<PAGE> 1
================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
FORM 10-K
<TABLE>
<S> <S>
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED,
EFFECTIVE OCTOBER 7, 1996)
FOR THE FISCAL YEAR ENDED JUNE 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
FOR THE TRANSITION PERIOD FROM ____________ TO ____________
Commission file number 0-26306
</TABLE>
---------------------
IMNET SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 39-1730068
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3015 WINDWARD PLAZA, 30005
WINDWARD FAIRWAYS II, (Zip Code)
ALPHARETTA, GEORGIA
(Address of principal executive offices)
</TABLE>
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (770) 521-5600
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
<TABLE>
<S> <C>
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
None Not Applicable
</TABLE>
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 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. [X] Yes [ ] 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 voting stock held by nonaffiliates of the
registrant was approximately $289,624,479 at September 23, 1997 (7,962,185
shares). The number of common shares outstanding at September 23, 1997 was
9,760,698 (exclusive of treasury shares).
================================================================================
<PAGE> 2
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's definitive Proxy Statement to be mailed to
stockholders in connection with the registrant's 1997 Annual Meeting of
Stockholders are incorporated by reference into Part III, Items 10-13.
Note: The discussions in this Form 10-K contain forward-looking statements
that involve risks and uncertainties. The actual results of IMNET Systems, Inc.
and subsidiaries (the "Company") could differ significantly from those set forth
herein. Factors that could cause or contribute to such differences include, but
are not limited to, those discussed in "Business," particularly "Business-Risk
Factors," and "Management's Discussion and Analysis of Financial Condition and
Results of Operations" as well as those discussed elsewhere in this Form 10-K.
Statements contained in this Form 10-K that are not historical facts are
forward-looking statements that are subject to the safe harbor created by the
Private Securities Litigation Reform Act of 1995. Words such as "believes",
"anticipates", "expects", "intends" and similar expressions are intended to
identify forward-looking statements, but are not the exclusive means of
identifying such statements. A number of important factors could cause the
Company's actual results for fiscal 1998 and beyond to differ materially from
past results and those expressed in any forward-looking statements made by, or
on behalf of, the Company. These factors include, without limitation, those
listed in "Business-Risk Factors".
2
<PAGE> 3
PART I
ITEM 1. BUSINESS
INTRODUCTION
IMNET Systems, Inc. and subsidiaries ("IMNET", the "Company" or
"Registrant") develops, markets, installs and services electronic information
and document management systems to meet the needs of the healthcare industry and
other document-intensive businesses. The Company's hardware and software systems
electronically capture, index, store and retrieve information which is resident
on most storage media, including magnetic disk, optical disk, microfilm, paper
and x-ray film. IMNET's information storage system, the IMNET Electronic
Information Warehouse(TM) ("EIW"), allows users to re-engineer their information
management processes to access information on a cost-effective basis and to
achieve immediate cost savings through productivity increases. The IMNET
Electronic Information Warehouse is used by healthcare providers and healthcare
information systems ("HCIS") vendors to create an electronic medical record
("EMR") by integrating current and historical patient information with existing
information management systems. By providing access to information that is not
otherwise available electronically, the Company believes that the IMNET
Electronic Information Warehouse is a necessary component to create a complete
healthcare information system solution. Since September 1994, the Company has
entered into agreements to supply its systems through its HCIS Distribution
Partners: Cerner Corporation, HBO & Company ("HBOC"), HealthVision, Inc., IDX
Systems Corporation and PHAMIS, Inc. (collectively the "HCIS Distribution
Partners").
Businesses and other organizations have made significant investments over
the years in information technology with the goal of creating a "paperless" work
environment in which information is made available electronically through
computers. Despite dramatic advances in computer technology, only a small amount
of current and historical information used by certain businesses today is
accessible by computer. Most of the critical information used by businesses and
other organizations continues to reside on non-electronic storage media such as
paper, creating costly information management problems including: (i) delays in
accessing information; (ii) space and personnel costs to store paper-based
records; (iii) lost and misfiled documents; (iv) single user access to relevant
data; and (v) errors in entering and reading information. While electronic
document imaging systems have been developed by several companies, no single
platform has emerged as a standard for enabling efficient, cost-effective
electronic access to all information stored on most types of storage media.
The need to access information by computer on a real-time basis is
particularly evident in the healthcare industry where the vast majority of
patient records are stored in paper files and other formats. Electronic access
through computers to current and historical patient information contained in the
patient file permits physicians and other care providers to make informed
decisions regarding patient care, while avoiding unnecessary costs and delays
such as performing multiple tests already administered by other groups in the
healthcare organization. Furthermore, market-driven efforts to contain rising
healthcare costs have resulted in an increasing demand for sophisticated
healthcare information systems that capture patient data on a real-time basis in
an EMR. In order to control healthcare costs while improving the quality of care
provided, physicians need immediate electronic access to patient information.
The IMNET Electronic Information Warehouse provides healthcare
organizations and other document-intensive businesses with a complete electronic
information management solution by integrating current and historical data,
regardless of storage media, with currently installed information management
systems. IMNET's systems electronically capture, store and retrieve scanned,
microfilmed, or computer-generated paper documents, utilizing third party
hardware devices, while structuring the flow of information to achieve increases
in productivity. IMNET's hierarchical information storage management system
provides necessary patient information on-line while adding the capability to
access less essential information contained in a more cost-effective storage
medium. The IMNET Electronic Information Warehouse provides a complementary
extension of existing healthcare information systems and clinical databases,
thereby enabling the creation of a complete EMR.
3
<PAGE> 4
IMNET Systems, Inc. was incorporated in Delaware in May 1992. On October 5,
1992, the Company acquired substantially all of the assets (the "1992
Acquisition") of the electronic imaging business of IMGE, Inc. and certain of
its subsidiaries (collectively, "IMGE").
HEALTHCARE INFORMATION SYSTEMS INDUSTRY BACKGROUND
The importance of healthcare information systems is increasing as a result
of significant economic pressures within the healthcare industry. Healthcare
delivery costs continue to increase at a rate equal to or greater than the costs
of other goods and services. It is estimated that domestic healthcare
expenditures exceeded $1.0 trillion in calendar 1996. The ongoing pressure to
contain healthcare costs is accelerating the shift in economic risks from
healthcare payors to providers, as evidenced by the movement toward managed care
reimbursement models, including capitation. Under capitation, providers assume
certain financial risks because they are paid a pre-determined fee per
individual to provide all healthcare services. In response to this changing
reimbursement environment, many healthcare providers are expanding to create
integrated healthcare delivery enterprises that serve the healthcare needs of
regional populations, while achieving economies of scale.
The availability of complete, timely and cost-effective patient-centered
information is essential to controlling healthcare costs while providing high
quality patient care. The effectiveness of existing healthcare information
systems is limited because a large amount of healthcare information exists on
paper and is not accessible by computer. In many cases, information necessary to
provide effective patient care is located at several different sites and is not
immediately available to the physician. To implement a computerized patient-
centered information system that accesses patient information in a
cost-effective manner, current and historical paper records must be made
available by computer to all points of care.
Healthcare providers and HCIS vendors have increasingly focused their
development efforts on providing a complete EMR at the point of patient care.
HCIS vendors have made significant progress integrating many components
necessary to construct an EMR, including: (i) the combination of disparate
information systems within a provider network; (ii) the automation of certain
points of data entry, such as patient admission and scheduling; and (iii) the
development of tools such as graphical user interfaces and database management
capabilities. However, the EMR's full potential cannot be realized unless it
contains needed current and historical patient information and information
generated and stored outside of the local computer network. A complete EMR would
provide enterprise-wide computer access to, and integration of, information
regarding the patient's clinical history including the paper medical record, as
well as the patient's demographic, financial and insurance information, which is
often contained in a paper-based financial folder.
The storage and retrieval of non-computer-based information on a
cost-effective basis is essential to the creation of the computer-based patient
record. The IMNET Electronic Information Warehouse addresses this need by
providing on-line access to current and historical paper-based and other
information, thereby enabling the creation of the complete EMR.
IMNET'S STRATEGY
IMNET's mission is to make the IMNET Electronic Information Warehouse(TM)
the defacto standard for the electronic capture, storage and retrieval of
healthcare information. To achieve this mission, the Company is pursuing the
following strategy:
Enable Creation of the Electronic Medical Record. As healthcare providers
are under increasing economic pressure to reduce the cost and improve the
quality of care provided, the need for on-line access to all relevant current
and historical patient information is critical. IMNET's systems allow healthcare
providers to access such patient information on a cost-effective, real-time
basis, enabling the creation of a functional EMR. The Company's technology
allows healthcare providers to gain access to information resident in most
storage media, such as magnetic disk, optical disk, on-line microfilm, paper and
x-ray film. Therefore, the Company believes IMNET's systems are a necessary
component of a complete EMR.
4
<PAGE> 5
Expand on Relationships with HCIS Vendors. The Company believes that
integrating its systems with those of HCIS vendors enhances the total system
value to an end-user by providing a complete EMR solution. Since September 1994,
IMNET has entered into distribution agreements with its HCIS Distribution
Partners to sell IMNET's systems as an integrated component of each vendor's
system. Management believes IMNET benefits from these agreements as a result of:
(i) the HCIS Distribution Partner's willingness to "private label" the IMNET
system which provides increased credibility and acceptance for the product; (ii)
the potential for a shortened sales cycle for a sale to the HCIS Distribution
Partner's current customers due to such partner's pre-existing relationship and
its knowledge of the customer's needs; (iii) the HCIS Distribution Partner's
existing sales and marketing capability, reducing the amount of time and
resources IMNET must apply in this area; and (iv) the reduced likelihood that
the HCIS Distribution Partner will develop or otherwise acquire a product
competitive to IMNET's. The Company intends to continue developing additional
distribution partner relationships with leading HCIS vendors.
Maintain Technological Leadership. IMNET's open client-server
architecture, media-independent software and information systems management
capabilities provide an electronic information repository which can be accessed
by users on a local, regional or system-wide basis. The Company believes that it
has established a leadership position by providing complete access to electronic
documents in an on-line, mixed-media environment. IMNET intends to maintain the
technological advantages of its product offerings while enhancing its system
capabilities and performance through internal development, licensing
arrangements and the acquisition or integration of other third party products,
when appropriate.
Grow Through Acquisitions of Businesses, Products and Technologies. The
Company believes it is well-positioned to capitalize on the significant
consolidation opportunities which exist in the healthcare information systems
industry and other document-intensive businesses. In pursuit of such growth
opportunities, the Company completed, in fiscal 1996, the acquisitions of
Evergreen Technologies, Inc. ("Evergreen"), a radiological imaging software
company, and Quesix Software Incorporated ("Quesix"), an electronic patient
record management software company. In September 1996, the Company completed the
acquisition of Hunter International, Inc. ("Hunter"), a provider of electronic
report management and distribution software solutions to the healthcare and
other industries. In June 1997, the Company acquired Advisoft Consulting, S.A.
("Advisoft"), a systems integration and consulting services company which had
been its distribution partner in France since 1993. Through Advisoft, the
Company expects to begin extending its healthcare product distribution into
France. Collectively, these transactions are referred to herein as "the
Acquisitions". The Company will continue to evaluate potential acquisitions
which would enable it to continue to expand its market size and to improve its
information systems solutions for its customers by leveraging existing
strengths, adding core technological competencies and expanding its product
offerings. In March 1997, the Company concluded an agreement under which ISG
Technologies, Inc., a leading OEM supplier of medical imaging visualization
technology, would become the exclusive supplier of medical imaging visualization
technology to the Company. The licensed technology will be marketed under the
MedVision trade name. The Company believes that acquiring the right to license
this technology will enhance the Company's medical imaging product offering.
Expand Beyond the Healthcare Industry. Although IMNET is focused on the
healthcare market, the Company believes that its product and distribution
strategy can be applied in other markets in which large-scale information
systems management requirements exist. Outside of healthcare, IMNET has several
end-user customers, which include major insurance companies, such as Teachers
Insurance and Annuity Association, as well as government agencies such as the
French Social Security Agency. IMNET intends to continue offering its products
and services in other industries as opportunities arise.
PRODUCTS
IMNET's products include proprietary and third party software and third
party hardware components which are integrated to create electronic information
and document management systems. The IMNET Electronic Information Warehouse
consists of integrated product modules marketed as components of the IMNET Image
Engine(R), the IMNET Workflow Engine(TM), IMNET MedVision(TM) ("MedVision"), the
IMNET Electronic Patient Record System(TM) ("EPRS"), IMNET EPRS/Web(TM), IMNET
LaserArc(TM) and
5
<PAGE> 6
related application programming interfaces together with integrated hardware
products and support services. IMNET's software and hardware components, when
integrated with an enterprise's currently installed information management
system, can enable needed information within the enterprise to be accessible by
computer through a complete information management system. The IMNET Electronic
Information Warehouse manages information resident on magnetic disk, optical
disk, microfilm, paper or x-ray film.
The open systems architecture of the IMNET Electronic Information Warehouse
supports multiple software systems developed by the Company, its customers or
its HCIS Distribution Partners. IMNET's systems provide access to an expanded
base of information beyond that which is managed by its HCIS Distribution
Partners' applications and databases. For the end-user, there may be no change
in the appearance of the interface screens other than the ability to display a
wider range of information, such as document images. While the distribution
partners' software applications store and retrieve discrete data within their
own databases or clinical data repositories, IMNET's software controls the
storage and retrieval of other patient information made available by the IMNET
Electronic Information Warehouse.
IMNET EIW-based system costs, including hardware, software and services,
typically range from $200,000 for a small departmental system to over $5 million
for a large enterprise-wide system. In many cases, customers expand their
systems with additional product options which may exceed the original system
purchase price. IMNET's software products are written in C and C++ programming
languages and operate on a variety of platforms, including Windows, Windows 95,
Macintosh, OS/2, Windows NT and MS-DOS. IMNET's application programming
interfaces support systems running on operating environments ranging from IBM,
Siemens and Hitachi mainframes to DEC VAX, UNIX, PCs or other workstations. The
Company's software products use embedded relational database management systems
provided by off-the-shelf Structured Query Language (SQL)-compatible products,
such as Microsoft SQL Server and Oracle.
IMNET Image Engine(R)
The IMNET Image Engine is the core component of the IMNET Electronic
Information Warehouse. The IMNET Image Engine's functions include: (i) document
capture; (ii) prioritized access to information using magnetic disk, optical
disk, microfilm and paper media; (iii) information retrieval, display and output
in print or fax formats; and (iv) interaction with external host applications
through electronic gateways. The IMNET Image Engine, developed internally by the
Company, is sold as a stand-alone software product or as a component of the
IMNET Electronic Information Warehouse. The IMNET Image Engine has an open
architecture design and consists of more than 20 product modules supporting a
wide range of applications, from departmental systems to high-volume,
enterprise-wide or community-wide document management systems. The IMNET Image
Engine allows access to a wide range of information including text, data,
scanned or microfilmed document images and faxes.
The IMNET Image Engine is divided into four subsystems:
The Document Capture Subsystem supports the functions of document capture
from third party scanning or microfilming devices, quality control, indexing and
storage. In addition, computer-generated text or image data can be imported from
other systems using Computer Output to Laser Disk (COLD) facilities. A final
method of document capture is the input of faxes directly from the IMNET Image
Engine Fax Server to the Document Capture Subsystem for indexing and storage.
The Storage and Retrieval Subsystem incorporates a hierarchical information
management process which provides for information storage on the most efficient,
cost-effective medium available including magnetic disk, optical disk, microfilm
or paper. This allows information with high retrieval frequency to be stored on
high-speed, on-line magnetic media while enabling less critical information to
be accessed from other media. On-line retrieval can be performed on information
stored in third party optical disk jukeboxes or in the IMNET MegaSAR(R)
Microfilm Jukebox. Information which is accessed less frequently can be stored
on mountable optical disks or on microfilm cartridges and then loaded to
magnetic storage when requested by the user. In addition, less frequently-used
documents in paper folders can be scanned on demand and delivered on-line to the
user.
6
<PAGE> 7
The Output Services Subsystem controls the target destination of the
requested information. Destinations may include the display monitor of the
user's workstation or the IMNET Image Engine Print Server or Fax Server. Hard
copy output for complex print or fax requests may be composed of multiple
documents retrieved from a variety of media. Electronic documents can be
transferred to the user's workstation or can be retrieved and transferred to
external systems using the IMNET Image Engine Export Server.
The Host Gateway Server, the fourth subsystem, connects the IMNET Image
Engine to an HCIS vendor's or other third party's software. Through a formally
defined request language, the external application issues requests for
information from the IMNET Electronic Information Warehouse. The Host Gateway
Server receives the request and translates it into a series of actions to
identify the information being requested and its location, requests retrieval
from the appropriate storage server and then manages delivery of the output to
the target destination.
IMNET Workflow Engine(TM)
The IMNET Workflow Engine enables improvements in productivity by
structuring the flow of information within an organization. The IMNET Workflow
Engine allows a business process analyst or medical records administrator to
automate the flow of information, to streamline manual work steps and to manage
the interaction of automated systems. A visual design tool is used to draw the
logical sequence of work steps and to define the rules which are used to route
or distribute information. A workflow model is then created which controls the
process by monitoring, re-routing and managing the distribution of information.
As an item of work progresses electronically, its contents can be changed by
adding or deleting pieces of electronic information, such as word processing
files, spreadsheets, annotations, voice recordings, document folders and images.
Productivity is also improved by the concurrent management and processing of
information.
The IMNET Workflow Engine has been used to manage certain aspects of the
reimbursement process after a patient's discharge from a hospital. After
receiving notification by computer of a patient's discharge, the IMNET Workflow
Engine can assemble the patient chart automatically, analyze it for completion,
route the record to a physician for insertion of certain missing information and
route the electronic chart for concurrent coding and abstracting. By automating
this process, healthcare providers can accelerate the post-discharge billing
cycle.
The IMNET Workflow Engine includes reporting tools to monitor workflow,
enabling performance measurement and automatic adjustment of workflow
priorities. The IMNET Workflow Engine may be sold as a stand-alone product
independent of the other elements of the IMNET Electronic Information Warehouse.
IMNET MedVision(TM)
IMNET MedVision consists of a set of application software products and
interface modules which allow the capture, storage and retrieval of radiological
images, whether scanned from x-ray film or captured in direct digital form from
scanning devices such as computed tomography (CT), nuclear medicine or magnetic
resonance imaging (MRI) units. Through direct digital capture, IMNET MedVision
is able to preserve all information contained in the original image and to avoid
the image degradation inherent in other methods of radiological data transfer
and storage. IMNET MedVision allows the transfer and storage of image files
using the Digital Imaging Communications for Medicine (DICOM) format and
provides direct access to numerous proprietary file formats developed by medical
imaging modality manufacturers, including General Electric, Siemens, Philips
Electronics N.V., Toshiba and Picker International, Inc. IMNET MedVision
provides a scalable solution that can support diagnostic usage within the
radiology department, as well as access across the enterprise, by clinical and
referring physicians. IMNET MedVision can also be used for distribution of image
files to support teleradiology and consultation by remote radiology groups.
IMNET Electronic Patient Record System(TM) (EPRS)
EPRS is an information and document management application software product
which facilitates access to the EMR. EPRS can be sold by the Company's HCIS
Distribution Partners as an enhancement of their
7
<PAGE> 8
currently available healthcare application products, or it can be sold as a
stand-alone application software product. EPRS users in both the medical records
department and the business office have on-line access to a wide range of
electronic patient information, including HCIS data, ancillary system reports
and images of scanned or microfilmed paper documents. Information from external
HCIS systems can also be imported into the EPRS database using discrete data
transactions, thereby improving consistency in indexing documents associated
with the patient record, as well as providing access to other reference data,
which contributes to efficient workflow and improves retrieval accuracy. EPRS
includes a workflow module through which user-defined procedures route patient
records for action by physicians and other end-users.
IMNET EPRS/Web(TM)
EPRS/Web was first released in March 1997. It allows physicians the
capability to view electronic patient information from virtually any location.
Using secured Internet/Intranet access, authorized physicians can use standard
web browsers to access EPRS/Web from their office, home, or other remote
locations. Because it is easier to install, operate, and support, EPRS/Web
results in lower costs for operations and maintenance. In addition, its greater
accessibility results in improved workflow, thereby encouraging increased
electronic access to the medical record throughout the enterprise.
IMNET LaserArc(TM)
LaserArc is a cost-effective solution for the storage and retrieval of
report information. It allows a computer-generated report to be treated as a
continuous stream of data which can be searched using pre-defined indices or by
user-defined, free-text search criteria. Queries can be run across multiple
report files and within defined date ranges, allowing flexibility for
extracting, saving, exporting and analyzing information.
IMNET Application Programming Interfaces
IMNET supplies standard Application Programming Interfaces ("APIs") which
allow its customers and distribution partners to access workflow, information
management and imaging capabilities directly from the application software of
these customers and distribution partners. The APIs, developed internally by
IMNET, convert the request for information into a format which the IMNET Image
Engine, IMNET Workflow Engine, IMNET Electronic Patient Record System and IMNET
MedVision can interpret. The applications of customers and distribution partners
may run on the same workstation or on any external host computer, ranging from a
PC to a mainframe. After a particular application has been integrated using the
API, the development cost is eliminated for subsequent installations of the same
application, creating an advantage for IMNET and the HCIS Distribution Partners,
who may install the same application at many customer sites.
IMNET MegaSAR(R) Microfilm Jukebox
The IMNET MegaSAR Microfilm Jukebox is a robotic microfilm storage and
retrieval device that reads requested documents from microfilm and translates
them into an electronic format for on-line delivery. The Company believes that
the MegaSAR is presently the only on-line microfilm storage and retrieval device
commercially available in the United States. The MegaSAR can store up to 420
reels of standard microfilm, with each reel holding images of 6,000 8 1/2" X 11"
pages, creating a minimum image capacity of 2.5 million pages per MegaSAR.
Depending upon microfilm format and document type, a MegaSAR can store nearly 10
million pages. Single image retrieval times are comparable to those of single
drive optical disk jukeboxes.
The Company owns several patents related to the MegaSAR. On June 30, 1996,
the Company granted to SoftNet Systems, Inc. ("SoftNet") worldwide exclusive
manufacturing rights and non-exclusive, non-healthcare distribution rights for
the MegaSAR Microfilm Jukebox and its associated technology. The Company
continues to sell the MegaSAR to be manufactured by SoftNet and provides
maintenance and support for its existing customers. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations -- Grant of
Manufacturing Rights for the Company's MegaSAR Microfilm Jukebox".
8
<PAGE> 9
PROFESSIONAL SERVICES
In order to offer a complete information and document management solution
to its customers and to ensure customer satisfaction, IMNET provides system
design, installation, integration and other post-installation services to
end-users both directly, through its Advisoft subsidiary in France, and together
with the HCIS Distribution Partners. In addition, the Company offers
installation, training and integration services to its distribution partners,
particularly in early stages of the partnership, to help assure the success of
the distribution partner's initial customer installations.
Installation and Integration Services. IMNET provides system analysis and
design recommendations, site preparation, systems integration, installation and
training services for its direct customers and distribution partners. IMNET also
assists end-users and distribution partners in selecting third party services,
such as those for the conversion of paper files to microfilm or other formats,
on an as-needed basis. The Company believes that the quality of its installation
and integration services is crucial to its success.
Post-installation Services. The Company's post-installation services
include routine software and hardware maintenance, user assistance and a
software product upgrade release program. These services are provided under the
terms of the Company's renewable hardware and software maintenance agreements,
fees for which are generally based upon a percentage of the then-current list
prices of its hardware and software. The Company maintains a user hotline for
customers to obtain technical support and provides additional services,
including system customization, system management consulting, user training and
workflow analysis.
RESEARCH AND DEVELOPMENT
IMNET plans to extend the capabilities of the IMNET Electronic Information
Warehouse to increase its functionality as an electronic information storage and
retrieval system. IMNET's software research and development efforts are focused
primarily on enhancing existing products. Although most IMNET products
historically have been developed internally, the Company believes that it can
often respond more quickly to market requirements by acquiring complementary
products or by licensing them for distribution.
The Company's research and development efforts are influenced significantly
by customer requirements. The Company expects to develop certain new IMNET
products from the Company's library of workflow applications for business office
or medical records applications. The Company is continuing to make product
enhancements to provide higher-level APIs to speed integration of new
distribution partner applications.
Although IMNET's current EPRS product can incorporate information from
laboratory reports, transcription reports, and other reports, the Company is
expanding this capability to incorporate direct, real-time collection and
management of medical images. This effort is in the development stage and it
will be available in new releases of the Company's MedVision product.
Current research and development includes the integration of new components
of the Company's MedVision product line with the Document Capture and Storage
and Retrieval Subsystems of the IMNET Image Engine. This includes completion of
integration of the viewing technology licensed in March 1997 from ISG
Technologies, Inc. In addition, the Company is developing a system specifically
for use in smaller medical group practices and physicians' offices.
SALES AND MARKETING
The Company currently sells its products directly through its own sales
organization and indirectly through its HCIS Distribution Partners. The Company
is committed to expanding its presence in the healthcare industry through
pursuing additional distribution partnerships with HCIS vendors and by marketing
directly to healthcare providers. The Company's HCIS Distribution Partners
currently are Cerner Corporation, HBO & Company, HealthVision, Inc., IDX Systems
Corporation and PHAMIS, Inc.
The Company's distribution partners typically enter into multi-year
distribution agreements providing them the right to acquire the Company's
products at a discount and to offer them to third parties under private labels.
These agreements either do not permit a partner to offer or develop a product
competitive with the
9
<PAGE> 10
Company's products, or else they provide the Company the right to terminate the
arrangement upon notification of the partner's intention to offer or develop a
competitive product.
For both direct and indirect sales, the Company's sales resources are
organized into teams of account executives paired with one or more application
consultants. These teams identify a customer's business problems and propose
cost-justified information management solutions. When working with a
distribution partner, the Company's sales teams work as a complementary
extension of the distribution partner's sales team. IMNET requires a formal
product "roll-out" project plan, which includes sales and technical training, as
well as cooperative development of marketing materials and product packaging, to
be developed jointly with each new distribution partner. To support its
private-label distribution strategy, IMNET has designed its marketing, training
and documentation materials so that they can be quickly integrated into a
partner's sales process.
The Company primarily markets its major products through its headquarters
office in Atlanta, although some sales support teams are located at the
distribution partners' premises. The Company's marketing efforts are organized
into corporate marketing, target marketing and customer communication programs.
