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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES AND EXCHANGE ACT OF 1934 (FEE REQUIRED)
For the fiscal year ended June 30, 1996
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
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Commission File Number: 0-22162
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INFOMED HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
Delaware 22-3209241
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1180 SW 36th Ave. 33069
Pompano Beach, Florida (zip code)
(Address of principal
executive office)
Registrant's telephone number, including area code (954) 974-0707
-----------------------------
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12 (g) of the Act:
Common Stock, $.001 par value
(Title of Class)
-----------------------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
---- ----
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of the 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. X
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Aggregate market value of the voting stock held by nonaffiliates of the
registrant, computed using the closing price as reported by NASDAQ for the
Company's common stock on September 26, 1996: $3,770,193
Indicate the number of shares outstanding of the registrant's common
stock, as of the latest practicable date:
Outstanding at
Class September 1, 1996
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Common Stock, $.001 par value 2,374,407
DOCUMENTS INCORPORATED BY REFERENCE
None
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PART I
ITEM 1: BUSINESS
General
InfoMed Holdings, Inc. (the "Company") through its operating subsidiary,
InfoMed, Inc. ("InfoMed") designs, markets, services and supports information
systems for home health care providers. InfoMed was incorporated in New Jersey
on July 30, 1969 and has developed, or acquired companies that have developed,
home health information systems with certified, clinical, private duty,
multi-office and special line capabilities. The Company's base product, STAT 2,
allows home health care agencies to manage the financial, administration and
clinical aspects of their business. The Company also provides a full
compliment of installation, implementation, training, consulting and software
and hardware maintenance services to its customers.
The Company was incorporated in Delaware on October 28, 1992. In late August
1993, pursuant to the terms of an exchange offer, the Company acquired 96% of
the common stock of InfoMed and approximately 93% of the common stock of Script
Systems, Inc. ("Script"), a provider of management information systems and
services to medical offices, clinics and hospital departments. In August 1995,
the Company sold substantially all of the assets of Script to Medic Computer
Systems, Inc. for $2,976,000 in cash. The Company retained the obligations to
deliver and the rights to revenue from the backlogged Script orders, while
Medic assumed on-going support and maintenance obligations. Script is now
substantially inactive.
Merger Agreement
On September 5, 1996, the Company and Simione Central Holding, Inc. ("Simione")
entered into an Agreement and Plan of Merger, which was amended and restated on
September 13, 1996 (the "Merger Agreement"), pursuant to which Simione will be
merged with a wholly-owned subsidiary of the Company. In connection therewith,
each issued and outstanding share of Simione common stock will be converted
into and exchanged for the right to receive 0.22021 shares of the Company's
common stock (the "Exchange Ratio"). Notwithstanding the foregoing, any shares
of Simione common stock held by the Company or any of its subsidiaries, any
shares held in treasury by Simione and any shares held by subsidiaries of
Simione will be canceled and retired and no consideration will be issued in
exchange therefore. In addition, any shareholders of Simione who fail to
deliver certain representations in connection with the receipt of the Company's
common stock in the merger will receive cash in lieu of shares of the Company's
common stock, provided that a condition to the closing of the transaction is
that the holders of no more than 5% of Simione common stock so act. The amount
of any such cash payment will be based on the value of the Company's common
stock on the last trading day immediately preceding the closing of the merger.
Under the terms of the Merger Agreement, all outstanding options and warrants
to purchase Simione common stock will be converted into the right to purchase
shares of the Company's common stock; provided that the number of shares to be
so purchased and respective exercise prices thereof shall
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be adjusted by the Exchange Ratio. The transaction is subject to approval by
the shareholders of Simione, appropriate regulatory approvals and the
satisfaction of certain other conditions contained in the Merger Agreement.
Simione provides shared information management; operations, clinical and
financial support as well as various consulting services to home care
providers. Simione's predecessors were Central Health Management Services, Inc.
("CHMS") and also certain operations of Central Health Services, Inc. ("CHS").
CHMS was incorporated in September 1991 and provided information management and
operations, clinical and financial support services to third party home care
providers. From its incorporation until January 1996, CHMS was a wholly-owned
subsidiary of Central Health Holding Company, Inc. ("CHHC"). CHS, a wholly
owned subsidiary of CHHC, provided information management and operations,
clinical and financial support services solely to home healthcare agencies
owned by CHHC. Effective January 1, 1996, CHHC transferred, at book value, the
assets and employees related to CHS's information management and certain
clinical and financial support service operations to CHMS
On Janaury 6, 1996, CHMS formed CHMS Transitory Corp. ("Transitory Corp.").
Transitory Corp. issued 27,199,999 shares of Class A Common Stock and one share
of Class B Common Stock, all of which were held by CHMS. On January 16, 1996,
CHMS and Transitory Corp. merged with Transitory Corp. as the survivor. The
100 shares of CHMS Common Stock held by CHHC were cancelled and CHHC received
the Class A and Class B Common Stock of Transitory Corp. Immediately
subsequent to the merger, Transitory Corp. amended its articles of
incorporation and changed its name to Central Health Management Services, Inc.
On January 17, 1996, CHHC completed a pro-rata distribution to its shareholders
of all the outstanding capital stock of CHMS. The distribution was
accomplished through the issuance of 15.492 Class A shares of CHMS common stock
for each share of CHHC's common stock held by the respective shareholder. On
January 18, 1996, CHMS amended its articles of incorporation to rename the
corporation Simione Central Holding, Inc.
Simione's customers include third party home care providers and home health
care agencies owned by CHHC. For the years ended December 31, 1995, 1994 and
1993, the percentages of revenue earned from CHHC-owned agencies totaled 69%,
71% and 86%, respectively. CHHC's home health agencies derived approximately
97% of their net revenue from services provided under the Medicare and Medicaid
programs.
On September 19, 1996, SCI entered into a binding letter of intent with
Columbia/HCA Healthcare Corporation ("Columbia") pursuant to which Simione
Central, Inc ("SCI"), a wholly owned subsidiary of CHHC, and certain affiliates
of Columbia will enter into definitive management and support agreements,
information services agreements, a transition management agreement and an
information and billing systems agreement (collectively, the "Proposed
Agreements"). Pursuant to the Proposed Agreements, SCI will manage and provide
information management and data processing technology services to certain
affiliates of Columbia party to such Proposed Agreements. SCI anticipates
realizing net revenues in excess of $15 million annually in connection with the
Proposed Agreements. As part of the above transaction, Columbia will purchase
the stock of CHHC pursuant to a Stock Purchase Agreement by and among Columbia,
CHHC, The Central Health Holding Company Employee Stock Ownership Plan Trust
(the "CHHC Plan Trust"), Gary M. Bremer, Rodney D. Windley and certain other
shareholders of CHHC (the "Stock Purchase Agreement"). In consideration of the
above transactions, SCI has agreed to execute and deliver to Columbia a
guaranty agreement (the "Guaranty") pursuant to which SCI will guarantee
certain of the obligations of the CHHC Plan Trust, Mr. Bremer, Mr. Windley and
such other shareholders of CHHC under the Stock Purchase Agreement. All of the
above transactions are contingent upon the occurrence of certain events.
The Merger Agreement also provides that the Board of Directors of the Company
after the consummation of the Merger shall consist of the following persons:
Gary M. Bremer, Chairman; William J. Simione, Vice Chairman; James R.
Henderson; Barrett C. O'Donnell; and Murali Anantharaman. The Merger Agreement
further states the officers of the Company after the consummation of the Merger
shall consist of the following persons: Gary M. Bremer, Chief Executive Officer
and Chairman; James R. Henderson, President; William J. Simione, Jr., Executive
Vice President; Gary W. Rasmussen, Chief Operating Officer; Lori Nadler Siegel,
Chief Financial Officer and Treasurer; and James A. Tramonte, General Counsel
and Secretary.
Upon the consummation of the Merger, the shareholders of Simione will own
approximately 67% of the outstanding shares of Common Stock of the Company and
the current shareholders of the Company will own approximately 33% of the
outstanding shares of Common Stock of the Company.
For more information concerning the merger, please refer to the Merger
Agreement filed as Exhibit 10.53 to this Form 10-K
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Industry Background
Management believes that health care will continue to be one of the nation's
largest and fastest growing industries and home health care will be one of its
fastest growing segments. The Company estimates that the market for home
health care services and products is growing at approximately 20% per year.
The home health care market is also experiencing significant consolidation as
large home health care agencies acquire smaller agencies and become
multi-office providers. Additionally, hospitals and hospital chains are
acquiring home care agencies as an expansion of their product offering to
managed care organizations.
In addition to growth and consolidation, the health care industry and
specifically the home health care market are experiencing rapid change.
Factors affecting the market include changing demographics, new health care
technologies and the need of health care providers to contain costs. Many
industry experts agree that future health care reform will cause health care
providers to concentrate on and emphasize the following: productivity and cost
containment, managed care applications, medical records, connectivity and
electronic data interchange.
The growth, consolidation and change occurring in the home health care market
creates a unique opportunity for companies that serve it. The Company believes
that health care providers will seek more comprehensive, productive and
efficient information systems to respond to the growth and changes. Home health
care providers will, most likely, increasingly rely on information systems to
enhance their complex organizations.
Business Strategy
The Company's objective is to become its industry's leader in providing the
best systems, training, installation and related professional services
available. The Company's strategy is to develop and maintain comprehensive and
integrated systems which will meet the current and future needs of its
customers. The Company is currently developing enhancements in various areas
including managed care, medical records and electronic data interchange.
Additionally, the Company believes that increased growth and stockholder value
can be achieved through acquisitions and, therefore, may pursue selected
acquisitions in health care information systems markets.
Products
The Company focuses its product development and sales efforts on its STAT 2
system including its recently released STAT 2 Medical Records module. In
addition, in an effort to develop the most technologically advanced products to
enable customers to do business from a paperless' office, the Company has
recently introduced document imaging and telephony systems, which will either
integrate with STAT 2 or operate on a stand alone basis.
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STAT 2
The Company's STAT 2 system is a comprehensive and integrated home health care
information management system which operates with MS-DOS, AIX and SCO UNIX and
is designed for use on microcomputers, LAN based PC's and IBM RS/6000 hardware.
STAT 2 automates the clinical, operational and financial areas of a home health
care agency. STAT 2 is designed to provide real-time reporting capabilities,
to increase management information for decision making, to speed information
processing, to eliminate redundant data entry, to reduce operating costs, to
expand access to data and to improve reporting. The system generates over 250
standard reports, data sheets and standard home health reports. STAT 2
supports various home health care businesses including:
-Certified -IV Therapy
-Home Medical Equipment -Private Duty
-Hospice
STAT 2 has a flexible data base structure that provides a frame work for
responding to home health care's diverse needs and operating procedures. STAT
2's major modules include:
-Patient Registration -Accounts Payable
-Treatment Plans -Accounts Receivable
-Care Plans -Claims Tracking
-Scheduling -Statistical Reports
-Inventory -Personnel Management
-Home Medical Equipment -Payroll
-Infusion Therapy -General Ledger
-Billing -Cost Report
-Electronic Claims -Report Writer
-Collections -Hospice
The STAT 2 system is ideally suited for use by hospital-based and multi-branch
home care providers. The license price of a STAT 2 system ranges from $20,000
to over $1,000,000 depending on a number of factors, including the size and
structure of the customer, the hardware platform utilized and the software
modules licensed.
STAT 2 Medical Records
InfoMed's STAT 2 Medical Records module is designed to help homecare agencies
meet the challenges of improving patient care while reducing costs through
improved productivity. STAT 2 Medical Records allows field staff, using
point-of-care units, to enter, update and transmit patient information from
remote locations to the home office via modem connection, updating the central
STAT 2 system on a realtime basis. Medical Records used in conjunction with
other Company
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products can assist an agency in gathering the information needed to determine
the cost of care so they can successfully negotiate managed care contracts.
Home health care agencies can use the system to improve the quality of care
and its operating efficiency by measuring outcomes, establishing clinical
pathways, and reporting on variances to the plan of care.
STAT 2 Medical Records is comprised of the following modules which are
integrated with all other clinical, financial and operational STAT 2 modules
for collaborative reporting and analysis:
-Intake -Clinical Notes
-Assessment -Treatment Plans
-Care Plans/Pathways -Medications
-Verbal Orders
The STAT 2 Medical Records module provides seamless integration between the
point-of-care, headquarters and the branch office and it utilizes pre-defined
and 100% user-definable care plans, assessments and pathways. The price of a
STAT 2 Medical Records module begins at approximately $30,000 and increases
based upon the number of field users licensed by the customer.
Document Imaging
STATScan is a windows-based imaging system in which paper forms are scanned
into a customer's information system and stored electronically. Documents are
scanned, digitized and stored on optical disks. The documents can then be
indexed according to user defined fields and recalled for instant use.
STATScan also provides an automated workflow application which allows the
customer to define the flow of image information to various groups within the
organization. STATScan not only can reduce entire rooms of paper and filing
cabinets to a few shelves of optical disks, it also provides increased security
and control of information, fast information retrieval and the ability to share
information in a real-time environment.
Telephony
The Company has recently released in field test TELTime, an interactive voice
response telephony system. TELTime records visit and mileage data from home
health employees in the field using telephones in place of computer terminals.
Such data can then be automatically exported into a customer's payroll and
billing applications. The system provides a low cost and time saving process
to record data, produce records and accelerate a customer's billing
activities. TELTime also includes various standard reports and allows
user-customized reports to be generated through a compatible report writer
tool.
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The Company believes that providing superior and comprehensive support services
to customers is critical to being successful in its industry. The Company
offers a variety of services to its new and existing customers through a
network of service and support personnel. Such services include the following:
Installation: Prior to delivery of a new system, the Company installs
its software on the customer's hardware and ensures that the
system is operating properly. The Company then offers on-site
services, whereby a Company technical representative installs
and checks the system at the customer's premises.
Additionally, an installation coordinator is assigned to all
new customers to answer customer questions and manage the
implementation process.
