courses range from a basic introduction to customized advanced
technical training. Medic also offers "Train the Trainer" workshops to give the
MIS and training team the knowledge and skills needed to conduct +MEDIC Vision
classes for the organization. The +MEDIC Vision curriculum is offered on-site or
at regional training centers.
The Company believes that support is critical to the successful
installation and ongoing operation of its products and it has dedicated
substantial resources to customer support. The Company's hotline telephone
service is available seven days per week. Hotline service personnel answer
general questions about the system and solve operational difficulties. In-house
technical and research and development staff support the hotline staff on
operational questions which are more complex and require additional technical
expertise. The hotline staff works closely with the Company's field support
technicians to solve customer problems.
HARDWARE AND PERIPHERALS
As part of its product offerings, the Company sells computers, terminals,
printers, modems and other peripherals. Many medical practices require
additional peripherals as their practices grow. The +MEDIC PM and +MEDIC Vision
Systems operate on the RS/6000 which meets the needs of different size practices
from the small group practice to the
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<PAGE>
large MSO. In 1996, Company was IBM's largest RS/6000 healthcare industry
remarketer in the United States and remains an IBM Business Partner. The Company
typically purchases hardware from IBM and other vendors under agreements which
expire annually. These agreements are typically renewed in the ordinary course
of business and the Company has no reason to believe that the agreements will
not be renewed. The agreements contain certain performance provisions which the
Company has in the past met or exceeded. The Company believes that its
relationships with its vendors are good. The Company generally maintains a 30 to
45 day supply of computers, terminals, printers, modems and other peripherals in
order to meet its customer delivery requirements.
SALES AND MARKETING
The Company markets its products to new customers through a direct sales
force consisting, as of December 31, 1996, of 58 sales representatives and six
regional sales vice presidents located throughout the United States. Certain of
these sales representatives concentrate on sales to hospital organizations,
MSOs, MCOs, and IDNs. In addition, another sales group consisting of a customer
sales vice president, 13 territory managers and 12 inside sales representatives
call on existing customers and sell system upgrades and related products and
services. The sales force receives marketing and administrative support from 22
additional employees and a national vice president in marketing and sales.
The Company generates sales through referrals from customers and practice
management consultants, industry seminars, trade shows, direct mail campaigns
and advertisements in trade journals. The Company's direct sales force calls on
potential customers to attempt to bring systems sales to closure. Smaller
systems sales generally involve a sales cycle of 60 to 90 days. Larger systems
sales typically involve a bidding and negotiation process which can extend the
sales cycle from 90 to 180 days or longer. The Company does not provide its
customers with contractual rights to return its products. Standard payment terms
include a 25% down payment with the balance due at delivery of the products to
the customer. However the Company's larger customers, in particular, have
generally been granted extended payment terms to more closely match the time
required by the customer to integrate the +Medic PM System or +MEDIC Vision
System throughout their organization after the installation of the system.
In an effort to maintain close contacts with its customers, the Company
publishes monthly and quarterly newsletters which detail training class
schedules, locations and availability and new product offerings and releases.
The Company also sponsors an annual national users' conference which includes
seminars and training for system users. Medic has established a program in an
effort to help customers better utilize their system through periodic visits and
reviews by senior customer support analysts. While the review is offered at no
fee, the analysis and recommendations of the analyst may result in additional
revenue for the Company when additional products and services are recommended to
help increase the efficiency of the practice. Finally, the Company maintains
contacts with users and practice management consultants by sponsoring a users'
group forum in which medical practice administrators, physicians and medical
practice consultants meet to discuss available technology.
CUSTOMERS
The Company has approximately 10,000 physician practice management systems
installations serving an estimated 50,000 physicians in more than 40 medical
specialties ranging in practice size from one to approximately 350 physicians.
In addition, the Company has over 600 home health care system installations. The
Company markets its products to substantially all major specialties including
family practice, orthopedics, obstetrics and gynecology, internal medicine and
cardiology. The Company believes the +MEDIC PM and +MEDIC Vision Systems and its
other practice management system products provide the flexibility required for
most medical practices from single physician practices to large healthcare
providers. The Company believes that an increasing portion of its sales are
likely to be made to hospitals, MSOs, PHOs and other large healthcare providers;
and certain of its sales representatives concentrate on this market opportunity.
The Company operates predominately in a single market, physician practice
management systems, and would be materially adversely affected by an overall
decline or other material change in this market. Furthermore, during 1996 appro-
ximately 80% of the Company's net revenue was derived from sales of the +MEDIC
and +MEDIC Vision Systems and related products and services. There can be no
assurance that sales levels of the +Medic PM System or +MEDIC Vision System will
increase or be sustained.
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<PAGE>
STRATEGIC ALLIANCES
The Company believes that its sales efforts can be enhanced and leveraged
through collaborative and strategic alliances with other companies providing
optimal, leading-edge applications and technology in and to the healthcare
industry. Medic currently has a preferred vendor agreement with Columbia/HCA,
one of the nation's largest providers of healthcare services, and Tenet
Healthcare Corporation. In addition, Medic has an exclusive preferred vendor
agreement with MedPartners, Inc. Medic is also developing a strategic
relationship with IBM Corporation to deliver enterprise solutions and networks
for community health information systems (CHINS) through IBM's Open Healthcare
Alliance. Medic has also signed a letter of intent with IBM Global Services to
deploy electronic prescription capability between its mutual clients beginning
the second quarter of 1997. Medic has strategic development relationships with
Informix, Cognos, and Microsoft. The Company believes that strategic alliances
represent a new opportunity to reach broader markets and to provide additional
opportunities to sell Company products and services to Integrated Healthcare
Organizations. The above agreements are non-exclusive and no assurances can be
made that sales or services will be forthcoming under any of these agreements.
PRODUCT DEVELOPMENT
As of December 31, 1996, the Company had 170 employees on its product
development team who are responsible for programming and development, new
technology, special projects and quality control. The Company has no material
customer sponsored research and development activities, nor any vendor providing
material development expertise or resources to the Company at this time.
The market for physician practice management systems is characterized by
continual change and improvement in computer hardware and software technology,
as well as in services. The basic software for +Medic PM System, which was first
introduced in 1982, has been upgraded and enhanced on an ongoing basis by the
Company. In addition, to meet the needs of large medical groups, integrated
practices and physician management organizations, in 1995 the Company introduced
a new practice management product, +MEDIC Vision. +MEDIC Vision System is
written in a fourth generation programming language (4GL) and uses an Informix
database.
Although the Company believes that its products and services continue to be
competitive in the marketplace, the Company intends to continue to upgrade and
enhance its products and services. The Company's success will depend upon its
ability to enhance its current products and services, to introduce new products
and services which keep pace with technological and market developments and to
address the increasingly sophisticated needs of its customers. There can be no
assurance that the Company will be successful in developing and marketing, on a
timely basis, product or service enhancements or new products or services that
respond to advances by others, or that its new products or services will
adequately address the needs of, or be accepted by, the market.
COMPETITION
The market for physician practice management systems and services is highly
competitive. The Company believes that the principal competitive factors in this
market are ongoing system service and support, flexibility, price, ease-of-use
and compatibility of the system, the potential for product enhancements,
customer satisfaction, vendor reputation and financial stability. The industry
is fragmented and includes numerous competitors, none of which the Company
believes dominates the overall market for physician practice management systems.
The Company believes its principal competitive advantages are the features and
capabilities of its products and services, the high level of customer support
and its long-term relationships with physician practice management consultants.
The Company's principal competitors include: other physician practice management
companies; software distributors, which sell off-the-shelf programs and
compatible hardware to smaller practices where price competition is a
significant purchase factor; emerging facilities management companies which
offer information systems to healthcare providers; and Hospital Information
System Vendors who are acquiring or developing ambulatory care applications and
solutions. In addition, healthcare cost containment efforts and other
developments in the healthcare market are causing new computer-based systems to
be developed to automate and make more efficient the methods for recording and
paying healthcare claims. Certain claims processing organizations, hospitals,
third-party administrators, insurers and other healthcare organizations now
provide computer and/or electronic data transmission systems, which sometimes
include medical office management software, to physicians which provide a direct
data-link between the physician and the organization. Also, other firms may seek
to establish competitive networks linking physicians electronically with a
17
<PAGE>
variety of healthcare organizations. While the Company believes that no vendor
dominates the overall market for physician practice management systems, certain
of the Company's competitors and potential competitors have greater financial,
development, technical, marketing and sales resources than Medic. In addition,
as the market for the Company's products and services develops, additional
competitors may enter the market and competition may intensify. Though the
Company believes it is competitively positioned in today's market, there can be
no assurance that the Company will be able to compete successfully with its
competitors in the future.
PROPRIETARY RIGHTS AND LICENSES
The Company depends upon a combination of trade secrets, copyright and
trademark laws, license agreements, nondisclosure and other contractual
provisions and technical measures to protect its proprietary rights in its
products. The Company distributes its products under software license agreements
which grant customers a nonexclusive, nontransferable license to the Company's
products and contain terms and conditions prohibiting the unauthorized
reproduction or transfer of the Company's products. In addition, the Company
attempts to protect its trade secrets and other proprietary information through
agreements with employees and consultants. The Company also seeks to protect the
source code of its products as a trade secret and as an unpublished copyright
work. There can be no assurance that these protections will be adequate or that
the Company's competitors will not independently develop technologies that are
substantially equivalent or superior to the Company's technology. The Company
believes that, due to the rapid pace of innovation within the software industry,
factors such as the technological and creative skills of its personnel and
ongoing reliable product maintenance and support are more important in
establishing and maintaining a leadership position within the industry than are
the various legal protections of its technology. In addition, although the
Company believes that its products, trademarks and other proprietary rights do
not infringe upon the proprietary rights of third parties, there can be no
assurance that third parties will not assert infringement claims against the
Company in the future.
The Medic logo and name, AutoChart, AutoChart for Pen, AutoFax,
FastCollect, FastEligibility, FastReceipt, FastReminder, FastRemit, FasTracker,
The Flexible Package, +MEDICLab, +Medic PM System, +MEDIC Vision, BASEMED,
Script and Script System are trademarks; AutoImage, FastClaim, FastBill,
Excalibur Practice Management System and MED-1 are registered trademarks of the
Company. This report also includes trademarks and servicemarks of parties other
than the Company
GOVERNMENT REGULATION
The healthcare industry is subject to changing political, economic and
regulatory influences that may affect the procurement practices and operation of
healthcare facilities. During the past several years, the healthcare industry
has been subject to an increase in governmental regulation of, among other
things, reimbursement rates and certain capital expenditures. Many lawmakers
have announced that they intend to propose programs to reform the U.S.
healthcare system. These programs may contain proposals to increase governmental
involvement in healthcare, lower reimbursement rates and otherwise change the
operating environment for the Company's customers. Healthcare providers may
react to these proposals and the uncertainty surrounding such proposals by
curtailing or deferring investments, including those for the Company's products
and related services. Cost containment measures instituted by healthcare
providers as a result of regulatory reform or otherwise could result in greater
selectivity in the allocation of capital funds. Such selectivity could have an
adverse effect on the Company's ability to sell its products and related
services. The Company cannot predict with any certainty what impact, if any,
such proposals or healthcare reforms might have on its business, financial
condition and results of operations.
PRODUCT LIABILITY
Certain of the Company's products provide applications that relate to
patient medical histories and treatment plans. Any failure by the Company's
products to provide accurate and timely information could result in claims
against the Company. The Company maintains insurance to protect against claims
associated with the use of its products, but there can be no assurance that its
insurance coverage would adequately cover any claim asserted against the
Company. A successful claim brought against the Company in excess of its
insurance coverage could have a material adverse effect on the Company's
business, financial condition and results of operations. Even unsuccessful
claims could result in the Company's expenditure of funds in litigation, as well
as diversion of management time and resources. There can be no assurance that
the Company will not be subject to product liability claims, that such claims
18
<PAGE>
will not result in liability in excess of its insurance coverages or that the
Company's insurance will cover such claims or that appropriate insurance will
continue to be available to the Company in the future at commercially reasonable
rates.
FACTORS AFFECTING OPERATING RESULTS AND STOCK PRICE
The Company's revenues and operating results can vary significantly from
quarter to quarter as a result of a number of factors, including the volume and
timing of systems sales and installations and product deliveries from the
Company's vendors. The recognition of revenue from systems sales is difficult to
forecast because the Company's sales cycle can vary depending upon factors such
as the size of the transaction and general economic conditions. Because a
significant percentage of the Company's expenses are relatively fixed, a
variation in the timing of systems sales can cause significant variations in
operating results from quarter to quarter. Although the Company believes that
systems sales backlog may not be indicative of future results for the following
quarter or any particular period, the Company has historically experienced
material fluctuations in its systems sales backlog. The Company's future
operating results may fluctuate as a result of these and other factors, such as
customer purchasing patterns, the timing of new product introductions and
product upgrade releases.