The Company supports these efforts by publishing articles, presenting or
sponsoring talks at professional meetings, assuming leadership positions in
professional organizations, participating in trade shows, advertising in trade
magazines and issuing frequent announcements to the trade press. Prospective
clients are identified through the marketing programs of the Company's
distribution partners, as well as the Company's own direct mail and
telemarketing efforts.
CUSTOMERS AND SIGNED SALES CONTRACTS
The Company's customers include healthcare providers located throughout the
United States as well as non-healthcare organizations located throughout the
United States and worldwide. The Company believes that the installed customer
base of its distribution partners represents a significant opportunity to market
and sell its products and services.
At June 30, 1997, the Company had approximately $51.0 million of signed
sales contracts for systems and services which had not yet been delivered. This
amount includes software license fees, hardware sales and maintenance and
professional services which are expected to result in revenues over periods of
as much as five years. The amount of the Company's signed sales contracts for
systems and services not yet delivered at June 30, 1996 was approximately $24.2
million. Certain contracts may also include provisions permitting termination
that do not relate to IMNET's performance or which allow the customer to delay
certain aspects of the order. Because the Company adjusts the timing of an
end-user installation to accommodate the customer's needs and a typical
installation requires from one to 12 months to complete after contract
execution, the Company is unable to predict with any degree of accuracy the
amount of revenue it expects to achieve in any particular period. A termination
or installation delay of one or more contracts, or the failure of the Company to
procure additional contracts, could have a material adverse effect on the
Company's business, its financial position, and its results of operations. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
In fiscal 1997, HBOC accounted for 31% and Baptist Memorial Healthcare
Systems, Inc. ("Baptist") accounted for 16% of the Company's total revenues or
$15.8 million and $7.9 million, respectively. In fiscal 1996, McLaren Regional
Healthcare Center ("McLaren") accounted for 22% and SoftNet Systems, Inc.
("SoftNet") accounted for 10% of the Company's total revenues or $6.5 million
and $2.8 million, respectively. In fiscal 1995, the Mayo Clinic accounted for
14% and McLaren accounted for 11% of the Company's total revenues or $1.6
million and $1.3 million, respectively. No other customers accounted for more
than 10% of total revenues in such fiscal years. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations."
On April 11, 1997, IMNET announced an agreement with Tenet Healthcare
Corporation ("Tenet") to become Tenet's exclusive provider of new electronic
healthcare information and document management systems. Tenet, with 130
hospitals, is one of the leading for-profit hospital systems in the United
States.
10
<PAGE> 11
The Company's direct end-user healthcare customers include Aurora Health
Care, Baptist Memorial Healthcare Systems Inc., Bay Medical, Charleston Area
Medical Center, Duke University Hospital, Eastern Maine Healthcare Center, The
Emory Clinic, Greenwich Hospital, Indiana University Medical Center, Kaweah
Delta Health Care District, Loma Linda University Medical Center, the Mayo
Clinic at Jacksonville, McLaren, New York Hospital, St. Barnabas Hospital, St.
Paul's Hospital, St. Vincent's Medical Center, and Tenet Healthcare Corporation.
The Company's general business end-user customers include Associates Insurance,
the French Social Security Agency, Hastings Mutual Insurance Company, Laborers'
Pension and Welfare Fund, Los Angeles County Treasurer and Tax Collector,
Teachers Insurance, and Annuity Association College Retirement Equities Fund and
TNT/USF Holland.
The Company had international sales of $1.4 million, $2.3 million, and $1.7
million for the fiscal years ended June 30, 1997, 1996, and 1995, respectively.
See Note (12)(b) to the Company's consolidated financial statements included
herewith.
COMPETITION
The Company competes with other information and document management systems
companies, as well as with HCIS vendors. Such companies and vendors may team
together to place bids for large contracts in competition with the Company and
its HCIS Distribution Partners. A decision on the part of any of these
competitors to focus their resources in the markets addressed by the Company
could have an adverse effect on the Company and its business. In addition, the
Company's HCIS Distribution Partners compete with other applications suppliers
who do not offer the Company's products. To the extent the Company's HCIS
Distribution Partners are unsuccessful compared with their competitors, the
Company's business may be adversely affected.
The Company's competitors include many companies which are larger and more
established and have substantially more resources than the Company. The Company
believes that the principal competitive factors in its market are company
reputation, product reliability, system features, customer service and support,
price, the effectiveness of marketing and sales efforts and company size. In
addition, the Company believes that the speed with which companies in its market
can anticipate the evolving healthcare industry structure and identify unmet
needs are important competitive factors.
REGULATION
The United States Food and Drug Administration ("the FDA") has issued a
series of draft guidance documents addressing the regulation of certain computer
products as medical devices under the Federal Food, Drug, and Cosmetic Act (the
"FDC Act"). To the extent that computer software is a medical device under the
policy, the manufacturers of such products will be required, depending on the
product, to: (i) register and list their products with the FDA; (ii) notify the
FDA and demonstrate substantial equivalence to other products on the market
before marketing such products; or (iii) obtain FDA approval by filing a
premarket application that establishes the safety and effectiveness of the
product. The Company expects that the FDA is likely to become increasingly
active in regulating computer software that is intended for use in healthcare
settings. The FDA currently regulates the IMNET MedVision product line for which
the Company has filed the necessary documents and has received clearance for
marketing additional components to be incorporated into the next MedVision
release. The FDA indicated its intention to consider more extensive regulation
of additional types of computer software, including some of the Company's other
products and has solicited industry input as to the regulation of computer
products as medical devices. The FDA has reached no decision to date on this
issue. The FDA, if it chooses to regulate such software, can impose extensive
requirements governing pre- and post-market conditions relating to clinical
investigations, approvals, labeling and manufacturing. In addition, such
products would be subject to the FDC Act's general controls, including those
relating to good manufacturing practices and adverse experience reporting.
11
<PAGE> 12
PROPRIETARY TECHNOLOGY PROTECTION
The Company regards its software as proprietary and relies primarily on a
combination of copyrights, trademarks and trade secrets of general
applicability, employee confidentiality and invention assignment agreements,
distribution and software license agreements and other intellectual property
protection methods to safeguard its software products. In addition, certain
aspects of the Company's hardware products are patented. The Company believes
its patents provide a significant element of protection to its competitive
position.
EMPLOYEES
As of June 30, 1997, IMNET had 282 full time employees, including 223 in
Atlanta. None of the Company's employees are represented by a labor union or are
subject to a collective bargaining agreement. The Company has never experienced
a work stoppage and believes that its employee relations are excellent.
RISK FACTORS
This Form 10-K contains forward-looking statements that involve risks and
uncertainties. The Company's actual results may differ significantly from past
results and from those indicated by such forward-looking statements. Factors
that may cause such differences include, but are not limited to, those discussed
below.
Limited Operating History; Lack of Profitable Operations. The Company
commenced operations in 1992 and has sustained substantial losses. The Company's
net loss for fiscal 1996 was $6.0 million ($0.69 per share) primarily as a
result of $10.4 million ($1.18 per share) of non-recurring charges comprised of:
(1) $5,740,000 ($0.65 per share) related to in-process research and development
expenses associated with the Company's acquisitions of Evergreen Technologies,
Inc. and Quesix Software, Incorporated completed during the second quarter of
fiscal 1996 and (2) a $4,630,000 ($0.53 per share) non-recurring charge related
to the Company's business alliance with HBOC recorded in the third quarter of
fiscal 1996. Exclusive of the non-recurring charges, the Company would have
reported earnings of $4.3 million ($0.47 per share) for fiscal 1996. Previously,
the Company had incurred a net loss of $4.1 million ($0.77 per share) for fiscal
1995, and a net loss of $5.4 million ($1.38 per share) for fiscal 1994. As of
June 30, 1997, the Company had an accumulated deficit of approximately $13.5
million. In addition, the Company will require significant funds to implement
its business strategies. The Company may experience losses due to the following
factors: (i) the Company's operating expenses are budgeted on anticipated
revenues; (ii) the Company incurs significant expenses in connection with
research and development, and, more recently, the development of its direct and
indirect selling and marketing efforts; (iii) a high percentage of the Company's
expenses are fixed; and (iv) the Company may incur charges related to
acquisitions, business alliances or changing technologies. As a result, there
can be no assurance that the Company will be profitable in the future or that
available funds, together with funds provided by operations will be sufficient
to fund the Company's ongoing operations. The Company believes its current
operating funds will be sufficient to finance its cash requirements for at least
the next 12 months. If the Company has insufficient funds, there can be no
assurance that additional financing can be obtained on acceptable terms, if at
all. The absence of such financing would have a material adverse effect on the
Company's business, including a possible reduction or cessation of operations.
Variability in Quarterly Operating Results; Volatility of Stock
Price. Results of operations have fluctuated and may continue to fluctuate
significantly from quarter to quarter as a result of a number of factors,
including: (i) contract terms and the volume and timing of system sales and
customer acceptances; (ii) customer purchasing patterns, long sales cycles,
order cancellations and rescheduling of system installations; (iii) the mix of
direct and indirect sales; (iv) the mix of higher-margin software revenues and
lower-margin hardware and services revenues; and (v) the actions of competitors.
In addition, the Company believes that sales generated to and by its HCIS
Distribution Partners will continue to increase as a percentage of total
revenues. In fiscal 1997, the Company recognized revenue from large multi-site
licenses and from transactions in which the Company's HCIS Distribution Partners
purchased software licenses in quantity for resale. These transactions, which
typically had higher margins, are difficult to predict, particularly as to when
a distribution partner will acquire additional licenses, and the quantity such
partner will purchase. Accordingly, the Company's future operating results are
likely to be subject to significant variability from quarter to quarter
12
<PAGE> 13
and could be adversely affected in any particular quarter. The Company's total
revenues and results of operations may also be affected by seasonal trends
including the possibility of higher revenues in the Company's second and fourth
fiscal quarters and lower revenues in its first and third fiscal quarters as a
result of many customers' annual purchasing and budgetary practices and the
Company's sales commission practices relying in part on annual quotas. As a
result, the Company believes that period-to-period comparisons of its revenues
and results of operations are not necessarily meaningful and should not be
relied upon as indicators of future performance. Due to the foregoing factors,
among others, it is possible that the Company's operating results will be below
the expectations of public market analysts and investors. In such event, the
price of the Company's Common Stock could be materially and adversely affected.
In addition, the market price for the Company's Common Stock has been volatile
and in the future could be adversely affected by general trends in the Company's
industry, changes in general market conditions and other factors. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
Customer Concentration. The Company's product sales have been concentrated
in a small number of customers, and the Company has historically derived a
substantial percentage of its total revenues from a relatively small number of
customers. For the year ended June 30, 1997, two customers accounted for
approximately 47% of total revenues. In fiscal 1996, two customers accounted for
32% of the Company's total revenues. In fiscal 1995, two customers accounted for
25% of the Company's total revenues. Developments adverse to the financial
condition of any of these customers, their failure to honor payment obligations,
or the inability to replace any such customer with significant new customers
would have a material adverse effect on the Company's financial position and
results of operations. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Business -- Customers and Signed Sales
Contracts."
Product Acceptance and Market Development; Dependence on Distribution
Partners. The market for electronic information and document management
systems, as it relates to integrated mixed-media healthcare information systems,
is still relatively new and may not develop as expected. The Company's success
is dependent upon market acceptance of its products in preference to competing
products and products that may be developed by others. The Company's success is
also dependent on the success of its marketing and distribution strategy which
involves, to a significant degree, a reliance upon HCIS vendors to sell the
Company's electronic information and document management systems as a necessary
component of the integrated systems being marketed by such distribution
partners. If the HCIS Distribution Partners or future distribution partners
elect not to include the Company's products as components in their integrated
systems or are unsuccessful in achieving significant sales of those systems, the
Company's business would be materially and adversely affected.
Long Sales and Delivery Cycle; Dependence on Future System Sales. The
decision by a healthcare provider to replace or substantially upgrade its
information systems typically involves a major commitment of capital and an
extended review and approval process. Accordingly, the sales and delivery cycle
for the Company's system is typically two to 24 months from initial contact to
delivery and acceptance of the products. The time required from initial contact
to contract execution is typically one to 12 months. During these periods, the
Company may expend substantial time, effort and funds preparing a contract
proposal and negotiating the contract. Under customary direct sales agreements,
the Company does not record revenues on products until they have been accepted
by the customer at the IMNET system integration facility, provided that
acceptance is a condition of the agreement and the products have been delivered.
The length of time between contract execution and acceptance typically ranges
from one to 12 months for an end-user depending on the size of the order, the
products ordered and delivery terms. At June 30, 1997, the Company had
approximately $51.0 million of signed sales contracts for systems and services
which had not yet been delivered. This amount includes contracts for software
license fees, hardware sales and services that may include cancellation
provisions that do not pertain to IMNET's performance, and contracts that are
expected to result in revenues over periods of as much as five years. Any
significant or ongoing failure to achieve signed contracts and subsequent
customer acceptance after expending time, effort and funds could have a material
adverse effect on the Company's business. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
13
<PAGE> 14
Ability to Manage Growth. As a result of both internal development and
expansion into additional applications and markets, the Company is currently
experiencing a period of rapid growth and expansion. Such growth and expansion
has placed and could continue to place a significant strain on the Company's
services and support operations, sales and administrative personnel and other
resources. The Company's ability to manage such growth effectively will require
the Company to continue to improve its operational, management and financial
systems and controls and to train, motivate and manage its employees. As a
result, IMNET is subject to certain growth-related risks, including the risk
that it will be unable to retain the necessary personnel or acquire other
resources necessary to service such growth adequately.
Risks Associated with Acquisitions. As part of the Company's strategy to
enhance and maintain its competitive position, IMNET has consummated the
Acquisitions and continues to evaluate potential acquisitions of businesses,
products and technologies. In considering an acquisition, the Company may
compete with other potential acquirors, many of which may have greater financial
and operations resources. Further, the evaluation, negotiation, and integration
of such acquisitions may divert significant time and resources of the Company,
particularly of management. There can be no assurance that suitable acquisition
candidates will be identified, that any acquisitions can be consummated or that
any acquired businesses or products can be successfully integrated into the
Company's operations. In addition, there can be no assurance that the
Acquisitions or any future acquisitions will not have a material adverse effect
upon the Company, particularly in the fiscal quarters immediately following the
consummation of such transactions due to operational disruptions, unexpected
expenses and accounting charges which may be associated with the integration of
such acquisitions. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Recent Acquisitions."
Technological Changes; Competition. The market for the Company's products
is characterized by continued and rapid technological advances in both hardware
and software development requiring ongoing expenditures for research and
development and the timely introduction of new products. Compatibility with
existing and emerging industry standards is essential to the Company's marketing
strategy and research and development efforts. The establishment of standards is
largely a function of user acceptance, and standards are therefore subject to
change. IMNET's products are dependent upon a number of advanced technologies,
including those relating to computer hardware and software, storage devices, and
other peripheral components, all of which are subject to rapid change. To be
competitive, IMNET must respond effectively to technological changes by
continuing to enhance its existing products to incorporate emerging or evolving
standards. There can be no assurance that the Company will be able to respond
effectively to technological changes or new product announcements or
introductions by others. Furthermore, there can be no assurance that the Company
will be able to access the needed new technology at an acceptable price. The
market for healthcare information systems is intensely competitive. Certain of
the Company's competitors have significantly greater financial, technical,
research and development and marketing resources than the Company. Competitors
vary in size and in the scope and breadth of the products and services offered.
The Company's products compete both with other technologies as well as similar
products developed by other companies, and other major information management
companies may enter the market in which the Company competes. Competitive
pressures and other factors, such as new product introductions by the Company or
its competitors, or the entry into new geographic markets, may result in
significant price erosion that could have a material adverse effect on the
Company's business.
Uncertainty in Healthcare Industry; Government Healthcare Reform
Proposals. The healthcare industry is subject to changing political, economic
and regulatory influences that may affect the procurement practices and
operation of healthcare providers. 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. 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 a material adverse effect on the Company's ability to sell its
products and related services.
14
<PAGE> 15
The FDA has issued a series of draft guidance documents addressing the
regulation of certain computer products as medical devices under the FDC Act.
Medical devices are subject to regulation by the FDA which requires, among other
things, premarket notifications or approvals and compliance with labeling,
registration and listing requirements, good manufacturing practices and records
and reporting requirements. The FDA currently regulates the Company's MedVision
product line for which the Company has filed the necessary documents and has
received clearance for marketing additional components to be incorporated into
the next MedVision release.
Dependence on Key Personnel. Kenneth D. Rardin and certain other executive
officers have been primarily responsible for the development and expansion of
the Company's business, and the loss of the services of one or more of these
individuals could have a material adverse effect on the Company. In addition,
the Company believes that its future success will be dependent in part on its
continued ability to recruit, motivate and retain qualified personnel. There can
be no assurance the Company will be successful in this regard. The Company
maintains a $2.0 million key man life insurance policy on the life of Mr.
Rardin.
Dependence on Proprietary Rights and Patents. To develop and maintain its
competitive position, IMNET relies primarily upon the technical expertise and
creative skills of its personnel, confidentiality agreements and, to some
degree, patents and copyrights. The Company owns patents and has license rights
to certain patents held by third parties. These patents and patent rights relate
to aspects of the technology used in certain of the Company's products.
Successful litigation against the Company regarding its patents or patent
rights, or infringement by the Company of the patent rights of others, could
have a material adverse effect on the Company's business. There can be no
assurance that patents issued to or licensed by the Company will not be
challenged or circumvented by competitors or be found to be sufficiently broad
to protect the Company's technology or to provide it with any competitive
advantage. In addition, there can be no assurance that confidentiality
agreements will not be breached or that the Company will have adequate remedies
for any such breach.
There has been substantial litigation regarding patent and other
intellectual property rights in the computer industry. Although to the knowledge
of the Company there are no such claims pending against or involving the
Company, there can be no assurance that such claims will not be instituted.
Adverse determinations in any such claim or any such claim could subject the
Company to significant liabilities to third parties and could require the
Company to seek licenses from third parties. There can be no assurance that any
such licenses will be available on commercially reasonable terms. See
"Business -- Proprietary Technology Protection".
Product Liability. The Company's products are used to provide information
that relates to healthcare enterprise operations and information that may be
used in other critical applications. Any failure by the Company's systems 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. Even unsuccessful claims
could result in the Company's expenditure of funds in litigation and management
time and resources. There can be no assurance that the Company will not be
subject to product liability claims, that such claims will not result in
liability in excess of its insurance coverage 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.
Foreign Operations. Approximately 3%, 8% and 15% of the Company's total
revenues for the respective fiscal years 1997, 1996 and 1995 were attributable
to sales outside the United States. Sales to customers outside the United States
are subject to incremental risks, including the following: (i) agreements may be
more difficult to enforce and receivables more difficult to collect through
foreign legal systems; (ii) to the extent the Company invoices in foreign
currencies or invests in foreign operations, as is the case with the recently
acquired Advisoft operations, exchange rate fluctuations could adversely affect
the Company's financial position and results of operations; (iii) foreign
customers often have longer payment cycles; and (iv) foreign countries could
impose withholding taxes or otherwise tax the Company's foreign income, impose
tariffs, embargoes or exchange controls or adopt other restrictions on foreign
trade. Through June 30, 1997,
15
<PAGE> 16
the Company's results of operations had not been adversely affected by currency
exchange rate fluctuations because the Company has invoiced all of its sales in
United States dollars and the Company did not have significant foreign
operations prior to the Advisoft acquisition, which was not completed until June
1997.
ITEM 2. PROPERTIES
During fiscal 1997, the Company relocated its main office to 3015 Windward
Plaza, Windward Fairways II, Alpharetta, Georgia 30005. At this location, IMNET
leases approximately 118,000 square feet of floor space under lease agreements,
which expire in 2006. The Company's previously occupied Atlanta facility has
been sublet. Pursuant to the LaserArc acquisition, the Company acquired leased
space of approximately 6,500 square feet in Wilsonville, Oregon. This space is
held under a three year lease, expiring on May 31, 1998. Pursuant to the
Advisoft acquisition, the Company acquired leased space of approximately 2,800
square feet in Paris, France. This space is held under a nine year lease,
expiring June 30, 2006.
ITEM 3. LEGAL PROCEEDINGS
As of the date hereof, to the Company's knowledge, there are no material
legal proceedings pending against 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 of fiscal 1997.
ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT
The following are the executive officers of the Company as of September 15,
1997.
<TABLE>
<S> <C> <C>
Kenneth D. Rardin...................... 47 Chairman of the Board and Chief
Executive Officer
James A. Gilbert....................... 49 President, Chief Operating Officer and
Director
Thomas D. Underwood.................... 39 Senior Vice President -- Technical
Operations
Raymond L. Brown....................... 40 Senior Vice President and Chief
Financial Officer
Gary D. Bowers......................... 44 Senior Vice President -- Business
Development
Paul J. Collins, Jr.................... 41 Senior Vice President -- Marketing
James L. Hall.......................... 37 Senior Vice President -- Sales
</TABLE>
Mr. Rardin has been Chairman of the Board and Chief Executive Officer of
the Company since October 1992, when the Company acquired certain assets of
IMGE, Inc. and certain of its subsidiaries. He was also President of the Company
from October 1992 until the appointment of Mr. Gilbert as President in September
1996. Mr. Rardin has over 25 years of experience in the computer software field.
Beginning in late 1990 until the consummation of the 1992 IMGE acquisition, he
was Chief Executive Officer of IMGE. From 1989 to 1990, Mr. Rardin was a
self-employed consultant in the computer and data communications industries.
From 1986 to 1989, Mr. Rardin served as President and Chief Executive Officer of
GMD, Inc., a provider of systems which integrated design and manufacturing
automation with business systems. From 1983 to 1986, Mr. Rardin was President
and Chief Executive Officer of FutureSoft Synergies, Inc., a venture capital
investment and management company. From 1977 to 1982, Mr. Rardin was Chief
Operating Officer of Software AG of North America. During such time, Software AG
of North America grew from a small private software company to one of the
industry's largest publicly-held international software companies.
Mr. Gilbert was appointed a Director, President and Chief Operating Officer
in September 1996. Prior to joining IMNET, Mr. Gilbert held several positions
over eight years at HBO & Company ("HBOC"). Since 1995, he was Senior Vice
President and General Counsel, where he had operational responsibility for
several
16
<PAGE> 17
product groups. From 1988 to 1995 he served as Vice President. Prior to his
eight-year tenure at HBOC, Mr. Gilbert was a partner with the Atlanta law firm
of Hansell and Post.
Mr. Underwood became Senior Vice President -- Technical Operations in
January 1996. He was Vice President -- Technical Operations from July 1995 until
January 1996. Mr. Underwood has over 16 years of experience in operations
management and hardware and software development. From May 1992 through June
1995, Mr. Underwood was Business Unit Manager for the Document Management
Systems division of Perceptics Corporation ("Perceptics"), a subsidiary of
Westinghouse Electric Corporation. From November 1988 through May 1992, Mr.
Underwood served as the Director -- Operations and Engineering for Perceptics.
Mr. Brown, a certified public accountant, has been Senior Vice President
and Chief Financial Officer since December 1995. Prior to joining IMNET, he was
employed by Communications Central, Inc., a pay telephone service provider, as
Vice President, Chief Financial Officer and Treasurer from October 1994 to
November 1995. From March 1993 to September 1994, Mr. Brown served as Vice
President, Chief Financial Officer, Treasurer and Secretary of AER Energy
Resources, Inc., a battery manufacturing company, where he had responsibility
for all finance, management information systems and human resource activities.
From September 1989 to February 1993, Mr. Brown served as Vice President,
Finance and Chief Operating Officer of Delta Color, Inc., an ink manufacturing
company, where he was responsible for finance and operations. Prior to September
1989, Mr. Brown served as Director, Accounting and Financial Planning for Gould,
Inc. in its imaging and graphics division.
Mr. Bowers has been Senior Vice President -- Business Development of the
Company since June 1996. Mr. Bowers has over 23 years of technical and
management experience in the computer software and services field. Mr. Bowers
joined the Company following the 1992 Acquisition in October 1992 as Vice
President Marketing and Business Development. He was employed by IMGE beginning
in 1991 as Vice President of Technical Operations. From 1986 through 1991, Mr.
Bowers was employed at Software AG as Director of Sales Support for its
newly-formed Federal Systems subsidiary and subsequently as Director of the
Geographic Information Systems Group.
Mr. Collins has been Senior Vice President -- Marketing of the Company
since April 1995. Mr. Collins has 15 years of experience in information
processing, including ten years in the healthcare industry. Prior to joining
IMNET, he was employed by Lanier Worldwide ("Lanier") for 14 years, most
recently as Marketing Director. From 1991 through 1993 he served as Director of
Product Marketing, and from 1985 through 1991, he served as a District Manager
for Lanier.
Mr. Hall joined IMNET in November 1996 as Senior Vice President -- Sales.
Prior to joining IMNET, he was employed by The Compucare Company as Vice
President of Sales, from September 1995 to October 1996. From March 1987 to June
1995, Mr. Hall served in various sales capacities with divisions of American
Express Health Systems Group, and subsequently as National Sales Director of
First Data Corporation.
17
<PAGE> 18
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Common Stock of the Company is traded on The Nasdaq Stock Market under
the symbol "IMNT". The chart below sets forth the high and low stock prices for
each quarter since the completion of the Company's initial public offering in
July 1995 at $12.00 per share.
<TABLE>
<CAPTION>
QUARTER ENDED HIGH LOW
- ------------- ------ ------
<S> <C> <C>
September 30, 1995 (from July 20 through September 30,
1995)..................................................... $26.25 $14.50
December 31, 1995........................................... 29.75 20.50
March 31, 1996.............................................. 36.50 21.06
June 30, 1996............................................... 35.25 26.00
September 30, 1996.......................................... 33.50 13.25
December 31, 1996........................................... 25.63 11.25
March 31, 1997.............................................. 31.25 13.50
June 30, 1997............................................... $31.25 $12.25
</TABLE>
The closing sales price for the Company's Common Stock on September 26,
1997 was $39.00 per share. As of September 24, 1997, there were approximately 55
record holders of the Company's Common Stock. The Company has never declared any
cash dividends on its Common Stock. However, Hunter had paid dividends to its
stockholders prior to being acquired by the Company. The Company does not
anticipate paying any cash dividends in the foreseeable future. The Board of
Directors of the Company intends to review this policy from time to time, after
taking into account various factors such as the Company's financial condition,
results of operations, current and anticipated cash needs and plans for
expansion.