Training: The Company offers complete training services to all of its
new and existing customers. Customers receive between five
and ten days of training at a Company location included in the
price of a new system. Subsequent training is also made
available at an additional charge.
Software The Company's software maintenance services include
Maintenance: telephone consultation during the customer's normal business
hours, on-line support of the software, providing periodic
upgrades and enhancements, and keeping the software current
with certain government regulations. The Company also offers
24 hours a day, seven days a week, on-call telephone software
support. Releases of new software enhancements are usually
distributed to customers at least annually. In addition, the
software is modified to comply with regulatory changes on an
as-needed basis. Software maintenance revenues accounted for
approximately 37% of the Company's total revenues in fiscal
1996.
Hardware The Company offers hardware support services to its
Maintenance: customers pursuant to equipment maintenance agreements. The
Company sub-contracts with IBM to provide many specific
hardware maintenance tasks. In addition, Company technical
personnel also provide on-site support and are available 24
hours a day, seven days a week, to provide on-call hardware
support. Hardware Maintenance revenues accounted for
approximately 3% of the Company's total revenues in fiscal
1996.
Professional The Company offers a wide variety of professional
Services: consulting and custom programming services to its customers.
These optional services include technical audits of the
customer's information systems, medical records consulting,
integration and network planning, strategic and tactical
information system planning,
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before/after image journaling, high availability and
on-line back up, general project management and facilities
management.
Research and Development
The Company maintains a staff of approximately 36 programmers, systems
analysts, quality assurance analysts and documentation specialists who monitor
technological and other changes in the computer software and health care
industries and who continuously enhance the Company's software products.
During fiscal year 1996, the Company's research and development expense was
approximately $2,003,402. The Company has entered into a number of development
arrangements with certain of its customers where the customers partially fund
and/or provide input concerning new product development. The Company maintains
all ownership rights to software developed through these arrangements. The
Company recognizes the need to respond to the rapid technological change that
is occurring in the software and health care industries. There can be no
assurance, however, that the Company will be able to develop products on a
timely basis or that its future products will fully address the needs of its
current or prospective customers.
Sales and Marketing
The Company markets its products and services directly through its sales
representatives located throughout the United States. The Company's sales
force consists of a National Sales Manager and eight Sales Representatives.
Additionally, the Company employs a marketing and sales support staff of five
people to assist its sales force.
The Company obtains leads through direct marketing and advertisements in trade
periodicals. In addition, Company representatives regularly attend trade shows
and medical conferences around the United States. Leads are also obtained from
existing customers, consultant references and Company-sponsored educational
seminars.
The Company recognizes the importance of maintaining good communication and
obtaining valuable input from its customers. Therefore, the Company sponsors
national user group meetings. Regional user groups have also been established
to discuss customer comments, suggestions, industry trends and related product
issues.
Customers
As of June 30, 1996, the Company had approximately 365 customers using the STAT
2 system and the Company's other home health software products. Some
customers have multiple affiliated companies and offices throughout the United
States. The STAT 2 customer base includes hospital-based programs, small home
health
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care agencies, and large multi-office providers of home health care services.
No customer accounted for ten percent or more of the Company's consolidated
revenues during the fiscal year ended June 30, 1996.
Competition
The market for health care information systems is highly competitive. The
Company believes that the primary factors affecting competition are product
performance and reliability, customer support, product flexibility and ease of
use, pricing, potential for providing enhancements, product reputation and
financial stability. Approximately 25 companies compete in the home health
care information system market. The Company's principal competitors in this
market are companies which may have greater financial and other resources than
the Company.
As the Company's market develops, certain new competitors, some of whom may
have significantly more resources than the Company, may enter the market.
There can be no assurance that the Company will be able to compete with such
competitors.
Proprietary Rights and Product Protection
The Company has registered the trademark "InfoMed, Inc." and owns the
copyrights on its STAT products. The Company does not hold patents on its
proprietary software since patents are generally not obtainable for software.
The Company relies on a combination of trademark, copyright and trade secret
laws to protect the proprietary rights of its software and related products.
In addition, the Company provides its products to customers only pursuant to
license agreements which grant a non-exclusive and limited license to use such
products which restrict any unauthorized disclosure or transfer of any
proprietary information. Company employees also sign a non-disclosure
agreement with the Company related to proprietary information. Notwithstanding
these safeguards, it may be possible for competitors to obtain the Company's
trade secrets. Furthermore, there can be no assurance that other companies
will not independently develop software products similar to those developed or
planned by the Company. The Company believes, however, that its ability to
further enhance, modify and support its products is more important than trade
secrets and copyright protection to achieving a leadership position in its
industry.
Government Regulations and Health Care Reform
The Company's business is not directly subject to government regulation.
However, the health care industry is subject to extensive federal and state
regulation governing, among other things, addition of new services, certain
capital expenditures and provider reimbursement. The effect of future
legislation and regulation upon prospective customers may, in certain
circumstances, have an adverse effect upon the Company's business. It is
possible that some form of health care reform legislation will be passed by the
United States Congress in the near future. The substance and effect
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of such legislation is unknown at this time. However, the Company believes
that such reform may increase the need of health care providers to utilize
information systems to manage these businesses.
Employees
As of September 1, 1996, the Company employed a total of 101 employees
including 13 in marketing and sales, 36 in programming, enhancements, quality
assurance and regulatory compliance, 33 in support and technical services and
19 in management, general administration and finance.
The Company believes that its future success depends in part upon recruiting,
motivating and retaining highly skilled and qualified employees in all aspects
of the Company's business. None of the Company's employees is represented by a
labor union. The Company believes that its employee relations are good.
Backlog
As of June 30, 1996, the backlog of new system sales and upgrade orders
considered to be firm was approximately $4,700,000. Most of the backlog
orders are expected to be filled within fiscal year 1997.
ITEM 2: PROPERTIES
The Company's principal executive offices are located at 1180 SW 36th Avenue,
Pompano Beach, Florida. The Pompano Beach office consists of 20,291 square feet
under a lease that expires December 31, 2001 and requires a current annual base
rent of $213,056. The landlord of such office is a company comprised of
certain directors and related parties of the Company (See "Item 13 - Certain
Relationships and Related Transactions"). The Company also leases a small
office in Pennington, New Jersey, pursuant to a lease that expires June 15,
1997, with an annual base rent of $13,125.
The Company believes that its present facilities are adequate to meet the
Company's current and foreseeable needs.
ITEM 3: LEGAL PROCEEDINGS
The Company knows of no material pending litigation to which it is a party
that, in the opinion of management, could result in a materially adverse affect
on the business or financial condition of the Company.
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ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders during the fourth
quarter of Company's fiscal year ended June 30, 1996.
PART II
ITEM 5: MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's common stock is traded over the counter under the symbol IMHI.
The following table sets forth the quarterly high and low bid quotations for
the Company's common stock, as reported by the Nasdaq for the periods
indicated. These prices also represent inter-dealer quotations without retail
mark-ups, mark-downs, or commissions and may not necessarily represent actual
transactions.
Quarter Ended High Low
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September 30, 1994 4 3-5/8
December 31, 1994 2-7/8 2-5/8
March 31, 1995 3 2
June 30, 1995 2-5/8 1-5/8
September 30, 1995 2-3/8 1-1/8
December 31, 1995 1-7/8 1
March 31, 1996 1-7/8 3/4
June 30, 1996 3-3/8 1-1/8
The Company has not paid any cash dividends on its common stock and does not
anticipate paying any cash dividends in the foreseeable future.
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As of September 1, 1996 there were approximately 90 stockholders of record.
ITEM 6: SELECTED FINANCIAL DATA
FIVE YEAR SELECTED CONSOLIDATED
FINANCIAL DATA
(Dollars in thousands, except earnings per share)
<TABLE>
<CAPTION>
As of or for the years ended June 30,
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1996 1995 1994 1993 1992
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Revenue $ 13,474 $ 14,497 $ 18,781 $ 9,460 $ 10,220
Operating income (loss) $ 504 $ (6,636) $ 881 $(2,223) $ (440)
Net income (loss) $ 1,044 $ (6,698) $ 804 $(1,428) $ 466
Primary earnings (loss per share) $ 0.22 $ (2.99) $ 0.26 $ (5.43) $ (0.49)
Balance Sheet Data:
Total assets $ 4,030 $ 7,410 $ 10,714 $ 5,585 $ 6,850
Long-Term Debt $ 79 $ 123 $ 1,045 $ 1,128 $ 697
Redeemable preferred stock $ 0 $ 0 $ 0 $ 0 $ 500
Stockholders' equity (deficit) $ (1,981) $ (2,719) $ 3,156 $ 373 $ 1,337
</TABLE>
The above information includes business combinations with Coastal Information
Systems, Inc. in December 1991 and Script Systems, Inc. in August 1993 and the
disposition of Script Systems, Inc. in August 1995.
The preceding table sets forth selected consolidated financial data that were
derived from the Company's consolidated financial statements, which have been
audited by Arthur Andersen LLP or Ernst & Young LLP, independent accountants.
This data should be read in conjunction with Management's Discussion and
Analysis of Financial Condition and Results of Operations and with the
Company's financial statements and the related notes thereto included elsewhere
in this Form 10-K.
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ITEM 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Year Ended June 30, 1996 vs. Year Ended June 30, 1995
Presentation
The accompanying financial statements include the accounts of the Company and
its subsidiaries, InfoMed, Inc. ("InfoMed") and Script Systems, Inc.
("Script"). On August 28 1995, the Company completed the sale of substantially
all assets of Script for $2,967,000.
Liquidity and Capital Resources
For the year ended June 30, 1996, the Company's cash balance increased by
$472,793. This increase was due primarily to proceeds from the sale of Script
discussed above, offset by cash outflows for purchases of fixed assets and for
reduction of debt, and accounts payable.
During 1996, the Company repaid the then outstanding balances (approximately
$435,000) due under a line of credit with United Jersey Bank. This line of
credit, which was used for short-term working capital needs, expired on October
31, 1995 and was not renewed.
The Company has a working capital deficit of $2,802,481 and a stockholders'
deficit of $1,980,983 at June 30, 1996. Included in the working capital
deficit is $975,746 of customer deposits and $1,105,533 of unearned income which
will not require cash payment by the Company.
In addition to the elimination of expenses related to the sale of Script
assets, the Company has implemented reductions of certain expenses to continue
to improve profitability and cash flows. The Company was profitable in 1996.
There can be no assurances, however, that these measures will be successful or
that the current year's profitability will be maintained. If profitability and
positive cash flow is not maintained, the Company could be forced to seek
additional financial assistance which may not be available.
Results of Operations
Revenues
Overall, total revenues from operations decreased $1,023,275 or approximately
7.1% for the year ended June 30, 1996 as compared to June 30, 1995, primarily
due to the sale of Script described above, which resulted in a reduction of
total revenues of $3,551,943. Software and equipment revenue increased by
$362,125 or 6.6%. This increase in software and equipment revenues consists of
an increase in InfoMed sales of approximately $1,612,744, which was offset by
a reduction in
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these revenues of $1,250,619 due to the sale of Script. Maintenance and
other services decreased $1,385,400 or approximately 15.4% during 1996 as
compared to 1995. This net decrease resulted from an increase in InfoMed
maintenance and other services of $915,924 which was offset by decreased
volume of approximately $2,301,324 due to a decreased customer revenue base
resulting from the sale of Script assets.
Cost of Sales
Overall, cost of sales from operations decreased by $5,075,433 or
approximately 57.4 % for the year ended June 30, 1996 as compared to the
previous year. Cost of sales of software and equipment decreased by
$4,121,790 or approximately 76.4% from 1995 to 1996 due primarily to the sale
of Script, which resulted in a reduction of these costs of $2,456,638. Cost of
sales on maintenance and software support decreased by $953,643 or
approximately 27.7% from 1995 to 1996. Cost of maintenance and other services
decreased $1,652,047 due to the sale of Script.
The gross margin percentage for software and equipment increased from
approximately 1.5% in 1995 to approximately 78.2% in 1996 primarily because of
increases in rates and reductions of salaries and other related expenses. The
increase in gross margin percentages for maintenance and support from
approximately 61.8% in 1995 to approximately 67.4% in 1996 is primarily a
result of increases in rates for monthly maintenance support.
Research and Development Costs
Research and development costs increased $529,690 (approximately 35.9%) in 1996
as compared to 1995. These costs include primarily salaries and related
benefits, training costs, and purchases of developmental software to be used in
the development of new products. During 1996, the Company reviewed its product
development areas and determined that technological feasibility is currently
being established upon completion of a working model. Costs incurred in 1996
between completion of the working model and the point at which the product is
ready for general release have been insignificant. During 1995, the Company
capitalized software development costs aggregating $874,325 whereas in 1996 the
Company capitalized no such costs.
Selling, General & Administrative Expenses
Selling, general and administrative expenses decreased $2,467,754
(approximately 28.1 %) in 1996 versus 1995 levels.
Approximately $1,498,684 of this reduction is due to the sale of Script. The
remainder of the decrease in these costs results primarily from reductions in
salaries and related benefits, office rents, communications costs and other
operating costs.
13
<PAGE> 15
Amortization and Depreciation Expenses
Amortization and depreciation expenses decreased $765,545 or approximately
44.5% in 1996 versus 1995, primarily due to the sale of Script, as discussed
above.
Gain on Sale of Assets
On August 28, 1995, the Company sold substantially all of the assets of Script
to Medic Computer Systems, Inc. ("Medic.") for $2,967,000 resulting in a gain
of approximately $146,000 which is included in the gain on sale of assets.
On October 23,1995, the Company sold certain property with a book value of
$130,400 for $421,975.
Income from Operations
In 1996, the Company generated income from operations of $504,471, compared to
a loss from operations in 1995 of $6,635,579. During 1996, the Company
instituted an overall cost reduction program to reduce operating costs. Costs
included in this program included salaries and related payroll taxes and
benefits, office rents, communications costs, travel expenses, legal expenses
and certain other operating costs.