A substantial number of outstanding shares of Common Stock have become
eligible for future sale in the public market at various times. Sales of
substantial amounts of such shares in the public market could adversely affect
the market price of the Common Stock. The stock market has from time to time
experienced extreme price and volume fluctuations, particularly in the high
technology sector, which have often been unrelated to the operating performance
of particular companies. In addition, factors such as announcements of
technological innovations or new products by the Company or its competitors or
third parties, as well as market conditions in the computer software or hardware
industries, may have a significant impact on the market price of the Company's
Common Stock.
ITEM 2. PROPERTIES.
The Company's principal corporate offices are located at 8601 Six Forks
Road, Raleigh, North Carolina 27615. The Company also maintains sales and
support offices across the United States. The Company owns a 32,000 square foot
facility in Columbia, SC and leases all of the its other facilities, which in
the aggregate constitute approximately 219,000 rentable square feet of office
space. The Company believes that its facilities are adequate for its current
needs and that suitable additional space will be available as required.
ITEM 3. LEGAL PROCEEDINGS.
As of the date hereof, there are no legal proceedings pending against or
involving the Company that, in the opinion of management, could result in a
materially adverse change in the business or financial condition of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of security holders during the fourth
quarter ended December 31, 1996.
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EXECUTIVE OFFICERS OF THE COMPANY
The executive officers of the Company and their ages as of March 31, 1997
are as follows:
NAME AGE TITLE
John P. McConnell............46 President, Chief Executive Officer
G. Michael Anthony...........48 Vice President-Engineering
Michael J. Custode...........43 Vice President-Product Strategies
Kenneth B. Howard............42 Vice President-Sales and Marketing
Luanne L. Roth...............43 Vice President and Chief Financial Officer,
Treasurer and Secretary
Thomas K. Skelton, Jr. ......36 Vice President-Research and Development
Alan W. Winchester...........41 President-Clinical Products Division
Mr. McConnell co-founded the Company in June 1982 and has served as
President and as a Director of the Company since that time.
Mr. Anthony joined the Company in December 1982 and has served as Vice
President-Engineering of the Company from February 1985 to present and as
Manager of the Company's Field Service Department from December 1982 to January
1985.
Mr. Custode joined the Company in June 1993 following the merger with
Execu-Flow where he was a co-founder and served as President from May 1981 until
the merger. Mr. Custode has served as Vice President-Product Strategies of the
Company since August 1995 and previously served as Vice President - Product
Development from June 1993 to July 1995.
Mr. Howard joined the Company in March 1983 as a Sales Manager and has
served as Vice President-Sales and Marketing since February 1993, Vice
President-Central Region from January 1991 to February 1993 and Regional Sales
Manager from June 1988 to December 1990.
Ms. Roth joined the Company in March 1985 as the accounting manager and has
served as Vice President and Chief Financial Officer, Treasurer and Secretary of
the Company from November 1990 to present and as Vice President of
Administration and Accounting from January 1989 to November 1990.
Mr. Skelton joined the Company in January 1994 following the merger with
Elcomp where he was Senior Vice President of Operations and has served as Vice
President - Research and Development since August 1995. Mr. Skelton served as
Vice President - Practice Management Systems with the Company from January to
July 1995 and as Vice President - Elcomp Operations from January to December
1994.
Mr. Winchester co-founded the Company in June 1982 and has served as
President - Clinical Products Division since April 1996. Previously Mr.
Winchester served as Vice President-Customer Services from February 1993 to
April 1996 and Vice President-Sales from June 1982 to October 1989.
Mr. Winchester pursued a Master of Divinity degree from Southeastern
Theological Seminary from January 1990 to December 1992 and re-joined the
Company in November 1992. Mr. Winchester has been a Director since March 1996.
The success of the Company is dependent to a significant degree on its key
management and technical personnel, including its President, John P. McConnell.
The Company believes that its continued future success will also depend upon its
ability to attract, motivate and retain highly-skilled technical, managerial and
marketing personnel. Competition for such personnel in the software and systems
integration industries is intense. The loss of key personnel or the inability to
hire or retain qualified personnel could have a material adverse effect on the
Company. Although the Company has been successful to date in attracting and
retaining skilled personnel, there can be no assurance that the Company will
continue to be successful in attracting and retaining the personnel it requires
to successfully develop new and enhanced products and to continue to grow and
operate profitably.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
(a) Price Range of Common Stock
The Company's Common Stock trades on the NASDAQ National Market under the symbol
"MCSY". The following table sets forth for the periods indicated the range of
high and low bid prices for the Company's common stock during 1995 and 1996:
High Low
January 1, 1995 - March 31, 1995 24.38 14.47
April 1, 1995 - June 30, 1995 24.00 18.13
July 1, 1995 - September 30, 1995 26.00 17.38
October 1, 1995 - December 31, 1995 35.00 24.50
January 1, 1996- March 31, 1996 41.13 27.50
April 1, 1996- June 30, 1996 49.63 35.25
July 1, 1996- September 30, 1996 47.88 26.88
October 1, 1996- December 31, 1996 42.38 26.50
(b) Approximate Number of Equity Security Holders
As of March 26, 1997, the number of record holders of the Company's Common
Stock was 164, representing an estimated 8,100 beneficial owners.
(c) Dividends
The Company has never paid a cash dividend on its Common Stock and anticipates
that for the foreseeable future any earnings will be retained for use in its
business and, accordingly, does not anticipate the payment of cash dividends.
21
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA.
The following selected consolidated financial data of the Company for the years
ended December 31, 1996, 1995, 1994, 1993, and 1992, have been derived from the
Company's audited financial statements, which have been audited by Coopers &
Lybrand L.L.P., independent accountants. This data should be read in conjunction
with Management's Discussion and Analysis of Financial Condition and Results of
Operations and with the Company's financial statements and the related notes
thereto included elsewhere in this Annual Report.
<TABLE>
<CAPTION>
Year ended Year ended Year ended Year ended Year ended
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA) December December 31, December 31, December December 31,
31, 1996 1995 1994 31, 1993 1992
Statement of Operations Data (6) (3),(4),(5),(6) (2), (6) (1)
<S> <C> <C> <C> <C> <C>
Net revenues:
Systems $ 92,827 $ 77,618 $ 59,794 $ 40,451 $ 48,128
Maintenance, forms and other services 98,960 75,898 55,561 34,297 27,546
------------- -------------- -------------- ------------- --------------
Total net revenues 191,787 153,516 115,355 74,748 75,674
Cost of revenues:
Systems 55,527 48,275 36,752 25,838 28,897
Maintenance, forms and other services 59,314 43,846 30,327 19,558 16,807
Total cost of revenues 114,841 92,121 67,079 45,396 45,704
------------- -------------- -------------- ------------- --------------
Gross margin 76,946 61,395 48,276 29,352 29,970
------------- -------------- -------------- ------------- --------------
Operating expenses:
Sales and marketing 17,857 15,001 12,639 8,680 9,205
General and administrative 10,490 8,503 6,968 5,167 7,723
Amortization of intangible assets 1,774 2,872 3,088 2,501 2,583
Research and development 10,155 8,391 5,991 3,358 2,700
------------- -------------- -------------- ------------- --------------
Total operating expenses 40,276 34,767 28,686 19,706 22,211
------------- -------------- -------------- ------------- --------------
Income from operations 36,670 26,628 19,590 9,646 7,759
------------- -------------- -------------- ------------- --------------
Other expense (income):
Interest expense (income), including
amortization of loan discount (2,193) (1,868) (317) (114) 1,205
Provision for capital appreciation rights -- -- -- -- (3,345)
------------- -------------- -------------- ------------- --------------
Total other expense (income) (2,193) (1,868) (317) (114) (2,140)
Income before income taxes,
extraordinary charge and cumulative
effect of change in accounting principle 38,863 28,496 19,907 9,760 9,899
------------- -------------- -------------- ------------- --------------
Provision for income taxes 14,823 10,102 7,233 3,747 699
Income before extraordinary
charge and cumulative effect of
change in accounting principle 24,040 18,394 12,674 6,013 9,200
------------- -------------- -------------- ------------- --------------
Extraordinary charge from early retirement of
debt, net of income tax benefit of $801 -- -- -- -- (1,278)
Income before cumulative effect of
change in accounting principle 24,040 18,394 12,674 6,013 7,922
------------- -------------- -------------- ------------- --------------
Cumulative effect of change in
accounting principle -- -- -- 121 --
------------- -------------- -------------- ------------- --------------
Net income $ 24,040 $ 18,394 $12,674 $6,134 $7,922
============= ============== ============== ============= ==============
Pro forma data:
Income before pro forma income tax
provision $ 24,040 $ 18,394 $ 12,674 $ 6,134 $ 7,922
Pro forma income tax expense for the
periods prior to May 31, 1996 489 1,178 968 -- --
============= ============== ============== ============= ==============
Pro forma net income $ 23,551 $ 17,216 $ 11,706 $ 6,134 $ 7,922
============= ============== ============== ============= ==============
22
<PAGE>
Pro Forma Earnings per Share:
Pro forma income before extraordinary
charge and cumulative effect of change in
accounting principle(7) $ 0.95 $0.72 $0.52 $ 0.29 $0.53
Extraordinary charge -- -- -- -- (0.7)
Cumulative effect of change in
accounting principle -- -- -- 0.01 --
Net income (loss) per share (1-7) $ 0.95 $0.72 $0.52 $ .30 $0.46
Number of shares used in
computing per share amounts (1-7) 24,782,701 23,952,268 22,514,960 20,888,186 17,408,824
Balance Sheet Data
Net working capital $ 101,758 $80,094 $21,377 $18,279 $ 9,833
Intangible assets (net) $ 18,798 $20,445 $12,749 $12,749 $15,250
Total assets $ 164,736 $141,463 $53,116 $46,635 $40,233
Long-term debt, less current maturities $ 1,418 $ 3,127 $ 142 -- $195
Shareholders' equity $ 129,210 $104,437 $36,595 $32,841 $ 26,743
</TABLE>
(1) On June 30, 1993, the Company acquired Execu-Flow Systems, Inc.
("Execu-Flow") in a noncash merger transaction. The merger was accounted for as
a pooling of interests and, accordingly, the Selected Consolidated Financial
Data and accompanying financial statements have been restated prior to the
merger to include the results of Execu-Flow for all periods presented.
(2) On January 18, 1994, the Company acquired Elcomp Systems, Inc. ("Elcomp").
The acquisition was accounted for as a purchase and, accordingly, the Selected
Consolidated Financial Data and accompanying financial statements include the
results of Elcomp from the date of acquisition.
(3) On August 28, 1995, the Company acquired the assets of Script Systems, Inc.
("Script"). The transaction was accounted for as a purchase, and accordingly,
the Selected Consolidated Financial Data and accompanying financial statements
include the results of Script from the date of acquisition.
(4) On August 31, 1995, the Company acquired National Medical Systems, Inc.
("National Medical"), through an exchange of stock in a merger transaction. The
transaction was accounted for as a pooling of interests but was not material to
the Company's results of operations and financial position. Accordingly, the
results of operations and financial position of National Medical have been
included from the date of the acquisition.
(5) On September 29, 1995, the Company acquired Compudata Professional Systems,
Ltd. ("Compudata"). The transaction was accounted for as a purchase, and
accordingly, the Selected Consolidated Financial Data and accompanying financial
statements include the results of Compudata from the date of acquisition.
(6) On May 31, 1996, the Company acquired all of the outstanding stock of
CompuSystems, Inc. ("CompuSystems"), through an exchange of stock in a merger
transaction. The transaction was accounted for as a pooling of interests, and
accordingly, the Selected Consolidated Financial Data and accompanying financial
statements have been restated prior to the merger to include the results of
CompuSystems for the years ended 1996, 1995 and 1994.
23
<PAGE>
(7) On June 10, 1996, the Company declared a two-for-one stock split of the
Company's Common Stock effective June 24, 1996, pursuant to which each
shareholder of record received one additional share of Common Stock for each
share held as of that date. Accordingly, the Selected Consolidated Financial
Data and accompanying financial statements have been restated prior to this
stock split to reflect the effect of the split.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION.
This Item 7 contains certain forward-looking statements. The actual results of
operations of the Company might differ materially from those projected in the
forward-looking statements. The Company's revenues and operating results can
vary significantly from quarter to quarter as a result of a number of factors,
including the volume and timing of systems sales and installations and product
deliveries from the Company's vendors. The timing of such revenues from systems
sales is difficult to forecast because the Company's sales cycle can vary
depending upon factors such as the size of the transaction and the general
economic conditions. Given that a significant percentage of the Company's
expenses are relatively fixed, a variation in the timing of systems sales can
cause significant variations in operating results from quarter to quarter. The
Company's future operating results may fluctuate as a result of these and/or
other factors, such as customer purchasing patterns and the timing of new
product and service introductions and product upgrade releases. Additional
information regarding factors that could cause actual results to differ
materially from those projected in the forward-looking statements contained
herein is contained in certain of the Company's other SEC filings, copies of
which are available from the Company upon request.