On June 25, 1997, the Company issued 85,084 shares of its Common Stock,
valued at $2.0 million, to the owner of Advisoft, as part of the purchase price
in the acquisition of Advisoft. The shares were issued to a foreign person and
were exempt from registration pursuant to Regulation S.
ITEM 6. SELECTED FINANCIAL DATA
The following selected financial data should be read in conjunction with
the Consolidated Financial Statements and Notes thereto and "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
included elsewhere in this Form 10-K. The selected financial data presented
below under "Consolidated Statement of Operations Data" and "Consolidated
Balance Sheet Data" as of and for the five fiscal years ended June 30, 1997 is
derived from the consolidated financial statements of IMNET Systems, Inc., and
subsidiaries, and notes thereto. The consolidated financial statements as of
June 30, 1997 and 1996, and for each of the years in the three-year period ended
June 30, 1997, and the independent auditors' report thereon, are included at
Item 8 of this Form 10-K. The Selected Financial Data is qualified by, and
should be read in conjunction with, such consolidated financial statements, and
other financial information appearing elsewhere in this Form 10-K, including
Management's Discussion and Analysis of Financial Condition and Results of
Operations.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JUNE 30,
-----------------------------------------------
1997 1996 1995 1994 1993
------- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
System sales................................... $41,025 $24,532 $ 8,881 $ 4,551 $ 2,599
Maintenance and professional services.......... 9,159 4,848 2,393 1,790 1,230
------- ------- ------- ------- -------
Total revenues......................... 50,184 29,380 11,274 6,341 3,829
------- ------- ------- ------- -------
</TABLE>
18
<PAGE> 19
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JUNE 30,
-----------------------------------------------
1997 1996 1995 1994 1993
------- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
Operating expenses:
Cost of system sales........................... 10,569 6,458 4,644 3,253 1,781
Cost of maintenance and professional
services.................................... 5,511 2,705 1,637 1,155 900
Sales and marketing............................ 13,261 9,752 4,433 3,527 1,838
Research and development....................... 5,194 3,915 2,343 1,881 830
General and administrative..................... 5,780 4,145 2,430 1,930 1,309
Non-recurring charges.......................... 2,586 10,370 -- -- --
------- ------- ------- ------- -------
Total operating expenses............... 42,901 37,345 15,487 11,746 6,658
------- ------- ------- ------- -------
Operating income (loss)................ 7,283 (7,965) (4,213) (5,405) (2,829)
Interest income, net............................. 1,582 1,938 134 29 37
------- ------- ------- ------- -------
Income (loss) before income taxes...... 8,865 (6,027) (4,079) (5,376) (2,792)
Income taxes..................................... 1,883 -- -- -- --
------- ------- ------- ------- -------
Net income (loss)...................... $ 6,982 $(6,027) $(4,079) $(5,376) $(2,792)
======= ======= ======= ======= =======
Net income (loss) per common share and common
share equivalent............................... $ 0.69 $ (0.69) $ (0.77) $ (1.38) $ (0.95)
======= ======= ======= ======= =======
Weighted average outstanding common shares and
common share equivalents....................... 10,067 8,779 5,330 3,888 2,931
======= ======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
JUNE 30,
-----------------------------------------------
1997 1996 1995 1994 1993
------- ------- ------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents........................ $ 9,133 $16,895 $ 1,857 $ 2,634 $ 773
Marketable securities............................ 11,606 21,542 -- -- --
Working capital.................................. 42,771 49,407 4,873 3,276 1,100
Total assets..................................... 85,853 70,915 11,303 9,405 7,863
Total stockholders' equity....................... 69,790 60,823 8,071 6,552 4,706
</TABLE>
- ---------------
Note: The selected financial data gives retroactive recognition to the
acquisition of Hunter, which has been accounted for as a pooling of
interests.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
The accompanying discussion and analysis of the Company's financial
condition and results of operations should be read in conjunction with "Item 1.
Business" and the Company's Consolidated Financial Statements and Notes thereto
included as a part of this Form 10-K.
IMNET develops, markets, installs and services electronic information and
document management systems to meet the needs of the healthcare industry and
other document-intensive businesses. The Company, which was incorporated on May
15, 1992, acquired the electronic imaging assets of IMGE, Inc. on October 5,
1992. From May 15, 1992 through October 5, 1992, the Company's activities
consisted primarily of efforts to raise funds and to negotiate the 1992
Acquisition. IMNET's products include proprietary and third party software and
hardware components which are integrated to create electronic information and
document management systems. IMNET supports its customers through a broad range
of customization, systems integration, installation, training and maintenance
services.
The Company's revenues are derived primarily from the sale and support of
components of the IMNET Electronic Information Warehouse: the IMNET Image
Engine, the IMNET Workflow Engine, IMNET
19
<PAGE> 20
MedVision, the IMNET Electronic Patient Record System (EPRS), IMNET EPRS/Web,
IMNET LaserArc, and the IMNET Application Programming Interfaces. Revenues from
system sales consist of IMNET and third party hardware and software license
fees. Sources of maintenance and professional services revenues include services
for installation and training, as well as maintenance and service contracts for
software and certain hardware support. IMNET systems are sold directly to
end-users as well as through third party distribution partners. Although the
Company's relationships with its HCIS Distribution Partners are relatively new,
the Company expects that sales to and through its HCIS Distribution Partners
will continue to increase.
Revenues from sales to the healthcare industry increased to 93% of total
revenues in fiscal 1997 from 70% of total revenues in fiscal 1996. The Company
anticipates that sales to the healthcare industry will continue to increase as a
percentage of total annual revenues, although such sales may fluctuate from
quarter to quarter. Revenues from sales outside of the United States declined to
3% of total revenues in fiscal 1997 from 8% in fiscal 1996. On June 25, 1997,
the Company acquired Advisoft, a French systems integration and consulting
services company which had been its distribution partner in France since 1993.
Accordingly, the amount of revenues derived and the percentage of total revenues
from sales outside the United States is expected to increase in fiscal 1998.
The Company's typical sale of a software license to an end-user customer
involves several milestones, beginning with the execution of the agreement
between the Company and the customer. The agreement describes the software
license terms, any hardware to be ordered, and if any services and maintenance
are to be performed. The Company and the customer mutually agree upon functional
specifications as to the operating environment, number of terminals, response
times, etc. The Company then assembles the hardware components required to
demonstrate compliance with the functional specifications, at the Company's
offices, and loads the Company's and other third party proprietary software. The
configured system is then used to demonstrate that the system meets the
functional specifications. The Company and the customer participate in this
process. When all functional specifications have been demonstrated, the customer
signs a written acknowledgement signifying the completion of factory acceptance.
The Company repackages the software and hardware components, which are picked up
by common carrier and delivered to the customer. At this point, the Company
recognizes 100% of the hardware revenue and 90% of the software license revenue.
The Company assists the customer in the installation of the system at the
customer's location and assists the customer in loading the customer's
information. The Company and the customer mutually review each of the functional
specifications in the customer's environment, to confirm that the configured
system meets the functional specifications. When there is mutual agreement that
all functional specifications have been met, the customer signs a written
acknowledgement signifying completion of site acceptance. The Company then
recognizes the remaining 10% of software license revenue which was deferred at
the time of factory acceptance and delivery.
On occasion, as for example when an existing end-user previously has
accepted a software product, an end-user may elect to waive the factory and site
acceptance procedures. In such instances, the end-user becomes obligated to pay
upon delivery of the software product and the Company recognizes 100% of the
revenue from the software license.
As noted in the description of a typical transaction with an end-user
customer, the Company recognizes revenues derived from system sales to end-user
customers, including 90% of software license fees and 100% of hardware revenues,
upon the factory acceptance by the customer provided that acceptance is a
condition of the agreement and delivery of the configured system. The Company
defers recognition of 10% of the software license fees until completion of
certain insignificant vendor obligations primarily related to the site
acceptance by the customer. The Company recognizes 100% of revenues from
enterprise-wide licenses of software to end-users upon delivery of the software,
assuming there are no further significant vendor obligations. Revenues derived
from system sales to distribution partners are recognized 100% upon delivery, if
the payment terms are fixed with all amounts due within twelve months, there are
no other significant obligations to be performed by the Company and the
distribution partner meets the Company's criteria with respect to sell-through
and credit risk.
20
<PAGE> 21
Revenue recognition for system sales to end-users that have been delivered
and accepted by the customer with contractual payment terms that extend beyond
one year is determined by the Company based upon the Company's historical
experience with the customer, the customer's credit worthiness, and an
assessment of the enforceability of the contract. All revenues recognized
related to contracts with payments due in more than one year are discounted.
During the fiscal year ended June 30, 1996, the Company recognized revenue on
one arrangement that included payments beyond one year. That contract was with
McLaren Regional Healthcare Corporation.
Revenues from professional services, which may include preparation of
functional specifications, systems integration, and training, among others, are
recognized as the services are performed. Revenues derived from maintenance and
support contracts are recognized ratably over the terms of the related
contracts.
Deferred revenues represent either billings rendered to or payments
received from customers for systems prior to factory acceptance and delivery to
the customer and maintenance and support services billed in advance.
At June 30, 1997, the Company had approximately $51.0 million of signed
sales contracts for systems and services which had not yet been delivered. The
amount of signed sales contracts for systems and services which have not been
delivered includes contracts for software license fees, hardware sales and
maintenance and professional services that may include cancellation provisions
that do not pertain to IMNET's performance, and contracts that are expected to
result in revenues over periods of as much as five years. Any significant or
ongoing failure to achieve signed contracts and subsequent customer acceptance
after expending time, effort and funds could have a material adverse effect on
the Company's business. Because the Company adjusts the timing of an
installation to accommodate customers' needs and a typical end-user installation
requires from one to 12 months to complete, the Company is unable to predict
accurately the number of signed sales contracts it expects to fill and
consequently the amount of revenues it expects to achieve in any particular
period.
The Company capitalizes a portion of its computer software development
costs. These costs relate primarily to the development of new products and
enhancements to existing products to accommodate new markets or platforms using
existing technologies and programming methods. Amortization of computer software
development costs is provided by the Company on individual products or
enhancements and begins when the product or enhancement is available for use by
customers. Amortization is recorded using the greater of: (1) the amount
computed using the ratio of current product revenue to the total of current and
anticipated product revenue or (2) the amount determined using the straight-line
method over the estimated useful life of the software, not to exceed three
years.
ADVISOFT ACQUISITION
On June 25, 1997, the Company completed the acquisition of Advisoft
Consulting, S.A. ("Advisoft"), a systems integration and consulting services
company which has been the Company's distribution partner in France since 1993.
Prior to its acquisition of Advisoft, the Company recognized revenue of
$1,157,000 and $1,392,000 from Advisoft for the years ended June 30, 1997 and
1996, respectively. Aggregate consideration for the acquisition, which has been
accounted for by the purchase method, was $5.1 million in cash and 85,084 shares
of IMNET Common Stock having a market value of $2.0 million as of such date. The
Company has allocated $6.9 million of the purchase price to goodwill and will
include the results of operations of Advisoft in the Company's consolidated
statement of operations effective July 1, 1997. The Company expects to build
upon its established working partnership with Advisoft to begin adapting and
marketing the Company's healthcare application software products for use in
France.
VALUE ADDED RESELLER AGREEMENT WITH ISG TECHNOLOGIES, INC.
In March 1997, the Company signed a value added reseller agreement with ISG
Technologies, Inc. ("ISG"), a Canadian Corporation, whereby the Company will
distribute certain of ISG's medical image visualization software products and
certain of ISG's medical surgical visualization products under a seven-year
non-exclusive distribution agreement. The agreement provides that IMNET will
make three equal
21
<PAGE> 22
payments totaling $7.8 million to ISG by December 31, 1997, constituting both
advance royalties against future sales by IMNET of ISG products and the right to
sublicense certain of the ISG products without payment of any additional license
fees. The first payment of $2.6 million to ISG was made in the third quarter of
fiscal 1997 and the second payment of $2.6 million was made in the fourth
quarter of fiscal 1997. The Company has capitalized the $7.8 million of advance
royalties and is amortizing these advance royalties as revenues are derived from
the ISG products. The remaining obligation to ISG of $2.6 million has been
classified in accrued expenses in the accompanying June 30, 1997 consolidated
balance sheet.
As a result of the value added reseller agreement entered into with ISG,
which obsoleted certain technology previously acquired by the Company in the
Evergreen acquisition, the Company incurred a non-recurring charge of $1.4
million in the third quarter of fiscal 1997, related to the write-down of the
Evergreen technology and the accrual of severance and other costs. These costs
included $870,000 related to the write-off of capitalized software and
intangible assets, $277,000 in severance and other costs related to the
termination of employees, and $222,000 of other expenses.
HUNTER ACQUISITION
On September 30, 1996, the Company completed the acquisition of Hunter
International, Inc. ("Hunter"), a provider of electronic report management and
distribution software solutions to the healthcare and other industries, by
issuing 429,292 shares of IMNET Common Stock having a market value as of such
date of approximately $8.4 million for all of the outstanding common stock of
Hunter. The acquisition of Hunter and its LaserArc product line provides the
Company with electronic report management and distribution solutions. The
acquisition has been accounted for as a pooling of interests. Accordingly, the
Company's accompanying consolidated financial statements have been restated for
all periods prior to the acquisition to include the results of operations,
financial position and cash flows of Hunter.
1996 ACQUISITIONS
On November 3, 1995, the Company acquired Evergreen Technologies, Inc.
("Evergreen") by merger for aggregate consideration consisting of $1.3 million
in cash and 82,353 shares of IMNET Common Stock having a market value as of such
date of approximately $2.3 million. In connection with the Evergreen
acquisition, the Company allocated and expensed in the three months ended
December 31, 1995, approximately $2.9 million to in-process research and
development and allocated approximately $648,000 to goodwill and acquired
technology to be amortized on a straight-line basis over an estimated useful
life of seven and five years, respectively. Additionally, on December 14, 1995
the Company acquired Quesix Software, Incorporated ("Quesix"). The Company had
previously marketed a version of Quesix's EPRS product pursuant to a
distribution agreement. The aggregate consideration for the acquisition of
Quesix was $4.2 million in cash, acquisition costs and assumption of
liabilities. In connection with the Quesix acquisition, the Company allocated
and expensed in the three months ended December 31, 1995, approximately $2.8
million to in-process research and development, and allocated approximately $1.4
million to goodwill to be amortized on a straight-line basis over an estimated
useful life of 7 years. Subsequent to the fiscal year ended June 30, 1996, the
Company discovered an income tax liability had been incurred resulting from the
acquisition of Quesix of $1.4 million and has reflected such amounts as an
increase to goodwill and income taxes payable in the consolidated financial
statements. The in-process research and development expensed at the dates of the
acquisitions had not reached technological feasibility and had no alternative
future use to the Company.
The Company pursued the acquisitions discussed above to enhance the
capabilities and applications of the IMNET Electronic Information Warehouse. The
acquisition of Advisoft will enable the Company to adopt and market its
healthcare software products internationally and increase its market
penetration. The acquisition of Hunter provided the Company with additional
electronic report management capabilities. The acquisition of Evergreen and its
radiological imaging product line, MedVision, provided the Company with the
technology to expand and improve the radiological information storage, retrieval
and display capabilities of the IMNET Electronic Information Warehouse even
though this technology was subsequently obsoleted by the technology licensed
under the ISG agreement. Further, the acquisition of Quesix and the EPRS allowed
the
22
<PAGE> 23
Company to control future development and distribution of the EPRS, a patient
record document management application software product.
BUSINESS ALLIANCE WITH HBOC
In March 1996, the Company signed agreements with HBO & Company ("HBOC") to
distribute IMNET's products on a private label basis. Under the terms of the
agreements, HBOC markets the IMNET Electronic Information Warehouse, which has
been integrated with HBOC's clinical and information solutions, and HBOC will
not market competing products. Under the terms of the distribution agreement,
the Company paid an aggregate of $3.0 million in cash to HBOC in exchange for
the seven-year exclusive distribution rights. The Company agreed to support
HBOC's First Perspective product line customers. The First Perspective product
line, prior to the distribution agreement, competed with the IMNET Electronic
Information Warehouse. The distribution agreement provides that HBOC will offer
its First Perspective product line customers the opportunity to convert to the
IMNET Electronic Information Warehouse and that the cost for such conversion,
estimated by the Company to be approximately $3.0 million, will be assumed by
the Company. As of August 30, 1997, 5 of 11 total customers had elected to
convert and 3 customers had elected not to convert.
As a result of these transactions, during the three months ended March 31,
1996, the Company recorded a nonrecurring charge of $4.6 million to the
Company's consolidated statement of operations and capitalized $1.4 million of
intangible assets related to the Company's valuation of the expected cash flows
from maintenance revenues for the support of the First Perspective customers.
The $1.4 million intangible asset is being amortized on a straight-line basis
over an estimated life of seven years. Of the $3.0 million of total estimated
conversion costs, the Company has classified the remaining $1.7 million of
estimated conversion costs, net of the $1.3 million costs incurred to date, in
accrued expenses in the accompanying June 30, 1997 consolidated balance sheet.
The Company believes the amounts accrued are adequate based on current estimates
of conversion costs.
Transactions between HBOC and the Company typically involve several steps.
HBOC maintains a master copy of IMNET software which it replicates for delivery
to its customers when they receive a sublicense. HBOC provides the Company with
notice of the number of copies of software that HBOC has duplicated, in writing,
either at the end of the accounting period or at the time HBOC grants a
sublicense to its customer. HBOC's unconditional obligation to pay the Company
for the software duplicated is without regard to the terms and conditions of
HBOC's sublicense with its customer. The Company recognizes 100% of the revenue
from HBOC as of the date of the notification of duplication by HBOC.
The Company recognized revenue from the business alliance with HBOC of
$15.8 million and $2.4 million during the years ended June 30, 1997 and 1996.
These amounts included purchases of software sublicenses by HBOC of $2.0 million
and $3.0 million in March and September 1996, respectively. At the time of
purchase HBOC had not identified all of the end-user customers by name, although
HBOC had several likely prospects. Subsequently these licenses have been
delivered to identified customers.
GRANT OF MANUFACTURING RIGHTS FOR THE COMPANY'S MEGASAR MICROFILM JUKEBOX
On June 30, 1996, the Company granted to SoftNet Systems, Inc. ("SoftNet")
worldwide, exclusive manufacturing rights and non-exclusive, non-healthcare
distribution rights for the MegaSAR Microfilm Jukebox and its associated
technology. The terms of the transaction also included $1.0 million of
nonrefundable software license fees related to the MegaSAR product, which was
recognized as revenue during the three months ended June 30, 1996. The Company
will continue to sell the MegaSAR to be manufactured by SoftNet and provide
maintenance and support for its existing MegaSAR customers.
23
<PAGE> 24
RESULTS OF OPERATIONS
The following table sets forth certain operating data as a percentage of
total revenues for each fiscal period indicated:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-----------------------
1997 1996 1995
----- ----- -----
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
System sales.............................................. 81.7% 83.5% 78.8%
Maintenance and professional services..................... 18.3 16.5 21.2
----- ----- -----
Total revenues.................................... 100.0 100.0 100.0
----- ----- -----
Operating expenses:
Cost of system sales...................................... 21.1 22.0 41.2
Cost of maintenance and professional services............. 11.0 9.2 14.5
Sales and marketing....................................... 26.4 33.2 39.3
Research and development.................................. 10.3 13.3 20.8
General and administrative................................ 11.5 14.1 21.6
Non-recurring charges..................................... 5.2 35.3 --
----- ----- -----
Total operating expenses.......................... 85.5 127.1 137.4
----- ----- -----
Operating income (loss)........................... 14.5 (27.1) (37.4)
----- ----- -----
Interest income, net........................................ 3.2 6.6 1.2
----- ----- -----
Income (loss) before income taxes................. 17.7 (20.5) (36.2)
----- ----- -----
Income taxes................................................ 3.8 -- --
----- ----- -----
Net income (loss)................................. 13.9% (20.5)% (36.2)%
===== ===== =====
</TABLE>
- ---------------
Note: The selected financial data gives retroactive recognition to the
acquisition of Hunter, which has been accounted for as a pooling of
interests.
Comparison of Fiscal Years Ended June 30, 1997 and June 30, 1996
Revenues. The Company's total revenues were $50.2 million compared to
$29.4 million for fiscal 1996, an increase of $20.8 million, or 71%. The
Company's total revenues derived from sales to domestic healthcare customers
were $46.4 million for fiscal 1997 compared to $20.5 million for fiscal 1996, an
increase of $25.9 million, or 126%. This increase was primarily due to a
significantly larger customer base and the recognition of revenue from $7.9
million of enterprise-wide software licenses for the IMNET EPRS, IMNET LaserArc,
and IMNET MedVision delivered to Baptist Regional Healthcare Systems, Inc. Also
contributing to the increase was $18.2 million of revenue resulting from the
Company's alliances with its HCIS Distribution Partners ($15.8 million from
HBOC).
Revenues from sales to domestic general business customers were $2.4
million in fiscal 1997 compared to $6.5 million in fiscal 1996, a decrease of
$4.1 million, or 63%. The Company expects this trend to continue due to its
strategic focus on customers in the healthcare industry. Revenues from sales to
international customers were $1.4 million in fiscal 1997 compared to $2.3
million in fiscal 1996, a decrease of $930,000, or 40%. The Company acquired
Advisoft on June 25, 1997 and anticipates that sales to international customers
will increase in fiscal 1998. Revenues from system sales increased to $41.0
million in fiscal 1997 compared to $24.5 million in fiscal 1996, an increase of
$16.5 million, or 67%. Revenues from maintenance and professional services were
$9.2 million in fiscal 1997 compared to $4.8 million in fiscal 1996, an increase
of $4.3 million, or 89%. The increase in maintenance and professional services
revenues is primarily attributable to an increase in services to healthcare
customers and additional maintenance contracts, resulting from a larger
installed base.
24
<PAGE> 25
The Company's product sales have been concentrated in a small number of
customers and the Company has historically derived a substantial percentage of
its total revenues from a relatively small number of customers. Developments
adverse to the financial condition of any of these customers or the inability to
replace any such customer with significant new customers would have a material
adverse effect on the Company's business.
Cost of Revenues. The cost of system sales in fiscal 1997 was $10.6
million compared to $6.5 million in fiscal 1996, an increase of $4.1 million, or
64%. As a percentage of total revenues, the cost of system sales declined to 21%
in fiscal 1997 from 22% in fiscal 1996 as software license fees continued to be
a larger proportion of system sales in the revenue sales mix. As a percentage of
system sales revenues, the cost of system sales was 26% in both fiscal 1997 and
1996. The cost of system sales also reflected amortization expenses in each
fiscal year of $697,000 relating to technology acquired in the 1992 acquisition
and $881,000 related to the ISG agreement in fiscal 1997. The cost of
maintenance and professional services was $5.5 million in fiscal 1997 compared
to $2.7 million in fiscal 1996, an increase of $2.8 million, or 104%. As a
percentage of total revenues, this amount represented an increase to 11% from
9%. This increase is primarily a result of the need to hire additional
installation and support personnel as the installed customer base continues to
grow. As a result, the cost of maintenance and professional services, as a
percentage of maintenance and professional services revenues, increased to 60%
in fiscal 1997 compared to 56% in fiscal 1996. Although the cost of system sales
as a percentage of total revenues declined in fiscal 1997 to 21% compared to 22%
in fiscal 1996, management does not anticipate that this trend will continue,
largely due to high margins associated with revenue recognized from the
enterprise-wide software licenses with Baptist in 1997.
Sales and Marketing. Sales and marketing expenses consist primarily of
salaries, commissions and related benefits and administrative costs allocated to
the Company's sales and marketing efforts. Sales and marketing expenses
increased to $13.3 million in fiscal 1997 compared to $9.8 million in fiscal
1996, an increase of $3.5 million, or 36%. The increase was primarily due to
higher sales commissions from increased system sales and higher sales salary
expenses associated with the increase in the number of sales personnel.
Expressed as a percentage of total revenues, sales and marketing expenses were
26% in fiscal 1997 compared to 33% in fiscal 1996.
Research and Development. Research and development expenditures consist
primarily of personnel costs of research and development staff, and the
allocation of the facilities, computing, benefits and other administrative costs
to such efforts. Research and development expenses increased to $5.2 million in
fiscal 1997 from $3.9 million in fiscal 1996, an increase of $1.3 million, or
33%. This increase was primarily attributable to an increase in the number of
research and development personnel and associated costs, partially offset by the
capitalization of $2.0 million in computer software development costs related to
new products and enhancements to be released over the next year. The $2.0
million of capitalized computer software development costs represented 28% of
the Company's total research and development expenditures in fiscal 1997 as
compared to 25% for fiscal 1996. Management believes that the capitalization
rate will continue at a rate similar to that incurred in fiscal 1997, in fiscal
1998 due to the scheduled release dates of new software products. As a
percentage of total revenues, research and development expenses decreased to 10%
from 13% in fiscal 1997 as compared to fiscal 1996.
General and Administrative. General and administrative expenses include
the costs of corporate operations, finance and accounting, human resources and
other general operations of the Company. General and administrative expenses
increased to $5.8 million in fiscal 1997 from $4.1 million in fiscal 1996, an
increase of $1.6 million, or 39%. This increase was primarily attributable to
increases in salaries and associated costs, additional facilities costs due to
the January 1997 relocation of the company's corporate offices and an increase
in depreciation expense associated with equipment to support increased staffing
and the Company's new corporate office facility. General and administrative
expenses as a percentage of total revenues decreased to 12% in fiscal 1997 from
14% in fiscal 1996.
Non-recurring Charges. The Company incurred non-recurring charges of $2.6
million during fiscal 1997, comprised of (i) $750,000 related to acquisition
costs associated with the Hunter International, Inc. acquisition, completed
during the three month period ended September 30, 1996; (ii) $1.4 million
related to
25
<PAGE> 26
the write-down of Evergreen technology associated with its MedVision product
line, which was obsoleted by the licensed technology under the Value Added
Reseller Agreement entered into with ISG Technologies, Inc. in March 1997 (see
"-- Value Added Reseller Agreement with ISG Technologies, Inc." above for
information concerning these charges); and (iii) $468,000 related to relocation
costs associated with the Company's move to its new corporate headquarters,
which was completed in the three month period ended March 31, 1997. During
fiscal 1996, the Company incurred nonrecurring charges of $10.4 million,
comprised of (i) $5.7 million related to in-process research and development
expenses associated with the Company's acquisition of Evergreen Technologies,
Inc. and Quesix Software, Incorporated incurred in the three month period ended
December 31, 1995; and (ii) $4.6 million related to the HBOC business alliance
entered into in the three month period ended March 31, 1996 (see "-- 1996
Acquisitions" and "Business Alliance with HBOC" above for information concerning
these charges).