Year Ended June 30, 1995 vs. Year Ended June 30, 1994
General
For the year ended June 30, 1995, the Company reported a loss from operations
and net loss of $6,698,215 as compared to income from operations of $966,932
and net income of $803,932 for the year ended June 30, 1994.
Revenues
Total revenues from operations decreased $4,283,533 or 22.8% for the year ended
June 30, 1995 as compared to June 30, 1994. Software and equipment revenue
decreased by $4,750,768 or 46.5% due to a decrease in contracts signed in both
of the Company's divisions. Unexpected delays in the introduction of new
products have slowed the Company's ability to sell new contracts. The Company
introduced some products into field test in the third quarter of fiscal 1995.
In addition, the health care market is experiencing significant consolidation,
which, in may cases, has slowed purchasing decisions. Revenues from
maintenance and other services increased $467,235 or 5.5% which reflects price
increases and increased volume due to an increased customer revenue base.
14
<PAGE> 16
Cost of Sales
Overall cost of sales from operations increased by $735,767 or 7.7% for the
year ended June 30, 1995 compared to the previous year. Cost of sales on
software and equipment increased by $243,804 or 3.7% from 1994 to 1995 due to
increases in salaries and related expenses which were somewhat offset by a
reduction in costs of equipment. Cost of sales on maintenance and software
support increased by $491,963 or 16.7% from 1994 to 1995, due to the addition
of Script hardware maintenance revenues for a full year, which are
sub-contracted to third party maintenance vendors and an increase in customer
service salaries.
The decrease in gross margin for software and equipment from 35.2% in 1994 to
(25.5)% in 1995 reflects reduced sales in relation to fixed costs. Fixed costs
include non-capitalizable programming salaries and expenses, which are not
directly related to changes in revenue.
The decrease in gross margin for maintenance and support from 65.5% in 1994 to
61.8% in 1995 is a result of support salaries increasing in excess of the
percentage increase in corresponding revenues.
Selling, General & Administrative Expenses
Selling, general and administrative expense increased $1,893,974, or 27.4%,
from 1994 to 1995. Expenses increased in sales and marketing in an effort to
increase sales coverage. In addition, there was an increase in miscellaneous
costs. The provision for bad debts increased $1,192,422 for the year ended
June 30, 1995 due to management's review of the collectibility of receivables
and the increased customer base.
Amortization and Depreciation Expenses
Amortization and depreciation expenses increased $298,872 from 1994 to 1995 due
to the amortization of costs related to the InfoMed/Script business combination
(the "Combination") for a full year in 1995, as compared to ten months in 1994,
as well as amortization of increased capitalized software development costs.
Severance Charge
On February 28, 1995, the Company entered into a Settlement Agreement (the
"Agreement") with its former President which terminated his employment with the
Company and recorded a severance charge of $304,283. Under the terms of the
Agreement, the former President receives month payments of $9,000 on a
non-interest bearing promissory note through March 1, 1997. In addition,
certain employee benefits continue to remain in effect through February 1996.
These payments are reflected as a liability in the Company's consolidated
balance sheet as of June 30, 1995. Loans to the former President of $84,664
have been offset against severance amounts payable.
15
<PAGE> 17
ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Index to Financial Statements and Schedules on page F-1.
ITEM 9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10: DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT
Directors of the Company
The following persons constitute the Directors of the Company. All Directors
are elected annually by the Company's shareholders.
Director Positions Held
Name Age Since with the Company
- ---- --- ----- ----------------
Barrett C. O'Donnell............. 43 1992 Chairman, Chief Executive
Officer and President
Zola P. Horovitz(1),(2).......... 60 1992 Secretary and Director
David O. Ellis(1),(2)............ 53 1992 Director
Murali Anantharaman.............. 39 1996 Director
Rodger Johnson................... 48 1996 Director
- -----------------------------------------
(1) Member of the Audit Committee
(2) Member of the Compensation Committee
MR. BARRETT C. O'DONNELL has been Chairman of the Board, President and Chief
Executive Officer of O'Donnell Davis, Inc. ("ODD"), an investment advisory
services company, since he co-
16
<PAGE> 18
founded it in 1978. He has served as Chairman of the Board of the Company
since 1992 and Chief Executive Officer of the Company since 1994.
DR. ZOLA P. HOROVITZ is former Vice President Business Development and
Planning, Pharmaceutical Group of Bristol-Myers Squibb, a pharmaceutical
company, a position he held from 1991 to 1994. From 1989 to 1991 he was Vice
President, Licensing of the same company. Dr. Horovitz currently provides
consulting services to several pharmaceutical and biotechnology companies and
is also a director of several biotechnology companies.
DR. DAVID O. ELLIS is President and Chief Executive Officer and a director of
EGL Holdings, Inc. ("EGL"), an Atlanta-based merchant banking group providing
investment services to United States middle market companies. He has been with
EGL and the predecessor company, Corporate Finance Associates, since 1982. Dr.
Ellis is currently a director of several privately-held companies.
MR. MURALI ANANTHARAMAN has been a partner at EGL since 1987. Mr.
Ananatharaman is currently a director of several privately-held companies.
MR. RODGER JOHNSON has been President and Chief Executive Officer of
Communication Control, Inc., a telecommunication company, since 1995. During
1994 and 1995 he was President and Chief Executive Officer of JKC Holdings,
Inc. From 1987 to 1992 he was President, Chief Operating Officer and later
Chief Executive Officer of Brock Control Systems, Inc., an information systems
company.
Executive Officers of the Company
The following persons constitute the executive officers and other key employees
of the Company. All executive officers are elected annually by the Company's
Board of Directors.
<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
Barrett C. O'Donnell 43 Chairman, Chief Executive Officer
and President
Jay Shevins 44 Senior Vice President & National
Sales Manager
Glen Burrell 44 Vice President & Chief Financial
Officer
Jack Benson 41 Vice President, Research and Development
Erin Dosdourian 37 Vice President, Marketing
Reid Horovitz 31 Vice President & General Counsel
Fred Tanzer 46 Vice President, Customer Services
</TABLE>
17
<PAGE> 19
Mr. Jay Shevins is Senior Vice President of the Company and has been National
Sales Manager since 1991. Mr. Shevins joined the Company in 1979 and has held
a variety of executive sales positions before becoming National Sales Manager
Mr. Glen Burrell joined the Company in April 1996 as Chief Financial Officer.
From 1989 to 1993, Mr Burrell acted as an independent consultant to the health
care industry. During 1994 and 1995, he served as Chief Financial Officer for
American Complex Care, a publicly held home health care provider.
Mr. Jack Benson has headed the Company's product development department since
joining the Company in January 1995. From 1985 to 1995 he was with Science
Applications International Corporation (SAIC), an information systems company,
where he was an Assistant Vice President in their health care technology group.
Ms. Erin Dosdourian became Vice President of Marketing in 1996. From 1992 to
1995, Ms. Dosdourian was Vice President of Operations for CareOne, a major home
health care provider and from 1990 to 1992 was Chief Financial Officer and
later President of VNA of Tampa Bay, Inc., a home health care agency.
Mr. Reid Horovitz joined the Company in 1993 and is currently Vice President
and General Counsel. From 1990 to 1993, he was an attorney with the New York
law firm of Stroock & Stroock & Lavan specializing in corporate, contracts and
securities law. Mr. Horovitz is the son of Dr. Zola Horovitz, a current
Director of the Company.
Mr. Fred Tanzer has served as Vice President of Customer Services since 1995.
Mr. Tanzer also served as the General Manager of the Company from 1992 to 1993.
From 1994 until his return to the Company, Mr. Tanzer was President of
Buyline, Inc., a real estate advertising company. From 1987 to 1992 he was
Director of Applications and Computing Services at Personnel Pool of America,
Inc., a temporary help company.
Compliance with Section 16(a) of the Securities Exchange Act of 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
Directors and executive officers, and persons who own more than ten percent of
a registered class of the Company's equity securities, to file with the
Securities Exchange Commission ("SEC") and the National Association of
Securities Dealers, Inc. ("NASD") initial reports of ownership and reports of
changes in ownership of Common Stock and other equity securities of the
Company. Officers, directors and greater than ten percent stockholders are
required by SEC regulations to furnish the Company with copies of all Section
16 (a) forms they file.
18
<PAGE> 20
To the Company's knowledge, based solely upon review of the copies of such
reports furnished to the Company and written representations that no other
reports were required, during the fiscal year ended June 30, 1996 all Section
16(a) filing requirements applicable to its Directors, executive officers and
greater then ten percent beneficial owners were complied with.
ITEM 11: EXECUTIVE COMPENSATION
Summary Compensation
The following table sets forth the cash and non-cash compensation paid by the
Company for the years ended June 30, 1996, 1995 and 1994 to the Company's Chief
Executive Officer and to the other executive officers of the Company whose
total annual salary and bonus exceeded $100,000 for the year ended June 30,
1996 (together, the "Named Executive Officers").
Summary Compensation Table
<TABLE>
<CAPTION>
Long Term
Compensation
Annual Compensation ------------
------------------- Number of Securities All Other
Name & Principal Salary Bonus Underlying Option Compensation
Position Year ($) ($) Grants (#) ($)
- -------- ---- --- --- ---------- ---
<S> <C> <C> <C> <C> <C>
Barrett C. O'Donnell 1996 - - 90,000 175,000(2)
Chairman and Chief 1995 - - - 147,817(2)
Executive Officer(1)
Jay Shevins 1996 197,964 - - 1,289(3)
Senior Vice President 1995 168,335 1,275 5,000 2,890(3)
1994 213,757 250 6,500 6,842(3)
- ---------------------------------------------------------------------------------------------------------------
(1) Executive compensation for Mr. O'Donnell is not reported in the fiscal year ended June 30, 1994 because
he was not an executive officer at any time during such period.
(2) Represents amounts paid to ODD for consulting services.
(3) Represents reimbursement for certain medical expenses.
</TABLE>
Grants of Stock Options
The following table sets forth certain information with respect to individual
grants of stock options to the Named Executive Officers during the fiscal year
ended June 30, 1996.
19
<PAGE> 21
Option Grants in Last Fiscal Year
<TABLE>
<CAPTION>
Potential
Realizable
Individual Grants Value at Assumed
----------------- Annual Rates of
Number of % of Total Stock Price
Securities Options Appreciation for
Underlying Granted to Exercise Option Term(1)
Options Employee in Price Expiration -------------------
Name Granted(#) Fiscal Year ($Sh) Date 5%($) 10%($)
- ---- ---------- ----------- ----- ---- ----- ------
<S> <C> <C> <C> <C> <C> <C>
Barrett C. O'Donnell
Chairman and Chief 90,000(2) 41% 1.13 10/23/05 63,900 162,000
Executive Officer
Jay Shevins - - - - - -
Senior Vice President
- ------------------------------------------------------------------------------------------------------------------------------------
(1) The dollar amounts under these columns represent the potential realizable value of each grant of option assuming that the
market price of the Company's common stock appreciates in value from the date of grant at the 5% and 10% annual rates
prescribed by the SEC and therefore are not intended to forecast possible future appreciation, if any, of the price of the
Company's common stock.
(2) Options are fully vested.
</TABLE>
Stock Option Exercises and Fiscal Year End Stock Option Value
The following table sets forth information concerning the exercise of stock
options and the value of unexercised stock options held at the end of the
fiscal year ended June 30, 1996 by each Named Executive Officer.
Aggregated Option Exercises in Last Fiscal Year and
Option Values at June 30, 1996
<TABLE>
<CAPTION>
Number of Unexercised Value of in-the-Money
Shares Acquired Value Options at June 30, 1996 Options at June 30, 1996($)(b)
Name on Exercise(#) Realized($)(a) Exercisable Unexercisable Exercisable Unexercisable
- ---- -------------- -------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Barrett C. O'Donnell - - 321,200 - 726,716 -
Chairman and
Chief Executive
Officer
Jay Shevins 8,160 21.461 6,776 7,444 6,396 4,427
Senior Vice President
- ------------------------------------------------------------------------------------------------------------------------------------
(a) Dollar values were calculated by determining the difference between the fair market value of the underlying securities
at exercise date and the exercise price of the options.
(b) Dollar values were calculated by determining the difference between the fair market value of the underlying
securities at year-end ($3.00 per share) and the exercise price of the options.
</TABLE>
20
<PAGE> 22
Director Compensation
All Directors are reimbursed for expenses incurred in connection with board and
committee meetings attended. No other cash compensation is paid to Directors
for their services as Directors.
Compensation Committee Interlocks and Insider Participation
The Compensation Committee of the Board of Directors is currently comprised of
Zola P. Horovitz and David O. Ellis. None of the members of the Compensation
Committee served as an officer or employee of the Company or any of its
subsidiaries during the year ended June 30, 1996. Except as set forth in this
report, there were no material transactions between the Company and any of the
members of the Compensation Committee during the year ended June 30, 1996.
The Company has a consulting agreement with EGL Holdings, Inc. ("EGL"), a
merchant banking group, whereby EGL provides consulting services on general
business operations and corporate investments including financial analysis,
review of industry trends and assistance with respect to merger or acquisition
opportunities. Dr. David Ellis and Mr. Murali Anantharaman, Directors of the
Company, are partners of EGL. The consulting agreement expires on June 30, 1999
and provides for a monthly consulting fee of $5,000 plus expenses. The fees
were determined by negotiation between the parties. The total amount paid to
EGL under the consulting agreement totaled $64,731 in the fiscal year ended June
30, 1996.
ITEM 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table provides information at September 1, 1996 with respect to
(i) any person known to the Company to be the beneficial owner of more than five
percent of the Common Stock or the Preferred Stock, (ii) all directors of the
Company, (iii) all Named Executive Officers, and (iv) all directors and
executive officers as a group. Except as otherwise indicated, the stockholders
listed below have sole voting and investment power with respect to the shares of
Common Stock and Preferred Stock.