24
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth certain data as a percentage of net revenues for
each fiscal period indicated:
Percentage of Net Revenues
Years Ended December 31, 1996 1995 1994
---- ---- ----
(restated) (restated)
Net revenues:
Systems 48.4 % 50.6 % 51.8 %
Maintenance, forms and other services 51.6 49.4 48.2
---- ---- ----
Total net revenues 100.0 100.0 100.0
----- ----- -----
Cost of revenues:
Systems 29.0 31.4 31.9
---- ---- ----
Maintenance, forms and other services 30.9 28.6 26.3
----- ----- -----
Total cost of revenues 59.9 60.0 58.2
---- ---- ----
Gross margin 40.1 40.0 41.8
---- ---- ----
Operating expenses:
Sales and marketing 9.3 9.8 11.0
General and administrative 5.5 5.5 6.0
Amortization 0.9 1.9 2.7
Research and development 5.3 5.5 5.2
--- --- ---
Total operating expenses 21.0 22.7 24.9
---- ---- ----
Income from operations 19.1 % 17.3 % 16.9 %
==== ==== ====
OVERVIEW
The Company derives revenue from systems sales and maintenance, forms and other
services. Systems sales include sales of physician practice management systems
to new customers and sales of system upgrades and add-ons to existing customers.
Systems sales to new customers include software licensing, hardware,
installation, training, 90 days of software maintenance and varying periods of
hardware maintenance, depending on the warranty of the manufacturer. System
upgrades include hardware, installation, software licensing and training. System
add-ons include additional peripheral hardware and installation and software
licensing.
Maintenance, forms and other services revenues include software and hardware
maintenance contracts and sales of forms and supplies. Other services revenues
include sales of the Company's transaction-based EDI services, including
FastClaim and FastBill, and installation, training and support not otherwise
covered under maintenance contracts. Software maintenance represents revenues
derived from maintenance agreements providing customers with updates and
enhancements developed by the Company and access to the Company's toll-free
telephone support service. Hardware maintenance represents revenues derived from
maintenance agreements for repairs and preventative maintenance to the hardware.
Both hardware and software maintenance are optional to the customer. The Company
provides software maintenance to approximately 90% of its customers and hardware
maintenance to approximately 74% of its customers under software and hardware
maintenance contracts. In 1996, system upgrades, add-on software, software and
hardware maintenance, forms and supplies and other services accounted for
approximately 70% of total net revenues.
On January 18, 1994, Medic acquired Elcomp Systems, Inc. ("Elcomp"), located in
Pittsburgh, Pennsylvania, for approximately $5 million in cash and 797,600
shares of Medic's Common Stock. The acquisition was accounted for as a purchase
and, accordingly, the operating results of Elcomp are included in the Company's
financial statements from January 18, 1994.
On August 28, 1995, the Company acquired the assets of Script Systems, Inc.
("Script") from Infomed Holdings, Inc. whose headquarters were located in
Princeton, New Jersey, for approximately $3 million in cash and the assumption
25
<PAGE>
of certain liabilities. The transaction was accounted for as a purchase and,
accordingly, the operating results of Script are included in the Company's
financial statements from August 28, 1995.
On August 31, 1995, the Company acquired National Medical Systems, Inc.
("National Medical"), located in Westboro, Massachusetts, through an exchange of
stock in a merger transaction valued at approximately $5 million. The
transaction was accounted for as a pooling of interests but was not material to
the Company's results of operations and financial position. Accordingly, the
operating results of National Medical are included in the Company's financial
statements from August 31, 1995.
On September 29, 1995, the Company acquired Compudata Professional Systems, Ltd.
("Compudata"), located in Marietta, Georgia for approximately $2 million in
cash. The transaction was accounted for as a purchase and, accordingly, the
operating results of Compudata are included in the Company's financial
statements from September 29, 1995.
On May 31, 1996, the Company acquired all of the outstanding stock of
CompuSystems, Inc. ("CompuSystems"), a privately held company based in Columbia,
South Carolina, through an exchange of stock in a merger transaction valued at
approximately $33,400,000. Medic issued 720,022 shares of its Common Stock to
the shareholders of CompuSystems in the merger. The transaction was accounted
for as a pooling of interests and, accordingly, the Company's financial
statements for the periods prior to the merger have been restated to include the
results of CompuSystems for all periods presented.
SUBSEQUENT EVENTS
On February 28, 1997, the Company acquired all of the outstanding stock of Home
Care Information Systems, Inc. ("HCIS"), a privately held company located in
Bloomfield, New Jersey, through an exchange of stock in a merger transaction
valued at approximately $18,800,000. The Company issued approximately 522,000
shares of its common stock in the transaction. The acquisition was accounted for
as a pooling of interests, but was not material to the Company's results of
operation and financial position for the periods prior to the acquisition.
Accordingly, the results of operations of HCIS will be included from the date of
acquisition.
On February 28, 1997, the Company also acquired all of the outstanding stock of
Computer Business Systems, Inc. ("CBSI"), a privately held company located in
Rockville, Maryland, through an exchange of stock in a merger transaction valued
at approximately $26,460,000. The Company issued approximately 735,000 shares of
its common stock in the transaction. The acquisition was accounted for as a
pooling of interests, but was not material to the Company's results of operation
and financial position for the periods prior to the acquisition. Accordingly,
the results of operations of CBSI will be included from the date of acquisition.
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
TOTAL NET REVENUES
Total net revenues increased by 24.9% from $153,516,000 in 1995 to $191,787,000
in 1996. Systems sales increased by 19.6% from $77,618,000 in 1995 to
$92,827,000 in 1996. Systems sales to new customers increased by 31.5% from
$43,093,000 in 1995 to $56,680,000 in 1996, and systems sales to existing
customers for upgrades and add-ons increased by 4.7% from $34,525,000 in 1995 to
$36,147,000 in 1996.
The systems sales backlog increased by 18.3% from approximately $30,692,000 at
December 31, 1995 to approximately $36,300,000 at December 31, 1996, after
adjustment to the expected net realizable value. System sales during a quarter
as a percentage of systems sales backlog as of the end of the preceding quarter
can fluctuate materially, and the Company believes that the backlog may not be
indicative of future results for the following quarter or for any particular
period.
Net revenues from maintenance, forms and other services revenues increased by
30.4% from $75,898,000 in 1995 to $98,960,000 in 1996, primarily the result of
increases in hardware and software maintenance revenues of $7,930,000,
26
<PAGE>
in FastBill revenues of $10,669,000, in FastClaim revenues of $3,934,000, and in
forms and supplies sales of $762,000.
COST OF REVENUES
Cost of systems sales increased by 15.0% from $48,275,000 in 1995 to $55,527,000
in 1996 due primarily to increased systems sales. Cost of systems sales
decreased as a percentage of related revenues from 62.2% in 1995 to 59.8% in
1996 due primarily to more favorable margins on systems sales to new customers
resulting from a higher percentage of software products and professional
services delivered with the new system contracts.
Cost of maintenance, forms and other services revenues increased by 35.3% from
$43,846,000 in 1995 to $59,314,000 in 1996 due primarily to increased related
revenues. Cost of maintenance, forms and other services revenues increased as a
percentage of related revenues from 57.8% in 1995 to 59.9% in 1996 due primarily
to a much larger component of revenue being realized from FastBill. FastBill is
one of the most rapidly growing segments of the business but has a lower gross
margin than maintenance and FastClaim services.
The total cost of net revenues remained essentially unchanged as a percentage of
total net revenues at 60.0% in 1995 and 59.9% in 1996.
SALES AND MARKETING EXPENSES
Sales and marketing expenses increased by 19.0% from $15,001,000 in 1995 to
$17,857,000 in 1996 due primarily to increases in commissions payable, personnel
costs for additional staff and other direct sales expenses associated with
increased systems sales. Sales and marketing decreased as a percentage of net
revenues from 9.8% in 1995 to 9.3% in 1996 due primarily to increased systems
sales per salesperson and lower systems sales as a percentage of total net
revenues in 1996.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses increased by 23.4% from $8,503,000 in 1995
to $10,490,000 in 1996, including "pooling" expenses of $243,000 incurred in
connection with the acquisition of CompuSystems and $295,000 incurred in
connection with the acquisition of National Medical in 1995. Excluding "pooling"
expenses, general and administrative expenses increased 24.8% due primarily to
the overall company growth. General and administrative expenses remained
constant as a percentage of net revenues at 5.5% in 1995 and 1996.
RESEARCH AND DEVELOPMENT
Research and development costs increased by 21.0% from $8,391,000 in 1995 to
$10,155,000 in 1996, due primarily to staff additions for new product
development. Research and development expenses decreased as a percentage of net
revenues from 5.5% in 1995 to 5.3% in 1996 as the percentage of
transaction-based revenues in FastBill and FastClaim increased significantly in
1996 and are not as research and development intensive as systems sales. The
Company has not capitalized any research and development costs under Statement
of Financial Accounting Standards No. 86 because the portion of the Company's
research and development costs that would be subject to capitalization has not
been material to the results of operations.
AMORTIZATION
Amortization of intangibles decreased by 38.2% from $2,872,000 in 1995 to
$1,774,000 in 1996 due to a reduction in goodwill resulting from the utilization
of tax benefits previously acquired and the expiration of a non-competition
agreement on November 6, 1995, offset by an increase in amortization charges of
$358,000 from the acquisition of Script and Compudata.
INCOME FROM OPERATIONS
Income from operations increased by 37.7% from $26,628,000 in 1995 to
$36,670,000 in 1996 due to an increase in gross margin of $15,551,000, which was
partially offset by increased operating expenses of $5,509,000, as described
27
<PAGE>
above. Income from operations increased as a percentage of net revenues from
17.3% in 1995 to 19.1% in 1996 primarily due to lower operating expenses as a
percentage of revenues as described above.
OTHER INCOME
Net interest income increased from $1,868,000 in 1995 to $2,193,000 in 1996 due
primarily to increased invested cash resulting from the proceeds of the
secondary stock offering completed in April 1995 and to increased cash from
operations.
COMBINED ACTUAL AND PRO FORMA PROVISION FOR INCOME TAXES
The Company's combined actual and pro forma provision for income taxes increased
in absolute terms by 35.7% from $11,280,000 or 39.6% of pretax income, for the
year ended December 31, 1995, to $15,312,000 or 39.4% of pretax income, for the
year ended December 31, 1996, due primarily to increased pretax income. The
decrease in the combined actual and pro forma income taxes as a percentage of
pretax income was due primarily to the decrease in nondeductible amortization
expense and by the increase in tax-free interest income as percentages of pretax
income. The combined actual and pro forma tax provisions differ from the U.S.
statutory federal income tax rate due primarily to state income taxes,
nondeductible amortization of intangible assets and tax-free interest income.
YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994
Total Net Revenues
Total net revenues increased by 33.1% from $115,355,000 in 1994 to $153,516,000
in 1995. Systems sales increased by 29.8% from $59,794,000 in 1994 to
$77,618,000 in 1995. Systems sales to new customers increased by approximately
28.2% from approximately $33,621,000 in 1994 to approximately $43,093,000 in
1995, and systems sales to existing customers for upgrades and add-ons increased
by approximately 31.9% from approximately $26,173,000 in 1994 to approximately
$34,525,000 in 1995.
The systems sales backlog increased by 21.1% from $25,354,000, excluding
CompuSystems, at December 31, 1994 to $30,692,000 at December 31, 1995. System
sales during a quarter as a percentage of systems sales backlog as of the end of
the preceding quarter can fluctuate materially, and the Company believes that
the backlog may not be indicative of future results for the following quarter or
for any particular period.
Net revenues from maintenance, forms and other services revenues increased by
36.6% from $55,561,000 in 1994 to $75,898,000 in 1995. This increase was
primarily attributable to increases in hardware and software maintenance
revenues of approximately $6,650,000, in FastBill revenues of approximately
$9,864,000, in FastClaim revenues of approximately $2,739,000, and in forms and
supplies sales of approximately $909,000.
COST OF REVENUES
Cost of systems sales increased by 31.4% from $36,752,000 in 1994 to $48,275,000
in 1995 due primarily to increased systems sales. Cost of systems sales
increased as a percentage of related revenues from 61.5% in 1994 to 62.2% in
1995 due primarily to competitive pressures on the sale of system hardware
components.
Cost of maintenance, forms and other services revenues increased by 44.6% from
$30,327,000 in 1994 to $43,846,000 in 1995 due to increased related revenues.