Income Taxes. Because of operating losses experienced through fiscal 1996,
the Company had not incurred any current income tax liabilities or provided for
any income taxes through the second quarter of fiscal 1997. Beginning in the
third fiscal quarter of 1997, the Company began providing for income tax expense
due to the expected current income tax liabilities that resulted from profitable
operations in fiscal 1997 coupled with the impact of the annual limitation on
the Company's use of net operating loss and credit carryforwards. The Company's
effective income tax rate for fiscal 1997 was 21%, which is lower than the
statutory federal and state income tax rates primarily because of the decrease
in the valuation allowance for deferred income tax assets of $2.0 million. The
Company believes it likely that the net deferred income tax assets recorded at
June 30, 1997 of $1.1 million will be realized in the future and that the
effective income tax rate incurred in the future will increase if the Company
profit targets are achieved.
Net Income (Loss). The Company's net income for fiscal 1997 was $7.0
million, or $0.69 per share, compared to a net loss of $6.0 million, or $0.69
per share, in fiscal 1996. Exclusive of the non-recurring charges discussed
above, the Company recorded net income of $9.6 million, or $0.95 per share, for
fiscal 1997 compared to $4.3 million, or $0.47 per share, for fiscal 1996. The
improvement in the Company's results, exclusive of non-recurring charges, was
due to the significant growth in revenues, partially offset by increases in
operating expenses necessary to support the Company's continuing growth.
Comparison of Fiscal Years Ended June 30, 1996 and June 30, 1995
Revenues. The Company's total revenues were $29.4 million in fiscal 1996
compared to $11.3 million for fiscal 1995, an increase of $18.1 million, or
161%. The Company's revenues derived from sales to domestic healthcare customers
were $20.5 million for fiscal 1996 compared to $6.1 million for fiscal 1995, an
increase of $14.4 million, or 236%. These increases were primarily due to $5.7
million of revenue related to enterprise-wide software licenses for the IMNET
Image Engine, IMNET Workflow Engine, IMNET EPRS and IMNET MedVision to McLaren
Regional Healthcare Center ("McLaren"), $2.9 million of software license revenue
from SoftNet, $2.4 million of software license revenue related to the Company's
business alliance with HBOC, and additional system sales to other customers. The
enterprise-wide software licenses with McLaren for the IMNET Image Engine and
IMNET Workflow Engine products provided for payment terms in the form of
quarterly installments of $266,667, which began in October, 1995 and will end in
July, 1998. The Company recorded $2.8 million in revenues from those software
licenses during fiscal 1996, which amount represented the discounted future
stream (those payments due in more than 12 months) of quarterly installment
payments under the license agreement. The Company classified the discounted
amounts due in more than 12 months of $1.1 million as noncurrent trade accounts
receivable in the accompanying 1996 consolidated balance sheet. Total revenues
derived from McLaren were $6.5 million during fiscal 1996, representing
approximately 22% of total revenues in fiscal 1996.
Revenues from sales to domestic general business customers were $6.5
million in fiscal 1996 compared to $3.6 million in fiscal 1995, an increase of
$2.9 million, or 81%. Revenues from sales to international customers were $2.3
million in fiscal 1996 compared to $1.7 million in fiscal 1995, an increase of
$590,000, or 34%. Revenues from system sales increased to $24.5 million in
fiscal 1996 from $8.9 million in fiscal 1995, an increase of $15.7 million, or
176%. Revenues from maintenance and professional services were $4.8 million in
fiscal 1996 compared to $2.4 million in fiscal 1995, an increase of $2.5
million, or 103%. This growth was
26
<PAGE> 27
primarily attributable to an increase in professional services to healthcare
customers and additional maintenance contracts, resulting from a larger
installed base.
Cost of Revenues. The cost of system sales in fiscal 1996 was $6.5 million
compared to $4.6 million in fiscal 1995, an increase of $1.8 million, or 39%. As
a percentage of total revenues, the cost of system sales declined to 22% in
fiscal 1996 from 41% in fiscal 1995, due to increased revenue derived from
system sales and a higher software component in the system sales revenue mix. As
a percentage of system sales revenues, the cost of system sales decreased to 26%
in fiscal 1996 from 52% in fiscal 1995. The cost of system sales also reflected
amortization expenses in each year of $697,000 relating to technology acquired
in the 1992 Acquisition. The cost of maintenance and professional services was
$2.7 million in fiscal 1996 compared to $1.6 million in fiscal 1995, an increase
of $1.1 million, or 65%. As a percentage of total revenues, this amount
represented a reduction to 9% from 15%. The cost of maintenance and professional
services, as a percentage of maintenance and professional service revenues,
declined to 56% in fiscal 1996 from 68% in fiscal 1995.
Sales and Marketing. Sales and marketing expenses increased to $9.8
million in fiscal 1996 from $4.4 million in fiscal 1995, an increase of $5.3
million, or 120%. The increase was primarily due to higher sales commissions
from increased system sales and higher sales salary expenses associated with
increases in the number of sales personnel. Expressed as a percentage of total
revenues, sales and marketing expenses were 33% in fiscal 1996 compared to 39%
in fiscal 1995.
Research and Development. Research and development expenses increased to
$3.9 million in fiscal 1996 from $2.3 million in fiscal 1995, an increase of
$1.6 million, or 67%. The increase was primarily attributable to an increase in
the number of research and development personnel and associated costs, partially
offset by the capitalization of $1.3 million in computer software development
costs related to new products and enhancements expected to be released over the
next year. The $1.3 million of capitalized computer software development costs
represented 25% of the Company's total research and development expenditures in
fiscal 1996. As a percentage of total revenues, research and development
expenses decreased to 13% from 21% in fiscal 1996 as compared to fiscal 1995.
General and Administrative. General and administrative expenses increased
to $4.1 million in fiscal 1996 from $2.4 million in fiscal 1995, an increase of
$1.7 million, or 71%. This increase was primarily attributable to increases in
salaries and associated costs, additional costs associated with being a public
company, an increase in facilities expenses to support staffing additions,
increases for employment fees and relocation expenses, and an increase in
depreciation expense associated with equipment to support increased staffing.
General and administrative expenses as a percentage of total revenues decreased
to 14% in fiscal 1996 from 22% in fiscal 1995.
Non-recurring Charges. See "-- 1996 Acquisitions" and "-- Business
Alliance with HBOC" above for information concerning these charges.
Net Loss. The Company's net loss for fiscal 1996 was $6.0 million, or
$0.69 per share, compared to a net loss of $4.1 million, or $0.77 per share, in
fiscal 1995. Exclusive of the $10.4 million ($1.18 per share) in non-recurring
charges, the Company recorded net income of $4.3 million, or $0.47 per share,
for fiscal 1996, as compared to a net loss of $4.1 million, or $.77 per share,
in fiscal 1995. The improvement in the Company's results, exclusive of the
nonrecurring charges, was due to the significant growth in revenues, partially
offset by increases in operating expenses necessary to support the Company's
continuing growth, and interest income of approximately $1.9 million earned on
the net proceeds of the Company's initial and secondary public offerings.
QUARTERLY RESULTS OF OPERATIONS
The following tables set forth certain quarterly financial data for the
fiscal years ended June 30, 1997 and June 30, 1996. This quarterly information
is unaudited, has been prepared on the same basis as the annual consolidated
financial statements and, in the opinion of the Company's management, reflects
all normal
27
<PAGE> 28
recurring adjustments necessary for a fair presentation of the information for
the periods presented. Operating results for any quarter are not necessarily
indicative of results for any future period.
<TABLE>
<CAPTION>
FISCAL 1997 FISCAL 1996
------------------------------------- -------------------------------------
FOURTH THIRD SECOND FIRST FOURTH THIRD SECOND FIRST
QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER
------- ------- ------- ------- ------- ------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total revenues................ $15,871 $13,543 $11,110 $9,659 $11,631 $ 6,986 $ 6,329 $4,434
Total operating expenses...... 11,545 12,036 9,814 9,505 8,804 11,580 12,365 4,596
------- ------- ------- ------ ------- ------- ------- ------
Operating income (loss)....... 4,326 1,507 1,296 154 2,827 (4,594) (6,036) (162)
Interest income, net.......... 348 344 398 492 558 469 493 418
------- ------- ------- ------ ------- ------- ------- ------
Income (loss) before income
taxes....................... 4,674 1,851 1,694 646 3,385 (4,125) (5,543) 256
Income taxes.................. 1,408 475 -- -- -- -- -- --
------- ------- ------- ------ ------- ------- ------- ------
Net income (loss)............. $ 3,266 $ 1,376 $ 1,694 $ 646 $ 3,385 $(4,125) $(5,543) $ 256
======= ======= ======= ====== ======= ======= ======= ======
</TABLE>
- ---------------
Note: The quarterly data shown above gives retroactive recognition to the
acquisition of Hunter, which has been accounted for as a pooling of
interests.
The Company has experienced significant quarterly fluctuations in operating
results which may continue in future periods. The Company's revenues from system
sales have varied significantly from quarter to quarter as a result of the
volume and timing of system sales and customer acceptance and delivery.
Professional services revenues have also fluctuated from quarter to quarter as a
result of the timing of the installation of software and hardware, project
management and customized programming. Revenues from maintenance services have
not fluctuated significantly from quarter to quarter and have been increasing as
the number of the Company's customers increases. Since a significant percentage
of the Company's expenses are fixed, quarterly operating results will vary with
the timing and fluctuation of total revenues.
LIQUIDITY AND CAPITAL RESOURCES
Since its inception in 1992, the Company has funded its operations, working
capital needs and capital expenditures primarily from revenues and sales of
equity securities. The Company was initially capitalized primarily by three
investment companies. Subsequently, the Company completed four private
placements in which new investors purchased Company securities. In July 1995,
the Company received approximately $37.5 million net of underwriter's discounts
and offering costs from its initial public offering. In February 1996, the
Company received an additional $18.5 million net of underwriters discounts and
offering costs from a subsequent offering of its Common Stock.
Cash and cash equivalents and marketable securities were $20.7 million at
June 30, 1997 compared to $38.4 million at June 30, 1996. The $17.7 million
decrease in cash and marketable securities was largely due to a $17.5 million
increase in accounts receivable, $5.1 million of net cash used to acquire
Advisoft, $3.9 million of property and equipment purchases, payments of $1.8
million to HBOC per the business alliance agreement and $7.4 million of
additions to intangible assets (primarily ISG advance royalty), offset by
increases of $12.3 million of net income and other noncash operating activities
(depreciation, amortization, provision for collection of doubtful accounts and
inventory reserves, non-recurring charges, and deferred income tax benefit),
$2.5 million of cash received from a related party note and $2.5 million of
increases in accounts payable, accrued expenses, income taxes payable and
deferred revenue. The cash dividends paid on common stock disclosed in the
consolidated statements of stockholders' equity and cash flows for the years
ended June 30, 1997, 1996, and 1995 were normal stockholder distributions paid
by Hunter prior to the merger, accounted for as a pooling of interests. IMNET
has not paid any dividends on its common stock.
The Company plans to continue to increase its professional staff during
fiscal 1998 and the foreseeable future, to meet anticipated sales volume and to
support research and development efforts. The Company also anticipates increased
costs associated with its acquisition of Advisoft. The Company expects that its
28
<PAGE> 29
requirements for office facilities and office equipment will grow as staffing
requirements dictate. The Company began the 1997 fiscal year leasing 54,000
square feet of office space. To accommodate continuing growth, the Company
signed an operating lease, effective January 1997, to increase its headquarters
space to 96,000 square feet. In October 1997, the Company signed an additional
operating lease increasing the leased square footage to 118,000. As a result,
the Company will incur increased rental expense. The Company has budgeted
capital expenditures of approximately $2.6 million in fiscal 1998 for the
purchase of computer equipment for existing and new employees, furniture and
fixtures, and equipment associated with the new office facility, new training
equipment, and new equipment for customer demonstrations.
The Company's accounts receivable days sales outstanding ("DSO") continued
to increase in fiscal 1997. Management believes that its willingness to grant
extended billing and payment terms, on a negotiated, case by case basis,
provides the customer or distributor with additional incentives to commit to
large purchases, because such terms (i) demonstrate that the Company is
comfortable with providing the purchaser the leverage inherent in deferred
payments (thereby demonstrating its confidence in its product), and (ii) permit
the purchaser (and the Company) to commit to a large order, while the payment
stream is tailored to a longer period of time (thereby providing the purchaser
with a means to finance the project over one or more internal cash budgeting
cycles). Therefore, management believes the accounts receivable DSO trend will
continue in fiscal 1998, due to the extended terms selling strategy. However,
the failure by customers to pay significant amounts as they become due would
have a material adverse effect on the Company's financial position and results
of operations.
The Company has a licensing agreement which obligates the Company to pay
1.5% of net license fee revenue from new licenses of certain of its products.
The agreement commences on July 1, 1997 and continues through December 31, 2003.
The Company has paid $100,000 in advance to be offset against amounts due under
this agreement.
The Company believes that its cash and cash equivalents and marketable
securities, along with net cash flows provided from operations, will be
sufficient to finance expected cash requirements for operating activities and
anticipated growth for at least the next 12 months. The Company's ability to
meet its cash obligations on a long-term basis will depend on its achieving and
maintaining profitable operations and on consistent and timely collection of its
accounts receivable. To date, inflation has not had a material impact on the
Company's revenues or income.
The Company will require significant funds to implement its business
strategies. The Company may experience losses due to the following factors: (i)
the Company's operating expenses are budgeted on anticipated revenues; (ii) the
Company incurs significant expenses in connection with research and development,
as well as the development of its direct and indirect selling and marketing
efforts; and (iii) a high percentage of the Company's expenses are fixed; (iv)
the Company may incur charges related to acquisitions and business alliances. As
a result, there can be no assurance that the Company will be profitable in the
future or that available funds, together with any funds provided by operations,
will be sufficient to fund the Company's ongoing operations. If the Company has
insufficient funds, there can be no assurance that additional financing can be
obtained on acceptable terms, if at all. The absence of such financing would
have a material adverse effect on the Company's business, including a possible
reduction or cessation of operations.
In addition, certain risk factors, among others, should be considered
carefully in evaluating the Company and its business. These risk factors include
the following: (i) limited operating history; lack of profitable operations;
(ii) variability in quarterly operating results; volatility of stock price;
(iii) customer concentration; (iv) product acceptance and market development;
dependence on distribution partners; (v) long sales and delivery cycle;
dependence on future system sales; (vi) ability to manage growth; (vii) risks
associated with acquisitions; (viii) technological changes; competition; (ix)
uncertainty in healthcare industry; government healthcare reform proposals; (x)
dependence on key personnel; (xi) dependence on proprietary rights and patents;
(xii) product liability; and (xiii) foreign operations. For additional detail,
please refer to "Business -- Risk Factors" contained in Part I, Item 1 of this
Form 10-K. Also, see the note preceding Part I of "Business" in this Form 10-K
for additional information regarding the Private Securities Litigation Reform
Act.
29
<PAGE> 30
RECENT ACCOUNTING PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128, "Earnings per share" (Statement 128).
Statement 128 specifies modifications to the computation of earnings per share
from those currently utilized by the Company. Under Statement 128, "basic"
earnings per share will be computed based upon the weighted average number of
common shares actually outstanding, and "diluted" earnings per share will be
computed based upon the weighted average number of common shares and dilutive
potential common shares. Statement 128 is effective in the Company's second
quarter of the fiscal year ending June 30, 1998.
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 129, "Disclosure of Information about
Capital Structure" (Statement 129). Statement 129 requires companies to disclose
descriptive information about securities that are not necessarily related to the
computation of earnings per share. It also requires disclosure of information
about the liquidation preferences of preferred stock and redeemable stock.
Statement 129 is effective for financial statements for periods ending after
December 15, 1997.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income"
(Statement 130). Statement 130 requires companies to display, with the same
prominence as other financial statements, the components of other comprehensive
income. Statement 130 requires that an enterprise classify items of other
comprehensive income by their nature in a financial statement and display the
accumulated balance of other comprehensive income separately from retained
earnings and additional paid-in capital in the equity section of the balance
sheet. Statement 130 is effective for fiscal years beginning after December 15,
1997. Reclassification of financial statements for earlier periods provided for
comparative purposes is required.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131, "Disclosures about Segments of an
Enterprise and Related Information" (Statement 131). Statement 131 requires that
an enterprise disclose certain information about operating segments. Statement
131 is effective for financial statements for periods beginning after December
15, 1997.
ITEM 7A. QUALITATIVE AND QUANTITATIVE DISCLOSURE ABOUT MARKET RISK
Not applicable.
30
<PAGE> 31
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
INDEPENDENT AUDITORS' REPORT
The Board of Directors
IMNET Systems, Inc.:
We have audited the accompanying consolidated balance sheets of IMNET
Systems, Inc. and subsidiaries as of June 30, 1997 and 1996, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
each of the years in the three-year period ended June 30, 1997. In connection
with our audits of the accompanying consolidated financial statements, we also
have audited the financial statement schedule listed under Item 14(a)2. These
consolidated financial statements and financial statement schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements and financial statement
schedule 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 consolidated 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 consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
IMNET Systems, Inc. and subsidiaries as of June 30, 1997 and 1996, and the
results of their operations and their cash flows for each of the years in the
three-year period ended June 30, 1997, in conformity with generally accepted
accounting principles. Also, in our opinion, the related financial statement
schedule, when considered in relation to the basic consolidated financial
statements taken as a whole, presents fairly, in all material respects, the
information set forth therein.
KPMG PEAT MARWICK LLP
Atlanta, Georgia
October 6, 1997
31
<PAGE> 32
IMNET SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30,
---------------------------------------------------
1997 1996
------------------------ ------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 9,132,631 $16,894,711
Marketable securities, at cost (estimated market value of
$11,652,556 and $21,629,750 at June 30, 1997 and 1996,
respectively).......................................... 11,606,287 21,541,760
Trade accounts receivable, net of allowance for doubtful
accounts of $1,115,640 and $333,290 at June 30, 1997
and 1996, respectively................................. 33,858,910 15,360,291
Note receivable from related party........................ -- 2,910,876
Inventories............................................... 2,100,060 2,079,574
Prepaid expenses and other current assets................. 2,136,686 712,204
----------- -----------
Total current assets.............................. 58,834,574 59,499,416
Noncurrent trade accounts receivable........................ 233,949 1,085,927
Notes receivable from officer............................... -- 105,000
Property and equipment, net................................. 6,242,243 3,329,331
Computer software development costs, net of accumulated
amortization of $391,867 and $73,531 at June 30, 1997 and
1996, respectively........................................ 2,556,663 1,212,875
Acquired technology, net of accumulated amortization of
$3,310,617 and $2,627,244 at June 30, 1997 and 1996,
respectively.............................................. 174,383 959,755
Advance royalties, net of accumulated amortization of
$880,821 at June 30, 1997................................. 6,919,179 --
Other intangibles, net of accumulated amortization of
$283,332 and $50,000 at June 30, 1997 and 1996,
respectively.............................................. 1,542,737 1,570,842
Goodwill, net of accumulated amortization of $309,032 and
$161,579 at June 30, 1997 and 1996, respectively.......... 9,349,174 3,152,152
----------- -----------
$85,852,902 $70,915,298
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 3,026,276 $ 1,264,479
Accrued expenses.......................................... 9,471,314 6,644,211
Income taxes payable...................................... 2,379,220 1,379,220
Deferred revenue.......................................... 1,186,388 804,357
----------- -----------
Total current liabilities......................... 16,063,198 10,092,267
Stockholders' equity:
Common stock, $.01 par value. Authorized 25,000,000
shares; 9,779,374 shares issued and 9,741,737 shares
outstanding at June 30, 1997, 9,627,071 shares issued
and 9,589,434 outstanding at June 30, 1996............. 97,794 96,271
Additional paid-in capital................................ 83,378,585 80,795,841
Treasury stock, 37,637 shares, at cost.................... (148,417) (148,417)
Accumulated deficit....................................... (13,538,258) (19,920,664)
----------- -----------
Total stockholders' equity........................ 69,789,704 60,823,031
Commitments and contingencies...............................
----------- -----------
$85,852,902 $70,915,298
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
32
<PAGE> 33
IMNET SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
---------------------------------------
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Revenues:
System sales.......................................... $41,024,717 $24,532,389 $ 8,880,592
Maintenance and professional services................. 9,158,945 4,847,696 2,393,157
----------- ----------- -----------
Total revenues................................ 50,183,662 29,380,085 11,273,749
----------- ----------- -----------
Operating expenses:
Cost of system sales.................................. 10,568,920 6,457,962 4,644,283
Cost of maintenance and professional services......... 5,510,716 2,704,536 1,636,885
Sales and marketing................................... 13,261,111 9,752,525 4,433,444
Research and development.............................. 5,193,678 3,915,032 2,342,889
General and administrative............................ 5,780,008 4,144,848 2,429,611
Non-recurring charges................................. 2,586,059 10,370,000 --
----------- ----------- -----------
Total operating expenses...................... 42,900,492 37,344,903 15,487,112
----------- ----------- -----------
Operating income (loss)....................... 7,283,170 (7,964,818) (4,213,363)
Interest income, net.................................. 1,582,301 1,937,653 133,765
----------- ----------- -----------
Income (loss) before income taxes............. 8,865,471 (6,027,165) (4,079,598)
Income taxes.......................................... 1,883,065 -- --
----------- ----------- -----------
Net income (loss)............................. $ 6,982,406 $(6,027,165) $(4,079,598)
=========== =========== ===========
Net income (loss) per common share and common share
equivalent............................................ $ 0.69 $ (0.69) $ (0.77)
=========== =========== ===========
Weighted average outstanding common shares and common
share equivalents..................................... 10,067,359 8,779,356 5,330,321
=========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
33
<PAGE> 34
IMNET SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED JUNE 30, 1997, 1996, AND 1995
<TABLE>
<CAPTION>
PREFERRED STOCK
----------------------------------------------------------------------------------------------
SERIES A SERIES B SERIES I SERIES II
--------------------- --------------------- --------------------- ----------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
------- ----------- ------- ----------- ------- ----------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at June 30, 1994... 65,393 $ 7,283,156 40,000 $ 2,111,503 38,209 $ 5,349,320 -- $ --
Purchase of treasury stock
and redemption of
preferred stock, at
cost...................... -- -- -- -- (213) (20,235) -- --
Dividends accrued on Series
A preferred stock......... -- -- -- -- -- -- -- --
Sale of Series II
convertible preferred
stock at $140 per share... -- -- -- -- -- -- 51,729 6,810,481
Cancellation of Series B
convertible preferred
stock..................... -- -- (40,000) (2,111,503) -- -- -- --
Dividends paid by Hunter
prior to merger........... -- -- -- -- -- -- -- --
Net loss................... -- -- -- -- -- -- -- --
------- ----------- ------- ----------- ------- ----------- --------- ----------
Balance at June 30, 1995... 65,393 7,283,156 -- -- 37,996 5,329,085 51,729 6,810,481
Dividends accrued on Series
A preferred stock......... -- -- -- -- -- -- -- --
Conversion of preferred
stock and accrued
dividends to common
stock..................... (65,393) (7,283,156) -- -- (37,996) (5,329,085) (51,729) (6,810,481)
Sale of common stock....... -- -- -- -- -- -- -- --
Exercise of stock options
and warrants.............. -- -- -- -- -- -- -- --
Issuance of common stock in
connection with an
acquisition............... -- -- -- -- -- -- -- --
Dividends paid by Hunter
prior to merger........... -- -- -- -- -- -- -- --
Net loss................... -- -- -- -- -- -- -- --
------- ----------- ------- ----------- ------- ----------- --------- ----------
Balance at June 30, 1996... -- -- -- -- -- -- -- --
Exercise of stock options
and warrants.............. -- -- -- -- -- -- -- --
Issuance of common stock in
connection with an
acquisition............... -- -- -- -- -- -- -- --
Dividends paid by Hunter
prior to merger........... -- -- -- -- -- -- -- --
Net income................. -- -- -- -- -- -- -- --
------- ----------- ------- ----------- ------- ----------- --------- ----------
Balance at June 30, 1997... -- $ -- -- $ -- -- $ -- -- $ --
======= =========== ======= =========== ======= =========== ========= ==========
<CAPTION>
COMMON STOCK ADDITIONAL TREASURY STOCK TOTAL
------------------- PAID-IN ------------------ ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT CAPITAL SHARES AMOUNT DEFICIT EQUITY
--------- ------- ----------- ------ --------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at June 30, 1994... 2,896,619 $28,966 $ 122,308 -- $ -- $ (8,343,706) $ 6,551,547
Purchase of treasury stock
and redemption of
preferred stock, at
cost...................... -- -- -- 37,637 (148,417) -- (168,652)
Dividends accrued on Series
A preferred stock......... -- -- -- -- -- (242,950) (242,950)
Sale of Series II
convertible preferred
stock at $140 per share... -- -- -- -- -- -- 6,810,481
Cancellation of Series B
convertible preferred
stock..................... -- -- 2,111,503 -- -- -- --
Dividends paid by Hunter
prior to merger........... -- -- -- -- -- (800,000) (800,000)
Net loss................... -- -- -- -- -- (4,079,598) (4,079,598)
--------- ------- ----------- ------ --------- ------------ -----------
Balance at June 30, 1995... 2,896,619 28,966 2,233,811 37,637 (148,417) (13,466,254) 8,070,828
Dividends accrued on Series
A preferred stock......... -- -- -- -- -- (27,245) (27,245)
Conversion of preferred
stock and accrued
dividends to common
stock..................... 2,316,257 23,163 19,669,734 -- -- -- 270,175
Sale of common stock....... 4,248,500 42,485 55,927,969 -- -- -- 55,970,454
Exercise of stock options
and warrants.............. 83,342 833 659,267 -- -- -- 660,100
Issuance of common stock in
connection with an
acquisition............... 82,353 824 2,305,060 -- -- -- 2,305,884
Dividends paid by Hunter
prior to merger........... -- -- -- -- -- (400,000) (400,000)
Net loss................... -- -- -- -- -- (6,027,165) (6,027,165)
--------- ------- ----------- ------ --------- ------------ -----------
Balance at June 30, 1996... 9,627,071 96,271 80,795,841 37,637 (148,417) (19,920,664) 60,823,031
Exercise of stock options
and warrants.............. 67,219 672 583,595 -- -- -- 584,267
Issuance of common stock in
connection with an
acquisition............... 85,084 851 1,999,149 -- -- -- 2,000,000
Dividends paid by Hunter
prior to merger........... -- -- -- -- -- (600,000) (600,000)
Net income................. -- -- -- -- -- 6,982,406 6,982,406
--------- ------- ----------- ------ --------- ------------ -----------
Balance at June 30, 1997... 9,779,374 $97,794 $83,378,585 37,637 $(148,417) $(13,538,258) $69,789,704
========= ======= =========== ====== ========= ============ ===========
</TABLE>
See accompanying notes to consolidated financial statements.