Amt and Nature
Name and Address Title of of Beneficial % of
of Beneficial Owner Class Ownership (1) Class(2)
- ------------------- ----- ------------- --------
O'Donnell Davis, Inc. Common 2,004,227(3) 59.5%
P.O. Box 7395 Direct
Princeton, NJ 08543 Preferred 90,000 34.0%
Direct
21
<PAGE> 23
Amt and Nature
Name and Address Title of of Beneficial % of
of Beneficial Owner Class Ownership (1) Class(2)
- ------------------- ----- ------------- --------
Barrett C. O'Donnell Common 2,004,227(4) 59.5%
1180 S.W. 36th Avenue Indirect
Pompano Beach, FL 33069 Preferred 90,000(4) 34.0%
Indirect
Craig H. Davis Common 2,004,227(4) 59.5%
P.O. Box 391 Indirect
Princeton, NJ 08542 Preferred 90,000(4) 34.0%
Indirect
Frederick Neufeld Common 387,100(5) 14.3%
8 Hiland Drive Direct
Belle Mead, NJ 08502
Dr. Zola P. Horovitz Common 112,624(6) 4.7%
30 Philip Drive Direct
Princeton, NJ 08540
Dr. David O. Ellis Common 1,849,490(7) 46.2%
235 Landfall Road Direct and
Sandy Springs, GA 30328 Indirect
Preferred 175,000(8) 66.0%
Direct and
Indirect
Rowan Nominees Limited Common 1,560,777(9) 41.4%
33 King William Street Direct
London, EC4R 9AS Preferred 164,000 61.9%
Direct
Jay Shevins Common 60,816(10) 2.6%
21 Ridge Road Direct
Tenafly, NJ 07670
Murali Anantharaman Common 1,773,957(11) 44.6%
2830 Shurburne Drive Direct and
Alpharetta, GA 30202 Indirect
Preferred 175,000(12) 66.0%
Direct and
Indirect
EGL Holdings, Inc. Common 1,747,994(13) 44.2
6600 Peachtree Dunwoody Road Direct and
Atlanta, Georgia 30328 Indirect
Preferred 175,000 66.0
Direct and
Indirect
22
<PAGE> 24
Amt and Nature
Name and Address Title of of Beneficial % of
of Beneficial Owner Class Ownership (1) Class(2)
- ------------------- ----- ------------- --------
Rodger Johnson Common 75,000(14) 3.1%
8705 River Trace Direct
Roswell, GA 30076
All directors and Common 4,015,498 77.1%
officers as a group Direct
(6 persons) Preferred 264,254 99.7%
Direct
(1) Pursuant to Rule 13d-3 under the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), beneficial ownership of a
security consists of sole or shared voting power (including the power
to vote or direct the vote) and/or otherwise. The sole or shared
investment power (including the power to dispose or direct the
disposition) with respect to a security through any contract,
arrangement, understanding, relationship or the number of shares of
Common Stock includes the number of shares of Common Stock which are
subject to the exercise of options or warrants within 60 days of the
date of this Report and the number of shares of Common Stock issuable
upon conversion of such beneficial owner's shares of Preferred Stock
(each of which is immediately convertible into 5 shares of Common
Stock)
(2) % of Class of Common Stock with respect to each beneficial owner
of Common Stock was calculated based on the ratio of the number of
shares of Common Stock beneficially owned by such beneficial owner
as of the date of this Report to the sum of (a) the total number
of outstanding shares of Common Stock as of the date of this Report,
(b) the number of shares of Common Stock issuable upon conversion of
shares of Preferred Stock (each of which is immediately convertible
into five shares of Common Stock) held by the applicable beneficial
owner and the number of shares of Common Stock issuable upon exercise
of options or warrants held by the applicable beneficial owner
exercisable within 60 days of the date of this Report. % of Class of
Preferred Stock was calculated based on the ratio of the number of
shares of Preferred Stock beneficially owned by such beneficial owner
of the date of this Report to the total number of outstanding shares of
Preferred Stock.
(3) Includes 270,000 shares issuable upon exercise of warrants, 321,200
shares issuable upon exercise of options and 450,000 shares issuable
upon conversion of the Preferred Stock.
(4) Messrs. O'Donnell and Davis are stockholders, directors and officers
of O'Donnell Davis, Inc. ("ODD"). Accordingly, pursuant to Rule
13d-3 under the Exchange Act, each of them may be deemed to be
indirect beneficial owners of the Company's securities beneficially
owned by ODD.
(5) Includes 387,000 shares issuable upon exercise of options.
23
<PAGE> 25
(6) Includes 35,100 shares of Common Stock owned individually by Dr.
Horovitz, an additional 16,320 shares owned by members of Dr.
Horovitz's family and 61,204 shares issuable upon exercise of options.
(7) Includes 54,356 shares of Common Stock as to which Dr. Ellis has
sole voting power, an additional 2,200 shares owned by members of Dr.
Ellis' family, 122,994 shares related to EGL Holdings, Inc. ("EGL") (a
corporation of which Dr. Ellis is Chairman of the Board and Chief
Executive Officer and has voting rights of the Company's shares),
750,000 shares issuable upon exercise of warrants related to EGL,
44,940 shares issuable upon exercise of options and 875,000
shares issuable upon conversion of the Preferred Stock owned by Dr.
Ellis, certain of his family members and EGL.
(8) Includes 4,921 shares of Preferred Stock owned by Dr. Ellis and
by members of Dr. Ellis' family with respect to which EGL has voting
power and 170,079 shares related to EGL.
(9) Includes 619,667 shares issuable upon exercise of warrants and 820,000
shares issuable upon conversion of the Preferred Stock. Shares are
held by Rowan Nominee Limited as nominee for EGL.
(10) Includes 6,776 shares issuable upon exercise of options.
(11) Includes 3,605 shares of Common Stock as to which Mr. Anantharaman has
sole voting power, 122,994 shares of Common Stock related to EGL,
750,000 shares issuable upon exercise of warrants related to EGL,
22,358 shares issuable upon exercise of options related to EGL and
875,000 shares issuable upon conversion of the Preferred Stock owned
by Mr. Anantharaman and related to EGL.
(12) Includes 333 shares of Preferred Stock owned by Mr. Anantharaman
with respect to which EGL has voting power and 174,667 shares related
to EGL.
(13) Includes 750,000 shares issuable upon exercise of warrants and 875,000
shares issuable upon conversion of the Convertible Preferred
Stock. Includes shares held by Rowan Nominees Limited as nominee for
EGL.
(14) Includes 75,000 shares of Common Stock issuable upon exercise of
options.
On March 31, 1994, ODD, EGL and Frederick Neufeld entered into an agreement and
on February 24, 1995, ODD and EGL entered into an agreement to vote all of their
respective shares of Common Stock and Preferred Stock to elect one nominee of
each of ODD and EGL to the Board of Directors. Such agreements will exist for
as long as ODD and EGL, as the case may be, retains its Preferred Stock. The
voting rights under such agreements have not been considered in calculating the
numbers or percentages in the above table.
24
<PAGE> 26
ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company entered into a lease agreement with Gateway LLC on January 1, 1996
in connection with the Company's Pompano Beach Office. Gateway LLC is a
Florida limited liability company owned 70% by ODD, 10% by each of Dr. Horovitz
and Dr. Ellis, current Directors of the Company and 10% by an unrelated third
party. Pursuant to the lease agreement, Gateway LLC leases 20,291 square feet
to the Company for a term of five years commencing on January 1, 1996. The
Company has an option to renew the lease agreement for an additional five year
term. The scheduled annual rental payments (not including applicable sales tax)
for such term are $213,056 during year one, $223,201 during year two, $233,347
during year three, $243,492 during year four and $253,638 during year five.
The lease payments were determined by negotiation between the parties. The
Company believes that the terms of the lease agreement were at least as
favorable as could have been obtained elsewhere for similar facilities from
unaffiliated third parties.
During the year ended June 30, 1996, ODD provided consulting services to the
Company for which the Company paid $175,000 plus travel expenses of $30,100.
Barrett C. O'Donnell, President and Chief Executive Officer of the Company
serves as Chairman of the Board, President and Chief Executive Officer of ODD.
ODD currently provides management and consulting services to the Company for a
monthly fee of $14,583.
Craig H. Davis, a 25% stockholder of ODD, is a director and shareholder in the
law firm of Mason, Griffin & Pierson P.C., which performs legal services for
the Company. Fees for legal services performed by Mason, Griffin & Pierson
P.C. for the Company and its subsidiaries during the fiscal year ended June 30,
1996 were $140,492.
On October 5, 1994 the Company received a total of $295,000 from the following
related parties; $130,000 from ODD, $120,000 from EGL and $45,000 from Zola
Horovitz. Promissory notes for such amounts were issued to such parties.
Under the terms of the notes, the total principal plus interest at 11% per
annum, was due and payable on December 6, 1994 but was subsequently extended.
The notes were paid in full including interest on January 4, 1996.
For a description of consulting agreements between the Company and certain
directors see "EXECUTIVE COMPENSATION - Compensation Committee Interlocks and
Insider Participation".
25
<PAGE> 27
PART IV
ITEM 14: EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K
Exhibits
(A)(1) and (A)(2) See Index to Financial Statements and Schedules on page
F-1.
(A)(3) Exhibits
Exhibit Numbers Description
--------------- -----------
3.1* Certificate of Incorporation of the Company.
3.2* Amendment to Certificate of Incorporation of
the Company.
3.3* Bylaws of the Company.
4* Form of Common Stock Certificate of the
Company.
10.31** Stock Purchase Agreement dated March 31, 1994
among O'Donnell Davis, Inc., the Company,
Frederick Neufeld, EGL Holdings, Inc. and
Mercury Asset Management, plc.
10.32** Stock Purchase Agreement dated March 31, 1994
among EGL Holding Inc., the Company, Frederick
Neufeld, O'Donnell Davis, Inc. and Mercury
Asset Management, plc.
10.33** First Refusal Agreement among O'Donnell Davis,
Inc., the Company, EGL Holdings, Inc. and
Mercury Asset Management, plc.
10.42** 1994 Incentive Stock Option and Non-Qualified
Stock Option Plan.
10.45*** Stock Purchase Agreement dated February 24,
1995 among O'Donnell Davis, Inc., the Company,
EGL Holdings, Inc. and Mercury Asset
Management, plc.
10.46**** Stock Purchase Agreement dated February 24,
1995 among EGL Holding Inc., the Company,
O'Donnell Davis, Inc. and Mercury Asset
Management, plc.
10.51***** Settlement Agreement between the Company and
Frederick Neufeld dated February 28, 1995.
26
<PAGE> 28
10.52****** Purchase and Sale Agreement dated August 7,
1995 between the Company, Script, Script
Acquisition Corporation and Medic Computer
Systems, Inc.
10.53******* Amended and Restated Agreement and Plan of
Merger dated as of September 5, 1996 by and
among the Company, Simione Central Holding,
Inc. and InfoSub, Inc.
10.54 Lease Agreement dated January 1, 1996 between
the Company and Gateway LLC.
11 Earnings Per Share Calculation of the Company.
22** Subsidiaries of the Company
23 Consent of Arthur Andersen LLP
27 Financial Data Schedule (for SEC use only)
- -------------------------------------------------------------------------------
* Incorporated by reference to the identically numbered exhibits
to the Company's Registration Statement on Form S-4
(Registration Number 33-57150)
** Incorporated by reference to Company's Form 10-K for
the fiscal year ended June 30, 1994 as filed with the
Securities and Exchange Commission
*** Incorporated by reference to Exhibit 5.7 of the Company's
Current Report on Form 8-K dated March 7, 1995 filed with
the Securities and Exchange Commission.
**** Incorporated by reference to Exhibit 5.8 of the Company's
Current Report on Form 8-K dated March 7, 1995 filed with the
Securities and Exchange Commission
***** Incorporated by reference to Exhibit 5.5 of the Company's
Current Report on Form 8-K dated March 7, 1995 filed with
the Securities and Exchange Commission.
****** Incorporated by reference to Exhibit 2.1 of the Company's
Current Report on Form 8-K dated August 28, 1995 filed with the
Securities and Exchange Commission.
******* Incorporated by reference to Exhibit 2.1 of the Company's
Current Report on Form 8-K dated September 5, 1996 filed with
the Securities and Exchange Commission.
(B) Reports on Form 8-K filed during the fourth quarter of the fiscal year
ended June 30, 1996.
None
27
<PAGE> 29
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized on September 26, 1996.
INFOMED HOLDINGS, INC.
By: /S/ BARRETT C. O'DONNELL
-------------------------------
Barrett C. O'Donnell
Chairman and Chief Executive
Officer
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 on September 26, 1996 and in the capacities indicated.
/S/ BARRETT C. O'DONNELL Chairman of the Board
- ------------------------ and Chief Executive Officer
Barrett C. O'Donnell
/S/ GLEN BURRELL Vice President and Chief
- ------------------------ Financial Officer
Glen Burrell (Principal Financial and
Accounting Officer)
/S/ ZOLA P. HOROVITZ Secretary and Director
- ------------------------
Zola P. Horovitz
/S/ DAVID O. ELLIS Director
- ------------------------
David O. Ellis
/S/ RODGER JOHNSON Director
- ------------------------
Rodger Johnson
/S/ MURALI ANANTHARAMAN Director
- ------------------------
Murali Anantharaman
28
<PAGE> 30
INFOMED HOLDINGS, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES
<TABLE>
<CAPTION>
Page Number
- ------------------------------------------------------------------------------------------------
<S> <C>
1. Report of Independent Public Accountants F-2
Consolidated Financial Statements:
Consolidated Balance Sheets as of June 30, 1996 and 1995 F-3
Consolidated Statements of Operations for the three years ended
June 30, 1996 F-4
Consolidated Statements of Stockholders' Equity (Deficit)
for the three years ended June 30, 1996 F-5
Consolidated Statements of Cash Flows for the three years ended
June 30, 1996 F-6
Notes to Consolidated Financial Statements F-7 to F-14
2. Financial Statements Schedules:
Schedule II - Valuation and Qualifying Accounts for the years ended
June 30, 1996, 1995 and 1994 S-1
</TABLE>
--------------------------------
Financial Statement Schedules other than those listed above are omitted because
they are either not required, not applicable, or the required information is
provided in the Notes to Consolidated Financial Statements.