Cost of maintenance, forms and other services revenues increased as a percentage
of related revenues from 54.6% in 1994 to 57.8% in 1995 due primarily to a much
larger component of revenue being realized from FastBill services.
The total cost of net revenues increased as a percentage of total net revenues
from 58.2% in 1994 to 60.0% in 1995 due primarily to the conditions described
above.
SALES AND MARKETING EXPENSES
Sales and marketing expenses increased by 18.7% from $12,639,000 in 1994 to
$15,001,000 in 1995 due primarily to increases in commissions payable, personnel
costs for additional staff and other direct sales expenses associated with
increased systems sales. Sales and marketing decreased as a percentage of net
revenues from 11.0% in 1994 to 9.8%
28
<PAGE>
in 1995 due primarily to increased systems sales per salesperson and lower
systems sales as a percentage of total net revenues in 1995.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses increased by 22.0% from $6,968,000 in 1994
to $8,503,000 in 1995, including "pooling" expenses of $295,000 incurred in
connection with the acquisition of National Medical. Excluding the "pooling"
expenses, general and administrative expenses increased 17.8% due primarily to
the overall company growth. General and administrative expenses decreased as a
percentage of net revenues from 6.0% in 1994 to 5.5% in 1995 due primarily to
lower growth in general and administrative expenses relative to the increase in
net revenues.
RESEARCH AND DEVELOPMENT
Research and development costs increased by 40.1% from $5,991,000 in 1994 to
$8,391,000 in 1995 due primarily to staff additions for new product development.
Research and development expenses increased as a percentage of net revenues from
5.2% in 1994 to 5.5% in 1995, for the foregoing reason.
AMORTIZATION
Amortization of intangibles decreased by 7.0% from $3,088,000 in 1994 to
$2,872,000 in 1995 due primarily to the expiration of a non-competition
agreement with Medic's former parent company on November 6, 1995, and a
reduction in goodwill resulting from the utilization of tax benefits previously
acquired, partially offset by an increase in amortization charges of $108,000
from the acquisitions of Script and Compudata.
INCOME FROM OPERATIONS
Income from operations increased by 35.9% from $19,590,000 in 1994 to
$26,628,000 in 1995, due to an increase in gross margin of $13,119,000, which
was partially offset by increased operating expenses of $6,081,000. Income from
operations increased as a percentage of net revenues from 17.0% in 1994 to 17.3%
in 1995 due primarily to lower operating expenses as a percentage of revenues as
described above.
OTHER INCOME
Net interest income increased from $317,000 in 1994 to $1,868,000 in 1995 due
primarily to increased invested cash resulting from the proceeds of the stock
offering completed in April 1995.
COMBINED ACTUAL AND PRO FORMA PROVISION FOR INCOME TAXES
The Company's combined actual and pro forma provision for income taxes increased
in absolute terms by 37.5% from $8,201,000, or 41.2% of pretax income for the
year ended December 31, 1994 to $11,280,000, or 39.6% of pretax income, for the
year ended December 31, 1995 due primarily to increased pretax income. The
decrease in the combined actual and pro forma taxes as a percentage of pretax
income was due primarily to the decrease in nondeductible amortization expense
and by the increase in tax-free interest income as percentages of pretax income.
In addition, the Company began recognizing a tax benefit resulting from a
research and experimentation tax credit in 1995. The combined actual and pro
forma tax provisions differ from the U.S. statutory federal income tax rate due
primarily to state income taxes, nondeductible amortization of intangible assets
and tax-free interest income.
LIQUIDITY AND CAPITAL RESOURCES
The Company has funded its operations through cash flow from operations,
borrowings, and, in 1995, from net proceeds from issuance of 1,700,000 shares of
its Common Stock. At December 31, 1996, the Company had cash and cash
equivalents equal to $25,557,000 and a working capital position in the amount of
$101,758,000.
The Company currently has a $10,000,000 uncommitted line of credit with Wachovia
Bank of North Carolina, N.A. ("Bank"). At December 31, 1996, there were no
borrowings outstanding under this line.
29
<PAGE>
The Company's balance for cash and cash equivalents decreased by 34.4% from
$38,935,000 at December 31, 1995 to $25,557,000 at December 31, 1996, offset by
a net increase in short-term investments of $21,391,000.
The Company's accounts receivable balance increased by 32.9% from $41,189,000 at
December 31, 1995, to $54,737,000 at December 31, 1996, due primarily to the
growth experienced by the Company during the year and the continued expansion of
the customer base from predominately small group medical practices to larger,
consolidated physician practices, hospital organizations, affiliated physician
networks and management services organizations. Selected larger customers have
been extended longer payment terms to more closely match the time required by
the customers to integrate the larger practice management systems throughout
their organizations after the installation of the system. The Company has
increased the reserve for doubtful accounts 143% from $1,316,000 in 1995 to
$3,198,000 in 1996 to provide for the overall increase in accounts receivables
and the increase in Days Sales Outstanding from 85 days in 1995 to 93 days in
1996. The allowance for doubtful accounts is a judgemental estimate and may
increase or decrease in the future according to varying conditions in the
general economy or the Company's customer base. Management continues to invest
in systems and personnel to better manage working capital, including accounts
receivable.
Inventories increased by 12.1%, from $12,294,000 at December 31, 1995, to
$13,778,000 at December 31, 1996. Prepaid expenses decreased by 19.4% from
$6,190,000 at December 31, 1995, to $4,968,000 at December 31, 1996, due
primarily to a usage of prepaid Informix licenses. Net property and equipment
increased 42.7% from $7,075,000 at December 31, 1995 to $10,099,000 at December
31, 1996, due primarily to the purchase of computer equipment and software to
support the growth of the business.
Current portion of long-term notes decreased due to the repayment of the
mortgage on the CompuSystems facility in June 1996.
Accounts payable increased by 36.5%, from $7,336,000 at December 31, 1995, to
$10,013,000 at December 31, 1996, due primarily to increased inventory purchases
for increased systems sales and the general increase in business activity.
Customer deposits and deferred maintenance revenue decreased by 15.4% from
$13,396,000 at December 31, 1995, to $11,340,000 at December 31, 1996. During
1996, the Company began billing monthly and quarterly maintenance agreements
during the covered period, instead of billing in the month prior. This resulted
in a $3,000,000 decrease in deferred maintenance revenue which was partially
offset by an increase of $1,700,000 of 1997 annual contracts billed in December
1996 compared to December 1995.
Income taxes payable decreased by 32.5% from $1,676,000 at December 31, 1995, to
$1,131,000 at December 31, 1996, due primarily to the timing of estimated
payments and increased profitability of the business.
Accrued commissions increased 38.0% from $1,604,000 at December 31, 1995 to
$2,213,000 at December 31, 1996, due primarily to increased sales and extended
payment terms on contracts. Accrued compensation and related items increased by
24.0% from $3,963,000 at December 31, 1995, to $4,915,000 at December 31, 1996,
due primarily to higher employment levels in the Company and increased accrued
vacation.
Other accrued expenses decreased by 7.7% from $3,075,000 at December 31, 1995,
to $2,839,000 at December 31, 1996, due primarily to decreased accrued legal
expenses and the timing of payments related to local and state sales taxes.
Long-term notes, less current portion, decreased because of the scheduled
payments made on the note financing the prepaid Informix licenses.
The Company believes that the current cash and short-term investments balances,
cash generated from operations and available under its line of credit will be
sufficient to meet its cash and capital requirements for the immediate
foreseeable future. From time to time, the Company has been contacted by or has
made contact with third parties who represent potential strategic partners or
acquisition candidates that would help facilitate the Company's growth strategy.
Depending upon the cash requirements of a potential transaction, the Company may
finance the transaction with its cash flow from operations, or the Company may
raise additional funds by pursuing various financing vehicles such as additional
bank financing or one or more additional public offerings or private placements
of the Company's securities. However, the Company has no present understanding,
commitment or agreement with respect to any such acquisition, and there can be
no assurances that any such acquisition will occur, that the funds to finance
any such acquisition will be available on reasonable terms or at all, or that
the consummation of such transactions will not adversely affect the Company's
cash balances and capital requirements.
30
<PAGE>
The Company believes that inflation has not had a significant impact on the
Company's results of operations to date.
The Company also believes that its operations will not be materially disrupted
by any problems associated with the "Year 2000" syndrome related to the
operation of computer software after January 1, 2000; however, there can no
assurances in this regard.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
See Index to Consolidated Financial Statements on page F-1.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not applicable.
PART III
Certain information required by Part III is omitted from this report
because the Registrant will file a definitive proxy statement for its 1996
Annual Meeting of Shareholders (the "Proxy Statement") within 120 days after the
end of its fiscal year pursuant to Regulation 14A promulgated under the
Securities Exchange Act of 1934, as amended and the information included therein
is incorporated herein by reference to the extent provided below.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information required by Item 10 of Form 10-K concerning the
Registrant's executive officers is set forth at the end of Part I in this Annual
Report on Form 10-K under the caption "Executive Officers of the Company."
The other information required by Item 10 of Form 10-K is incorporated
by reference to the information under the captions "Election of Directors" and
"Section 16 Beneficial Ownership Reporting Compliance" in the Proxy Statement.
ITEM 11. EXECUTIVE COMPENSATION.
The information required by Item 11 of Form 10-K is incorporated by
reference to the information under the captions "Proposal No. 1 - - Election of
Directors - - Information Concerning the Board of Directors and Its Committees,"
"Other Information - - Compensation of Executive Officers," "- - Report of the
Board of Directors on Executive Compensation," "- Compensation Committee and
Stock Plan Committee Interlocks and Insider Participation," "- - Employment
Agreements" and "- Performance Graph" in the Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information required by Item 12 of Form 10-K is incorporated by
reference to the information under the caption "Other Information - - Principal
Shareholders" in the Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Not applicable.
31
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) (1) See page F-1.
(2) Financial Statement Schedules.
The financial statement schedules filed with this report are
listed in the Index to Financial Statement Schedules on Page S-1 of this report.
All other schedules for which provision is made in Regulation S-X of the
Securities and Exchange Commission are not required under the related
instructions, are inapplicable, or the required information is given in the
financial statements, including the notes thereto and, therefore, have been
omitted.
(3) Exhibits Filed.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
<S> <C>
*2.2 Agreement and Plan of Merger dated as of January 18, 1994 by and among the Registrant, Elcomp
Acquisition Corporation, Elcomp Systems, Inc. and the Stockholders of Elcomp Systems, Inc.
++*2.3 Purchase and Sale Agreement dated August 7, 1995 among Script
Systems, Inc., Infomed Holdings, Inc., the Registrant and Script
Acquisition Corporation.
++*2.4 Agreement and Plan of Merger dated as of August 11, 1995 and Amendment No. 1 thereto dated as of August 31, 1995
among the Registrant, NMS Acquisition Corporation, National Medical Systems, Inc. and the stockholders named
therein.
++*2.5 Agreement and Plan of Merger dated as of September 19, 1995 among the Registrant, CPS Acquisition Corporation,
Compudata Professional Systems, Ltd. and William S. Brown.
**3.1 Amended and Restated Articles of Incorporation of the Registrant
filed with the State of North Carolina on August 4, 1992.
**3.2 Amended and Restated Bylaws of the Registrant adopted August 4, 1992.
**3.2.1 Amendments to Amended and Restated Bylaws of the Registrant adopted February 10, 1993.
* 3.3, 4.4 Articles of Merger of Medic Merger Corporation into Execu-Flow Systems, Inc.
* 3.4, 4.5 Articles of Merger of Elcomp Acquisition Corporation into Elcomp Systems, Inc.
+4.2 Specimen stock certificate for shares of Common Stock of the Registrant.
**4.3 Amended and Restated Investor Rights Agreement dated as of August
12, 1992, among the Registrant and certain shareholders of the
Registrant.
**10.1 Amended and Restated Stock Plan, as amended, adopted July 8, 1992.
+10.2 Revised Form of Incentive Stock Option Agreement under the Amended and Restated Stock Plan.
+10.3 Shareholders Agreement, Confidentiality and Noncompetition Agreement dated as of November 6, 1990.
+10.4 Series B Preferred Stock Purchase Agreement between Registrant and the other parties named therein dated as of
November 6, 1990.
+10.5 Employment Agreement, dated February 27, 1991, with John P. McConnell.
+10.6 Employment Agreement, dated February 22, 1991, with Luanne L. Roth.
+10.7 Employment Agreement, dated February 27, 1991, with Jack Edward Ferguson.
+10.8 Employment Agreement, dated February 18, 1991, with G. Michael Anthony.
+10.9 Employment Agreement, dated February 27, 1991, with Robert M. Sawyer, Jr.
+10.10 Form of Employee Nondisclosure and Developments Agreement.