34
<PAGE> 35
IMNET SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
------------------------------------------
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)....................................... $ 6,982,406 $ (6,027,165) $ (4,079,598)
Adjustments to reconcile net income (loss) to net cash
used in operating activities:
Depreciation and amortization of property and
equipment.......................................... 1,117,249 680,448 293,387
Amortization of computer software development costs,
acquired technology, advance royalties, and
goodwill and other intangibles..................... 2,395,112 995,682 696,972
Provision for doubtful accounts receivable............ 557,754 259,846 200,758
Provision for inventory reserves...................... 1,482,341 257,719 72,481
Loss on disposal of property and equipment............ -- -- 9,443
Non-recurring charges................................. 869,524 10,370,000 --
Deferred income tax benefit........................... (1,076,330) -- --
(Increase) decrease in:
Trade accounts receivable............................. (17,477,665) (15,134,683) (2,763,501)
Note receivable from related party.................... 2,500,000 -- --
Inventories........................................... (1,168,472) (1,434,931) 59,350
Prepaid expenses and other current assets............. 152,580 (575,468) (407,597)
Increase (decrease) in:
Accounts payable...................................... 1,425,962 (346,385) 1,107,684
Accrued expenses...................................... (271,461) 419,432 192,954
Income taxes payable.................................. 1,000,000 -- --
Deferred revenue...................................... 319,935 400,180 (1,165,451)
------------ ------------ ------------
Net cash used in operating activities............ (1,191,065) (10,135,325) (5,783,118)
------------ ------------ ------------
Cash flows from investing activities:
Acquisitions of businesses, net of cash acquired........ (5,087,313) (4,813,969) --
Additions to property and equipment..................... (3,911,893) (2,385,217) (831,293)
Additions to computer software development costs........ (2,015,058) (1,286,406) --
Proceeds from sale of marketable securities............. 1,990,622 -- --
Purchases of marketable securities...................... (32,134,579) (62,226,760) --
Maturities of marketable securities..................... 41,808,166 40,685,000 --
Additions to intangible assets.......................... (205,227) (155,204) --
Payments in connection with HBOC business alliance...... (1,800,000) (1,200,000) --
Payments of advance royalties to ISG.................... (5,200,000) -- --
------------ ------------ ------------
Net cash used in investing activities............ (6,555,282) (31,382,556) (831,293)
------------ ------------ ------------
Cash flows from financing activities:
Principal payments on obligations under capital
leases................................................ -- (3,847) (4,429)
Proceeds from notes payable to stockholders............. -- -- 500,000
Proceeds from sale of common and preferred stock........ -- 56,410,370 6,310,481
Proceeds from exercise of stock options and warrants.... 584,267 549,099 --
Purchases of treasury stock and redemption of preferred
stock................................................. -- -- (168,652)
Dividends paid by Hunter prior to merger................ (600,000) (400,000) (800,000)
------------ ------------ ------------
Net cash (used in) provided by financing
activities..................................... (15,733) 56,555,622 5,837,400
------------ ------------ ------------
Net increase (decrease) in cash and cash
equivalents.................................... (7,762,080) 15,037,741 (777,011)
Cash and cash equivalents at beginning of year............ 16,894,711 1,856,970 2,633,981
------------ ------------ ------------
Cash and cash equivalents at end of year.................. $ 9,132,631 $ 16,894,711 $ 1,856,970
============ ============ ============
Disclosures of cash flow information:
Cash paid for interest.................................. $ -- $ -- $ 15,497
============ ============ ============
Cash paid for income taxes.............................. $ 1,883,065 $ -- $ --
============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
35
<PAGE> 36
IMNET SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997, 1996 AND 1995
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Business and Basis of Presentation
IMNET Systems, Inc. and subsidiaries (the Company) develop, market,
install, and service electronic information and document management systems to
meet the needs of the healthcare industry and other document-intensive
businesses. The Company's hardware and software systems electronically capture,
index, store and retrieve information which is resident on most storage media,
including magnetic disk, optical disk, microfilm, paper and x-ray film. The
Company sells systems to end-users and distributes systems through distribution
partners. Because of the Company's concentration of revenues and accounts
receivable with certain major customers and the concentration of revenues and
accounts receivable in the healthcare industry, a decline in the economic
conditions or financial stability with respect to these major customers or the
healthcare industry could have a material adverse impact on the Company's
financial position and results of operations.
The accompanying consolidated financial statements of IMNET Systems, Inc.
and subsidiaries include the accounts of IMNET Systems, Inc. and its wholly
owned subsidiaries, Advisoft Consulting, S.A., Evergreen Technologies, Inc.,
Hunter International, Inc. and Quesix Software, Incorporated. All significant
intercompany accounts and transactions have been eliminated in consolidation.
The consolidated financial statements have been restated to reflect the effect
of the merger with Hunter International, Inc. as described in Note 2.
Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure of
contingent liabilities at the date of the consolidated financial statements and
the reported amounts of revenues and expenses during the reporting periods to
prepare these consolidated financial statements in conformity with generally
accepted accounting principles. Actual results could differ from those
estimates.
(b) Revenue Recognition and Deferred Revenue
The Company recognizes revenues derived from system sales to end-user
customers, including 90% of software license fees and 100% of hardware revenues,
upon the factory acceptance by the customer and delivery of the configured
system, provided that acceptance is a condition of the agreement. The Company
defers recognition of 10% of the software license fees until completion of
certain insignificant vendor obligations, primarily related to the site
acceptance by the customer. The Company recognizes 100% of revenues from
enterprise-wide licenses of software to end-users upon delivery of the software,
if there are no further significant vendor obligations.
Revenues derived from system sales to distribution partners are recognized
upon delivery of the system, provided that the payment terms are fixed with all
amounts due within twelve months, there are no other significant obligations to
be performed by the Company and the distribution partner meets the Company's
criteria with respect to sell-through and credit risk.
Revenue recognition for system sales to end-users that have been delivered
and accepted by the customer with contractual payment terms that extend beyond
one year is determined by the Company based upon the Company's historical
experience with the customer, the customer's credit worthiness, and an
assessment of the enforceability of the contract. All revenues recognized
related to contracts with payments due in more than one year are discounted at
the Company's incremental borrowing rate. During the fiscal year ended June 30,
1996, the Company recognized revenue on one arrangement that included payment
terms beyond one year. At June 30, 1997 and 1996, the Company had accounts
receivable due beyond one year of $233,949 and $1,085,927, respectively.
36
<PAGE> 37
IMNET SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Revenues from professional services, which may include preparation of
functional specifications, systems integration, and training, among others, are
recognized as the services are performed. Revenues derived from maintenance and
support contracts are recognized ratably over the terms of the related
contracts.
Deferred revenues represent either billings rendered to or payments
received from customers for systems prior to factory acceptance and delivery and
maintenance and support services billed in advance.
(c) Cash and Cash Equivalents
The Company classifies all highly liquid investments with a maturity of
three months or less at the date of acquisition as cash equivalents.
(d) Marketable Securities
The Company accounts for marketable securities in accordance with Statement
of Financial Accounting Standards No. 115, "Accounting for Certain Investments
in Debt and Equity Securities" (Statement 115). Under Statement 115, investments
in equity and debt securities are classified as held to maturity, trading, or
available for sale securities. Trading securities are reported at fair value,
with changes in fair value included in the statement of operations, while
available for sale securities are reported at fair value, with net unrealized
gains or losses included as a component of stockholders' equity.
Held-to-maturity securities are reported at amortized cost. Unrealized losses on
all securities that are other than temporary are reported in the statement of
operations upon determination that the loss is other than temporary.
Marketable securities include U.S. treasury bills and debt securities of
certain other U.S. government agencies, U.S. government sponsored corporations,
and foreign government securities with original maturities greater than 90 days
and equal to or less than one year.
At June 30, 1997 and 1996, the Company classified its marketable securities
as held to maturity. Marketable securities are carried at amortized cost and are
included in current assets in the accompanying consolidated balance sheet.
Marketable securities are summarized as follows:
<TABLE>
<CAPTION>
JUNE 30, 1997
---------------------------------------------------
ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
----------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
Marketable Securities.................... $11,606,287 $48,609 $(2,340) $11,652,556
=========== ======= ======= ===========
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, 1996
---------------------------------------------------
ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
----------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
Marketable Securities.................... $21,541,760 $92,221 $(4,231) $21,629,750
=========== ======= ======= ===========
</TABLE>
Proceeds and realized gain from the sale of a held-to-maturity marketable
security were $1,990,622 and $16,001, respectively, for the year ended June 30,
1997.
Market values have been determined through information obtained from quoted
market sources.
(e) Inventories
Inventories consist of components and assemblies associated with the
Company's MegaSAR Microfilm Jukebox (the "MegaSAR") and personal computers and
other computer equipment held for sale to customers. Inventories are carried at
the lower of cost (average cost method) or market (net realizable value).
37
<PAGE> 38
IMNET SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(f) Property and Equipment
Property and equipment are stated at cost, net of accumulated depreciation
and amortization. Depreciation and amortization of property and equipment are
provided using the straight-line method over the estimated useful lives of the
assets as follows:
<TABLE>
<S> <C>
Computer software........................................... 3-5 years
Computer equipment.......................................... 3-5 years
Machinery and equipment..................................... 5-7 years
Furniture and fixtures...................................... 7 years
</TABLE>
Leasehold improvements are amortized using the straight-line method over
the estimated useful life of the improvement or the lease term, whichever is
shorter. Amortization of assets held under capital lease arrangements is
included in depreciation expense.
(g) Intangible Assets
Intangible assets include computer software development costs, acquired
technology, goodwill, advance royalties associated with the agreement with ISG
Technologies, Inc. (ISG) (see note 3), and an intangible asset associated with
customers acquired in connection with the business alliance with HBO & Company
(the HBOC alliance) (see note 4). The Company's accounting policy with respect
to computer software development costs is described in (h) below. The cost of
acquired technology results from the Company's acquisitions of other businesses
and is amortized using the greater of the ratio of current revenues to total
expected revenues or the straight-line method over estimated useful lives of
five years. The advance royalties associated with the ISG value added reseller
agreement are being amortized based on the greater of the ratio of current
revenue from ISG products to the total revenues of ISG products to which the
advance royalties relate or the straight-line method over seven years. The
intangible asset associated with the HBOC alliance is being amortized using the
straight-line method over the life of the agreement (seven years). Goodwill has
been recorded in connection with the Company's acquisitions of other businesses
and is being amortized using the straight-line method over seven years. The
carrying values of all intangible assets are reviewed by the Company for
impairments which are recognized when the expected undiscounted future cash
flows derived from such intangible assets are less than their carrying values.
If the Company's review indicates a potential impairment, the Company uses fair
value in determining the amount that should be written off.
(h) Research and Development and Computer Software Development Costs
Research and development costs consist principally of compensation and
benefits paid to the Company's employees, amounts paid to independent
contractors, and the allocation of facilities, computing and other
administrative costs directly related to those efforts. All research and
development costs are expensed as incurred.
Computer software development costs consist principally of compensation and
benefits related to the development and modification of the Company's software
products and are capitalized in accordance with the provisions of Statement of
Financial Accounting Standards No. 86, "Accounting for the Costs of Computer
Software to be Sold, Leased, or Otherwise Marketed." Capitalization of such
costs begins upon the establishment of technological feasibility for the product
or enhancement which is defined by the Company as completion of a detailed
program design and ends when the resulting product or enhancement is available
for use by customers.
Amortization of computer software development costs is provided by the
Company on individual products or enhancements and begins when the product or
enhancement is available for use by customers. Amortization is recorded using
the greater of: (1) the amount computed using the ratio of current product
revenue to the
38
<PAGE> 39
IMNET SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
total of current and anticipated product revenue or (2) the amount determined
using the straight-line method over the estimated useful life of the software,
not to exceed three years.
(i) Income Taxes
The Company uses the asset and liability method of accounting for income
taxes in accordance with Statement of Financial Accounting Standard No. 109,
"Accounting for Income Taxes" (Statement 109). Under the asset and liability
method of Statement 109, deferred income tax assets and liabilities are
recognized for the future tax consequences attributable to differences between
the financial statement carrying amounts of existing assets and liabilities and
their respective tax bases and net operating loss and tax credit carryforwards.
Deferred income tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. Under Statement 109, the
effect on deferred income tax assets and liabilities of a change in tax rates is
recognized in the consolidated statement of operations in the period that
includes the enactment date.
(j) Net Income (Loss) Per Common Share and Common Share Equivalent
Net income (loss) per common share and common share equivalent has been
computed based upon the weighted average number of common shares and common
share equivalents outstanding during each period. Common share equivalents
recognize the dilutive effects of the conversion of preferred stock and accrued
dividends to common stock prior to their conversion and of outstanding options
and warrants to acquire common stock. The Company has used the initial public
offering price of $12.00 per common share for the year ended June 30, 1995,
since it was prior to the completion of the initial public offering, for
purposes of computing the potential dilutive effects of common share
equivalents. Pursuant to the rules of the Securities and Exchange Commission,
common and common equivalent shares issued in the 12 months prior to the
Company's initial public offering on July 20, 1995 have been included in the
computation of common and common equivalent shares as if they were outstanding
for all periods prior to the Company's initial public offering, including loss
years where the impact of the incremental shares is antidilutive. All other
common stock equivalents including the effect of outstanding options after the
Company's initial public offering have been included in the computations, except
when their impact on the Company's net loss per share is antidilutive.
(k) Fair Value of Financial Instruments
The Company uses financial instruments in the normal course of its
business. The carrying values of cash equivalents, accounts and notes
receivable, accounts payable, accrued expenses and deferred revenues approximate
fair value due to the short-term maturities of these assets and liabilities. The
fair value of the Company's investment in marketable securities is disclosed in
(d) above.
(l) Stock Compensation Plans
The Company accounts for its stock option plans in accordance with the
provisions of Accounting Principles Board ("APB") Opinion No. 25, Accounting for
Stock Issued to Employees, and related interpretations. As such, compensation
expense would be recorded on the date of grant only if the current market price
of the underlying stock exceeded the exercise price. On July 1, 1996 the Company
adopted Statement of Financial Accounting Standards No. 123, Accounting for
Stock-Based Compensation (Statement 123), which requires entities that continue
to apply the provisions of APB Opinion No. 25 to provide pro forma disclosures
for employee stock compensation awards made in fiscal 1996 and future years as
if the fair-value-based method defined in SFAS No. 123 had been applied.
39
<PAGE> 40
IMNET SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(m) Reclassifications
Certain reclassifications have been made to the June 30, 1995 and 1996
financial statements to conform with presentations adopted as of and for the
year ended June 30, 1997.
(n) Recent Accounting Pronouncements
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128, "Earnings per share" (Statement 128).
Statement 128 specifies modifications to the computation of earnings per share
from those currently utilized by the Company. Under Statement 128, "basic"
earnings per share will be computed based upon the weighted average number of
common shares actually outstanding, and "diluted" earnings per share will be
computed based upon the weighted average number of common shares and dilutive
potential common shares. Statement 128 is effective in the Company's second
quarter of the fiscal year ending June 30, 1998. Basic earnings per share is
expected to be higher than primary earnings per share in periods in which the
Company reports net income. Diluted earnings per share is expected to
approximate fully diluted earnings per share.
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 129, "Disclosure of Information about
Capital Structure" (Statement 129). Statement 129 requires companies to disclose
descriptive information about securities that are not necessarily related to the
computation of earnings per share. It also requires disclosure of information
about the liquidation preferences of preferred stock and redeemable stock.
Statement 129 is effective for financial statements for periods ending after
December 15, 1997.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income"
(Statement 130). Statement 130 requires companies to display, with the same
prominence as other financial statements, the components of other comprehensive
income. Statement 130 requires that an enterprise classify items of other
comprehensive income by their nature in a financial statement and display the
accumulated balance of other comprehensive income separately from retained
earnings and additional paid-in capital in the equity section of the balance
sheet. Statement 130 is effective for fiscal years beginning after December 15,
1997. Reclassification of financial statements for earlier periods provided for
comparative purposes is required.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131, "Disclosures about Segments of an
Enterprise and Related Information" (Statement 131). Statement 131 requires that
an enterprise disclose certain information about operating segments. Statement
131 is effective for financial statements for periods beginning after December
15, 1997.
2. MERGERS AND ACQUISITIONS
On June 25, 1997, the Company completed the acquisition of Advisoft
Consulting, S.A. ("Advisoft"), a systems integration and consulting services
company which had been the Company's distribution partner in France since 1993.
Aggregate consideration for the acquisition, which has been accounted for by the
purchase method of accounting, was $5.1 million in cash and 85,084 shares of
IMNET Common Stock having a market value of $2.0 million as of such date. The
Company has allocated $6.9 million of the purchase price to goodwill and will
include the results of operations of Advisoft in the Company's consolidated
statement of operations effective July 1, 1997. Prior to its acquisition of
Advisoft, the Company recognized revenue of $1,157,000 and $1,392,000 from
Advisoft for the years ended June 30, 1997 and 1996, respectively.
40
<PAGE> 41
IMNET SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
On September 30, 1996, the Company issued 429,292 shares of its common
stock for all of the outstanding common stock of Hunter International, Inc.
("Hunter"). The acquisition has been accounted for as a pooling of interests,
and accordingly, the Company's consolidated financial statements have been
restated for all periods prior to the merger to include the results of
operations, financial position and cash flows of Hunter. Total revenue and net
income (loss) for the individual companies for the reporting periods ended prior
to the merger are as follows:
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
--------------------------
1996 1995
----------- -----------
<S> <C> <C>
Total Revenue:
IMNET................................................... $26,623,305 $ 8,464,639
Hunter.................................................. 2,756,780 2,809,110
----------- -----------
$29,380,085 $11,273,749
=========== ===========
Net income (loss):
IMNET................................................... $(6,390,893) $(4,809,523)
Hunter.................................................. 363,728 729,925
----------- -----------
$(6,027,165) $(4,079,598)
=========== ===========
</TABLE>
In connection with the acquisition of Hunter, the Company recorded
acquisition related costs of approximately $750,000 in the quarter ended
September 30, 1996. These costs consist primarily of legal, accounting and
broker's fees related to the Hunter transaction, have been paid as of June 30,
1997, and have been included in non-recurring charges in the accompanying 1997
consolidated statement of operations.
On December 14, 1995, the Company acquired all of the common stock of
Quesix Software, Incorporated (Quesix) for $4.2 million in cash and acquisition
costs. The Company recorded the acquisition using the purchase method of
accounting with $2.8 million of the purchase price allocated to in-process
research and development and charged to the consolidated statement of operations
in December 1995 and $1.4 million of the purchase price allocated to goodwill.
Subsequent to the fiscal year ended June 30, 1996, the Company discovered that
an income tax liability had been incurred resulting from the acquisition of
Quesix of $1,379,220 and has reflected such amounts as an increase to goodwill
and income taxes payable in the accompanying consolidated financial statements.
The results of operations of Quesix have been included in the Company's
consolidated statement of operations since the effective date of the
acquisition.
On November 3, 1995, the Company acquired all of the common stock of
Evergreen Technologies, Inc. (Evergreen) in a merger with a wholly owned
subsidiary of the Company for $1.3 million in cash and acquisition costs and the
issuance of 82,353 shares of the Company's common stock with a market value of
$2.3 million. The Company recorded the acquisition using the purchase method of
accounting with $2.9 million of the purchase price allocated to in-process
research and development and charged to the consolidated statement of operations
in November 1995 and $546,000 and $102,000 allocated to goodwill and acquired
technology, respectively (see note 14). The results of operations of Evergreen
have been included in the Company's consolidated statement of operations since
the effective date of the acquisition.
41
<PAGE> 42
IMNET SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The unaudited pro forma consolidated results of operations of the Company
for the years ended June 30, 1997 and 1996 are summarized below as if the
acquisitions described above had occurred on July 1, 1996 and 1995,
respectively:
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
----------------------
1997 1996
-------- --------
(AMOUNTS IN THOUSANDS,
EXCEPT PER SHARE DATA)
<S> <C> <C>
Revenues.................................................... $54,121 $33,461
======= =======
Net income (loss)........................................... $ 6,696 $(5,753)
======= =======
Net income (loss) per common share and common share
equivalent................................................ $ 0.66 $ (0.65)
======= =======
Weighted average outstanding common shares and common share
equivalents............................................... 10,151 8,892
======= =======
</TABLE>
The unaudited pro forma consolidated results of operations included above
do not necessarily represent results which would have occurred if the
acquisitions had taken place on the dates indicated nor are they necessarily
indicative of the results of future operations.
3. VALUE ADDED RESELLER AGREEMENT WITH ISG
In March 1997, the Company signed a value added reseller agreement with
ISG, whereby the Company will distribute certain of ISG's medical image
visualization software products and certain of ISG's medical surgical
visualization products under a seven- year distribution agreement. IMNET has
paid $5.2 million at June 30, 1997 and will pay an additional $2.6 million to
ISG by December 31, 1997, constituting both advance royalties against future
sales by IMNET of ISG products and the right to sublicense certain of the ISG
products without payment of any additional license fees. The Company has
capitalized $7.8 million as advance royalties and is amortizing these advance
royalties as revenues are derived from the ISG products. The remaining
obligation to ISG of $2.6 million has been classified in accrued expenses in the
accompanying 1997 consolidated balance sheet.
4. BUSINESS ALLIANCE WITH HBO & COMPANY
In March 1996, the Company signed agreements with HBO & Company (HBOC),
forming a business alliance whereby HBOC will distribute the Company's products
on a private label basis and HBOC has agreed to certain noncompete provisions
with respect to the Company's products. The HBOC alliance provides for a seven
year term and five equal payments to HBOC totaling $3.0 million, beginning upon
execution of the agreements through March 1997. Payments of $600,000 were made
to HBOC by the Company in March and June 1996 and the remaining $1.8 million was
paid in fiscal 1997. As part of these agreements, the Company also assumed
certain customer support and conversion obligations with respect to HBOC
customers currently using HBOC's First Perspective product line. The Company has
accrued $3.0 million to reflect its estimate of the cost of converting the First
Perspective customers to the Company's products. The Company recorded a
non-recurring charge of $4.6 million to the Company's consolidated statement of
operations and capitalized the remaining $1.4 million as an intangible asset
related to the Company's valuation of estimated cash flows from the maintenance
and support revenues expected from the First Perspective customers during the
year ended June 30, 1996. The Company has classified the remaining $1.7 million
of the total of $3.0 million estimated conversion costs, net of $1.3 million
conversion costs incurred through June 30, 1997, in accrued expenses in the
accompanying June 30, 1997 consolidated balance sheet.
42
<PAGE> 43
IMNET SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
5. INVENTORIES
Inventories are summarized as follows:
<TABLE>
<CAPTION>
JUNE 30,
------------------------
1997 1996
---------- ----------
<S> <C> <C>
Finished goods, including computer equipment and parts held
for resale................................................ $1,787,978 $ 714,255
Work in progress............................................ -- 380,315
Raw materials............................................... 312,082 985,004
---------- ----------
$2,100,060 $2,079,574
========== ==========
</TABLE>
6. PROPERTY AND EQUIPMENT
Property and equipment are summarized as follows:
<TABLE>
<CAPTION>
JUNE 30,
------------------------
1997 1996
---------- ----------
<S> <C> <C>
Leasehold improvements...................................... $ 32,937 $ 152,659
Computer software........................................... 501,076 267,012
Computer equipment.......................................... 5,321,095 2,813,919
Machinery and equipment..................................... 216,304 331,129
Furniture and fixtures...................................... 2,310,091 964,118
---------- ----------
8,381,503 4,528,837
Less accumulated depreciation and amortization.............. 2,139,260 1,199,506
---------- ----------
$6,242,243 $3,329,331
========== ==========
</TABLE>
7. ACCRUED EXPENSES
Components of accrued expenses are summarized as follows:
<TABLE>
<CAPTION>
JUNE 30,
------------------------
1997 1996
---------- ----------
<S> <C> <C>
Salaries and employee related accruals...................... $3,599,768 $1,529,767
Obligations under the HBOC alliance, net.................... 1,741,041 4,587,983
Advance royalties payable to ISG............................ 2,600,000 --
Other....................................................... 1,530,505 526,461
---------- ----------
$9,471,314 $6,644,211
========== ==========
</TABLE>
8. INCOME TAXES
The provision for income tax expense (benefit) includes income taxes
currently payable and those deferred because of temporary differences between
the financial statement and tax basis of assets and liabilities and any increase
or decrease in the valuation allowance for deferred income tax assets. Due to
the operating losses incurred by the Company prior to the Hunter merger, there
is no income tax expense that would have been reported if Hunter (an S
Corporation for income tax reporting purposes) had been a C Corporation for the
periods prior to the Hunter merger.