F-1
<PAGE> 31
Report of Independent Public Accountants
To InfoMed Holdings, Inc.:
We have audited the accompanying consolidated balance sheets of InfoMed
Holdings, Inc. (a Delaware Corporation) and subsidiaries as of June 30, 1996
and 1995 and the related consolidated statements of operations, stockholders
equity (deficit) and cash flows for each of the three years in the period ended
June 30, 1996. These consolidated financial statements are the responsibility
of the Companys management. Our responsibility is to express an opinion on
these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of InfoMed Holdings,
Inc. and subsidiaries as of June 30, 1996 and 1995 and the results of their
operations and their cash flows for each of the three years in the period ended
June 30, 1996 in conformity with generally accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in the index to
consolidated financial statements and schedules is presented for purposes of
complying with the Securities and Exchange Commissions rules and is not part of
the basic financial statements. This schedule for each of the three years in
the period ended June 30, 1996 has been subjected to the auditing procedures
applied in the audits of the basic financial statements and, in our opinion, is
fairly stated in all material respects in relation to the basic financial
statements taken as a whole.
/s/ Arthur Andersen LLP
Arthur Andersen LLP
Princeton, New Jersey
September 23, 1996
F-2
<PAGE> 32
INFOMED HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1996 AND 1995
<TABLE>
<CAPTION>
June 30,
-----------------------------------
1996 1995
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 1,116,222 $ 643,429
Accounts receivable, less allowance for doubtful accounts of $1,427,000
and $2,044,000, respectively 1,759,865 1,623,587
Inventories 157,475 338,175
Assets held for sale - 2,954,560
Prepaid expenses and other current assets 62,195 115,836
------------ ------------
Total current assets 3,095,757 5,675,587
Property and equipment, at cost, net 719,441
Receivables due after one year, less allowance for doubtful accounts of $0 in 1996 670,497
and $76,000 in 1995 66,763 148,857
Intangible assets, at cost, net 124,995 749,995
Other assets 72,225 116,579
------------ ------------
Total assets $ 4,030,237 $ 7,410,459
============ ============
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Current portion of long-term debt $ 170,188 $ 1,681,032
Accounts payable 1,258,680 3,053,604
Accrued compensation and benefits 653,223 457,599
Other accrued liabilities 1,734,868 1,134,669
Customer deposits 975,746 2,485,929
Unearned revenue 1,105,533 1,194,302
------------ ------------
Total current liabilities 5,898,238 10,007,135
Long-term debt, less current portion 79,099 122,585
Other liabilities 33,883 -
------------ ------------
Total liabilities 6,011,220 10,129,720
------------ ------------
Commitments and contingencies
STOCKHOLDERS' DEFICIT:
Convertible preferred stock, $.001 par value; 315,000 shares authorized;
265,000 shares issued and outstanding 265 265
Common stock, $.001 par value; 20,000,000 shares authorized; 2,336,244 and
2,307,204 shares issued and outstanding, respectively 2,337 2,307
Additional paid-in capital 4,423,033 4,406,360
Accumulated deficit (6,167,350) (6,946,725)
Treasury stock, 58,967 and 45,367 shares, at cost, respectively (239,268) (181,468)
------------ ------------
Total stockholders' deficit (1,980,983) (2,719,261)
------------ ------------
Total liabilities and stockholders' deficit $ 4,030,237 $ 7,410,459
============ ============
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these balance sheets.
F-3
<PAGE> 33
INFOMED HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE YEARS ENDED JUNE 30, 1996
<TABLE>
<CAPTION>
June 30,
----------------------------------------------
1996 1995 1994
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
REVENUE:
Software and equipment $ 5,836,055 $ 5,473,930 $ 10,224,698
Maintenance and other services 7,637,670 9,023,070 8,555,835
------------ ------------ ------------
Total revenue 13,473,725 14,497,000 18,780,533
------------ ------------ ------------
COSTS AND EXPENSES:
Cost of software and equipment 1,272,699 5,394,489 5,623,365
Cost of maintenance and other services 2,490,623 3,444,266 2,952,303
Research and development 2,003,402 1,473,712 1,001,032
Selling, general and administrative 6,246,715 8,794,469 6,900,495
Amortization and depreciation expense 955,815 1,721,360 1,422,488
Severance charge - 304,283 -
------------ ------------ ------------
Total costs and expenses 12,969,254 21,132,579 17,899,683
------------ ------------ ------------
Income (loss) from operations 504,471 (6,635,579) 880,850
OTHER INCOME (EXPENSE):
Gain on sale of assets 437,665 - -
Interest income (expense), net 19,799 (62,636) 86,082
Other income 82,440 - -
------------ ------------ ------------
Income (loss) before income tax provision 1,044,375 (6,698,215) 966,932
Income tax provision - - 163,000
------------ ------------ ------------
Net income (loss) $ 1,044,375 $ (6,698,215) $ 803,932
============ ============ ============
EARNINGS (LOSS) PER SHARE:
PRIMARY:
Earnings (loss) per share $ 0.22 $ (2.99) $ 0.26
============ ============ ============
Shares used in computation 3,580,288 2,304,770 2,936,285
============ ============ ============
FULLY DILUTED:
Earnings per share $ N/A $ N/A $ 0.24
============ ============ ============
Shares used in computation N/A N/A 3,357,064
============ ============ ============
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these statements.
F-4
<PAGE> 34
INFOMED HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE THREE YEARS ENDED JUNE 30, 1996
<TABLE>
<CAPTION>
Convertible Additional
Preferred Common Paid-in (Accumulated Treasury
Stock Stock Capital Deficit) Stock Total
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance at June 30, 1993 $ 0 $ 0 $ 1,189,080 $ (815,587) $ 0 $ 373,493
Exchange of shares - 2,277 570,957 - - 573,234
Exercise of common stock options - 21 7,898 - - 7,919
Issuance of preferred stock,
net of costs 165 - 1,629,835 - - 1,630,000
Receipt of common shares for
payment of debt - - - - (181,468) (181,468)
Dividends on convertible
preferred stock - - - (51,500) - (51,500)
Net income - - - 803,932 - 803,932
------------ ------------ ----------- ------------ ------------ ------------
Balance at June 30, 1994 165 2,298 3,397,770 (63,155) (181,468) 3,155,610
Issuance of preferred stock 100 - 999,900 - - 1,000,000
Exercise of common stock options - 2 1,217 - - 1,219
Exercise of warrants - 7 7,473 - - 7,480
Dividends on convertible
preferred stock - - - (185,355) - (185,355)
Net loss - - - (6,698,215) - (6,698,215)
------------ ------------ ----------- ------------ ------------ ------------
Balance at June 30, 1995 265 2,307 4,406,360 (6,946,725) (181,468) (2,719,261)
EXERCISE OF COMMON STOCK OPTIONS - 30 16,673 - - 16,703
REPURCHASE OF STOCK - - - - (57,800) (57,800)
DIVIDENDS ON CONVERTIBLE
PREFERRED STOCK - - - (265,000) - (265,000)
NET INCOME - - - 1,044,375 - 1,044,375
------------ ------------ ----------- ------------ ------------ ------------
BALANCE AT JUNE 30, 1996 $ 265 $ 2,337 $ 4,423,033 $ (6,167,350) $ (239,268) $ (1,980,983)
============ ============ =========== ============ ============ ============
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these statements.
F-5
<PAGE> 35
INFOMED HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE YEARS ENDED JUNE 30, 1996
<TABLE>
<CAPTION>
June 30,
----------------------------------------------
1996 1995 1994
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 1,044,375 $ (6,698,215) $ 803,932
ADJUSTMENTS TO RECONCILE NET INCOME (LOSS)
TO NET CASH PROVIDED BY (USED FOR) OPERATING ACTIVITIES:
Amortization and depreciation 955,815 1,721,360 1,422,488
Provision for bad debt expense 558,926 1,597,782 407,360
Provision for severance charge - 304,283 -
Gain on sale of assets (437,665) - -
CHANGES IN ASSETS AND LIABILITIES NET OF EFFECTS FROM ACQUIRED
ASSETS AND LIABILITIES IN 1994:
(Increase) decrease in accounts and other receivables (413,110) 730,118 (2,492,992)
(Increase) decrease in inventories 180,700 (1,163) 571,534
(Increase) decrease in prepaid expenses and other assets 97,995 (38,434) 2,834
Increase (decrease) in accounts payable (1,794,924) 616,630 6,135
Increase (decrease) in accrued compensation and benefits 195,624 (430,432) (158,392)
Increase (decrease) in other accrued liabilities 335,199 142,817 81,508
Increase (decrease) in customer deposits and unearned revenue (1,515,462) 2,185,771 386,660
Increase (decrease) in other liabilities 33,883 (131,076) (48,424)
------------ ------------ ------------
Net cash provided by (used for) operating activities (758,644) (559) 982,643
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (362,098) (245,601) (327,942)
Proceeds from sale of certain assets of Script Systems, Inc. 2,766,987 - -
Proceeds from sale of building 421,975 - -
Increase in capitalized software costs and other intangibles - (874,325) (813,429)
Increase in organization and share exchange costs - - (77,791)
Pharmacy software sold - - 37,758
Addition of cash from Script Systems, Inc. - - 46,758
------------ ------------ ------------
Net cash provided by (used for) investing activities 2,826,864 (1,119,926) (1,134,646)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on bank debt (1,040,000) (148,247) (465,457)
Principal payments on notes and capitalized leases (219,330) (60,337) -
Proceeds from (repayments of) related party notes (295,000) 295,000 -
Proceeds from issuance of common stock - - 7,919
Proceeds from issuance of preferred stock, net of costs - 1,000,000 980,000
Proceeds from exercise of warrants and options 16,703 8,699 -
Proceeds from sale-leaseback - 225,371 -
Purchase of treasury stock (57,800) - -
Dividends paid on preferred stock - (41,250) (77,750)
------------ ------------ ------------
Net cash provided by (used for) financing activities (1,595,427) 1,279,236 444,712
------------ ------------ ------------
Net increase in cash and cash equivalents 472,793 158,751 292,709
Cash and cash equivalents, beginning of year 643,429 484,678 191,969
------------ ------------ ------------
Cash and cash equivalents, end of year $ 1,116,222 $ 643,429 $ 484,678
============ ============ ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for interest $ 94,310 $ 111,585 $ 186,413
============ ============ ============
Preferred dividends accrued - not paid $ 265,000 $ 144,105 $ -
============ ============ ============
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these statements.
F-6
<PAGE> 36
INFOMED HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - Summary of Significant Accounting Policies
Description of Business: InfoMed Holdings, Inc. ("the Company") through its
operating subsidiary, InfoMed, Inc. (InfoMed) designs, markets, services and
supports information systems which are sold in the home health industry.
On August 26, 1993, pursuant to the terms of an exchange offer, the Company
combined business operations of InfoMed and Script Systems, Inc. (Script), a
provider of management information systems and services to medical offices,
clinics and hospital departments. The exchange was accounted for as a purchase
of Script by InfoMed with 2,276,905 common shares of the Company exchanged for
the common and preferred shares of InfoMed and Script. The financial results
of Script have been included in the accompanying consolidated financial
statements from the date of the combination. On August 28, 1995, the Company
completed the sale of substantially all assets of Script (see Note 12).
Basis of Presentation: The consolidated financial statements include the
accounts of the Company and its subsidiaries, InfoMed and Script. All
significant intercompany accounts and transactions have been eliminated.
Management Estimates: The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Revenue Recognition: Revenue from the sale of software licenses and hardware
is generally recognized upon shipment of the product, provided that no
significant obligations remain and collection of the receivables is considered
probable. Revenues derived from contracts requiring significant production,
modification, or customization of software are recorded based on percentage of
completion using labor hours or contract milestones. Revenue from software
maintenance agreements is deferred and recognized ratably over the term of the
agreements. Revenue from and the related costs associated with hardware
maintenance agreements are recognized upon signing of the contract by the
customer since future obligations are assigned to a third party and no
additional costs are incurred upon the assignment to the third party. Revenue
from training and consulting is recognized as the related services are
performed.
Concentration of Credit Risk: The Company sells its products to various
companies in the healthcare industry. The Company performs ongoing credit
evaluations of its customers financial condition and, generally, requires no
collateral from its customers. The Company maintains an allowance for
uncollectible accounts receivable based upon expected collectibility of all
accounts receivable.
Cash Equivalents: All highly liquid investments purchased with an original
maturity of three months or less are considered to be cash equivalents. Market
value of cash equivalents approximates cost.
Inventories: Inventories, which primarily consist of equipment to be delivered
to customers, are stated at the lower of cost, using the first-in, first-out
(FIFO) method, or market.
Property and Equipment: Property and equipment are stated at cost.
Depreciation is computed for financial reporting purposes on the straight-line
method over the estimated useful lives of the assets, or lease term, whichever
is shorter, and are as follows:
Asset Classification Life
--------------------------------------------------
Buildings 33 years
Furniture and fixtures 5 - 7 years
Equipment 3 - 5 years
Leasehold improvements 10 years
F-7
<PAGE> 37
INFOMED HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Intangible Assets: Intangible assets primarily represents certain software
costs for products and product enhancements that are capitalized after
technological feasibility has been established. These costs are amortized
ratably using the straight-line method over the estimated useful lives of the
assets as set forth in Note 4. During 1996, the Company reviewed its product
development process and determined that technological feasibility is currently
being established upon completion of a working model. Costs incurred in 1996
between completion of the working model and the point at which the product is
ready for general release have been insignificant. Therefore, the Company
capitalized no costs in 1996. Capitalized software development costs amounted
to $874,325 and $813,429 in 1995 and 1994, respectively. Amortization of
capitalized software development costs, which is included in amortization and
depreciation in the accompanying consolidated statements of operations,
aggregated $663,602 in 1996, $749,084 in 1995 and $496,272 in 1994. Research
and development expenditures, other than those qualifying for software
capitalization, are charged to expense in the period incurred.