+10.11 Option Agreement between Venture Investors and John P. McConnell.
+10.11.1 Revised Letter Agreement, dated June 29, 1992, with Heller Financial, Inc.
+10.12 Series A Capital Appreciation Rights Agreement between Registrant and Heller Financial, Inc.
+10.13 Series B Capital Appreciation Rights Agreement between Registrant and Heller Financial, Inc.
+10.14 Series C Capital Appreciation Rights Agreement between Registrant and Heller Financial, Inc.
+10.15 Credit and Security Agreement between Registrant and Heller Financial, Inc., as amended.
+10.16 Form of Waiver of Preferred Return and Accrued Dividends from Series A and Series B Preferred Stockholders.
+10.17 Form of Letter of Consent to Conversion from certain shareholders of Registrant.
+10.18 Employee Retirement Savings Plan.
+10.18.1 Amendment to Employee Retirement Savings Plan dated April 16, 1992.
</TABLE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
<S> <C>
+10.19 Amended and Restated Profit Sharing Plan.
+10.19.1 Amendment to Amended and Restated Profit Sharing Plan dated April 1, 1992.
+10.20 Pension Plan, as amended.
+10.21 Supply Agreement, dated August 24, 1989, with Texas Instruments Incorporated.
32
<PAGE>
**10.21.1 Letter dated September 23, 1992 from Texas Instruments
Incorporated notifying the Registrant of the assignment of the
Supply Agreement dated August 24, 1989 to Hewlett-Packard Company.
**10.23 Loan Agreement dated September 14, 1992, with Wachovia Bank of
North Carolina, N.A., as amended by letter agreement between the
Registrant and Wachovia Bank of North Carolina, N.A., dated
November 23, 1992.
**10.24 Note in the principal amount of $2,000,000 dated September 18,
1992, payable to Wachovia Bank of North Carolina, N.A., as amended
by letter agreement between the Registrant and Wachovia Bank of
North Carolina, N.A. dated October 16, 1992.
**10.25 Remarketer Agreement dated November 6, 1992 between Texas Instruments Incorporated and the Registrant.
**10.26 Business Partner Agreement dated July 23, 1992 between International Business Machines Corporation and the
Registrant.
++10.27 Employment Agreement, dated June 30, 1993, with Kenneth R. Erb.
++10.28 Employment Agreement, dated June 30, 1993, with Michael J. Custode.
++10.29 Employment Agreement, dated June 30, 1993, Lawrence G. Drappi.
++10.30 Employment Agreement, dated June 30, 1993, with Kenneth R. Erb.
++10.31 Employment Agreement, dated June 30, 1993, with Michael J. Custode.
++10.32 Noncompetition Agreement, dated June 30, 1993, with Lawrence G. Drappi.
+*10.33 IBM Business Partner Agreement.
*10.34 Employment Agreement, dated January 18, 1994, with Ami Elis. *10.35
Noncompetition Agreement, dated January 18, 1994, with Ami Elis.
***10.36 Purchase Agreement, dated November 23, 1993, with Hewlett-Packard.
***10.37 Value Added Remarketing Agreement between Elcomp and InterSystems Corporation.
***10.38 Processing Agreement, dated October 27, 1993, with CyData, Inc.
***10.39 Processing Agreement, dated November 15, 1993, with CyData, Inc.
***10.40 Original Equipment Manufacturer Agreement, dated November 16, 1993, with Westbrook Technologies, Inc.
***10.41 Letter Agreement, dated January 31, 1994, with Kurzweil Applied Intelligence, Inc.
***10.42 Agreement for Wholesale Financing (Security Agreement), dated
September 30, 1993, with IBM Credit Corporation, as amended.
***10.43 Master Service Agreement, Service Manager Agreement, Value Added Reseller Agreement and Program License Agreement
between Elcomp and Data General Corporation.
***10.44 Agreement of Lease between Forum Office Partners and the Registrant, as amended.
***10.45 Lease Agreement between NCNB Texas National Bank, Trustee and the Registrant, as amended.
***10.46 Lease Agreement between RAD Associates IV and Execu-Flow, as amended.
***10.47 Lease between Foster VI Associates and Elcomp, as amended.
+++10.48 Business Partner Agreement dated July 28, 1994 between International Business Machines Corporation and the
Registrant.
+++10.49 Strategic Alliance Agreement dated September 16, 1994 between Cerner Corporation and the Registrant.
+++10.50 Preferred Vendor Agreement dated February 1995 between Columbia/HCA Information Services, Inc. and the Registrant.
+++10.51 Amendment No. 5 dated May 24, 1994 and Amendment No. 6 dated August 22, 1994 to the Agreement of Lease between
Forum Office Partners and the Registrant, as amended.
++*10.52 IBM Business Partner Agreement dated October 24, 1995.
++*10.53 Informix Software, Inc. Premier Value-Added Partner Agreement Contract #7674.00 dated May 18, 1994, as amended by
Contract No. 7674.01 dated December 6, 1995, and related Master Finance Agreement with Informix Credit Company
dated December 14, 1995.
++*10.54 Amendments Nos. 7-10 dated March 1, April 15, October 31, 1995 and January 15, 1996 to the Agreement of Lease
between Forum Office Partners and the Registrant, as amended.
++*10.55 Amendment to Lease Agreement between RAD Associates IV and Execu-Flow, as amended, dated February 29, 1996.
++*10.56 Lease Agreement between UNUM Life Insurance Company and the Registrant dated June 5, 1995.
++*10.57 Lease Agreement between Parker-Raleigh Development I, Limited Partnership and the Registrant effective January 1,
1995.
11.1 Statement regarding computation of net income per share.
21.1 Subsidiaries of the Registrant.
23.1 Consent of Coopers & Lybrand, L.L.P.
27.1 Financial Data Schedule
</TABLE>
* Incorporated herein by reference to the identically-numbered exhibits to the
Registrant's Current Report on Form 8-K filed January 28, 1994.
** Incorporated herein by reference to the identically-numbered exhibits to
the Registrant's Annual Report on Form 10-K for fiscal 1992 filed March 31,
1993.
**+ Confidential treatment requested.
33
<PAGE>
+ Incorporated herein by reference to the identically-numbered exhibits to the
Registrant's Registration Statement on Form S-1 (Registration No. 33-46588)
initially filed March 20, 1992, as amended.
++ Incorporated herein by reference to the identically-numbered exhibits to the
Registrant's Quarterly Report on Form 10-Q for the second quarter of fiscal
1993 filed August 13, 1993.
+* Incorporated herein by reference to the identically-numbered exhibits to the
Registrant's Quarterly Report on Form 10-Q for the third quarter of fiscal 1993
filed November 11, 1993.
*** Incorporated herein by reference to the identically numbered exhibits to
the Registrant's Annual Report on Form 10-K for fiscal 1993 filed March 30,
1994.
+++Incorporated herein by reference to identically-numbered exhibits to the
Registrant's Annual Report on Form 10-K for fiscal 1994, filed March 29, 1995.
++*Incorporated herein by reference to identically-numbered exhibits to the
Registrant's Annual Report on Form 10-K for fiscal 1995, filed March 29, 1996.
(4) Executive Compensation Plans and Arrangements.
The following is a list of all executive compensation plans required to
be filed as exhibits to this Annual Report on Form 10-K.
<TABLE>
<CAPTION>
<S> <C>
a. Amended and Restated Stock Plan, as amended, adopted July 8, 1992 -- Form 10-K for fiscal year ended December
31, 1992 -- Exhibit 10.1.
b. Revised Form of Incentive Stock Option Agreement under the Amended and Restated Stock Plan -- Form S-1
(Registration No. 33-46588) initially filed March 20, 1992, as amended -- Exhibit 10.2.
c. Employment Agreement, dated February 27, 1991, with John P. McConnell -- Form S-1 (Registration No. 33-46588)
initially filed March 20, 1992, as amended -- Exhibit 10.5.
d. Employment Agreement, dated February 22, 1991, with Luanne L. Roth -- Form S-1 (Registration No. 33-46588)
initially filed March 20, 1992, as amended -- Exhibit 10.6.
e. Employment Agreement, dated February 27, 1991, with Jack Edward Ferguson -- Form S-1 (Registration No. 33-46588)
initially filed March 20, 1992, as amended -- Exhibit 10.7.
f. Employment Agreement, dated February 18, 1991, with G. Michael Anthony -- Form S-1 (Registration No. 33-46588)
initially filed March 20, 1992, as amended -- Exhibit 10.8.
g. Employment Agreement, dated February 27, 1991, with Robert M. Sawyer, Jr. -- Form S-1 (Registration No. 33-46588)
initially filed March 20, 1992, as amended -- 10.9.
h. Form of Employee Nondisclosure and Developments Agreement -- Form S-1 (Registration No. 33-46588) initially filed
March 20, 1992, as amended -- Exhibit 10.10.
i. Option Agreement between Venture Investors and John P. McConnell -- Form S-1 (Registration No. 33-46588)
initially filed March 20, 1992, as amended -- Exhibit 10.11.
j. Employee Retirement Savings Plan, as amended - - Form S-1 (Registration Statement No. 33-46588) initially filed
March 20, 1992, as amended -- Exhibits 10.18 and 10.18.1.
k. Amended and Restated Profit Sharing Plan, as amended -- Form S-1 (Registration No. 33-46588) initially filed
March 20, 1992, as amended -- Exhibits 10.19 and 10.19.1.
l. Pension Plan, as amended -- Form S-1 (Registration No. 33-46588) initially filed March 20, 1992, as amended --
Exhibit 10.20.
m. Employment Agreement, dated June 30, 1993, with Kenneth R. Erb -- Form 10-Q for the second quarter of fiscal 1993
filed August 13, 1993 -- Exhibit 10.27.
n. Employment Agreement, dated June 30, 1993, with Michael J. Custode -- Form 10-Q for the second quarter of fiscal
1993 filed August 13, 1993 -- Exhibit 10.28.
o. Employment Agreement, dated June 30, 1993, with Lawrence G. Drappi -- Form 10-Q for the second quarter of fiscal
1993 filed August 13, 1993 -- Exhibit 10.29.
p. Noncompetition Agreement, dated June 30, 1993, with Kenneth R. Erb
-- Form 10-Q for the second quarter of fiscal 1993 filed August
13, 1993 -- Exhibit 10.30.
q. Noncompetition Agreement, dated June 30, 1993, with Michael J.
Custode -- Form 10-Q for the second quarter of fiscal 1993 filed
August 13, 1993 -- Exhibit 10.31.
r. Noncompetition Agreement, dated June 30, 1993, with Lawrence G.
Drappi -- Form 10-Q for the second quarter of fiscal 1993 filed
August 13, 1993 -- Exhibit 10.32.
s. Employment Agreement, dated January 18, 1994, with Ami Elis -- Form
8-K filed January 28, 1994 -- Exhibit 10.34. t. Noncompetition
Agreement, dated January 18, 1994, with Ami Elis -- Form 8-K filed
January 28, 1994 -- Exhibit 10.35.
</TABLE>
(b) No reports on Form 8-K were filed during the fourth quarter of the
fiscal year ended December 31, 1996.
34
<PAGE>
SIGNATURE
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
MEDIC COMPUTER SYSTEMS, INC.
Date: March 27, 1997 By:
John P. McConnell
President
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed by the following person on behalf of the Registrant
and in the capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<S> <C> <C>
/s/ John P. McConnell
John P. McConnell President (Principal March 27, 1997
Executive Officer) and Director
/s/ Luanne L. Roth
Luanne L. Roth Vice President and Chief March 27, 1997
Financial Officer
(Principal Financial and
Accounting Officer)
/s/ Alan W. Winchester
Alan W. Winchester Director March 27, 1997
Thomas C. Nelson Director March 27, 1997
/s/ John L. Corse
John L. Corse Director March 27, 1997
Patrick V. Hampson Director March 27, 1997
</TABLE>
35
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Medic Computer Systems, Inc.
Report of Independent Accountants F-2
Consolidated Balance Sheets - As of December 31, 1996 and 1995 F-3
Consolidated Statement of Operations - For the years ending December 31, 1994, F-4
1995 and 1996
Consolidated Statement of Cash Flows - For the years ending December 31, 1994, F-5
1995 and 1996
Consolidated Statement of Shareholder's Equity - For the years ending December F-6
31, 1994, 1995 and 1996
Notes to the Financial Statements F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
Board of Directors
Medic Computer Systems, Inc.
We have audited the accompanying consolidated balance sheets of Medic Computer
Systems, Inc. and subsidiaries as of December 31, 1996 and 1995, and the
related consolidated statements of operations, shareholders' equity and cash
flows for each of the three years in the period ended December 31, 1996. 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 consolidated financial position of Medic
Computer Systems, Inc. and subsidiaries at December 31, 1996 and 1995 and
the consolidated results of their operations and their cash flows for each
of the three years in the period ended December 31, 1996, in conformity
with generally accepted accounting principles.