43
<PAGE> 44
IMNET SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Income tax expense (benefit) for the years ended June 30, 1997, 1996 and
1995 is summarized as follows:
<TABLE>
<CAPTION>
1997 1996 1995
----------- --------- ----------
<S> <C> <C> <C>
Current....................................... $ 2,959,395 $ -- $ --
Deferred...................................... (1,076,330) -- --
----------- --------- ----------
$ 1,883,065 $ -- $ --
=========== ========= ==========
</TABLE>
The significant components of the deferred income tax expense (benefit) for
the years ended June 30, 1997, 1996 and 1995 are summarized as follows:
<TABLE>
<CAPTION>
1997 1996 1995
----------- --------- -----------
<S> <C> <C> <C>
Deferred income tax expense (benefit)........ $ 888,539 $(272,959) $(2,267,847)
Increase (decrease) in the beginning of the
year balance of the valuation allowance for
deferred income tax assets................. (1,964,869) 272,959 2,267,847
----------- --------- -----------
$(1,076,330) $ -- $ --
=========== ========= ===========
</TABLE>
The tax effects of temporary differences that give rise to the Company's
deferred income tax assets and liabilities are presented below:
<TABLE>
<CAPTION>
JUNE 30,
------------------------
1997 1996
---------- ----------
<S> <C> <C>
Deferred income tax assets:
Accounts receivable, due to allowance for doubtful
accounts............................................... $ 357,408 $ 107,753
Net operating loss carryforwards.......................... 2,389,129 3,675,395
Intangibles, due to basis differences..................... 1,191,343 1,805,700
Acquired technology, due to differences in amortization... 367,766 253,778
Research and experimentation credit carryforwards......... 184,799 184,799
Inventory differences..................................... 749,354 202,101
Employee accruals......................................... 734,126 93,143
Other..................................................... 214,541 168,255
---------- ----------
Total deferred income tax assets.................. 6,188,466 6,490,924
Less valuation allowance.................................... 3,884,678 5,849,547
---------- ----------
Net deferred income tax assets.................... 2,303,788 641,377
---------- ----------
Deferred income tax liabilities -- property and equipment,
due to differences in depreciation and computer software
development costs......................................... (1,227,458) (641,377)
---------- ----------
Net deferred income tax assets included in prepaid
expenses and other current assets in the 1997
consolidated balance sheet...................... $1,076,330 $ --
========== ==========
</TABLE>
44
<PAGE> 45
IMNET SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Income tax expense (benefit) differs from the amounts computed by applying
the federal statutory income tax rate of 34% to income (loss) before income
taxes as a result of the following:
<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Computed "expected" income tax expense
(benefit)..................................... $ 3,014,260 $(2,172,904) $(1,635,238)
State income taxes, net of federal income tax
benefit....................................... 352,920 (254,447) (191,486)
Nondeductible goodwill amortization and
non-recurring charges......................... 623,361 2,138,600 --
Increase (decrease) in the valuation allowance
for deferred income tax assets................ (1,964,869) 272,959 2,267,847
Other........................................... (142,607) 15,792 (441,123)
----------- ----------- -----------
$ 1,883,065 $ -- $ --
=========== =========== ===========
</TABLE>
The net change in the valuation allowance for the years ended June 30,
1997, 1996, and 1995 was an (decrease) increase of ($1,964,869), $272,959 and
$2,267,847, respectively. Under Statement 109, deferred income tax assets and
liabilities are recognized for differences between the financial statement
carrying amounts and the tax bases of assets and liabilities which will result
in future deductible or taxable amounts and for net operating loss and research
and experimentation credit carryforwards. A valuation allowance is then
established to reduce the deferred income tax assets to the level at which it is
"more likely than not" that the tax benefits will be realized. Realization of
tax benefits of deductible temporary differences and operating loss and tax
credit carryforwards depends on having sufficient taxable income within the
carryback and carryforward periods. Sources of taxable income that may allow for
the realization of tax benefits include: (1) taxable income in the current year
or prior years that is available through carryback, (2) future taxable income
that will result from the reversal of existing taxable temporary differences and
(3) taxable income generated by future operations. The Company believes it is
more likely than not that the net deferred income tax assets recorded at June
30, 1997 of $1,076,330 will be realized.
As of June 30, 1997, the Company has net operating loss carryforwards for
Federal income tax purposes of approximately $6.0 million and research and
experimentation credit carryforwards of approximately $185,000 which are
available to offset future Federal taxable income. The carryforwards expire
beginning in 2008 through 2010. The expiration of the Company's net operating
loss and research and experimentation credit carryforwards by year is summarized
as follows:
<TABLE>
<CAPTION>
RESEARCH AND
NET OPERATING EXPERIMENTATION CREDIT FISCAL YEAR
LOSS CARRYFORWARDS CARRYFORWARDS OF EXPIRATION
- ------------------ ---------------------- -------------
<C> <C> <C>
$ -- $ 26,000 2008
1,440,000 70,000 2009
4,600,000 89,000 2010
---------- --------
$6,040,000 $185,000
========== ========
</TABLE>
The amount of net operating loss and research and experimentation credit
carryforwards that the Company may use to offset taxable income in future years
is limited as a result of an ownership change, as defined, under Internal
Revenue Code Section 382 ("Section 382"), which occurred effective with the
completion of the Company's initial public offering in July 1995. The Company's
annual Section 382 limitation on the amount of taxable income that can be offset
in the future by net operating loss and research and experimentation credit
carryforwards is approximately $3,396,000.
45
<PAGE> 46
IMNET SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
9. STOCKHOLDERS' EQUITY
(a) Initial Public Offering
In July 1995, the Company completed an initial public offering of its
common stock. The Company sold 3,450,000 shares at $12.00 per share, which
resulted in proceeds to the Company of $37.5 million, net of underwriting
discounts and offering costs.
(b) Conversion of Preferred Stock and Accrued Dividends to Common Stock
In connection with the completion of the offering described in (a) above,
all of the Company's Series A, Series I, and Series II preferred stock,
including accrued dividends on the Series A preferred stock of $270,175, were
converted to shares of the Company's common stock. As a result of this
conversion, the Company issued 606,904, 714,332, and 972,507 shares of common
stock to these preferred shareholders, respectively, and issued 22,514 shares of
common stock in lieu of payment of accrued dividends on the Series A preferred
stock. Also in connection with the same offering, warrants to acquire 39,168
shares of the Company's common stock were exercised resulting in $250,008 in
proceeds to the Company.
(c) Secondary Offering
In February 1996, the Company completed a secondary offering of 798,500
shares of common stock at a price of $25.50, which resulted in proceeds to the
Company of $18.5 million, net of underwriting discounts and offering costs.
10. EMPLOYEE BENEFIT PLANS
(a) Stock Option and Stock Purchase Plans
The Company's Employee Stock Option and Rights Plan (the "Employee Plan")
provides for the grant of options to acquire up to 1,590,000 shares of common
stock, as well as stock appreciation rights, to key employees, directors, and
advisors. Options granted under the plan generally vest ratably over 5 years and
are generally granted with an exercise price no less than the fair market value
of the common stock on the grant date. The term of each option is generally 10
years.
The Company's Non-Employee Directors Stock Option Plan (the "Directors
Plan") provides for the grant of options to purchase up to 94,000 shares of
common stock to non-employee directors of the Company. This plan provides for
automatic grants of non-qualified stock options at an exercise price equal to
the then-current fair market value. Options to purchase 3,760 shares are granted
annually to non-employee directors after directors are elected at the annual
meeting of stockholders. They vest on the first anniversary. They expire on the
first anniversary without vesting if the director has not, during that year,
attended at least 75% of all meetings of the Board and any committees on which
the director serves. The options have a five year term.
The Company has an Informal Stock Option Plan (the "Informal Plan") which
provides for the grant of options to acquire a maximum of 850,000 shares of
Common Stock. As of June 30, 1997, no options were currently exercisable under
the Informal Plan. Options granted under the Informal Plan are granted on terms
substantially similar to the Employee Plan.
On December 19, 1996, the stockholders approved the adoption of the IMNET
Systems, Inc. Employee Discount Stock Purchase Plan for eligible employees of
the Company and its subsidiaries (the "Stock Purchase Plan"). The Stock Purchase
Plan was established pursuant to the provisions of section 423 of the Internal
Revenue Code. Under the Stock Purchase Plan, eligible employees may elect to
make contributions which are used to purchase the Company's common stock. The
purchase price for common stock is equal to 85% of the closing sale price on The
Nasdaq Stock Market for the common stock on either the first or last day of the
applicable six-month period, whichever is the lower. An aggregate of 300,000
shares of common stock
46
<PAGE> 47
IMNET SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
of the Company have been reserved for issuance under the Stock Purchase Plan,
and as of June 30, 1997 an aggregate of 12,125 shares of common stock have been
purchased and issued under the Plan at an average price of $19.39 per share. The
weighted average fair value of stock issued under the stock purchase plan was
$11.67 per share for the year ended June 30, 1997.
A summary of the status of the Company's stock option plans as of June 30,
1997, 1996, and 1995, and changes during the years ended on those dates is
presented below:
<TABLE>
<CAPTION>
1997 1996 1995
---------------------- ------------------- -------------------
WEIGHTED- WEIGHTED- WEIGHTED-
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
OPTIONS OPTIONS PRICE OPTIONS PRICE OPTIONS PRICE
- ------- ---------- --------- ------- --------- ------- ---------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year.... 906,809 $13.40 574,559 $ 7.08 252,356 $6.38
Granted............................. 735,520 17.15 433,104 20.33 393,130 7.45
Exercised........................... (67,219) 8.69 (41,419) 6.78 (2,755) 6.38
Forfeited/canceled.................. (90,405) 8.79 (59,435) 7.39 (68,172) 6.69
---------- ------- -------
Outstanding at end of year.......... 1,484,705 15.75 906,809 13.40 574,559 7.08
========== ======= =======
Options exercisable at year-end..... 219,594 100,488
========== =======
Weighted-average fair value of
options granted during the year... $ 7.45 $ 12.10
========== =======
</TABLE>
The following table summarizes information about stock options outstanding
at June 30, 1997:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
----------------------------------------- ---------------------------
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
NUMBER REMAINING AVERAGE NUMBER AVERAGE
OUTSTANDING CONTRACTUAL EXERCISE EXERCISABLE EXERCISE
RANGES OF EXERCISE PRICES AT JUNE 30, 1997 LIFE PRICE AT JUNE 30, 1997 PRICE
- ------------------------- ---------------- ----------- -------- ---------------- --------
<S> <C> <C> <C> <C> <C>
$ 6.38 - $ 7.45.................... 346,480 7.36 $ 7.19 134,846 $ 7.08
$12.00 - $15.75.................... 552,770 9.07 $15.31 13,170 $12.06
$18.00 - $22.50.................... 581,455 8.73 $21.19 71,578 $21.25
$26.88 - $29.00.................... 4,000 9.63 $27.94 -- $ --
--------- -------
$ 6.38 - $29.00.................... 1,484,705 8.54 $15.75 219,594 $12.00
========= =======
</TABLE>
The Company applies APB Opinion No. 25 and related interpretations in
accounting for its plans. Accordingly, no compensation cost has been recognized
for its stock option plans and its stock purchase plan because the exercise
price of the option equals or exceeds the fair value of the underlying stock at
the date of grant and the stock purchase plan is a non-compensatory plan. Had
compensation cost for the Company's stock-based compensation plans been
determined consistent with Statement 123, the Company's net income (loss) and
net income (loss) per common share would have been reduced to the unaudited pro
forma amounts indicated below:
<TABLE>
<CAPTION>
1997 1996
---------- -----------
<S> <C> <C> <C>
Net income (loss) applicable to common
stockholders.............................. As reported $6,982,406 $(6,027,165)
========== ===========
Pro forma.. $4,332,063 $(6,649,363)
========== ===========
Net income (loss) per common share.......... As reported $ 0.69 $ (0.69)
========== ===========
Pro forma $ 0.43 $ (0.76)
========== ===========
</TABLE>
47
<PAGE> 48
IMNET SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 in 1996 and 1997: dividend yield of 0.0%; expected
volatility of 65.0%; risk-free interest rate of 6.0%; and expected lives of 3.5
years for all options and 6 months for the purchase rights under the stock
purchase plan.
(b) Retirement Plan
The Company maintains a defined contribution savings plan (the IMNET
Systems, Inc. Retirement Savings Plan or the Plan) for the benefit of all
eligible employees. The Plan is intended to qualify under Section 401(k) of the
Internal Revenue Code of 1986 (the Code), as amended. Employees may participate
in the Plan at any time following their date of employment and can elect to
contribute a portion of their annual earnings (subject to an annual limit
specified in the Code) to the Plan on a pretax basis. The Company has not made
any matching or other contributions to the Plan through June 30, 1997.
(c) Deferred Compensation Plan
In 1997, the Company has adopted a non-qualified deferred compensation plan
that only addresses deferrals of bonuses. This plan, unlike a qualified plan
which is subject to, among other things, the compensation limitations and
vesting requirements of the Internal Revenue Code and additional requirements of
the Employee Retirement Income Security Act, is an arrangement for a select
group of management or other highly compensated employees that is not subject to
any specific qualification criteria. The participants do not recognize income
until amounts are paid to the participant. The Company is not entitled to an
income tax deduction until such amounts are paid to participants. There were no
Company contributions for the year ended June 30, 1997.
11. RELATED PARTY TRANSACTIONS
The Company believes the terms and conditions of the related party
transactions described below are comparable to those which could have been
obtained in transactions with unaffiliated parties.
(a) Notes Receivable from Officer
The Company has advanced funds to its chairman and chief executive officer
in exchange for two promissory notes receivable, as amended, in the amounts of
$75,000 and $30,000 dated October 5, 1992 and January 31, 1994, respectively.
The $75,000 note is without interest for two years from the date of issuance,
bears interest at a rate of 10% per annum thereafter, and is due on September
30, 1997. The $30,000 note bears interest from the date of issuance at a rate of
10% per annum and is due by June 30, 1997. Repayment in full of the principal
and accrued interest due under the notes was made in fiscal 1997 from bonuses
earned under an employment agreement.
(b) Notes Payable to Stockholders
During the year ended June 30, 1995, the Company received advances under
notes payable to certain stockholders in the amount of $500,000 bearing interest
at a rate of 8.5% per annum. On January 13, 1995, in connection with the sale of
Series II convertible preferred stock, the stockholders exchanged their notes
for the issuance of Series II convertible preferred stock.
(c) Distribution Agreement with and Grant of Manufacturing and Distribution
Rights to Stockholder
(i) Distribution Agreement
In March 1993, the Company entered into a distribution agreement with
SoftNet Systems, Inc. or its affiliated or predecessor companies (SoftNet).
SoftNet is a related party and founding investor/stockholder of the Company and
three officers and directors of SoftNet were on the Company's Board of Directors
at
48
<PAGE> 49
IMNET SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
June 30, 1996. In June 1995, the distribution agreement was amended to provide
for a commitment by SoftNet to take delivery of hardware and software from the
Company totaling approximately $2.0 million no later than June 30, 1996. During
the year ended June 30, 1995, the Company delivered software to SoftNet under
the distribution agreement and recognized revenue of $485,000, which was
included in accounts receivable at June 30, 1995. This amount was paid in full
by SoftNet in February 1996.
On June 30, 1996, the distribution agreement was amended a second time to
convert the original $2.0 million commitment for hardware and software to a $2.0
million commitment for software. Also in June 1996, the Company delivered the
remaining software associated with this commitment of $1,515,000 and recognized
revenue of the same amount, which was converted into the note receivable from
related party at June 30, 1996 (see (iii) below). During the year ended June 30,
1996, the Company also provided services to SoftNet beyond the terms of the
distribution agreement described above which resulted in additional service
revenues to the Company of approximately $335,000, which was also converted to
the note receivable from related party at June 30, 1996 (see (iii) below).
(ii) Grant of Manufacturing and Distribution Rights
On June 30, 1996, the Company entered into certain agreements with SoftNet
and an affiliated company, which provided for the grant of exclusive worldwide
manufacturing rights and nonexclusive distribution rights with respect to
markets other than healthcare, as defined, for the MegaSAR, the Company's
proprietary microfilm storage device. The terms of the agreements included an
obligation by SoftNet to pay the Company nonrefundable advance license fees of
$1,000,000, representing the license fees for the first 250 manufactured units.
These nonrefundable advance license fees were recognized as revenue by the
Company in the year ended June 30, 1996 and included in the note receivable from
related party at June 30, 1996. The terms of the agreements also provided for
SoftNet to pay the Company a fixed license fee per unit for all units
manufactured, and a provision for SoftNet to purchase, at carrying value, the
Company's remaining raw materials inventories on an as needed basis.
(iii) Note Receivable from SoftNet
Simultaneous with the execution of the manufacturing and distribution
rights agreements and the second amendment to the distribution agreement
described above under (i), the Company converted all amounts due from SoftNet
into a secured note receivable from SoftNet bearing interest at the prime rate
plus 2%, due upon the earlier of: (1) the sale of IMNET common stock owned by
SoftNet or (2) June 29, 1997. The note receivable was fully secured at June 30,
1996 by 112,913 shares of IMNET Common Stock owned by SoftNet and held as
collateral by the Company.
On September 24, 1996, the Company received a $2.5 million cash payment on
the $2.9 million note receivable from related party described above and released
the collateral that the Company held under the note. SoftNet also ceased to be a
related party based upon the sale of its IMNET common stock and the resignation
of two members of the IMNET Board of Directors and one member of the SoftNet
Board of Directors, such that the two Boards of Directors have no members in
common.
(iv) Subsequent Event
In July, 1997, the Company and SoftNet amended the distributor agreement
referred to above. The Company agreed to a credit related to disputed amounts of
$177,000 and accepted property valued at $71,000 in partial satisfaction of the
remaining amount due and executed a new unsecured note receivable for the
remaining balance of $161,000 which has been included in prepaid expenses and
other current assets in the accompanying 1997 consolidated balance sheet. In
addition, SoftNet agreed to manufacture the MegaSAR based on an order from the
Company for which a certain portion of the payment for each MegaSAR delivered to
IMNET will be applied against the balance of the note due IMNET.
49
<PAGE> 50
IMNET SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
12. MAJOR CUSTOMERS AND INTERNATIONAL SALES
(a) Major Customers
For the years ended June 30, 1997, 1996, and 1995, major customers
accounted for the following as a percentage of total revenues and receivable
balances at June 30, 1997:
<TABLE>
<CAPTION>
PERCENT OF
TOTAL REVENUES
-------------------- TRADE
FOR THE YEARS ENDED ACCOUNTS
JUNE 30, RECEIVABLE
-------------------- BALANCES
1997 1996 1995 AT JUNE 30, 1997
---- ---- ---- ----------------
<S> <C> <C> <C> <C>
Customer A....................................... 31% 8% -- $12,100,000
Customer B....................................... 16% 9% -- 5,800,000
Customer C....................................... 5% 22% 11% 3,400,000
Customer D....................................... -- 10% 4% 161,000
Customer E....................................... -- 1% 14% --
</TABLE>
(b) International Sales
International sales were $1,373,895, $2,301,729 and $1,712,996 for the
years ended June 30, 1997, 1996 and 1995, respectively.
13. COMMITMENTS AND CONTINGENCIES
(a) Leases
The Company leases office facilities under noncancelable operating lease
agreements which extend through January 2007. Rental expense from noncancelable
operating leases and all other cancelable operating leases for the years ended
June 30, 1997, 1996, and 1995 was approximately $1,203,000, $509,000, and
$277,000, respectively.
Future minimum lease payments under all noncancelable operating lease
agreements with original terms in excess of one year in the aggregate and for
the next five years are summarized as follows:
<TABLE>
<CAPTION>
YEAR ENDING JUNE 30,
- --------------------
<S> <C>
1998........................................................ $ 2,582,000
1999........................................................ 2,441,000
2000........................................................ 2,094,000
2001........................................................ 2,094,000
2002........................................................ 2,207,000
Thereafter.................................................. 10,431,000
-----------
Total future minimum lease payments............... $21,849,000
===========
</TABLE>
Future minimum sublease payments due to the Company associated with the
subleasing of the Company's prior office facility are $449,000 and $302,000 for
the fiscal years ended June 30, 1998 and 1999, respectively.
(b) Contractual Commitments
The Company has a licensing agreement which obligates the Company to pay
1.5% of net license fee revenue from new licenses of certain of its products
effective July 1, 1997 and continues through December 31, 2003. The Company has
paid $100,000 in advance to be offset against amounts due under this agreement,
50
<PAGE> 51
IMNET SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
which is included in prepaid expenses and other current assets in the
accompanying 1997 consolidated balance sheet.
The Company enters into agreements with customers in the ordinary course of
business which contain certain contractual commitments. The Company believes
that all such contractual commitments will be satisfied or renegotiated and no
material adverse financial impact will result from the Company's failure to meet
any of these commitments.
14. NON-RECURRING CHARGES
The Company incurred non-recurring charges of $2.6 million during the year
ended June 30, 1997. A total of $750,000 of acquisition costs were recorded
related to the Hunter acquisition, which was completed during the quarter ended
September 30, 1996. As a result of the value added reseller agreement entered
into with ISG, which obsoleted certain technology previously acquired by the
Company in the Evergreen acquisition, the Company incurred a non-recurring
charge of $1.4 million in the third quarter of fiscal 1997, related to the
write-down of the Evergreen technology and the accrual of severance and other
costs. These costs included $870,000 related to the write-off of capitalized
software and intangible assets, $277,000 in severance and other costs related to
the termination of employees, and $222,000 of other expenses. A total of
$468,000 was recorded related to relocation costs from the Company's move to its
new corporate headquarters, which was completed in the quarter ended March 31,
1997.
During fiscal 1996, the Company incurred nonrecurring charges of $10.4
million, comprised of (i) $5.7 million related to in-process research and
development expenses associated with the Company's acquisition of Evergreen
Technologies, Inc. and Quesix Software, Incorporated incurred in the three month
period ended December 31, 1995; and (ii) $4.6 million related to the HBOC
business alliance entered into in the three month period ended March 31, 1996.
15. NON-CASH TRANSACTIONS
The Company had noncash transactions during the years ended June 30, 1997,
1996, and 1995 as follows:
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
-----------------------------------
1997 1996 1995
---------- ----------- --------
<S> <C> <C> <C>
Noncash transfers from inventories to property and
equipment........................................ $ -- $ 365,756 $129,556
========== =========== ========
Noncash transfers from property and equipment to
inventories...................................... $ -- $ -- $ 43,185
========== =========== ========
Noncash transfer of trade accounts receivable to
note receivable from related party............... $ -- $ 2,910,876 $ --
========== =========== ========
Exchange of notes payable to stockholders for
Series A preferred stock and Series II
convertible preferred stock, respectively........ $ -- $ -- $500,000
========== =========== ========
Conversion of preferred stock and accrued dividends
to common stock.................................. $ -- $19,692,897 $ --
========== =========== ========
Issuance of common stock in connection with an
acquisition...................................... $2,000,000 $ 2,305,884 $ --
========== =========== ========
Increase in goodwill and income taxes payable...... $ -- $ 1,379,220 $ --
========== =========== ========
</TABLE>
51
<PAGE> 52
IMNET SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SUPPLEMENTARY FINANCIAL DATA (UNAUDITED):
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30, 1997
-----------------------------------------
FOURTH THIRD SECOND FIRST
QUARTER QUARTER QUARTER QUARTER
-------- -------- -------- --------
(AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C> <C>
Revenues................................................... $15,871 $13,543 $11,110 $9,659
Operating income........................................... 4,326 1,507 1,296 154
Net income................................................. 3,226 1,376 1,694 646
Net income per common share and common share equivalent.... $ 0.32 $ 0.13 $ 0.17 $ 0.07
======= ======= ======= ======
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30, 1996
-------------------------------------
FOURTH THIRD SECOND FIRST
QUARTER QUARTER QUARTER QUARTER
------- ------- ------- -------
<S> <C> <C> <C> <C>
Revenues................................................... $11,631 $ 6,986 $ 6,329 $4,434
Operating income (loss).................................... 2,827 (4,594) (6,036) (162)
Net income (loss).......................................... 3,385 (4,125) (5,543) 256
Net income (loss) per common share and common share
equivalent............................................... $ 0.34 $ (0.45) $ (0.64) $ 0.03
======= ======= ======= ======
</TABLE>
52
<PAGE> 53
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The response to Item 10, applicable to the Directors of the Company, is
incorporated herein by reference to the information to be set forth under the
caption "Election of Directors" in the Proxy Statement for the Annual Meeting of
Stockholders, which the Company expects to file within 120 days after June 30,
1997. Information concerning executive officers is included in Part I, Item 4.A
of this Form 10-K.
The response to Item 10, applicable to Section 16(a) of the Securities
Exchange Act of 1934, as amended, is incorporated herein by reference to the
information to be set forth under the caption "Section 16(a) Beneficial
Ownership Reporting Compliance" in the Proxy Statement for the Annual Meeting of
Stockholders, which the Company expects to file within 120 days after June 30,
1997.
ITEM 11. EXECUTIVE COMPENSATION
The response to Item 11 is incorporated herein by reference to the
information to be set forth under the captions "Report of the Compensation
Advisory Committee on Executive Compensation," "Performance Graph" and
"Executive Compensation" in the Proxy Statement for the Annual Meeting of
Stockholders, which the Company expects to file within 120 days after June 30,
1997.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The response to Item 12 is incorporated herein by reference to the
information to be set forth under the captions "Ownership of Principal
Stockholders and Certain Executive Officers" and "Election of Directors" in the
Proxy Statement for the Annual Meeting of Stockholders, which the Company
expects to file within 120 days after June 30, 1997.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The response to Item 13 is incorporated herein by reference to the
information to be set forth under the caption "Executive Compensation" in the
Proxy Statement for the Annual Meeting of Stockholders, which the Company
expects to file within 120 days after June 30, 1997.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
The following are filed as part of this report:
(a) 1. Consolidated Financial Statements
The following consolidated financial statements are filed herewith:
Independent Auditors' Report.
Consolidated Balance Sheets at June 30, 1997 and 1996.
Consolidated Statements of Operations for each of the years in the
three-year period ended June 30, 1997.
Consolidated Statements of Stockholders' Equity for each of the years
in the three-year period ended June 30, 1997.
Consolidated Statements of Cash Flows for each of the years in the
three-year period ended June 30, 1997.
Notes to Consolidated Financial Statements.
2. Financial Statement Schedule
53
<PAGE> 54
Schedule II -- Valuation and Qualifying Accounts
All other financial statements and schedules not listed above are omitted,
as the required information is not applicable or the information is presented in
the consolidated financial statements or related notes.
3. A. Exhibits
The following exhibits are filed herewith or incorporated herein by
reference:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C> <C>
2.1(5) -- The Agreement and Plan of Merger dated as of October 27,
1995 among the Registrant, Evergreen Technologies, Inc.,
Jeffrey Siegel and Karen Siegel is incorporated herein by
reference to the Exhibit with the same number filed with the
Registrant's Form 8-K for November 3, 1995, filed on
November 20, 1995.