The Company reviews its long-lived and intangible assets for impairment
whenever events or changes in circumstances indicate the carrying amount may
not be recoverable. The measurement of possible impairment is based on
determining whether projected undiscounted future cash flows from the use of
the asset is less than the carrying amount of the asset. As of June 30, 1996,
in the opinion of management, there has been no such impairment.
Income Taxes: Income taxes are provided for in accordance with Financial
Accounting Standard No. 109, "Accounting for Income Taxes". The statement
requires the Company follow the liability method of accounting for income taxes
which requires recognition of deferred tax liabilities and assets for the
expected future tax consequences of temporary differences between the financial
statement carrying amount and the tax bases of assets and liabilities.
Earnings (Loss) Per Share: Primary earnings per common share is computed by
dividing net income (loss) available to common stockholders by the weighted
average number of shares and share equivalents outstanding during the period.
Fully diluted earnings per share is computed by dividing net income (loss)
available to common stock holders by the number of shares and share equivalents
outstanding at the end of the period assuming the conversion of the Preferred
Stock. Common stock equivalents are included in the earnings (loss) per share
calculation unless such equivalents are antidilutive. Fully diluted earnings
per share are not presented for the years ended June 30, 1996 and 1995 because
fully diluted earnings per share amounts for these periods do not differ
significantly from primary earnings per share.
Stock Based Compensation: In October 1995, the Financial Accounting Standards
Board issued Statement of Financial Accounting Standards No. 123. Accounting
for Stock-Based Compensation (SFAS No. 123) which establishes financial
accounting and reporting standards for stock based employee compensation plans.
Companies are encouraged, rather than required to adopt a new method that
accounts for stock compensation awards based on their fair value using an
option pricing model. Companies that do not adopt this method will have to
make pro forma disclosures of net income as if the fair value based method of
accounting required by this standard had been applied. The Company is required
to adopt SFAS No. 123 effective July 1, 1996. The Company has elected to adopt
the disclosure requirement of the pronouncement.
Presentation and Reclassifications: Certain items in the 1995 and 1994
Consolidated Financial Statements have been reclassified for comparative
purposes.
Note 2 - Lease Receivables
The Company provides financing to certain customers on sales of software and
equipment. Lease terms are generally five years. Future minimum lease
payments under these sales-type leases are as follows:
1997 $ 134,399
1998 72,038
------------------------------------
206,437
Less: interest portion 27,184
------------------------------------
$ 179,253
====================================
F-8
<PAGE> 38
INFOMED HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 3 - Property and Equipment
Property and equipment consisted of the following at June 30:
<TABLE>
<CAPTION>
1996 1995
- --------------------------------------------------------------
<S> <C> <C>
Land $ - $ 81,149
Building and improvements - 161,746
Equipment 1,442,546 1,117,280
Furniture and fixtures 197,646 184,657
Leasehold improvements 24,484 103,876
- --------------------------------------------------------------
1,664,676 1,648,708
Less: accumulated depreciation 994,179 929,267
- --------------------------------------------------------------
$ 670,497 $ 719,441
==============================================================
</TABLE>
Note 4 - Intangible Assets
Intangible assets consisted of the following at June 30:
<TABLE>
<CAPTION>
Estimated Life
(in years) 1996 1995
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Software development costs, net
of accumulated amortization of
$1,745,054 and $1,125,054, respectively 3 $ 114,162 $ 734,162
Organization and share exchange costs,
net of accumulated amortization of
$14,167 and $9,167, respectively 5 10,833 15,833
- -------------------------------------------------------------------------------
$ 124,995 $ 749,995
===============================================================================
</TABLE>
Note 5 - Debt
Debt consisted of the following at June 30:
<TABLE>
<CAPTION>
1996 1995
- ---------------------------------------------------------------------------
<S> <C> <C>
Line of credit $ - $ 600,000
Note payable to Bank - 400,000
Note payable to members of the Board
of Directors and their affiliates,
interest at 11% - 295,000
Notes payable to Fred Neufeld (Note 11) 102,010 205,920
Capitalized leases 147,277 255,538
Other - 7,159
- ---------------------------------------------------------------------------
249,287 1,803,617
Less: current portion 170,188 1,681,032
- ---------------------------------------------------------------------------
Total long term debt $ 79,099 $ 122,585
===========================================================================
</TABLE>
F-9
<PAGE> 39
INFOMED HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
At June 30, 1995, $600,000 was outstanding under an $800,000 line of credit
agreement with United Jersey Bank (the "Bank"). This line of credit expired on
October 31, 1995, was fully repaid, and was not renewed. Borrowing under the
line required interest at 1% above the Bank's floating base rate (which
averaged 9.0% and 9.9% in 1996 and 1995, respectively). Maximum and average
borrowings under the line were $600,000 and $480,000, respectively, during
1996.
Under a Loan and Security Agreement with the Bank the note payable to Bank
required monthly payments of principal of $10,000 plus interest at the Bank's
floating base rate, which averaged 9.0% during 1996, plus 1.0%. The loan was
repaid on March 31, 1996.
On October 5, 1994, the Company executed promissory notes totaling $295,000
with certain members of its Board of Directors and their affiliates. The
proceeds of the notes were used for short-term working capital needs. Under the
terms of the notes, the total principal, plus interest at 11% per annum, was
due and payable on December 6, 1994. The notes were paid in full on January 4,
1996.
Interest of $41,607, $5,512 and $58,900 was paid to related parties in 1996,
1995 and 1994, respectively.
In August 1994, the Company entered into a sale-leaseback agreement. Under the
agreement, the Company sold fixed assets, predominantly computer equipment with
a book value of approximately $247,000, and leased them back for a period of
forty-eight months. The Company has received a total of $225,371 relating to
this agreement.
The amount of annual principal payments for the next three fiscal years are as
follows:
1996 $ 170,188
1997 72,668
1998 6,431
---------------------------------------
$ 249,287
=======================================
Note 6 - Preferred Stock and Common Stock
Pursuant to an agreement dated February 24, 1995, the Company sold securities
consisting of (i) 100,000 shares of 10% Convertible Preferred Stock; and (ii)
100,000 warrants to purchase common stock to certain members of its Board of
Directors and their affiliates at a price of $10 per security. Each warrant
allows for the purchase of 10 shares of common stock at a price of $.50 per
share. The total proceeds from the sale, which were used for general working
capital purposes, were $1,000,000.
During 1994, the President tendered 45,367 shares of the Company's common stock
to the Company, valued at $181,468 (fair market value at date of tender), in
order to repay a portion of outstanding loans and interest due to the Company.
The remaining balance was eliminated in connection with the severance agreement
discussed in Note 11.
On March 31, 1994 the Company issued 165,000 shares of 10% Convertible
Preferred Stock through a private placement to O'Donnell Davis and EGL Holdings
and Affiliates ("EGL") for $1,000,000 in cash and conversion of $650,000 of
debt held by O'Donnell Davis. The Convertible Preferred Stock is entitled to
dividends of no less than the annual dividends declared for the common stock
plus 10% per annum of the consideration received by the Company for the
issuance of the Convertible Preferred Stock. Dividends are payable in
quarterly installments.
The number of common stock shares issuable upon conversion of the Convertible
Preferred Stock is determined by the original issue price of the convertible
preferred stock divided by $2. The Company has agreed to reserve 2,075,000
shares of its common for conversion of the Convertible Preferred Stock.
F-10
<PAGE> 40
INFOMED HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Under an Incentive Stock Option and Nonqualified Stock Option Plan (the
"Plan"), a maximum of 200,000 shares of common stock have been reserved for
issuance under the Plan and no more than 50,000 shares may be granted to any
one employee in any Plan year. The option price shall be at least 100% of the
fair market value of the shares at the time of granting the options.
Additionally, any option granted to a 10% stockholder must have an option price
of at least 110% of the fair market value of the share at the time of granting
the option. Options are not exercisable prior to the expiration of twelve
months following the date of grant and must be exercised within ten years from
the date of grant. However, options to 10% or greater stockholders must be
exercised within five years from the date of grant.
The following is a summary of certain information pertaining to common stock
options and common stock warrants.
<TABLE>
<CAPTION>
Warrants Options
- ----------------------------------------------------------------
<S> <C> <C>
Balance at June 30, 1993 36,800 942,164
Issued ($3.25) - 25,000
Expired ($0.37 - $9.05) (10,000) (60,612)
Exercised ($0.37) - (21,488)
- ----------------------------------------------------------------
Balance at June 30, 1994 26,800 885,064
Issued ($0.50 - $2.13) 100,000 2,000
Expired ($0.37 - $6.55) - (77,740)
Exercised ($0.37 - $1.10) (6,800) (2,011)
- ----------------------------------------------------------------
Balance at June 30, 1995 120,000 807,313
Issued ($1.13 - $2.00) - 309,247
Expired ($1.10 - $5.95) - (25,540)
Exercised ($0.37 - $1.10) - (29,040)
- ----------------------------------------------------------------
Balance at June 30, 1996 120,000 1,061,980
================================================================
</TABLE>
At June 30, 1996, all of the warrants (which are convertible into ten shares of
Common Stock) and 1,049,760 of the options were exercisable.
Note 7 - Income Taxes
The components of the income tax provision for continuing operations are as
follows for the years ended June 30:
<TABLE>
<CAPTION>
1996 1995 1994
- ---------------------------------------------------------------
<S> <C> <C> <C>
Current:
Federal $ - $ - $ -
State - - 30,000
Deferred - - 133,000
- ---------------------------------------------------------------
$ - $ - $ 163,000
===============================================================
</TABLE>
Deferred taxes result from temporary differences in the recognition of income
and expenses for financial and income tax reporting purposes. The deferred tax
provision of $133,000 for the year ended June 30, 1994 relates to Scripts book
income. Due to the utilization of Script's net operating loss carryforwards,
there was no taxable income and such utilization was reflected as a reduction
of goodwill.
F-11
<PAGE> 41
INFOMED HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Deferred income taxes reflect the net effect of temporary differences between
the financial reporting carrying amounts of assets and liabilities and income
tax carrying amounts of assets and liabilities. As of June 30, 1996 and 1995,
the components of the Company's deferred tax liabilities and assets are as
follows:
<TABLE>
<CAPTION>
1996 1995
- ----------------------------------------------------------------------------
<S> <C> <C>
Capitalized software costs $ 44,000 $ 432,000
Amortization and depreciation 151,000 126,000
- ----------------------------------------------------------------------------
Gross deferred tax liabilities 195,000 558,000
- ----------------------------------------------------------------------------
Net operating loss carryforwards 805,000 2,890,000
Bad debts 499,000 856,000
Accrued liabilities 138,000 188,000
Deferred income 359,000 94,000
- ----------------------------------------------------------------------------
Gross deferred tax asset 1,801,000 4,028,000
- ----------------------------------------------------------------------------
Deferred tax asset valuation allowance (1,606,000) (3,470,000)
- ----------------------------------------------------------------------------
Net deferred tax asset $ - $ -
============================================================================
</TABLE>
Due to the uncertainty of realization of the deferred tax asset, a valuation
allowance has been established.
Income tax provision (benefit) from continuing operations at the statutory
income tax rate is reconciled below to the total tax expense recorded for
financial statement purposes for the years ended June 30:
<TABLE>
<CAPTION>
1996 1995 1994
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Income tax expense (benefit) from
continuing operations at the US
federal statutory rate of 35% $ 365,000 $ (2,277,000) $ 328,757
State taxes, net of federal
income tax effect - - 13,200
Amortization of nondeductible
intangibles 35,000 207,000 84,205
Utilization of net operating loss (416,000) - (289,274)
Non-recognition of net operating loss - 2,028,000 -
Other 16,000 42,000 26,112
- -------------------------------------------------------------------------------
$ - $ - $ 163,000
===============================================================================
</TABLE>
As of June 30, 1996, the Company has net operating loss carryforwards of
approximately $2,300,000 for tax purposes which are subject to certain
limitations as to their use and expire through 2010. InfoMed has investment
and other tax credit carryforwards of approximately $73,000 which expire in
2009.
Note 8 - Commitments And Contingencies
The Company leases its office facilities and certain computer equipment under
various operating lease agreements (see Note 10). These leases require the
Company to pay taxes, insurance and maintenance expenses, and provide for
renewal options at the then fair market rental value of the property.
F-12
<PAGE> 42
INFOMED HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The aggregate annual rental commitments under all non-cancelable operating
leases as of June 30, 1996 are as follows:
1997 $ 226,000
1998 237,000
1999 247,000
2000 258,000
2001 269,000
Rental expense was $567,425, $598,547 and $583,021 for the years ended June 30,
1996, 1995 and 1994, respectively.
The Company has employment and consulting agreements (see Note 10) which
require future minimum compensation of $96,000 in 1997 and $60,000 in 1998 and
1999.
The Company is engaged in various legal proceedings which management believes
will not have a material adverse effect on its financial position or results of
operations. The Company is involved in certain other claims, litigation and
/or regulatory matters arising in the normal course of business which are not
considered material.
Note 9 - Profit Sharing Plan
InfoMed has a nonqualified employee incentive plan which provides for profit
sharing contributions at the discretion of management. Employees become vested
over a 15 year period. There were no contributions made in 1996, 1995, or 1994.
Note 10 - Related Parties
Since January 7, 1992, EGL has been retained by the Company to provide
consulting services on corporate investments. The consulting agreement extends
through June 30, 1999, and provides for a monthly consulting fee of $5,000 plus
expenses. Payments for expenses totaled $4,731 for 1996, $2,993 for 1995, and
$24,012 for 1994. Two partners of EGL are also Directors of the Company.