(Signature of Coopers & Lybrand, L.L.P. appears here)
COOPERS & LYBRAND, L.L.P.
Raleigh, North Carolina
March 21, 1997
F-2
<PAGE>
MEDIC COMPUTER SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
1996 1995
--------------------------------------------------------------------------------------- ---- ----
(RESTATED)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $25,557 $38,935
Short-term investments 32,852 11,461
Accounts receivable, trade, net of allowances for returns and doubtful accounts of
$3,198 and $1,316 in 1996 and 1995, respectively 54,737 41,189
Inventories and maintenance parts 13,778 12,294
Prepaid expenses 4,968 6,190
Other current assets 1,006 1,237
Deferred income tax benefit 2,886 2,515
--------------------------------------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 135,784 113,821
Property and equipment, at cost, net 10,099 7,075
Intangible assets, at cost, net 18,798 20,445
Other assets 55 122
--------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $164,736 $141,463
--------------------------------------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term note $1,575 $2,677
Accounts payable, trade 10,013 7,336
Customer deposits and deferred maintenance revenue 11,340 13,396
Income taxes payable 1,131 1,676
Accrued expenses:
Commissions 2,213 1,604
Compensation and related items 4,915 3,963
Other 2,839 3,075
--------------------------------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 34,026 33,727
Long-term note, less current portion 1,418 3,127
Other long-term liabilities 82 172
--------------------------------------------------------------------------------------------------------------------
COMMITMENTS AND CONTINGENCIES (NOTES 12 AND 13)
SHAREHOLDERS' EQUITY:
Common Stock, $.01 par value; 40,000,000 shares authorized; 24,441,470 and
24,211,400 shares issued and outstanding in 1996 and 1995, respectively 244 242
Additional paid-in capital 70,797 68,628
Retained earnings 58,169 35,567
--------------------------------------------------------------------------------------------------------------------
129,210 104,437
--------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $164,736 $141,463
--------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-3
<PAGE>
MEDIC COMPUTER SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31, 1996 1995 1994
- ----------------------------------------------------------------------- ---- ---- ----
(restated) (restated)
<S> <C> <C> <C>
NET REVENUES:
Systems $92,827 $77,618 $59,794
Maintenance, forms and other services 98,960 75,898 55,561
- --------------------------------------------------------------------------------------------------------------------------
TOTAL NET REVENUES 191,787 153,516 115,355
- --------------------------------------------------------------------------------------------------------------------------
COST OF REVENUES:
Systems 55,527 48,275 36,752
Maintenance, forms and other services 59,314 43,846 30,327
- --------------------------------------------------------------------------------------------------------------------------
TOTAL COST OF REVENUES 114,841 92,121 67,079
- --------------------------------------------------------------------------------------------------------------------------
GROSS MARGIN 76,946 61,395 48,276
- --------------------------------------------------------------------------------------------------------------------------
OPERATING EXPENSES:
Sales and marketing 17,857 15,001 12,639
Research and development 10,155 8,391 5,991
General and administrative 10,490 8,503 6,968
Amortization of intangible assets 1,774 2,872 3,088
- --------------------------------------------------------------------------------------------------------------------------
TOTAL OPERATING EXPENSES 40,276 34,767 28,686
- --------------------------------------------------------------------------------------------------------------------------
INCOME FROM OPERATIONS 36,670 26,628 19,590
- --------------------------------------------------------------------------------------------------------------------------
OTHER INCOME:
Interest income, net 2,193 1,868 317
- --------------------------------------------------------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES 38,863 28,496 19,907
- --------------------------------------------------------------------------------------------------------------------------
PROVISION FOR INCOME TAXES 14,823 10,102 7,233
- --------------------------------------------------------------------------------------------------------------------------
NET INCOME $24,040 $18,394 $12,674
- --------------------------------------------------------------------------------------------------------------------------
PRO FORMA DATA:
INCOME BEFORE PRO FORMA INCOME TAX PROVISION $24,040 $18,394 $12,674
PRO FORMA INCOME TAX EXPENSE FOR
THE PERIODS PRIOR TO MAY 31, 1996 489 1,178 968
- --------------------------------------------------------------------------------------------------------------------------
PRO FORMA NET INCOME $23,551 $17,216 $11,706
- --------------------------------------------------------------------------------------------------------------------------
PRO FORMA EARNINGS PER SHARE:
Net income per share $0.95 $0.72 $0.52
- --------------------------------------------------------------------------------------------------------------------------
Pro forma weighted average common
shares and equivalents used in
computing net income per share 24,782,701 23,952,268 22,514,960
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-4
<PAGE>
MEDIC COMPUTER SYSTEMS, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31, 1996 1995 1994
- ----------------------------------------------------------------------------------------------------------------------------
(RESTATED) (RESTATED)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 24,040 $ 18,394 $ 12,674
ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH
PROVIDED BY OPERATING ACTIVITIES:
Depreciation and amortization of property and equipment 2,467 1,672 4,194
Amortization of intangibles 1,774 2,872 21
Deferred income taxes (371) (1,083) (416)
Accounts receivable, trade (net) (13,548) (18,811) (3,527)
Inventories and maintenance parts (1,484) (1,863) (1,634)
Prepaid expenses 1,222 (1,526) (172)
Other assets 298 120 (184)
Accounts payable, trade 2,677 1,034 852
Customer deposits and deferred maintenance revenue (2,056) 1,843 816
Income taxes payable (545) 1,468 1,489
Accrued expenses 1,325 2,047
Payments on long-term note (1,547)
Other long-term liabilities (90) (2) 14
- --------------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 14,162 6,165 14,127
- --------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of short-term investments (44,367) (46,225) (1,188)
Proceeds from the sale of short-term investments 22,976 36,066
Payments for purchases of property and equipment (5,491) (3,375) (1,802)
Payments for acquisitions made, net of cash acquired (127) (5,122) (4,861)
Tax benefits from utilization of excess tax basis acquired 158 516
- --------------------------------------------------------------------------------------------------------------------------
NET CASH USED IN INVESTING ACTIVITIES (27,009) (18,498) (7,335)
- --------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock 907 36,101 62
Distributions to CompuSystems, Inc. shareholders (1,438) (3,387) (1,608)
Payments on notes payable (1,264) (109) (54)
Tax benefits from stock options exercised 1,264 2,019 393
- --------------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (531) 34,624 (1,207)
- --------------------------------------------------------------------------------------------------------------------------
Net change in cash and cash equivalents (13,378) 22,291 5,585
CASH AND CASH EQUIVALENTS:
Beginning of period 38,935 16,644 11,059
- --------------------------------------------------------------------------------------------------------------------------
End of period $ 25,557 $ 38,935 $ 16,644
- --------------------------------------------------------------------------------------------------------------------------
CASH PAID FOR INTEREST AND INCOME TAXES WAS AS FOLLOWS:
Interest $ 89 $ 114 $ 112
- --------------------------------------------------------------------------------------------------------------------------
Income taxes $ 14,113 $ 7,487 $ 7,079
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-5
<PAGE>
MEDIC COMPUTER SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(dollars in thousands, except share data)
<TABLE>
<CAPTION>
Common Stock Additional Total
---------------------------- Paid-in Retained Shareholders'
Shares Amount Capital Earnings Equity
-----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
RESTATED BALANCE AT DECEMBER 31, 1993 21,023,622 $ 211 $ 25,920 $ 9,781 $ 35,912
Issuance of 797,600 shares for the acquisition of Elcomp 797,600 8 3,900 3,908
Issuance of common stock under stock incentive plans 144,892 1 61 62
Tax benefits from options exercised 393 393
Distributions to former shareholders of CompuSystems (1,608) (1,608)
Restated Net Income 1994 12,674 12,674
-----------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1994 21,966,114 220 30,274 20,847 51,341
Issuance of 1,700,000 shares 1,700,000 16 35,280 35,296
Issuance of 212,156 shares for the acquisition of National
Medical Systems, Inc. 212,156 2 254 (287) (31)
Issuance of common stock under stock incentive plans 338,354 4 813 817
Repurchase of shares under stock incentive plans (5,224) (12) (12)
Tax benefits from options exercised 2,019 2,019
Distributions to former shareholders of CompuSystems, Inc. (3,387) (3,387)
Restated Net Income 1995 18,394 18,394
-----------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1995 24,211,400 242 68,628 35,567 104,437
Issuance of common stock under stock incentive plans 216,912 2 612 614
Repurchase of shares (2,205) (76) (76)
Issuance of common stock under Employee Stock Purchase Plan
15,363 369 369
Tax benefits from options exercised 1,264 1,264
Distributions to former shareholders of CompuSystems, Inc. (1,438) (1,438)
Net income 24,040 24,040
-----------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1996 24,441,470 $ 244 $ 70,797 $ 58,169 $ 129,210
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-6
<PAGE>
MEDIC COMPUTER SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION
On November 6, 1990, Medic Computer Systems, Inc. ("Medic"), a North Carolina
corporation became the surviving corporation of a leveraged buyout transaction
whereby all of the outstanding stock of PRC Medic Computer Systems, Inc. (the
"Predecessor") was acquired from its parent corporation, a subsidiary of Black &
Decker. The acquisition was accounted for as a purchase and, accordingly, the
excess of the purchase price over the estimated fair value of net assets
acquired has been allocated to a category included in intangible assets as
outlined in Note 7.
During 1992, Medic completed an initial public offering ("IPO") of its common
stock, whereby 5,750,000 shares (including the over allotment option granted to
the underwriters) of Medic's common stock were sold at $4.00 per share. On April
19, 1995, the Company completed a follow-on offering of its common stock whereby
1,700,000 shares were issued by the Company at $22.00 per share resulting in net
proceeds to the Company of approximately $35,296,000, after underwriting
discounts and commissions and other expenses of the offering payable by the
Company.
On January 18, 1994, Medic completed the acquisition of all of the outstanding
stock of Elcomp Systems, Inc., a privately held company ("Elcomp") located in
Pittsburgh, Pennsylvania, for approximately $5,000,000 in cash and 797,600
shares of Medic's common stock. The acquisition was accounted for as a purchase
in accordance with Accounting Principles Board Opinion No. 16 and, accordingly,
the purchase price has been allocated to the assets acquired and liabilities
assumed based on the estimated fair values at the date of acquisition. The
operating results of Elcomp are included in the Company's consolidated income
statements from the date of acquisition. Effective January 1, 1995, Elcomp was
merged into Medic.
On August 28, 1995, the Company acquired the assets of Script Systems, Inc.
("Script") from InfoMed Holdings, Inc. ("InfoMed"), with headquarters in
Princeton, New Jersey, for approximately $3,000,000 in cash and the assumption
of certain liabilities. The acquisition has been accounted for as a purchase
and, accordingly, the purchase price has been allocated to the assets acquired
and the liabilities assumed based on the estimated fair values at the date of
acquisition. The results of operations of Script are included in the
accompanying consolidated financial statements from the date of acquisition.
On August 31, 1995, the Company acquired all of the outstanding stock of
National Medical Systems, Inc. ("National Medical") a privately held company,
located in Westboro, Massachusetts through an exchange of stock in a merger
transaction valued at approximately $5,000,000. The Company issued approximately
212,000 shares of its common stock in the transaction. The acquisition was
accounted for as a pooling of interests, but was not material to the Company's
results of operations and financial position for the periods prior to the
acquisition. Accordingly, the results of operations of National Medical have
been included from the date of acquisition.
On September 29, 1995, the Company acquired all of the outstanding stock of
Compudata Professional Systems, Ltd. ("Compudata"), a privately held company
located in Marietta, Georgia,
F-7
<PAGE>
for approximately $2,000,000 in cash. The acquisition has been accounted for as
a purchase and, accordingly, the purchase price has been allocated to the assets
acquired and the liabilities assumed based on the estimated fair values at the
date of acquisition. The results of operations of Compudata are included in the
accompanying consolidated financial statements from the date of acquisition.
On May 31, 1996, the Company acquired all of the outstanding stock of
CompuSystems, Inc. ("CompuSystems"), a privately held company based in Columbia,
South Carolina, through an exchange of stock in a merger transaction valued at
approximately $33,400,000. Medic issued 720,022 shares of its Common Stock to
the shareholders of CompuSystems in the merger. The transaction was accounted
for as a pooling of interests and, accordingly, the Company's financial
statements for the periods prior to the merger have been restated to include the
results of CompuSystems for all periods presented. Certain details of the
results of operations of the previously separate companies before the
acquisition are as follows:
January 1 - May 31, 1996
Medic CompuSystems Total
Revenue $ 63,181 $ 4,085 $ 67,266
Net income 5,660 1,167 6,827
Pro forma income tax expense 489 489
Pro forma net income $ 5,660 $ 678 $ 6,338
Pro forma financial information has not been presented for the Script, National
Medical or Compudata acquisitions since the acquisitions are not considered
material, individually or in aggregate, in relation to the operations of the
Company. The term "Company" used herein means Medic and its wholly owned
subsidiaries at December 31, 1996, unless otherwise indicated by the context.