2.1.1(4)+ ++ -- Agreement and Plan of Merger dated as of September 30, 1996
among the Registrant, Hunter International, Inc., Larry C.
Hunter and Paul Sherman.
2.2(5) -- Agreement and Plan of Merger by and among the Registrant,
Quesix Software, Incorporated, IMNET California Acquisition
Corporation, Leslie H. Wong and Martin Minjoe, dated as of
November 28, 1995.
3.2.2(1) -- Amended and Restated Certificate of Incorporation of
Registrant.
3.3.1(2) -- Amended and Restated Bylaws dated September 10, 1996.
4(1) -- Form of Common Stock certificate.
10.3.1(5) -- Amended and Restated Registration Agreement by and among the
Registrant and certain stockholders of the Registrant, dated
as of May 22, 1992.
10.3.2(1) -- First Amendment to Amended and Restated Registration
Agreement by and among the Registrant and certain
stockholders of the Registrant, dated as of March 31, 1993.
10.3.3(1) -- Second Amendment to Amended and Restated Registration
Agreement by and among the Registrant and certain
stockholders of the Registrant, dated as of October 18,
1993.
10.3.4(1) -- Third Amendment to Amended and Restated Registration
Agreement by and among the Registrant and certain
stockholders of the Registrant, dated as of January 13,
1995.
10.5(1) -- Employee Stock Option and Rights Plan.
10.5.1(6) -- Amendments to IMNET Systems, Inc. Employee Stock Option
Rights Plan, adopted September 9, 1996.
10.5.2(7) -- Forms of Key Employee Stock Options.
10.6(1) -- 1995 Non-Employee Directors Stock Option Plan.
10.6.1(8) -- IMNET Systems, Inc. Employee Discount Stock Purchase Plan.
10.7.1(1) -- Form of Incentive Stock Option Agreement used by Registrant
in 1994 in connection with the Employee Stock Option Rights
Plan.
10.7.2(1) -- Form of Incentive Stock Option Agreement used by Registrant
in 1995 in connection with the Employee Stock Option and
Rights Plan.
10.7.3(5) -- Form of Incentive Stock Option Agreement used by Registrant
in 1996 in connection with the Employee Stock Option and
Rights Plan.
10.8(1) -- Form of Indemnification Agreement.
10.9(1) -- Employment Agreement between the Registrant and Kenneth D.
Rardin, dated May 22, 1992, as amended pursuant to an
addendum, dated as of January 1, 1995.
10.9.1(2) -- Second Addendum to Employment Agreement between the
Registrant and Kenneth D. Rardin, dated as of September 15,
1996.
</TABLE>
54
<PAGE> 55
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C> <C>
10.10.1(1) -- Incentive Stock Option Agreement between the Registrant and
Kenneth D. Rardin, dated as of February 14, 1995.
10.10.2(1) -- Incentive Stock Option Agreement between the Registrant and
Gary D. Bowers, dated February 14, 1995.
10.10.4(1) -- Incentive Stock Option Agreement between the Registrant and
Paul Collins, dated April 19, 1995.
10.18(1) -- Distributor Agreement between the Registrant and JELCO Data
Services, Inc., dated March 29, 1993.
10.19(1) -- International Distribution Agreement between the Registrant
and SG2, dated September 20, 1993.
10.20(1) -- Value-Added Reseller Agreement between the Registrant and
Cerner Corporation, dated September 30, 1994.
10.21(1) -- Distribution Agreement between the Registrant and IDX
Systems Corporation, dated February 15, 1995.
10.22(1) -- Distribution Agreement between the Registrant and PHAMIS,
Inc., dated November 16, 1994.
10.23(1) -- International Distributor Agreement between the Registrant
and Software AG Germany, dated April 10, 1993.
10.26(1) -- Amendment to Distributor Agreement between the Registrant
and SoftNet Systems, Inc., dated June 20, 1995.
10.28(5) -- Distribution Agreement between the Registrant and Datacom
Imaging Systems, Inc., dated as of March 29, 1995.
10.28.1 -- Distribution Agreement between the Registrant and
HealthVISION, Inc., dated June 13, 1997.
10.30(5) -- End-user Equipment Purchase and Software License Terms and
Conditions between the Registrant and McLaren Health Care
Corporation, dated February 10, 1995, as amended.
10.32(5) -- Employment Agreement between the Registrant and Raymond L.
Brown, dated as of November 17, 1995.
10.33(5) -- Incentive Stock Option Agreement between Registrant and
Raymond L. Brown, dated as of December 1, 1995.
10.35(2)+ -- Manufacturing and Distribution License Agreement between
Registrant, SoftNet Systems, Inc. and Micrographic
Technology Corporation, dated as of June 30, 1996.
10.36(6) -- Employment Agreement between the Registrant and James A.
Gilbert, dated as of September 10, 1996.
10.37(9)+ -- Value Added Reseller Agreement between the Registrant and
ISG Technologies, Inc., dated March 18, 1997.
10.38(10)++ -- Stock Purchase Agreement dated as of June 25, 1997 among
Registrant, Advisoft and Stockholder.
11 -- Statement re: Computation of Per Share Earnings.
21 -- Subsidiaries of the Registrant.
23 -- Consent of KPMG Peat Marwick LLP.
27 -- Financial Data Schedule (for SEC use only).
</TABLE>
- ---------------
(1) Incorporated by reference to the Exhibit with the same number in the
Registrant's Registration Statement on Form S-1 (No. 33-92130).
55
<PAGE> 56
(2) Incorporated by reference to the Exhibit with the same number in the
Registrant's Annual Report on Form 10-K for the year ended June 30, 1996.
(3) Incorporated by reference to the same Exhibit number in the Registrant's
Annual Report on Form 10-K for the year ended June 30, 1995.
(4) Incorporated by reference to the Exhibit 2.1 filed with the Company's Form
8-K dated September 30, 1996, filed on October 15, 1996.
(5) Incorporated by reference to the same Exhibit number in the Registrant's
report on Form S-1 (No. 33-99846).
(6) Incorporated by reference to the Exhibit with the same number in the
Registrant's Form 10-Q dated December 31, 1996, filed on February 13, 1996.
(7) Incorporated by reference to the Exhibit with the same number in the
Registrant's Form S-8 (Reg. No. 333-19429).
(8) Incorporated by reference to the Exhibit with the same number in the
Registrant's Form S-8 (Reg. No. 333-19397).
(9) Incorporated by reference to the Exhibit with the same number filed with
the Company's Form 8-K dated March 18, 1997, filed on April 2, 1997.
(10) Incorporated by reference to the Exhibit with the same number filed with
the Company's Form 8-K dated June 25, 1997.
+ The Company has applied for confidential treatment of portions of this
Agreement. Accordingly, portions thereof have been omitted and filed
separately with the Securities and Exchange Commission.
++ In accordance with Item 601(b) (2) of Regulation S-K, the schedules have
been omitted and a list briefly describing the schedules is at the end of
the Exhibit. The Registrant will furnish supplementally a copy of any
omitted schedule to the Commission upon request.
3.B. Executive Compensation Plans and Arrangements.
1. Employee Stock Option and Rights Plan (Exhibit 10.5 hereof, and of the
Company's Registration Statement on Form S-1 (No. 33-92130)).
2. Amendments to IMNET Systems, Inc. Employee Stock Option Rights Plan, adopted
September 9, 1996 (Exhibit 10.5.1 hereof, and of the Company's Form 10-Q
dated December 31, 1996, filed on February 13, 1996).
3. Forms of Key Employee Stock Options (Exhibit 10.5.2 hereof, and of the
Company's Form S-8 (Reg. No. 333-19429)).
4. 1995 Non-Employee Directors Stock Option Plan (Exhibit 10.6 hereof, and of
the Company's Registration Statement on Form S-1 (No. 33-92130)).
5. IMNET Systems, Inc. Employee Discount Stock Purchase Plan (Exhibit 10.6.1
hereof, and of the Company's Form S-8 (Reg. No. 333-19397)).
6. Form of Incentive Stock Option Agreement used by Registrant in 1994 in
connection with the Employee Stock Option and Rights Plan (Exhibit 10.7.1
hereof, and of the Company's Registration Statement on Form S-1 (No.
33-92130)).
7. Form of Incentive Stock Option Agreement used by Registrant in 1995 in
connection with the Employee Stock Option and Rights Plan (Exhibit 10.7.2
hereof, and of the Company's Registration Statement on Form S-1 (No.
33-92130)).
8. Form of Incentive Stock Option Agreement used by Registrant in 1996 in
connection with the Employee Stock Option and Rights Plan (Exhibit 10.7.3
hereof, and of the Company's Form S-1 (No. 33-99846)).
9. Form of Indemnification Agreement (Exhibit 10.8 hereof, and of the Company's
Registration Statement on Form S-1 (No. 33-92130)).
10. Employment Agreement between the Registrant and Kenneth D. Rardin, dated May
22, 1992, as amended pursuant to an Addendum, dated as of January 1, 1995
(Exhibit 10.9 hereof, and of the Company's Registration Statement on Form
S-1 (No. 33-92130)).
11. Second Addendum to Employment Agreement between the Registrant and Kenneth
D. Rardin, dated as of September 15, 1996 (Exhibit 10.9.1 hereof, and of the
Company's Annual Report on Form 10-K for the year ended June 30, 1996).
56
<PAGE> 57
12. Incentive Stock Option Agreement between the Registrant and Kenneth D.
Rardin, dated as of February 14, 1995 (Exhibit 10.10.1 hereof, and of the
Company's Registration Statement on Form S-1 (No. 33-92130)).
13. Incentive Stock Option Agreement between the Registrant and Gary D. Bowers,
dated February 14, 1995 (Exhibit 10.10.2 hereof, and of the Company's
Registration Statement on Form S-1 (No. 33-92130)).
14. Incentive Stock Option Agreement between the Registrant and Paul Collins,
dated April 19, 1995 (Exhibit 10.10.4 hereof, and of the Company's
Registration Statement on Form S-1 (No. 33-92130)).
15. Employment Agreement between the Registrant and Raymond L. Brown, dated as
of November 17, 1995 (Exhibit 10.32 hereof, and of the Company's report on
Form S-1 (No. 33-99846)).
16. Incentive Stock Option Agreement between Registrant and Raymond L. Brown,
dated as of December 1, 1995 (Exhibit 10.33 hereof, and of the Company's
report on Form S-1 (No. 33-99846)).
17. Employment Agreement between the Registrant and James A. Gilbert, dated as
of September 10, 1996 (Exhibit 10.36 hereof, and of the Company's Form 10-Q
dated December 31, 1996, filed on February 13, 1996).
(b) Reports on Form 8-K
The Registrant filed Form 8-K on July 10, 1997, reporting its acquisition
of Advisoft Consulting, S.A. on June 25, 1997.
57
<PAGE> 58
SIGNATURES
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.
IMNET SYSTEMS, INC.
By: /s/ KENNETH D. RARDIN
------------------------------------
Kenneth D. Rardin
Chairman of the Board
and Chief Executive Officer
(Principal Executive Officer)
October 7, 1997
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ KENNETH D. RARDIN Chairman of the Board and October 7, 1997
- ----------------------------------------------------- Chief Executive Officer
Kenneth D. Rardin (Principal Executive
Officer)
/s/ RAYMOND L. BROWN Senior Vice President and October 7, 1997
- ----------------------------------------------------- Chief Financial Officer
Raymond L. Brown and Secretary (Principal
Financial and Accounting
Officer)
/s/ JAMES A. GILBERT President and Chief October 7, 1997
- ----------------------------------------------------- Operating Officer and
James A. Gilbert Director
/s/ DANIEL P. HOWELL Director October 7, 1997
- -----------------------------------------------------
Daniel P. Howell
/s/ JAMES A. GORDON Director October 7, 1997
- -----------------------------------------------------
James A. Gordon
</TABLE>
58
<PAGE> 59
IMNET SYSTEMS, INC.
INDEX TO FINANCIAL STATEMENT SCHEDULES
<TABLE>
<CAPTION>
PAGE
NO.
----
<S> <C> <C> <C>
Schedule II -- Valuation and Qualifying Accounts...........................
</TABLE>
59
<PAGE> 60
SCHEDULE II
IMNET SYSTEMS, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
ADDITIONS
---------------------
BALANCE AT CHARGED TO BALANCE
BEGINNING COSTS AND OTHER DEDUCTIONS AT END OF
DESCRIPTION OF PERIOD EXPENSES DESCRIBE DESCRIBE PERIOD
- ----------- ---------- ---------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Year ended June 30, 1995 -- allowance
for doubtful accounts............... $ 10,318 $200,758 $ -- $148,033(1) $ 63,043
Year ended June 30, 1996 -- allowance
for doubtful accounts............... 63,043 259,846 50,000(2) 39,599(1) 333,290
Year ended June 30, 1997 -- allowance
for doubtful accounts............... 333,290 557,754 237,208(2) 12,612(1) 1,115,640
</TABLE>
- ---------------
(1) Accounts deemed to be uncollectible and written off during the period.
(2) Allowance for doubtful accounts of subsidiary at acquisition date.
60
<PAGE> 61
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C> <C>
2.1(5) -- The Agreement and Plan of Merger dated as of October 27,
1995 among the Registrant, Evergreen Technologies, Inc.,
Jeffrey Siegel and Karen Siegel is incorporated herein by
reference to the Exhibit with the same number filed with the
Registrant's Form 8-K for November 3, 1995, filed on
November 20, 1995.
2.1.1(4)+ ++ -- Agreement and Plan of Merger dated as of September 30, 1996
among the Registrant, Hunter International, Inc., Larry C.
Hunter and Paul Sherman.
2.2(5) -- Agreement and Plan of Merger by and among the Registrant,
Quesix Software, Incorporated, IMNET California Acquisition
Corporation, Leslie H. Wong and Martin Minjoe, dated as of
November 28, 1995.
3.2.2(1) -- Amended and Restated Certificate of Incorporation of
Registrant.
3.3.1(2) -- Amended and Restated Bylaws dated September 10, 1996.
4(1) -- Form of Common Stock certificate.
10.3.1(5) -- Amended and Restated Registration Agreement by and among the
Registrant and certain stockholders of the Registrant, dated
as of May 22, 1992.
10.3.2(1) -- First Amendment to Amended and Restated Registration
Agreement by and among the Registrant and certain
stockholders of the Registrant, dated as of March 31, 1993.
10.3.3(1) -- Second Amendment to Amended and Restated Registration
Agreement by and among the Registrant and certain
stockholders of the Registrant, dated as of October 18,
1993.
10.3.4(1) -- Third Amendment to Amended and Restated Registration
Agreement by and among the Registrant and certain
stockholders of the Registrant, dated as of January 13,
1995.
10.5(1) -- Employee Stock Option and Rights Plan.
10.5.1(6) -- Amendments to IMNET Systems, Inc. Employee Stock Option
Rights Plan, adopted September 9, 1996.
10.5.2(7) -- Forms of Key Employee Stock Options.
10.6(1) -- 1995 Non-Employee Directors Stock Option Plan.
10.6.1(8) -- IMNET Systems, Inc. Employee Discount Stock Purchase Plan.
10.7.1(1) -- Form of Incentive Stock Option Agreement used by Registrant
in 1994 in connection with the Employee Stock Option Rights
Plan.
10.7.2(1) -- Form of Incentive Stock Option Agreement used by Registrant
in 1995 in connection with the Employee Stock Option and
Rights Plan.
10.7.3(5) -- Form of Incentive Stock Option Agreement used by Registrant
in 1996 in connection with the Employee Stock Option and
Rights Plan.
10.8(1) -- Form of Indemnification Agreement.
10.9(1) -- Employment Agreement between the Registrant and Kenneth D.
Rardin, dated May 22, 1992, as amended pursuant to an
addendum, dated as of January 1, 1995.
10.9.1(2) -- Second Addendum to Employment Agreement between the
Registrant and Kenneth D. Rardin, dated as of September 15,
1996.
10.10.1(1) -- Incentive Stock Option Agreement between the Registrant and
Kenneth D. Rardin, dated as of February 14, 1995.
10.10.2(1) -- Incentive Stock Option Agreement between the Registrant and
Gary D. Bowers, dated February 14, 1995.
10.10.4(1) -- Incentive Stock Option Agreement between the Registrant and
Paul Collins, dated April 19, 1995.
</TABLE>
<PAGE> 62
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C> <C>
10.18(1) -- Distributor Agreement between the Registrant and JELCO Data
Services, Inc., dated March 29, 1993.
10.19(1) -- International Distribution Agreement between the Registrant
and SG2, dated September 20, 1993.
10.20(1) -- Value-Added Reseller Agreement between the Registrant and
Cerner Corporation, dated September 30, 1994.
10.21(1) -- Distribution Agreement between the Registrant and IDX
Systems Corporation, dated February 15, 1995.
10.22(1) -- Distribution Agreement between the Registrant and PHAMIS,
Inc., dated November 16, 1994.
10.23(1) -- International Distributor Agreement between the Registrant
and Software AG Germany, dated April 10, 1993.
10.26(1) -- Amendment to Distributor Agreement between the Registrant
and SoftNet Systems, Inc., dated June 20, 1995.
10.28(5) -- Distribution Agreement between the Registrant and Datacom
Imaging Systems, Inc., dated as of March 29, 1995.
10.28.1 -- Distribution Agreement between the Registrant and
HealthVISION, Inc., dated June 13, 1997.
10.30(5) -- End-user Equipment Purchase and Software License Terms and
Conditions between the Registrant and McLaren Health Care
Corporation, dated February 10, 1995, as amended.
10.32(5) -- Employment Agreement between the Registrant and Raymond L.
Brown, dated as of November 17, 1995.
10.33(5) -- Incentive Stock Option Agreement between Registrant and
Raymond L. Brown, dated as of December 1, 1995.
10.35(2)+ -- Manufacturing and Distribution License Agreement between
Registrant, SoftNet Systems, Inc. and Micrographic
Technology Corporation, dated as of June 30, 1996.
10.36(6) -- Employment Agreement between the Registrant and James A.
Gilbert, dated as of September 10, 1996.
10.37(9)+ -- Value Added Reseller Agreement between the Registrant and
ISG Technologies, Inc., dated March 18, 1997.
10.38(10)++ -- Stock Purchase Agreement dated as of June 25, 1997 among
Registrant, Advisoft and Stockholder.
11 -- Statement re: Computation of Per Share Earnings.
21 -- Subsidiaries of the Registrant.
23 -- Consent of KPMG Peat Marwick LLP.
27 -- Financial Data Schedule (for SEC use only).
</TABLE>
- ---------------
(1) Incorporated by reference to the Exhibit with the same number in the
Registrant's Registration Statement on Form S-1 (No. 33-92130).
(2) Incorporated by reference to the Exhibit with the same number in the
Registrant's Annual Report on Form 10-K for the year ended June 30, 1996.
(3) Incorporated by reference to the same Exhibit number in the Registrant's
Annual Report on Form 10-K for the year ended June 30, 1995.
(4) Incorporated by reference to the Exhibit 2.1 filed with the Company's Form
8-K dated September 30, 1996, filed on October 15, 1996.
<PAGE> 63
(5) Incorporated by reference to the same Exhibit number in the Registrant's
report on Form S-1 (No. 33-99846).
(6) Incorporated by reference to the Exhibit with the same number in the
Registrant's Form 10-Q dated December 31, 1996, filed on February 13, 1996.
(7) Incorporated by reference to the Exhibit with the same number in the
Registrant's Form S-8 (Reg. No. 333-19429).
(8) Incorporated by reference to the Exhibit with the same number in the
Registrant's Form S-8 (Reg. No. 333-19397).
(9) Incorporated by reference to the Exhibit with the same number filed with
the Company's Form 8-K dated March 18, 1997, filed on April 2, 1997.
(10) Incorporated by reference to the Exhibit with the same number filed with
the Company's Form 8-K dated June 25, 1997.
+ The Company has applied for confidential treatment of portions of this
Agreement. Accordingly, portions thereof have been omitted and filed
separately with the Securities and Exchange Commission.
++ In accordance with Item 601(b)(2) of Regulation S-K, the schedules have
been omitted and a list briefly describing the schedules is at the end of
the Exhibit. The Registrant will furnish supplementally a copy of any
omitted schedule to the Commission upon request.
<PAGE> 1
EXHIBIT 10.28.1
IMNET SYSTEMS, INC.
3015 Windward Plaza
Windward Fairways II
Alpharetta, Georgia 30202
DISTRIBUTOR AGREEMENT
This Agreement is entered into and effective on the later of the two
dates below written, by and between IMNET Systems, Inc. with its principal place
of business as set forth above ("IMNET") and HealthVISION Inc. with its
principal place of business at 141 Stony Circle, Suite 150, Santa Rosa, CA 95401
("Distributor"). The parties agree as follows:
1. DEFINITIONS.
a) Customer. The term "Customer" means any end-user to whom
Distributor licenses a copy of any Software in accordance with this
Agreement.
b) Installation Services. The term "Installation Services" means
the services provided to a Customer, including, but not limited to, the
project management, system integration, and installation and testing of
the Software at a Customer's site.
c) Software. The term "Software" means the proprietary computer
software described on Exhibit A, attached hereto and incorporated
herein by reference, including any related documentation and any
subsequent revisions or modifications furnished to Distributor by
IMNET.
d) Territory. The term "Territory" means the geographic territory
in which Distributor may distribute the Software. The Territory shall
be the United States Canada, and the United Kingdom for all Software.
The Territory may be modified by mutual consent. Sales by Distributor
outside the Territory shall be agreed-upon on a case-by-case basis.
2. APPOINTMENT.
a) During this Agreement, IMNET grants to Distributor a
non-exclusive, non-transferable right to market and license the
Software in the Territory to Customers, either directly or through its
agents, pursuant to the terms of Customer's then-current standard
software license and maintenance agreement. Distributor shall provide
IMNET with a review copy of said agreement, and shall make any
reasonable additions requested by IMNET for IMNET to protect its rights
in the Software. Distributor shall provide a revised copy of said
agreement in the event that it is materially revised by Distributor.
b) Distributor agrees not to develop, distribute, promote or
market proprietary software of its own or of third parties, as
appropriate, which materially compete with the Software during the term
of this Agreement without first giving IMNET twelve
Page 1
<PAGE> 2
(12) months prior written notice of Distributor's intent to develop,
distribute, promote, or market such other competing items as the case
may be.
c) Distributor may either (i) provide Installation Services for
the Software through IMNET-trained Distributor personnel or (ii)
subcontract for such Installation Services with IMNET. To facilitate
smooth installation of the initial systems, IMNET personnel will be
subcontracted to provide project management services for at least the
first five (5) installations of Software.
3. TERM AND TERMINATION.
a) This Agreement shall commence on the date last below written
and unless sooner terminated in accordance with this Agreement, this
Agreement shall remain in effect for an initial term of two years. This
Agreement shall automatically renew for successive one year terms,
unless either party gives the other party notice of its intent not to
renew this Agreement at least sixty (60) days prior to the beginning of
each successive renewal term.
b) Either party may terminate this Agreement upon 90 days'
written notice to the other party of its intent to terminate this
Agreement.
c) IMNET may terminate this Agreement prior to its expiration on
the occurrence of any of the following events:
i) A default by Distributor which has not been cured
within thirty (30) days of IMNET's written notice to
Distributor of the default;
ii) Distributor's violation of the confidentiality
provisions of this Agreement;
iii) If Distributor ceases to do business or become
insolvent.
iv) If Distributor attempts to assign this Agreement
except as provided herein.
d) Distributor may terminate this Agreement prior to its
expiration on the occurrence of any of the following events.
i) A default by IMNET which has not been cured within
thirty (30) days of Distributor's written notice to IMNET of
the default.
ii) If IMNET ceases to do business or becomes insolvent.
iii) If IMNET attempts to assign this Agreement except as
provided herein.
Page 2
<PAGE> 3
4. DUTIES ON TERMINATION.
a) Upon expiration or termination of this Agreement, Distributor
agrees to cease marketing and licensing the Software. Distributor shall
return or destroy all copies of the Software in its possession as
requested by IMNET. Distributor agrees to pay all accrued fees to IMNET
and to provide a full accounting for sales as required by this
Agreement. The obligation of confidentiality set forth in this
Agreement shall survive any termination of this Agreement.
b) The obligations of this Agreement shall survive with respect
to any Distributor proposals or sales quotations to prospective
Customers outstanding upon the date of notice of termination of this
Agreement, unless the parties otherwise mutually agree after a
case-by-case review by IMNET and Distributor.
c) Any undischarged obligation of the parties existing at
termination of this Agreement shall survive termination of the
Agreement.
5. CUSTOMERS' RIGHTS UPON TERMINATION.
Termination of this Agreement shall not effect the rights of any
Customer to use the Software and, unless otherwise agreed between
Distributor and IMNET, all agreements between Customers and
Distributor for maintenance services for such Software shall
automatically be assigned to IMNET upon termination of this Agreement.
6. DUTIES OF DISTRIBUTOR.
a) Roll Out Plan. Distributor shall agree to a roll out
commitment for the inclusion of Software in Distributor's sales
activities. This roll out plan will clearly set out the activities that
will be performed by both Distributor and IMNET within the first six to
nine months following this Agreement's execution. The parties shall
develop a roll out plan within six (6) weeks of the effective date of
this Agreement.
b) Marketing and Sales. Distributor shall use its best efforts to
market the Software, and shall not discount the Software below the
IMNET List Price without IMNET's consent, which shall not be
unreasonably withheld or delayed. On an annual basis, the parties shall
meet to review Distributor's sales projections and IMNET's Software
status for the coming year.
c) Reporting of Problems. Distributor shall promptly inform IMNET
of any problems with the Software that come to its attention.
d) Integration. The integration of Software with Distributor's
otherwise separate application software shall be performed on a
mutually agreed-upon basis and resource commitment of the respective
parties.
e) Customer Call Management and Tracking. The parties intend that
Distributor's existing Customer support system will receive the initial
request for support and maintenance services from Customers.
Distributor will determine the
Page 3
<PAGE> 4
nature of the Customer's problem, and where indicated, will forward
Customer support requests regarding the Software to IMNET's Customer
support service. Distributor shall maintain such records as it deems
needed to follow up on such Customer requests, and Distributor and
IMNET shall jointly review any unresolved Customer requests on a
mutually agreed upon basis. Off hours call tracking and support will be
provided to Customers on a mutually agreed upon basis between
Distributor and IMNET.
f) Warranties and Representations. Distributor shall make no
warranties or representations with respect to the Software other than
those expressly made in compliance with this Agreement in the
applicable Customer license documents.