O'Donnell Davis, which is 75% owned by the Chairman of the Company, provided
consulting services to the Company of $175,000, $147,817 and $161,792 plus
expenses relating to travel of $30,100, $35,270 and $9,560 in 1996, 1995 and
1994, respectively, under terms of an amended agreement which expired December
31, 1994. However, ODonnell Davis continues to provide management and
consulting services for a monthly fee of $14,583 plus expenses.
A shareholder in O'Donnell Davis is a partner in a firm which provides legal
services to the Company. Fees for services provided amounted to $140,492,
$199,273 and $166,860 in 1996, 1995 and 1994, respectively.
Gateway, LLC, a company owned in part by certain members of the Companys Board
of Directors and their affiliates, leases an office facility to the Company
under the terms of an agreement, which was renewed as of January 1, 1996, for a
period of five years with a five year renewal option. Prior to August 1, 1994,
the property was owned by ODonnell Davis. Rent expense and related operating
expenses were $197,772 in 1996, $191,258 in 1995 and $128,166 in 1994.
Note 11 - Severance Charge
On February 28, 1995, the Company entered into a Settlement Agreement (the
"Agreement") with its President who terminated his employment with the Company
and a severance charge of approximately $304,000 was recorded. Under the terms
of the Agreement, the President receives monthly payments of $9,000 on a
non-interest bearing promissory note
F-13
<PAGE> 43
INFOMED HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
through March 1, 1997. In addition, certain employee benefits remained in
effect through February 1996. Loans to the former President of $84,664 have
been offset against the severance amounts payable.
Note 12 - Sale of Assets
On August 28, 1995, the Company sold substantially all of the assets of Script
to Medic Computer Systems, Inc. (Medic) for $2,967,000 resulting in a gain of
approximately $146,000 which is included in the gain on sale of assets. The
book value on the date of sale of the assets and liabilities sold were as
follows: accounts receivable of $518,000, fixed assets of $172,000, software
development costs of $422,000, other intangibles of $2,245,000, less deferred
maintenance of $546,000 and other liabilities of $114,000. The Company
retained the obligations to deliver and the rights to revenue of the backlogged
Script orders while Medic assumed ongoing support and maintenance obligations.
On a pro forma basis, the Company, without Script, would have generated
$11,446,000 of revenues, net income of $50,000 and a net loss per share of
$0.06 for the year ended June 30, 1996.
On October 23, 1995, the Company sold certain property with a book value of
$130,400 for $421,975.
Note 13 - Subsequent Event
On September 5, 1996, the Company and Simione Central, Inc. (Simionetered into
an Agreement and Plan of Merger (the Merger Agreementursuant to which Simione
will be merged with a wholly-owned subsidiary of the Company. In connection
therewith, each issued and outstanding share of Simione common stock will be
converted into and exchanged for the right to receive 0.22021 shares
(approximately 8,000,000 shares) of the Companys common stock (the Exchange
Ratio). Any shares of Simione common stock held by the Company or any of its
subsidiaries, any shares held in treasury by Simione and any shares held by
subsidiaries of Simione will be canceled and retired and no consideration will
be issued in exchange therefore. In addition, any shareholders of Simione who
fail to deliver certain representations in connection with the receipt of the
Companys common stock in the merger will receive cash in lieu of shares of the
Companys common stock, provided 95% or more of the outstanding shares of
Simione deliver such representations. Under terms of the Merger Agreement, all
outstanding options and warrants to purchase Simione common stock will be
converted into the right to purchase shares of the Companys common stock,
provided that the number of shares to be purchased and related exercise prices
shall be adjusted by the Exchange Ratio. The transaction is subject to
approval by the shareholders of Simione, appropriate regulatory approvals and
the satisfaction of certain other conditions contained in the Merger Agreement.
F-14
<PAGE> 44
INFOMED HOLDINGS, INC.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
Additions
Balance at Charged to Balance at
Beginning Costs and End of
Description of Period Expenses Deductions (1) Period
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Year ended June 30, 1996
Allowance for Doubtful Accounts $ 2,120,236 $ 558,926 $ 1,251,727 $ 1,427,435
==========================================================================================
Year ended June 30, 1995
Allowance for Doubtful Accounts $ 1,598,717 $ 1,597,782 $ 1,076,263 $ 2,120,236
==========================================================================================
Year ended June 30, 1994
Allowance for Doubtful Accounts $ 1,087,777 $ 407,360 $ (103,580) $ 1,598,717
==========================================================================================
</TABLE>
(1) Uncollectible accounts written off, net of recoveries.
S-1
<PAGE> 1
EXHIBIT 10.54
HEADQUARTERS AT GATEWAY LAKE LEASE AGREEMENT
Term - 5 years
COMMENCING JANUARY 1, 1996
TERMINATING DECEMBER 31, 2000
THIS LEASE AGREEMENT made and entered into this 1st day of
January, 1996, by and between GATEWAY LLC (hereinafter referred to as
"Landlord", and INFOMED HOLDINGS, INC. (hereinafter referred to as "Tenant").
W I T N E S S E T H:
In consideration of the rents, covenants and agreements herein,
Landlord does hereby lease to Tenant and Tenant hereby leases from Landlord
upon terms, provisions and conditions herein, the real property hereinafter
described.
ARTICLE I
DESCRIPTION OF PROPERTY, TERMS AND USE
1.1 Description of Property. Landlord leases to Tenant a
portion of the real property in the development known as the Headquarters at
Gateway Lake and specifically identified as 1180 S.W. 36th Avenue, Pompano
Beach, Florida (hereinafter referred to as the "Leased Premises") reflected on
the legal description attached hereto as Exhibit "A" and made a part hereof and
the floor plan attached hereto as Exhibit "B" and made a part hereof.
<PAGE> 2
1.2 Rentable Area. The premises consist of 20,291
rentable square feet (the entire first floor of the premises and 8,000 square
feet of the second floor) and constitutes Eighty Two and Fifty Four One
Hundredths (82.54%) percent of rentable square footage of the building.
1.3 Term. Tenant is to have the Leased Premises being
described subject to the terms and conditions hereof for a term of five (5)
years, commencing on January 1, 1996 which shall be known as the "Commencement
Date".
1.4 Use. The Leased Premises shall be used and occupied
by Tenant solely for the purpose of a business office, storage and system
check-out and for no other purpose without Landlord's express written consent.
ARTICLE II
RENT
2.1 Base Rental. In consideration of the leasing of the
aforesaid premises, Tenant does hereby covenant and agree with Landlord to pay
rental as follows:
For the first year, the sum of Two Hundred Thirteen
Thousand Fifty Five and 50/100 ($213,055.50) Dollars per annum, payable monthly
in advance at the rate of Seventeen Thousand Seven Hundred Fifty Four and
62/100 ($17,754.62) Dollars plus applicable state sales tax. The first monthly
installment of rent is paid simultaneously with the execution of this Lease
Agreement and thereafter commencing on the first day of the second month of the
term of this Lease. For the second year, the sum of Two Hundred Twenty Three
Thousand Two Hundred One and 00/100 ($223,201.00) Dollars per annum, payable
monthly in advance at the rate of Eighteen Thousand Six Hundred and 08/100
($18,600.08) Dollars plus applicable state sales tax. For the third year, the
sum of Two Hundred Thirty Three Thousand Three Hundred Forty Six and 50/100
($233,346.50) Dollars per annum, payable monthly in advance at the rate of
Nineteen Thousand Four Hundred Forty Five and 54/100 ($19,445.54) Dollars plus
applicable state sales tax. For the fourth year, the sum of Two Hundred Forty
Three Thousand Four Hundred Ninety Two and 00/100 ($243,492.00) Dollars per
annum, payable monthly in advance at the rate of Twenty Thousand Two Hundred
Ninety One and 00/100 ($20,291.00) Dollars plus applicable state sales tax.
For the fifth year, the sum of Two Hundred Fifty Three Thousand Six Hundred
Thirty Seven and 50/100 ($253,637.50) Dollars per annum, payable monthly in
advance at the rate of Twenty One Thousand One Hundred Thirty Six and 46/100
($21,136.46) Dollars plus applicable state sales tax. All rental plus
applicable state sales tax reserved and agreed to be paid under this Lease
shall be paid in lawful currency of the United States of America. Except as
otherwise provided in this Lease, rental payments called for hereunder shall be
made to Landlord without notice, demand, set-off or deduction at the place
specified by Landlord from time to time in writing.
-2-
<PAGE> 3
2.2 Tenant's Share of Basic Operating Expenses
(a) The term "Basic Operating Expenses" will
include operating costs, taxes and association assessments for the building and
common area.
(b) The term "Common Area" shall mean all real or
personal property owned by the Landlord for the common, non-exclusive use of
the Landlord, the Tenant and their employees, guests and invitees including,
but not limited to sidewalks, landscape areas, lighting, delivery areas,
parking areas, entrance and lobby areas, security, elevators, stairways,
hallways shared by more than one tenant and all lavatories shared by more than
one tenant.
(c) The term "Operating Costs" shall mean the
operating expenses of the building and all expenditures by Landlord to maintain
the building, parking and related facilities, and such additional facilities in
subsequent years as may be determined by Landlord to be necessary in accordance
with sound and reasonable practices for facilities of a like kind and
character. All operating expenses shall be determined on an accrual basis in
accordance with generally accepted accounting principles which shall be
consistently applied. Such operating expenses shall include all expenses,
costs and disbursement of every kind and nature which Landlord shall pay or
become obligated to pay because or in connection with the ownership, operation
and maintenance of the building, including, but not limited to, the following:
(1) Wages and salaries of all employees
engaged in direct operation and maintenance of the building, employer's social
security taxes, unemployment taxes or insurance, and any other taxes which may
be levied on such wages and salaries, the cost of disability and
hospitalization insurance and pension or retirement benefits for such
employees;
(2) All supplies and materials used in
the operation and maintenance of the building;
(3) Cost of all utilities for the common
areas of the building, including the cost of water, lighting, air-conditioning
and ventilating, but excluding the cost of electricity for the tenants'
premises;
(4) Cost of all maintenance and service
agreements for the building, the equipment therein and grounds, including
janitorial service, security service, landscape maintenance, alarm service,
window cleaning and elevator maintenance;
(5) Cost of all insurance relating to
the building, including casualty and liability insurance applicable to the
building, Landlord's personal property used in connection therewith and rent
insurance.
-3-
<PAGE> 4
(6) All taxes and assessments and
governmental charges, whether federal, state, county or municipal and whether
they be by taxing districts or authorities presently taxing the Leased Premises
or by others, subsequently created or otherwise, and any other taxes and
assessments attributable to the Building or its operation excluding, however,
Federal and State taxes on income and ad valorem taxes on Tenant's personal
property and on the value of tenant leasehold improvements to the extent that
the same exceeds standard building allowances;
(7) Cost of repairs and general
maintenance (excluding such repairs and general maintenance paid by insurance
proceeds or by Tenant and other third parties and alterations attributable
solely to tenants of the building other than the Tenant);
(8) Legal expenses, accounting expenses
and management fees incurred with respect to the building;
(9) Costs incurred in compliance with
new or revised federal or state laws or municipal ordinances or codes or
regulations promulgated under any of the same;
(10) Amortization of the cost of
installation of capital investment items which are primarily for the purpose of
reducing (or avoiding increases in) operating costs or which may be required by
governmental authority. All such costs shall be amortized over the reasonable
life of the capital investment items with the reasonable life and amortization
schedule being determined in accordance with generally accepted accounting
principles and in no event to extend beyond the reasonable life of the
building. In the case of installations for the purpose of reducing (or
avoiding increases in) operating costs, Landlord shall, upon request, provide
Tenant a cost justification therefor;
(11) The Tenant recognizes the Leased
Premises are subject to certain protective covenants and restrictions for
Headquarters at Gateway Lake Business Park Association, Inc. Said Association
has been formed to enforce the declarations and operate and maintain the common
areas referred to therein. The Tenant agrees to pay as part of its
proportionate share of operating costs, all maintenance or other assessments
imposed by the Association on the Landlord as owner of the building as provided
in the Declaration.
Basic Operating Costs shall not include
(i) expenditures classified as capital expenditures for Federal income tax
purposes (except as set forth in Section 2.2(c)(10)), (ii) costs for which
Landlord is entitled to specific reimbursement by Tenant, any other tenant of
the building, or any other third party, (iii) costs of initial construction of
the building, (iv) cost of renovating or modifying space in the building for
lease to other tenants, (v) leasing commissions, ground rentals, and all
non-cash expenses (including depreciation), and (vi) debt service on any
indebtedness secured by the building.
-4-
<PAGE> 5
(d) The Tenant's proportionate share of Basis
Operating Expenses shall be 82.54 percent of the total operating expenses and
shall be paid to Landlord on the first day of each month along with basic rent
in an amount equal to one-twelfth (1/12) of the Landlord's estimate of Tenant's
proportionate share of same.
(e) Landlord shall furnish Tenant a budget for
taxes and operating expenses setting forth Landlord's estimates of such amounts
for the coming year. Said budget will be submitted to Tenant prior to January
31 of each year. For leases commencing during the initial year of occupancy of
the Leased Premises, a budget will be furnished for the period from
commencement of this Lease until December 31, 2000. A form of budget covering
estimated operating expenses is attached hereto as Exhibit "C" and made a part
hereof.
(f) Within 120 days after the end of each
calendar year, or as soon thereafter as possible, Landlord shall furnish to
Tenant an operating statement showing actual taxes and operating expenses
incurred for the preceding year and an appropriate cash adjustment shall be
made between Landlord and Tenant to reflect any difference between payments
made based upon the estimated costs and the actual costs. Payment of the
amount due either party (Landlord or Tenant) shall be made within ten (10) days
following furnishing of the Operating Statement. Provided, further, however,
that if within a calendar year there shall be collective increases in the taxes
or operating expenses which exceed ten (10%) percent of the estimated budget,
the Landlord may, at its option, adjust the budget for the remaining portion of
the year to reflect such change so as to more accurately reflect costs and
prevent a large variance between the estimated budget and actual expenses paid.