On June 10, 1996, the Company declared a two-for-one stock split of the
Company's Common Stock effective June 24, 1996, pursuant to which each
shareholder of record received one additional share of Common Stock for each
share held as of that date. The financial statements have been restated to
reflect the effect of the split.
2. SUBSEQUENT EVENTS
On February 28, 1997, the Company acquired all of the outstanding stock of Home
Care Information Systems, Inc. ("HCIS"), a privately held company located in
Bloomfield, New Jersey, through an exchange of stock in a merger transaction
valued at approximately $18,800,000. The Company issued approximately 522,000
shares of its common stock in the transaction. The acquisition was accounted for
as a pooling of interests, but was not material to the Company's results of
operations and financial position for the periods prior to the acquisition.
Accordingly, the results of operations of HCIS will be included from the date of
acquisition.
On February 28, 1997, the Company also acquired all of the outstanding stock of
Computer Business Systems, Inc. ("CBSI"), a privately held company located in
Rockville, Maryland, through an exchange of stock in a merger transaction valued
at approximately $26,460,000. The Company issued approximately 735,000 shares of
its common stock in the transaction. The acquisition was
F-8
<PAGE>
accounted for as a pooling of interests, but was not material to the Company's
results of operations and financial position for the periods prior to the
acquisition. Accordingly, the results of operations of CBSI will be included
from the date of acquisition.
3. OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
OPERATIONS
The Company currently operates in one business segment, the development and
marketing of integrated computer systems to the healthcare industry. The
Company's products consist of several practice management systems, clinical
information and patient records systems and electronic data interchange services
("EDI") designed to reduce cost and facilitate patient care in the physician
practice. Systems consist of hardware, software, installation and training.
Systems revenue also includes sales of system upgrades and additional peripheral
hardware and software to existing customers.
The Company contracts with customers for transaction-based, EDI services which
include electronic patient billing, insurance claims and payment posting.
Additionally, the Company provides software and hardware maintenance, based on
annual or monthly fees, and sells forms, supplies and other services to its
customers.
PRINCIPLES OF CONSOLIDATION
The financial statements include the accounts of Medic and its wholly owned
subsidiaries. All material intercompany accounts and transactions have been
eliminated.
ESTIMATES
The preparation of these financial statements in conformity with generally
accepted accounting principles requires management to make certain estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at December 31, 1996 and 1995,
and the reported amounts of revenues and expenses during each of the three years
in the periods ended December 31, 1996, 1995 and 1994. Actual results could
differ from those estimates.
CASH AND CASH EQUIVALENTS
For purposes of the statements of cash flows, the Company considers all highly
liquid debt instruments with a maturity of three months or less when purchased
to be cash equivalents.
SHORT-TERM INVESTMENTS
Short-term investments consist of a portfolio of U.S. government agency
obligations and obligations of states and municipalities. Short-term investments
are carried at amortized cost, which approximates market. Amortization of
premiums and accretion of discounts are recognized as adjustments to interest
income using the interest method.
F-9
<PAGE>
REVENUE RECOGNITION
The Company recognizes revenue in accordance with the provisions of AICPA
Statement of Position No. 91-1 "Software Revenue Recognition" (SOP 91-1).
Revenue from systems sales is recognized upon the installation and testing of
the system and completion of the initial customer training for all contracts.
Costs of remaining insignificant Company obligations, if any, are accrued as
cost of revenues at the time of revenue recognition. Revenue from services is
recognized as the services are performed. Revenues related to hardware and
software maintenance contracts are recognized ratably over the terms of the
contracts. Revenues related to forms and other ancillary products are recognized
upon shipment. Revenues as reflected in the statements of operations are net of
discounts, product returns and allowances. Various expenses are allocated
between cost of revenues for systems and for maintenance, forms and other
services, and research and development, based on management's estimates.
CONCENTRATION OF CREDIT RISK
Concentrations of credit risk that arise from financial instruments exist for
groups of counterparties when they have similar economic characteristics that
would cause their ability to meet contractual obligations to be similarly
affected by changes in economic or other conditions. The Company has no
significant exposure to any individual customer. However, the Company sells
products and provides services primarily to physicians` practices located
throughout the United States. The Company maintains its cash in bank deposit
accounts which exceed federally insured limits. The Company has not experienced
any losses in such accounts. The Company believes it is not exposed to any
significant credit risk on cash and cash equivalents.
INVENTORIES AND MAINTENANCE PARTS
Inventories, consisting principally of computer hardware held for resale and
computer maintenance parts, held to repair customers' systems under hardware
maintenance contracts between the Company and certain of its customers, are
stated at the lower of cost or estimated market with cost determined by the
average method.
PROPERTY AND EQUIPMENT
Property and equipment are depreciated using the straight-line method over the
estimated useful lives of the respective assets, which range from two to thirty
one and one half years. Expenditures for repairs and maintenance are charged to
expense as incurred. The costs of major renewals and betterments are
capitalized. The cost and related accumulated depreciation of property and
equipment are removed from the accounts upon retirement or other disposition and
any resulting gain or loss is reflected in operations.
INTANGIBLE ASSETS
Intangible assets are amortized by the methods and over the estimated lives as
set forth in Note 7.
INCOME TAXES
Income taxes are calculated in accordance with the provisions of Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS No.
109").
RESEARCH AND DEVELOPMENT COSTS
Research and development expenditures are charged to expense in the year
incurred.
F-10
<PAGE>
EARNINGS PER SHARE
The number of shares used in computing earnings per share of common stock
includes the weighted average number of shares of common stock and equivalents
outstanding during the period. In February 1997, the Financial Accounting
Standards Board issued Statement of Financial Standards No. 128, "Earnings per
Share" ("SFAS No. 128"). SFAS No. 128 is designed to improve to improve the
earnings per share information provided in financial statements by simplifying
the existing computational guidelines, revising the disclosure requirements, and
increasing comparability of earnings per share on an international basis. This
pronouncement is effective for periods beginning after December 15, 1997, and is
not expected to have a material impact on the Company's financial statements.
FAIR VALUES OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used by the Company's management in
estimating fair values for financial instruments as required by Statement of
Financial Accounting Standards No. 107, "Disclosures About Fair Value of
Financial Instruments".
INVESTMENTS The fair values of the Company's investments (which are
included in cash and cash equivalents and short-term investments) are
based on market quotations.
LONG-TERM NOTE The fair value of the Company's long-term note has been
based upon market quotations.
ACCOUNTING FOR STOCK BASED COMPENSATION
As permitted by Statement of Financial Accounting Standards No. 123, "Accounting
for Stock Based Compensation" ("SFAS No. 123"), the Company has chosen to apply
APB Opinion No. 25, "Accounting for Stock Issued to Employees" and related
interpretations in accounting for its plans. Accordingly, no compensation cost
has been recognized for options granted under the plan. However, the Company has
disclosed in Note 10 the pro forma effects had compensation cost been determined
based on the fair value of the options at the grant date.
F-11
<PAGE>
4. SHORT-TERM INVESTMENTS
The Company has classified all short-term investments as available for sale and
has classified all such securities as current assets for financial statement
purposes. The amortized cost approximates market value, yielding no unrealized
holding gains or losses at December 31, 1996 and 1995.
The amortized cost of the securities at December 31, 1996 and 1995 were as
follows (in thousands):
1996 1995
---- ----
U.S. government agency obligations $ 2,390 $ 1,648
Obligations of states and municipalities 30,462 9,813
------------- --------------
$ 32,852 $ 11,461
------------- --------------
The maturities of these securities as of December 31, 1996 and 1995 were as
follows (in thousands):
1996 1995
---- ----
Within one year $ 14,016 $ 3,470
After 1 year through 5 years 250 ---
After 5 years through 10 years 3,933 ---
After ten years 14,653 7,991
------------- --------------
$ 32,852 $ 11,461
------------- --------------
5. INVENTORIES AND MAINTENANCE PARTS
Ending inventories consisted of the following at December 31, 1996 and 1995 (in
thousands):
1996 1995
---- ----
New and used computer hardware and parts $ 12,952 $ 10,865
Inventory shipped to customers for which revenue
recognition criteria has not been met 560 1,007
Forms 266 422
----------- -------------
$ 13,778 $ 12,294
----------- -------------
F-12
<PAGE>
6. PROPERTY AND EQUIPMENT
Property and equipment, at cost, consisted of the following at December 31, 1996
and 1995 (in thousands):
1996 1995
---- ----
Office furniture and equipment $ 4,366 $ 2,633
Computer equipment 10,491 6,975
Leasehold improvements 378 369
Vehicles 479 514
Land 90 90
Building 1,474 1,474
-------------- ---------------
17,278 12,055
Less accumulated depreciation and amortization 7,179 4,980
-------------- ---------------
$ 10,099 $ 7,075
-------------- ---------------
7. INTANGIBLE ASSETS
Intangible assets consist of the following at December 31, 1996 and 1995 (in
thousands):
<TABLE>
<CAPTION>
Amortization Estimated
Method Lives 1996 1995
------ ----- ---- ----
<S> <C> <C> <C> <C>
Excess of purchase price over net assets
acquired and other intangible assets
Straight-line 15 years $ 25,904 $ 25,769
Noncompetition agreement Straight-line 5 years 374 374
---------------- -------------
26,278 26,143
Less accumulated amortization 7,480 5,698
---------------- -------------
$ 18,798 $ 20,445
---------------- -------------
</TABLE>
The Company continually monitors events and changes in circumstances that could
indicate carrying amounts of intangible assets may not be recovered. When events
or changes in circumstances are present that indicate the carrying amounts of
intangible assets may not be recoverable, the Company assesses the
recoverability of intangible assets by determining whether the carrying value of
such intangible assets will be recoverable through the future cash flows
expected from the use of the asset and its eventual disposition. No impairment
losses on intangible assets were recorded by the Company during the years ended
December 31, 1996, 1995 and 1994.
F-13
<PAGE>
8. NOTES PAYABLE
In 1995, the Company entered into a financing agreement with a vendor to obtain
favorable pricing on a large number of software licenses that will be resold.
This agreement is interest-free and requires monthly payments of $128,930
through December 1998. The estimated fair value of the note at December 31, 1996
is $2,632,000. Future minimum payments under this agreement are as follows (in
thousands):
Year ending December 31,
1997 $ 1,575
1998 1,418
------------
$ 2,993
============
The Company has a $10,000,000 uncommitted line of credit with Wachovia Bank of
North Carolina, N.A. At December 31, 1996, there were no borrowings outstanding
under this line.
Accounts payable to another vendor are collateralized by inventory purchased by
Medic from the vendor and related receivables from the sale of inventory. At
December 31, 1996 and 1995, approximately $4,040,000 and $915,000, respectively,
was outstanding to this vendor.
9. INCOME TAXES
Income tax expense for the years ended December 31, 1996, 1995 and 1994
consisted of the following (in thousands):
1996 1995 1994
---- ---- ----
FEDERAL:
Current $ 12,290 $ 9,067 $ 6,279
Deferred (303) (921) (341)
----------------- ---------------- ----------------
11,987 8,146 5,938
----------------- ---------------- ----------------
STATE:
Current 2,904 2,118 1,370
Deferred (68) (162) (75)
----------------- ---------------- ----------------
2,836 1,956 1,295
----------------- ---------------- ----------------
$ 14,823 $ 10,102 $ 7,233
----------------- ---------------- ----------------
F-14
<PAGE>
The actual effective rate of income tax expense differs from the U.S. statutory
federal income tax rate as follows:
1996 1995 1994
---- ---- ----
Statutory U.S. federal rate 35.0% 35.0% 35.0%
State income taxes, net of federal
income tax benefits 4.8 4.8 4.7
Amortization of nondeductible intangibles 0.9 1.2 1.7
Tax free interest income (1.5) (1.0) ---
Research and experimentation
tax credit (0.5) (0.9) ---
Pro forma taxes on CompuSystems,
an S-Corporation prior
to May 31, 1996, paid
by former shareholders (1.3) (4.1) (4.9)
Other items, net 0.7 0.5 (0.2)
------- ------- -------
38.1% 35.5% 36.3%
------- ------- -------
The components of net deferred tax assets at December 31, 1996 and 1995 were as
follows (in thousands):
1996 1995
---- ----
Accelerated depreciation $ (396) $ ---
Deferred revenue 1,265 1,778
Inventory reserves or write-downs 390 297
Inventory spare parts capitalization 284 ---
Accrued bonuses and vacation 531 413
Accounts receivable allowances 1,198 427
Other assets 87 25
Accrued pension and profit sharing (473) (425)
------------- --------------
$ 2,886 $ 2,515
------------- --------------
During the years ended December 31, 1996 and 1995, the Company utilized excess
tax basis acquired from the Predecessor of approximately $400,000, for each
year, resulting in a reduction of both current income taxes payable and excess
of purchase price over net assets acquired of approximately $156,000 and
$158,000, respectively.