7. OBLIGATIONS OF IMNET.
a) New Products. IMNET agrees that Distributor shall have sixty
(60) days from notice in which to evaluate any new IMNET products and
decide whether or not to extend this Agreement to such new products on
such terms as the parties may agree.
b) Availability of Consultation. IMNET will be available for
telephone consultation with Distributor at such times and for such
periods as Distributor may reasonably request.
c) Warranty and Maintenance Support. Until the parties mutually
agree that Distributor is proficient to supply the above "first line"
customer support, IMNET shall provide such "first line" support. Upon
such agreement, IMNET shall provide "second line" support consisting of
addressing problems forwarded to IMNET by Distributor's support
personnel. IMNET shall provide technical bulletins, updated user guides
and other materials as they are released by IMNET, as well as any
updates to the Software. In the event that the parties mutually agree
that IMNET on-site support is required for a particular Customer, IMNET
and Distributor shall share the cost of such support as mutually agreed
upon on a case-by-case basis.
d) Promotional Material. IMNET will supply promotional materials
relating to the Software. Copies, as provided in the agreed upon
roll-out plan, will be provided at no additional cost; additional
copies shall be provided at IMNET's cost.
e) Training. IMNET shall provide training for Distributor's
personnel at IMNET regularly scheduled training classes free of charge
(except for Distributor's expenses of training, e.g., travel, lodging,
and meals) for a period of one year following the commencement date of
this Agreement. IMNET shall make available regularly scheduled training
to Distributor's personnel after this one year period, and to
Distributor's Customers, at IMNET's then prevailing training rates.
f) Documentation. IMNET will supply Distributor, at no charge,
with a set of technical instructional and operational manuals for the
Software to be distributed by Distributor and Distributor may reproduce
such materials with no additional license charges payable to IMNET.
Additional documentation shall be provided by IMNET at
Page 4
<PAGE> 5
IMNET's cost. Upon termination of this Agreement, Distributor agrees to
return to IMNET any documentation in Distributor's possession which was
provided by IMNET at no charge to Distributor.
8. FEES AND PAYMENT TERMS.
a) For each direct sale by IMNET based upon a lead furnished by
Distributor where such lead was not in IMNET's existing sales database,
IMNET shall pay Distributor a referral fee of 10% of the Software
license fee of the IMNET Software within 30 days of IMNET's receipt of
the first Software payment from the IMNET customer.
b) For each sale by Distributor of the IMNET Software under a
Distributor contract, the revenue from the IMNET Software sale shall be
split such that Distributor receives 25% of the license fee, and IMNET
shall receive 75%. IMNET shall be reimbursed on a prorata basis based
on Customer contract milestones within 30 days of said milestones;
however, the IMNET share shall be received
in full no later than shipment of the IMNET Software to the Customer.
c) Fees for providing Software maintenance services to Customers
shall be fixed at 15% of the List Prices for Software listed in the
IMNET Price Reference Guide current at the time of billing. IMNET
reserves the right to change the list price of the Software on a yearly
basis, and IMNET shall provide thirty (30) days advance written notice
via facsimile to Distributor of any such changes. Customer orders or
Distributor quotations for Software to be delivered within ninety (90)
days after the date of any announced price increase will be honored by
IMNET at the previously prevailing prices.
d) Distributor agrees to pay IMNET a portion of maintenance fees
received for Software from Customers under Distributor's Customer
contracts. Until the parties agree that Distributor is adequately
trained to fulfill its maintenance obligations described above, IMNET
shall receive 100% of the maintenance fees due for Software. At that
time and annually thereafter, the parties shall establish, in good
faith, the percentages due each party, taking into account the level of
each party's effort and ability in providing Customer support services.
Maintenance fees due IMNET shall be paid in full prior to the
initiation of maintenance services.
e) Distributor shall pay all taxes and duties associated with the
sale by Distributor of any services and licensing of Software, except
for those taxes based on IMNET's net income.
f) Distributor shall remit fees due IMNET within 30 days of said
fees being due IMNET, along with documentation setting forth the amount
due to IMNET for Software and Software Maintenance, as well as the
Software's location, and any other pertinent information as mutually
agreed upon by the parties.
Page 5
<PAGE> 6
g) IMNET reserves the right to refuse to provide maintenance and
support services to Customers when amounts due to IMNET remain unpaid
after thirty (30) days from the date due. IMNET agrees to reinstate
maintenance services promptly upon payment of all past due and current
charges.
h) Distributor shall pay a late charge of 1% per month on all
amounts due IMNET and not paid by the due date. All amounts due shall
be invoiced and paid in U.S. dollars.
i) The provisions of this Section shall survive termination of
this Agreement for any reason.
9. ORDERS.
Distributor will promptly advise IMNET of Distributor's receipt of an
order for Software, including a copy of the relevant portions of any
such Customer agreement. Any such notice shall be subject to
acceptance by IMNET and the terms and conditions of this Agreement
shall prevail not withstanding any variations or additions contained
in any form submitted by Distributor or Distributor's Customer.
10. LICENSE RIGHTS.
Subject to the terms and conditions of this Agreement, IMNET grants to
Distributor a non-exclusive, non-transferable license to market and to
distribute the Software described on Exhibit A. Except as set forth
herein, Distributor shall not provide or otherwise make available the
Software or any part or copies thereof to any third party. Under no
circumstances may Distributor reverse engineer, disassemble or
decompile, in whole or in part, any Software. Distributor acknowledges
that the Software is the sole property of IMNET and that Distributor
has no rights in the Software except those expressly granted in this
Agreement.
11. WARRANTY.
a) IMNET warrants that it owns all right, title, and interest in
the Software or otherwise has the right to grant the rights granted by
it to Distributor hereunder, and that the grant of rights by IMNET does
not infringe upon the rights of any third party arising from any
omission from IMNET.
b) IMNET warrants that the Software will conform in all material
respects to the applicable documentation in effect at the time of
delivery for a period of ninety (90) days from Acceptance by
Distributor or Customer. During the warranty period, IMNET's sole
responsibility and liability hereunder shall be to use reasonable
efforts to remedy any such reproducible non- conformance which is
reported to IMNET in writing or by electronic mail. IMNET will advise
Distributor as to when any such reported problem can be fixed and
released to Distributor. IMNET does not warrant that the use of the
Software will be uninterrupted or error free. Except as set forth
above, the Software is licensed "AS IS". This Warranty does not apply
to Software that has been modified by Distributor or any other third
party; or, if the Software is
Page 6
<PAGE> 7
operated on equipment and/or with third party operating systems that do
not meet IMNET specifications.
12. WARRANTY EXCLUSIONS.
a) To the extent permitted IMNET will pass through to Distributor
or Customers all available end-user warranties obtained from other
manufacturers of IMNET supplied products. Distributor and Customers
will look only to such manufacturers should they require warranty
service under such warranties.
b) EXCEPT AS OTHERWISE PROVIDED IN THIS AGREEMENT, IMNET MAKES NO
WARRANTIES, EITHER EXPRESSED OR IMPLIED, WITH RESPECT TO ANY SOFTWARE,
AND EXPRESSLY DISCLAIMS ALL IMPLIED WARRANTIES OF MERCHANTABILITY AND
FITNESS FOR A PARTICULAR PURPOSE.
13. LIMITATION OF LIABILITY.
a) Except as otherwise expressly provided within, IMNET shall not
be liable for any loss or damage claimed to result from use, operation,
or performance of the Software regardless of the form of action, except
for the portion of loss or damage caused by the sole gross negligence
of IMNET. In no event shall IMNET or its third party suppliers be
liable to Distributor or Distributor's Customers for any special,
indirect, incidental, or consequential damages; any damages resulting
from loss of use, data or profits; or any claim, whether in contract or
tort, regardless of whether IMNET knew or should have known of the
possibility of such damages.
b) IMNET's maximum liability hereunder is expressly limited to
any amounts paid under this Agreement by Distributor to IMNET within
the twelve (12) month period (or fraction thereof) immediately
preceding the Software malfunction or other cause allegedly giving rise
to the claim, even if the remedies provided herein are deemed to have
failed in their essential purpose. This limitation shall not apply to
any claim arising under Section
c) The provisions of this Section shall survive termination of
this Agreement for any reason.
14. INDEMNIFICATION.
a) IMNET shall defend and indemnify Distributor against any claim
that the distribution of any Software furnished and used within the
scope of this Agreement constitutes an infringement of any patent or
copyright registered in the United States, provided that (i) IMNET is
promptly notified by Distributor of the action, (ii) IMNET has sole
control of the defense and all settlement negotiations, and (iii)
Distributor provides reasonable assistance, information, and authority
necessary to perform the above, with reasonable out-of-pocket expenses
incurred by Distributor in providing such assistance being reimbursed
by IMNET. IMNET may, at any time it is concerned over the possibility
Page 7
<PAGE> 8
of such infringement, at its option and expense, procure for
Distributor the right to continue distribution of the affected
Software, replace or modify the Software so that the possible
infringement will not exist, or remove the Software involved and
terminate this Agreement with respect to said Software.
b) The foregoing states the entire obligation of IMNET with
regards to its liability for patent, copyright, or trade secret
infringement, and the provisions of this Section shall survive the
termination of this Agreement for any reason.
15. TRADEMARKS AND TRADENAMES.
During the term of this Agreement, Distributor is authorized to use the
phrase "Authorized IMNET Distributor" in connection with the sale,
advertisement, and promotion of Software. Nothing herein shall
give Distributor or Customers of Distributor any interest or license
in such phrase beyond that specifically granted herein. Distributor
specifically agrees that in the event that Distributor "private
labels" the Software, Distributor will display the IMNET Image Engine
Logo on publications, including brochures, sales literature,
documentation and training materials. Usage specifications, together
with reproduction masters in film and/or magnetic form, will be
supplied to Distributor by IMNET upon request. Any such authorization
to use IMNET's trademarks and/or logos shall terminate when this
Agreement is terminated.
16. CONFIDENTIALITY.
a) IMNET and Distributor agree that all proprietary information
in whatever form delivered by one party to the other shall be held in
strict confidence and shall be used only for purposes of this
Agreement. No such information, including the provisions of this
Agreement, shall be disclosed by the recipient party, its agents or
employees without the prior written consent of the other party, except
as may be necessary by reason of legal, accounting or regulatory
requirements beyond the reasonable control of the recipient party. The
provisions of this Section shall survive termination of this Agreement
for any reason.
b) Distributor acknowledges that its close association with IMNET
has provided it with information that would otherwise be unavailable to
a competitor of IMNET. Therefore, Distributor agrees that in addition
to any other obligations it may have with regards to maintaining the
confidentiality of any such information, Distributor will not use any
such information to make any negative or disparaging comments or
comparisons of any of Distributor's future products with the Software.
The provisions of this Section shall survive termination of this
Agreement for any reason.
17. SOURCE CODE ESCROW.
a) Upon the licensing of the Software to a Customer, IMNET agrees
to establish an escrow account with Fort Knox Escrow Services, Inc.
(the "Escrow Agent"). IMNET shall deposit into the Escrow Account the
source code for the Software under the terms of the Escrow Agent's
standard Escrow Agreement. If Distributor obtains access to the source
code of the Software pursuant to the terms of the Escrow Agreement,
Distributor
Page 8
<PAGE> 9
shall use the source code solely for the support of Customers and said
source code shall be subject to the restrictions on use, transfer,
sales and reproduction placed on the Software itself by this Agreement.
b) Provided that the Distributor is not then in default under the
terms of this Agreement or the Escrow Agreement and subject to the
provisions set forth below and in the Escrow Agreement, the Escrow
Agent shall provide to the Distributor one complete copy of the source
code upon occurrence of any one or more of the following events:
i) IMNET ceases, for any reason, to do business (other
than the sale of its business to a party which assumes IMNET's
obligations hereunder); or
ii) Provided that IMNET is obligated to provide
maintenance services for the Software to Customer(s) under
this Agreement or any other agreement between Customer(s) and
IMNET, the failure by IMNET, following not less that 90 days
written notice from Customer clearly indicating the alleged
default, to maintain the Software and such failure
substantially impairs Customer's ability to operate and use
the Software in accordance with IMNET's documentation.
c) In the event that the parties do not agree as to the
occurrence of one of the above events, the parties hereby agree no such
occurrence shall be deemed to have occurred unless and until the
Arbitrator has found, after hearing as to the facts, that such
occurrence has taken place.
d) If any of the escrowed materials which may be provided to
Distributor pursuant to this Section and the Escrow Agreement contains
third-party software (e.g., compilers, utilities) used to prepare
machine-readable copies of the Software, Distributor shall be
responsible for obtaining any required licenses from the third-party
licensors for the use of such software.
e) It is expressly understood that this Section pertains to the
right to use the Software and that no rights to ownership of the source
code shall pass from IMNET to Distributor, unless expressly agreed upon
herein in writing. It is also expressly understood that this source
code is the confidential and secret asset of IMNET and the source code
will be secured by Distributor and not reproduced or copied, or be made
available to any other party. It is also expressly understood that the
source code will either be returned to IMNET or destroyed once the
default which gave Distributor access to the source code is removed.
UNDER NO CIRCUMSTANCES IS THE SOURCE CODE TO BE SOLD, TRANSFERRED, OR
COPIED BY DISTRIBUTOR.
18. DISPUTE RESOLUTION.
a) Informal Resolution. If a dispute arises hereunder, then IMNET
and Distributor each agree that, prior to commencing arbitration or
termination of this Agreement, each party will cause the dispute to be
brought to the attention of its respective Chief Executive Officer (or
their respective designees). The Chief Executive Officers or designees
shall
Page 9
<PAGE> 10
make a good faith effort to resolve the dispute or issue between the
parties and shall consider using non-binding mediators to address the
dispute if they are unable to resolve it.
b) Formal Resolution.
i) Arbitration. All disputes, controversies, claims,
etc. in connection with this Agreement or any breach thereof
shall be finally settled by arbitration in Atlanta, Georgia,
applying Georgia law, conducted in accordance with the
then-current Commercial Arbitration Rules (the "Rules") of the
American Arbitration Association. Either party may give
notice, in accordance with this Agreement, of its intention to
submit such dispute, etc. to arbitration, which shall take
place before a single arbitrator experienced in the software
industry and appointed by the American Arbitration Association
in accordance with the Rules (the "Arbitrator"). Each party to
the arbitration is to pay an equal part of all costs,
including any deposits, associated with the arbitration,
except that each party shall be responsible for its own
attorneys' fees.
ii) Final and Binding Determination. The determinations
of the Arbitrator will be final and binding upon the parties
to the arbitration, and judgment upon the award rendered by
the Arbitrator may be entered in any court having
jurisdiction, or application may be made to such court for a
judicial acceptance of the award and an order of enforcement,
as the case may be. The Arbitrator shall set forth with
specificity the grounds for the decision in the award.
19. MISCELLANEOUS.
a) Applicable Law. This Agreement shall be interpreted.,
construed, and enforced in accordance with the laws of the State of
Georgia. Each party consents to the exclusive personal jurisdiction and
venue of the state and federal courts with jurisdiction in Fulton
County, Georgia for resolution of all disputes arising hereunder.
b) Compliance with Applicable Laws.
i) Distributor agrees that it will comply with and
faithfully observe all laws and regulations in all
jurisdictions in which it may conduct its business, including
compliance with the regulations governing registration as a
distributor for the distribution of medical software devices
if required.
ii) In the event that the Distributor becomes aware of
any conflict between the terms of this Agreement and any laws
of the jurisdiction(s) in which it does business, Distributor
shall immediately notify IMNET of the conflict and the parties
agree to negotiate in good faith to resolve the matter.
iii) Distributor agrees that is it will comply with all
the laws and regulations regarding export of Software.
Page 10
<PAGE> 11
iv) Distributor agrees that it shall neither make nor
promise to make any gift or payment of money or anything of
value either directly or indirectly to any officer or employee
or agent of a government or any department thereof, or to any
political party, or candidate for political office for the
corrupt purpose of inducing such official, employee, agent,
party or candidate to misuse his/her position or to influence
any act or decision of a government in order to obtain,
retain, or direct business to IMNET.
c) Relationship of the Parties. The parties shall be deemed to be
solely independent contractors and this Agreement shall not be
construed to create any partnership, agency, or joint venture
relationship.
d) Assignment. This Agreement may not be assigned by Distributor
without the express written approval of IMNET, which shall not be
unreasonably withheld or delayed.
e) Solicitation of Employees. Neither IMNET nor Distributor shall
solicit the service of or hire employees of the other during the term
of this Agreement or for a period of one (1) year after the expiration
of the term of this Agreement. Nothing in this Section shall prevent
either party from offering employment to any employee of the other
party who responds to a publicly made advertisement of employment,
provided that such advertisement is not an attempt to solicit, entice,
or induce any employee of the other party to seek employment with the
advertising party or otherwise circumvent the advertising party's
obligations hereunder.
f) Notices. Notices required to be given to either party from the
other shall be sent by US Mail, certified returned receipt, Federal
Express, or other overnight delivery service, signature required, to
the parties' respective addresses listed herein, or by a facsimile to
the facsimile numbers provided (if any) by each party to the other
party.
g) Severability. If any portion of this Agreement is determined
by a court of competent jurisdiction to be invalid or unenforceable,
such determination shall not effect the validity or enforceability of
any other part or provision of this Agreement.
h) Waiver. No waiver by any party of any breach of provision
hereof shall constitute a waiver unless made in writing signed by that
party.
i) Amendments. This Agreement may be amended only expressly and
in a writing signed by the duly authorized representatives of both
parties. No deviation from the terms and conditions of this Agreement
shall be binding upon a party unless specifically set forth in a
writing signed by an authorized representative of that party.
j) Counterparts. This Agreement may be executed in multiple
counterparts, each of which shall be deemed as an original, and all of
which together shall constitute one and the same agreement.
Page 11
<PAGE> 12
k) Third Party Beneficiaries. No third party beneficiary,
including without limitation, any Customer or other end-user of the
Software, is intended to be created by this Agreement.
l) Construction. The parties agree and acknowledge that each
party has contributed to the drafting of this Agreement and the rule of
construction that an agreement shall be construed against the drafting
party shall have no application to this Agreement.
m) Entire Agreement. This Agreement along with its attached
exhibits, constitutes the entire Agreement and supersedes all prior
proposals, negotiations, and communications, oral or written, between
the parties relating to the subject matter hereof.
IN WITNESS WHEREOF, the parties hereto have executed this agreement as
of the dates below written:
IMNET SYSTEMS, INC. HEALTHVISION INC.
By: /s/ Paul J. Collins, Jr. By: /s/
------------------------------- ------------------------------
Title: Sr. V.P. Marketing Title: Chairman
---------------------------- ---------------------------
Date: June 12, 1997 Date: 6/13/97
----------------------------- ----------------------------
Page 12
<PAGE> 13
EXHIBIT A
Software
A. IMNET Image Engine(R) - The object code form of IMNET's proprietary,
copyrighted Software, as listed in IMNET's Price Reference Guide and
generally described as needed to manage the following functions:
- capturing and indexing of paper documents
- indexing of digitized and film images
- storage of images in magnetic, optical and film devices
- integration with host based applications
- retrieval of electronic images
- displaying, printing or faxing images
B. IMNET Workflow Engine(TM) - The object code form of IMNET's
proprietary, copyrighted software, as listed in IMNET's Price Reference
Guide and generally described as needed to manage the following
functions:
- capturing and redesigning of the existing flow of information
departmentally, enterprise-wide, and across community networks
- examine, define, and even-re-engineer tasks to govern the
assembly and flow of information in logical "document",
"folder", or "case" combinations
- automating the assembly of required information and delivering
it simultaneously to multiple points
C. IMNET Electronic Patient Record System(TM) - The object code form of
IMNET's proprietary, copyrighted software, as listed in IMNET's Price
Reference Guide and generally described as needed to manage the
following functions:
- Chart creation and completion processes
- Chart deficiency management
- Physician electronic signatures and annotation
- Patient record archive on magnetic disk, optical disk, and/or
microfilm
- Direct user access of electronic patient record information
- User security management
Page 13
<PAGE> 14
- System audit trails
- System administration
D. IMNET MedVisionTM - The object code form of IMNET's proprietary,
copyrighted software, generally described as needed to manage the
following functions:
- direct access to the complete data generated by medical
scanning devices, including nuclear, ultrasound, video, CT,
MR, and other medical images
- view and analyze nuclear, ultrasound, video, CT, MR, and other
medical images and patient data
- archive management of medical images
- manipulate images, including window and level functions, color
palettes, magnification and interpolation, and cine animations
- automated pre-fetching and routing of medical images
- support teleradiology
- print, copy, or export image files in standard format
- provide complete storage, retrieval and archiving for medical
images (i.e., Picture Archive Communications System ("PACS"))
- Departmental and enterprise-wide PACS
E. IMNET LaserArc(TM) - The object code form of IMNET's proprietary,
copyrighted software, as listed in IMNET's Price Reference Guide and
generally described as needed to manage the following functions:
- Capture of printer streams and redirection to optical or
magnetic storage ("COLD" - Computer Output to Laser Disk)
- retrieval of printer streams and formatting for screen viewing
and printing
- Customized reports based on stored printer streams
Page 14
<PAGE> 1
EXHIBIT 11
IMNET SYSTEMS, INC. AND SUBSIDIARIES
STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
The following computations set forth the calculations of primary and fully
diluted earnings per share for the twelve months ended June 30, 1997, 1996, and
1995.
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-----------------------------------------------------------------------------------
1997 1996 1995
----------------------- --------------------------- ---------------------------
FULLY FULLY FULLY
PRIMARY DILUTED PRIMARY DILUTED PRIMARY DILUTED
EARNINGS EARNINGS EARNINGS EARNINGS EARNINGS EARNINGS
PER SHARE PER SHARE PER SHARE PER SHARE PER SHARE PER SHARE
---------- ---------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Net income (loss)....................... $6,982,406 $6,982,406 $ (6,027,165) $ (6,027,165) $ (4,079,598) $ (4,079,598)
========== ========== ============ ============ ============ ============
Weighted average outstanding common
shares................................ 9,614,708 9,614,708 8,779,356 8,779,356 2,881,704 2,881,704
Increase due to assumed issuance of
shares related to outstanding stock
options using the treasury stock
method................................ 452,651 685,944 -- -- 113,156 113,156
Increase due to assumed exercise of
stock warrants using the treasury
stock method.......................... -- -- -- -- 18,334 18,334
Increase due to assumed conversion to
common stock of convertible preferred
shares and accrued dividends.......... -- -- -- -- 2,317,127 2,317,127
---------- ---------- ------------ ------------ ------------ ------------
Adjusted weighted average outstanding
common shares and common share
equivalents........................... 10,067,359 10,300,652 8,779,356 8,779,356 5,330,321 5,330,321
========== ========== ============ ============ ============ ============
Net income (loss) per common share and
common share equivalent............... $ 0.69 $ 0.68 $ (0.69) $ (0.69) $ (0.77) $ (0.77)
========== ========== ============ ============ ============ ============
</TABLE>
- ---------------
Note: Net income (loss) per common share and common share equivalent has been
computed based upon the weighted average number of common shares and
common share equivalents outstanding during each period. Common share
equivalents recognize the dilutive effects of the conversion of preferred
stock and accrued dividends to common stock prior to their conversion and
of outstanding options and warrants to acquire common stock. The Company
has used the initial public offering price of $12.00 per common share for
the year ended June 30, 1995, since it was prior to the completion of the
initial public offering for purposes of computing the potential dilutive
effects of common share equivalents. Pursuant to the rules of the
Securities and Exchange Commission, common and common equivalent shares
issued in the 12 months prior to the Company's initial public offering on
July 20, 1995 have been included in the computation of common and common
equivalent shares as if they were outstanding for all periods prior to the
Company's initial public offering, including loss years where the impact
of the incremental shares is antidilutive. All other common stock
equivalents including the effect of outstanding options after the
Company's initial public offering have been included in the computations,
except where the impact on the Company's net income (loss) per share is
antidilutive.
<PAGE> 1
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
<TABLE>
<S> <C>
1) IMNET/Evergreen Technologies, Inc., a Delaware corporation
(f/k/a IMNET Maine Acquisition Corporation)
2) IMNET California Acquisition Corporation, a Delaware
corporation
3) IMNET/LASERARC INC., a Delaware corporation
4) Advisoft S.A. (a French corporation)
5) Quesix Software, Incorporated (California)
</TABLE>
Each of these subsidiaries is one hundred percent (100%) owned by the
Registrant.
<PAGE> 1
Exhibit 23
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
IMNET Systems, Inc.:
We consent to the incorporation by reference in the Registration Statement on
Form S-3 (No. 333-27289) and Form S-8 (No. 333-19395, No. 333-19397, and No.
333-19429) of IMNET Systems, Inc. of our report dated October 6, 1997, relating
to the consolidated balance sheets of IMNET Systems, Inc. and subsidiaries as
of June 30, 1997 and 1996, and the related consolidated statements of
operations, stockholders' equity, and cash flows for each of the years in the
three-year period ended June 30, 1997, and the related schedule, which report
appears in the June 30, 1997 annual report on Form 10-K of IMNET Systems, Inc.
KPMG PEAT MARWICK LLP
Atlanta, Georgia
October 6, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF IMNET FOR THE PERIOD ENDED JUNE 30, 1997 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> JUN-30-1997
<CASH> 9,132,631
<SECURITIES> 11,606,287
<RECEIVABLES> 34,974,550
<ALLOWANCES> 1,115,640
<INVENTORY> 2,100,060
<CURRENT-ASSETS> 58,834,574
<PP&E> 8,381,503
<DEPRECIATION> 2,139,260
<TOTAL-ASSETS> 85,852,902
<CURRENT-LIABILITIES> 16,063,198
<BONDS> 0
0
0
<COMMON> 97,794
<OTHER-SE> 69,691,910
<TOTAL-LIABILITY-AND-EQUITY> 85,852,902
<SALES> 0
<TOTAL-REVENUES> 50,183,662
<CGS> 0
<TOTAL-COSTS> 42,900,492
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 557,754
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 8,865,471
<INCOME-TAX> 1,883,065
<INCOME-CONTINUING> 6,982,406
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,982,406
<EPS-PRIMARY> 0.69
<EPS-DILUTED> 0.68
</TABLE>