F-15
<PAGE>
10. COMMON STOCK OPTIONS
Options may be granted under the Company's stock option plan for the purchase
directly from the Company of up to 1,960,000 shares of common stock as incentive
stock options and as nonqualified stock options by participants. The exercise
price of each option equals the market price of the Company's stock on the date
of the grant.
Activity in the plan for the years ended December 31, 1995 and 1996 is
summarized as follows:
Available for Outstanding Weighted Average
Grant Exercise Price
Balance, December 31, 1994 830,004 965,504 $ 3.69
Granted on August 31, 1995 (100,000) 100,000 22.00
Options exercised --- (338,354) 2.45
Options canceled at employee
termination 9,550 (9,550) 5.63
---------- ------------- ---------------
Balance, December 31, 1995 739,554 717,600 6.80
Granted on January 2, 1996 (72,000) 72,000 30.00
Granted on October 4, 1996 (100,950) 100,950 29.50
Options exercised (216,912) 2.81
Options canceled at employee
termination 6,850 (6,850) 16.78
---------- ------------- ---------------
Balance, December 31, 1996 573,454 666,788 $ 13.94
---------- ------------- ---------------
Shares subject to the options granted in March 1991 vest over a five-year
period, 33-1/3% vesting at the end of three years and on each anniversary of the
grant date thereafter, and expire in 10 years. The majority of the shares
granted in 1992 and thereafter vest 100% in three years and expire in 10 years.
As of December 31, 1996 and 1995, approximately 237,000 and 157,000 options were
vested, respectively.
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
--------------------------------------------------- ---------------------------
Weighted-Average
Range of Exercise Remaining Weighted Average Weighted
Prices Number Contractual Life Exercise Price Number Average
Outstanding Exercisable Exercise Price
- ------------------- --------------- -------------------- ------------------- --------------- -----------------
<S> <C> <C> <C> <C> <C>
$0.43 - $10.00 398,089 5.7 years $ 5.18 237,000 $ 2.39
$20.01-$30.00 268,699 8.6 years $ 26.93 --
--------------- ---------------
666,788 237,000
--------------- ---------------
</TABLE>
F-16
<PAGE>
Had compensation cost been recognized based on the fair value of the options at
the grant dates for awards under the Plan consistent with the method of SFAS No.
123, the Company's net income and net income per share would have been reduced
to the pro forma amounts indicated below (in thousands, except per share
information):
1996 1995
---- ----
As Reported Pro Forma As Reported Pro Forma
Net income $ 23,551 $ 22,838 $ 17,216 $ 17,008
Net income per share $ 0.95 $ 0.92 $ 0.72 $ 0.71
Number of share used 24,783 24,783 23,952 23,952
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option-pricing model with the following weighted-average
assumptions used for grants. The weighted average fair value of options granted
during 1996 and 1995 was $ 4.51 and $ 4.08 , respectively.
1996 1995
---- ----
Dividend yield 0% 0%
Expected volatility 62.24% 99.11%
Risk-free interest rate 5.17% 5.08%
Expected lives, in years 0.28 0.26
11. EMPLOYEE BENEFIT PLANS
The Company has a defined contribution profit sharing plan covering
substantially all employees who have completed one year of eligible service and
have reached the age of 21. The Company's contributions are at the discretion of
the Company's Board of Directors and are limited to 15% of eligible participant
compensation in any plan year. The cost of such plan to the Company was
$1,133,350, $1,019,600 and $799,000 for the years ended December 31, 1996, 1995
and 1994, respectively.
The Company has a defined contribution pension plan covering substantially all
employees of the Company. Contribution rates, to be established with the
approval of the Board of Directors, are limited to 8% of a participant's
compensation, if any, in excess of the FICA maximum plus one-half of the
aforementioned rate applied to a participant's compensation below the FICA
maximum. The cost of such plan to the Company was $1,083,949, $842,000 and
$736,000 for the years ended December 31, 1996, 1995 and 1994, respectively.
In addition, the Company has a defined contribution employee retirement savings
plan covering substantially all employees of the Company. The Company will match
participants' pre-tax contributions up to an amount determined annually by the
Board of Directors. The cost of such plan to the Company was $227,942, $191,000
and $133,000 for the years ended December 31, 1996, 1995 and 1994, respectively.
F-17
<PAGE>
12. COMMITMENTS
The Company leases various office and warehouse space under noncancelable
operating leases expiring through 2001. Certain lease agreements may be renewed
for terms ranging from one to five years at the option of the Company. It is
expected that in the normal course of business, expiring leases will be renewed
or replaced by similar leases on other properties. Future minimum lease payments
as of December 31, 1996 under the noncancelable operating leases follows(in
thousands):
YEAR ENDING DECEMBER 31,
1997 $ 3,083
1998 2,839
1999 2,456
2000 825
2001 292
---------------
$ 9,495
---------------
Rent expense was $2,981,000, $2,260,000 and $1,903,000 during 1996, 1995 and
1994, respectively.
13. CONTINGENCIES
The Company is self-insured for employee health insurance claims. At December
31, 1996, the Company had a stop-loss insurance policy covering claims in excess
of $50,000 per employee and $1,839,000 in the aggregate. The accompanying
financial statements reflect an estimated liability for claims incurred as of
December 31, 1996 and 1995, respectively.
Periodically, the Company is involved in various litigation arising in the
ordinary course of business. Although the final resolution of these matters
cannot be determined, it is management's opinion that the final outcome of these
matters will not have a material adverse effect on the Company's financial
position or results of operations.
14. RELATED PARTY TRANSACTIONS
During 1996, the Company earned revenues of $2,929,000 with a customer that
shares common members of the Board of Directors with the Company and in which
certain senior members of management are minority shareholders. The related cost
of goods sold was $687,000. At December 31, 1996 there was $419,000 in
outstanding accounts receivable from this customer.
F-18
<PAGE>
15. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The following table of supplementary financial information presents selected
unaudited quarterly results of the Company's operations over the last eight
quarters (in thousands, except per share amounts):
<TABLE>
<CAPTION>
1996
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
<S> <C> <C> <C> <C>
Revenues $ 43,374 $ 44,584 $ 50,072 $ 53,757
Gross margin 17,211 18,018 19,679 22,038
Sales, general and
administrative, research
and development
expenses 8,828 9,224 9,698 10,752
Amortization expense 445 447 442 440
Income from operations 7,938 8,347 9,539 10,846
Net income 5,391 5,692 6,086 6,871
Pro forma net income 5,134 5,460 6,086 6,871
Pro forma earnings per share $ 0.21 $ 0.22 $ 0.25 $ 0 .28
1995
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
Revenues $ 33,239 $ 36,264 $ 39,977 $ 44,036
Gross margin 13,186 14,684 15,761 17,764
Sales, general and
administrative, research
and development
expenses 6,628 7,471 8,396 9,400
Amortization expense 755 757 780 580
Income from operations 5,803 6,456 6,585 7,784
Net income 3,794 4,580 4,701 5,319
Pro forma net income 3,538 4,279 4,387 5,012
Pro forma earnings per share $ 0.16 $ 0.18 $ 0.18 $ 0.20
</TABLE>
F-19
<PAGE>
INDEX TO FINANCIAL STATEMENT SCHEDULES
Schedule II Valuation and Qualifying Accounts
S-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
Board of Directors
Medic Computer Systems, Inc.
Our report on the financial statements of Medic Computer Systems, Inc. is
included on page F-2 of the Company's 1996 Form 10K. In connection with our
audits of such financial statements, we have also audited the related
financial statement schedule, Schedule II - Valuation and Qualifying Accounts.
In our opinion, the financial statements schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly, in all material respects, the information required to be
included therein.
(Coopers & Lybrand LLP signature appears here)
Raleigh, North Carolina
March 21, 1997
S-2
<PAGE>
MEDIC COMPUTER SYSTEMS, INC.
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
(dollars in thousands)
<TABLE>
<CAPTION>
COL. A COL. B COL. C COL. D COL. E
ADDITIONS
Balance at Charged to Charged to Balance at
Beginning of Costs and Other Accounts Deductions End of
Period Expenses Describe Describe Period
<S> <C> <C> <C> <C> <C>
Description
Year ended December 31, 1996:
Deducted from asset accounts:
Allowance for product returns and doubtful
accounts (a) $1,316 2,029 -- (147)(c) $3,198
Inventory valuation reserve (b) $ 397 655 (422)(d) $ 630
Year ended December 31, 1995:
Deducted from asset accounts:
Allowance for product returns and doubtful
accounts (a) $ 932 770 89(e) (475)(c) $1,316
Inventory valuation reserve (b) $ 343 492 -- (438)(d) $ 397
Year Ended December 31, 1994:
Deducted from asset accounts:
Allowance for product returns and doubtful
accounts (a) $ 668 90 174(e) -- $ 932
Inventory valuation reserve (b) $ 348 489 -- (494)(d) $ 343
</TABLE>
(a) Allowance represents an allowance for both product returns and doubtful
accounts. Activity represents doubtful accounts only. Revenues have been reduced
directly for product returns.
(b) Represents an allowance for excess inventory and lower of cost or market
adjustments.
(c) Uncollectible accounts written off, net of recoveries.
(d) Inventory items written down to lower of cost or market.
(e) Represents allocation of part of purchase price of the Company's
acquisitions to accounts receivable and inventory reserves.
S-3
Exhibit 11.1
MEDIC COMPUTER SYSTEM, INC.
COMPUTATION OF NET INCOME PER SHARE OF COMMON STOCK
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Primary:
Weighted average number of common shares outstanding 24,325,805 23,401,104 21,849,834
Common stock equivalents assuming exercise of dilutive options,
determined by the treasury stock method 456,896 551,164 665,126
Common shares and equivalents 24,782,701 23,952,268 22,514,960
Net income $23,551,000 $17,216,000 $11,706,000
Income per common share:
Net income per common share $0.95 $0.72 $0.52
Fully Diluted:
Weighted average number of common shares outstanding 24,325,805 23,401,104 21,849,834
Common stock equivalents assuming exercise of dilutive options,
determined by the treasury stock method 475,032 618,290 778,398
Common shares and equivalents 24,800,837 24,019,394 22,628,232
Net income $23,551,000 $17,216,000 $11,706,000
Income per common share:
Net income per common shares $0.95 $0.72 $0.52
</TABLE>
Note: The calculation of the shares used in computing net income per share
includes shares of Common Stock as if all shares of Preferred Stock were
converted into Common Stock on the respective original dates of issuance. The
calculation for fully diluted earnings per share has not been included with the
Consolidated Statements of Operations, because fully diluted earnings per share
does not differ from primary earnings per share.
EXHIBIT 21.1
SUBSIDIARIES OF MEDIC COMPUTER SYSTEMS, INC.
NAME JURISDICTION OF INCORPORATION
Compudata Professional Systems, Ltd. GA
National Medical Systems, Inc. MA
Script Acquisition Corporation NC
CompuSystems, Inc. SC
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statements of
Medic Computer Systems, Inc. on Forms S-8 (File Nos. 33-68198 and 333-15173)
of our reports dated March 21, 1997 on our audits of the consolidated financial
statement schedule of Medic Computer Systems, Inc. as of December 31, 1996 and
1995, and for the years ended December 31, 1996, 1995 and 1994, which report is
included in this Annual Report on Form 10-K.
(Signature of Coopers & Lybrand, L.L.P. appears here)
Coopers & Lybrand, L.L.P.
Raleigh, North Carolina
March 21, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 25,557
<SECURITIES> 32,852
<RECEIVABLES> 57,935
<ALLOWANCES> (3,198)
<INVENTORY> 13,778
<CURRENT-ASSETS> 135,784
<PP&E> 17,278
<DEPRECIATION> (7,179)
<TOTAL-ASSETS> 164,736
<CURRENT-LIABILITIES> 34,026
<BONDS> 0
0
0
<COMMON> 244
<OTHER-SE> 128,966
<TOTAL-LIABILITY-AND-EQUITY> 164,736
<SALES> 92,827
<TOTAL-REVENUES> 191,787
<CGS> 55,527
<TOTAL-COSTS> 114,841
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 89
<INCOME-PRETAX> 38,863
<INCOME-TAX> 15,312
<INCOME-CONTINUING> 23,551
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 23,551
<EPS-PRIMARY> .95
<EPS-DILUTED> .95
</TABLE>