(g) Audit. Tenant, at his expense, shall have
the right, upon giving reasonable notice, to audit Landlord's books and records
relating to any increased or additional costs payable hereunder for any periods
within two (2) years prior to such an audit or report prepared by a certified
public accountant, which audit or report for purposes of this Lease shall be
conclusive.
ARTICLE III
LANDLORD'S SERVICES
3.1 Services to be furnished by Landlord. Landlord shall
use its best efforts to furnish Tenant, subject to the Building Rules and
Regulations (hereafter defined) and Tenant's performance of its obligations
hereunder, the following services:
(a) Maintenance of the heating, ventilation and
air conditioning system serving the premises. Tenant is responsible for
electric charges for the air conditioning system and other electric usage in
Tenant's premises. Landlord furnishes air conditioning and heating in the
common areas.
-5-
<PAGE> 6
(b) Hot and cold water at those points of supply
provided for lavatory and drinking purposes only.
(c) Janitor service in and about the building and
the Leased Premises five (5) days per week, and periodic window washing;
however, Tenant shall pay, as additional rent, the additional costs
attributable to the cleaning of improvements within the Leased Premises other
than building standard improvements, including any costs for cleaning areas
used for serving or consumption of food or beverages, data processing or
reproduction operations.
(d) Elevators for access to and egress from the
Leased Premises and the building twenty-four (24) hours a day, seven (7) days
a week.
(e) Electricity for all common areas and parking
areas.
(f) Replacement of fluorescent lamps building,
standard light fixtures installed by Landlord and incandescent bulb replacement
in all public areas.
3.2 Failure by Landlord to any extent to furnish such
services or any cessation thereof of Landlord shall not render Landlord liable
in any respect for damages to either person or property, nor be construed as an
eviction of Tenant, nor work an abatement of rent, nor relieve Tenant from
fulfillment of any covenant or agreement hereof. Should any of such services
be interrupted, Landlord shall use reasonable diligence to restore same
promptly, but Tenant shall have no claim for rebate of rent or damages or
eviction on account thereof.
3.3 Tenant shall pay directly to the utility providing
service monthly, as billed, such charges as may be separately metered to Tenant
for any electric services utilized by Tenant. It is expressly understood it is
the Tenant's responsibility to make application to the appropriate utility
service for required service and to make any deposit required by the utility
for such service in sufficient time to allow utility company to provide service
on date required. Failure to have such utility service available will not
extend the date upon which the lease term begins or when rental payment
commences.
ARTICLE IV
PREPARATION OF PREMISES
4.1 Landlord shall make those improvements completed and
prepared for Tenant's occupancy in accordance with the agreed upon plans and
specifications between Landlord and Tenant attached hereto and made a part
hereof. The facilities, material and work to be furnished, will be performed
by the Landlord at his expense and hereinafter referred to as "Standard
Improvements". Any other facilities, material or work undertaken by or for the
account of a tenant over and above standard work will be "Special Work".
-6-
<PAGE> 7
4.2 The premises shall be deemed ready for occupancy on
the date on which standard work shall have been substantially completed
notwithstanding the fact that minor or insubstantial details of construction or
adjustment remain to be performed, the non-completion of which does not
materially interfere with Tenant's use of the premises. Any such minor items
not completed or requiring adjustment will be itemized on a punch list and
Landlord will utilize his best efforts to complete such items promptly. It is
expressly understood that the correction, completion or adjustment of punch
list items or corrections or adjustment required by the Landlord under any
warranties hereunder do not constitute a valid reason for withholding of rental
or any other payments due hereunder.
4.3 If the substantial completion of the work required by
Landlord shall be delayed due to any act or omission of the Tenant, including
delays due to changes or additions requested of Landlord, delays in Tenant
submission of plans or other information or in giving required approvals or
authorizations; or due to additional time needed, for the completion of any
special work by or for the Tenant then the premises shall be deemed ready for
occupancy on the date they would have been ready but for such delay and rent
and other payments shall commence as of such earlier date.
ARTICLE V
REPAIR AND MAINTENANCE
5.1 Landlord warrants for a period of one (1) year from
date of issuance of a Certificate of Occupancy or the occupancy of the Tenant,
whichever occurs earlier, all standard work in Tenant's premises against any
defects due to faulty material, equipment or workmanship which warranty shall
apply to work done by subcontractors as well as to work done by direct
employees of the Landlord.
5.2 Except as specifically provided during the warranty
period set forth in Section 5.1, Landlord shall not be required to make any
improvements or repairs or alterations whatsoever to the Leased Premises except
as may be required to the corridors and common areas and to the equipment used
to provide the services set forth in ARTICLE III. Tenant shall promptly give
Landlord written notice of any damage in the Leased Premises. This Section 5.2
shall not apply in the case of damage or destruction by fire or other casualty,
which event is covered elsewhere in this Lease.
5.3 The builder's warranty which is given in this ARTICLE
is in lieu of and cancels any undertaking or duty by Landlord to make
statements to Tenant of facts affecting the value of the property, if any such
duty now or at a later date is found by a court to exist.
ARTICLE VI
TENANT CARE AND REPAIR
-7-
<PAGE> 8
6.1 Tenant shall maintain the Leased Premises in a clean,
attractive condition and shall be responsible for all repairs within the Leased
Premises, except as specifically provided in ARTICLE V hereof.
-8-
<PAGE> 9
ARTICLE VII
LATE PAYMENTS
7.1 Payments by Tenant. Tenant agrees to timely pay all
rents and sums provided to be paid to Landlord hereunder at the times and in
the manner herein provided and to occupy at all times the Leased Premises. Any
rent or other payment due hereunder which is not paid within ten (10) days of
the due date specified herein will automatically accrue after the tenth day a
late charge in the amount of eighteen (18%) percent annual interest per year
without the necessity for demand or notification of such lateness to Tenant by
the Landlord.
ARTICLE VIII
HOLDING OVER
8.1 If Tenant should remain in possession of the Leased
Premises after the termination of expiration of the term without the execution
by Landlord and Tenant of a new lease, then Tenant shall be deemed to be
occupying the Leased Premises as a tenant at sufferance, subject to all the
covenants and obligations of this Lease and at a daily rental of twice the per
day rental in effect immediately prior to such expiration or termination,
computed on the basis of a thirty (30) day month, but such holding over shall
not extend the terms. Tenant shall give Landlord at least thirty (30) days
prior written notice of any intention to remove from the premises and shall be
entitled to ten (10) days notice from Landlord in the event Landlord desires
possession of the premises.
ARTICLE IX
ALTERATIONS, ADDITIONS, IMPROVEMENTS
9.1 Tenant will make no alteration, change, improvement,
repair, replacement or addition to the Leased Premises without the prior
written consent of Landlord. Tenant may remove its trade fixtures, office
supplies and movable office furniture and equipment not attached to the
building provided such removal is made prior to the termination or expiration
of the term; Tenant is not then in default in the timely performance of any
obligation or covenant under this Lease; and Tenant promptly repairs all damage
caused by such removal. All other property at the Lease Premises and any
alternation or addition to the Leased Premises (including but not limited to
wall-to-wall carpeting, drywall partitions, paneling or other wall covering)
and any other article attached or affixed to the floor, wall or ceiling of the
Leased Premises shall become the property of Landlord and shall be surrendered
with the Leased Premises as part thereof at the termination of this Lease,
without payment or compensation therefor. If, however, Landlord so requests in
writing, Tenant will, prior to vacating the premises upon the termination or
expiration of this Lease, remove any and all alterations, additions, fixtures,
equipment and property placed or installed by it in the Leased Premises and
will repair any damage caused by such removal. Tenant's personalty and
equipment are and will be security for Tenant's obligations under this Lease.
-9-
<PAGE> 10
ARTICLE X
ASSIGNMENT
10.1 Tenant shall not assign this Lease nor any rights
hereunder, nor let or sublet all or any part of the Leased Premises, nor suffer
or permit any person or entity to use any part of the Leased Premises, without
first obtaining the express written consent of Landlord, which consent Landlord
may grant or withhold in its sole discretion. Should Landlord consent to such
assignment of the Lease, or to a sublease or all or any part of the Leased
Premises, Tenant does hereby guarantee payment of all rent herein reserved
until the expiration of the term hereof and no failure of Landlord to promptly
collect from any assignee or sublessee, or any extension of the time for
payment of such rents, shall release or relieve Tenant from its guaranty or
obligation of payment of such rents. Any assignment by Landlord shall not
relieve Tenant of its obligations hereunder.
10.2 Landlord shall have the right to transfer and assign,
in whole or in part, all of its rights and obligations hereunder, and in the
building and property referred to herein, and upon any such transfer or
assignment, no further liability or obligation shall thereafter accrue against
Landlord hereunder, (except to the extent of any retained Lessor's interest by
Landlord upon any partial assignment of its interest in this Lease).
ARTICLE XI
CONTROL OF COMMON AREAS AND PARKING FACILITIES
11.1 All automobile parking areas, driveways, entrances
and exits thereto, and other facilities furnished by Landlord, including all
parking area, truck way or ways, loading areas, pedestrian walkways, ramps,
landscaped areas, stairways and other areas and improvements provided by
Landlord for the general use, in common, of tenants, their officers, agents,
employees, invitees, licensees, visitors and customers shall be at all times
subject to Such rules and regulations as the Landlord shall, from time to time
establish, modify and enforce with respect to all such facilities and areas.
ARTICLE XII
RULES AND REGULATIONS
12.1 Tenant shall comply with all rules and regulations as
may be applied by Landlord to all tenants of the building. Such rules and
regulations will include but not necessarily be limited to those initial rules
and regulations set forth in Exhibit "D" attached hereto which may, at the
discretion of the Landlord, be subsequently modified.
ARTICLE XIII
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<PAGE> 11
RELOCATION
13.1 If Landlord determines to utilize the Leased Premises
for other purposes during he term, Tenant agrees to relocate to other space in
the building designed by Landlord, provided such other space is of equal or
larger size than the Leased Premises and has at least the same number of
windows. Landlord shall pay all out-of-pocket expenses of any such relocation,
including the expenses or moving and reconstruction of all Tenant-furnished and
Landlord-furnished improvements. In the event of such relocation, this Lease
shall continue in full force and effect without any change in the terms or
other conditions, but with the new location substituted for the old location
set forth in this Lease.
ARTICLE XIV
FLOOR LOADS, NOISE, AND VIBRATION
14.1 Tenant shall not place a load upon any floor of the
Leased Premises which exceeds the load per square foot which such floor was
designed to carry or which is allowed by law. Business machines and mechanical
equipment belonging to Tenant which cause noise or vibrations that may be
transmitted to the structure of the building or to the Leased Premises to such
a degree as to be objectionable by Landlord shall, at the Tenant's expense, be
placed and maintained by Tenant in settings of cork, rubber or spring-type
vibration eliminators sufficient to eliminate such noise or vibration.
ARTICLE XV
LANDLORD'S INSURANCE
15.1 At all times during the term of this Lease, the
Landlord shall maintain all necessary insurance on the premises including
property, loss of rents, and liability. The insurance maintained will also be
subject to the requirements of any institutional first mortgagee. The
insurance will be maintained in the name of the Landlord only. The cost of
this insurance will be included with the operating cost to be allocated to
tenants in accordance with ARTICLE II - 2.2 of this Lease.
15.2 Landlord and Tenant each waive any claim against each
other for any damage to property subject to insurance. Each party agrees to
obtain a waiver of subrogation from its insurance carrier permitting this
waiver.
ARTICLE XVI
TENANT'S INSURANCE
16.1 Tenant shall, at its sole expense, provide and
maintain in force during the entire term of this Lease, and any extension or
renewal hereof, Contractual Liability Insurance in the single limit amount of
One Million Five Hundred Thousand and 00/100 ($1,500,000.00)
-11-
<PAGE> 12
Dollars to cover the agreement in ARTICLE XVII - HOLD HARMLESS. The original
of each such policy of insurance or certified duplicate thereof issued by the
insurance of insuring organization shall be delivered by Tenant to Landlord on
or before ten (10) days prior to occupancy of the Leased Premises by Tenant.
ARTICLE XVII
HOLD HARMLESS
17.1 The Tenant covenants and agrees with Landlord that during
the entire term of this Lease the Tenant will indemnify and save harmless the
Landlord against any and all claims, debts, demands or obligations which may be
made against the Landlord or against the Landlord's title in the premises
arising by reason of any negligent acts or omissions of the Tenant, its
officers, agents or employees in occupying the premises; and not any acts or
omissions of the Landlord, its officers, agents or employees; and if it becomes
necessary for the Landlord to defend any action seeking to impose any such
liability, the Tenant will pay the Landlord all costs of court and reasonable
attorneys' fees incurred by Landlord in such defense, in addition to any other
sums which said Landlord may be called upon to pay by reason of a judgment or
decree against the Landlord in the litigation in which such claim is asserted.
17.2 Tenant shall keep and maintain the demised premises
in compliance with, and shall not cause or permit the demised premises to be in
violation of any federal, state or local laws, ordinances or regulations
including, without limitation, those relating to zoning, building, occupational
safety and health, industrial hygiene or to the environmental conditions on,
under or about the demised premises, including but not limited to soil and
ground water conditions. Tenant shall not use, generate, manufacture, store or
dispose of, on, under or about the demised premises or transport to or from the
demised premises any flammable explosives, radioactive materials, corrosives or
acids, including without limitation any and all substances defined as or
included in the definition of "hazardous substances", "hazardous wastes",
"hazardous materials", and "toxic substances" under any applicable federal or
state laws or regulations (collectively, the "Hazardous Materials").
17.3 Tenant hereby agrees to indemnity Landlord and hold
Landlord harmless from and against any and all claims, losses, damages,
liabilities, fines, penalties, charges, administrative and judicial proceedings
and orders, judgments, remedial action requirements, enforcement actions of any
kind and all costs and expenses incurred in connection therewith (including but
not limited to attorneys' fees, paralegal charges and expenses), arising
directly or indirectly, in whole or in part due to Tenant's, its employees';
agents'; contractors'; or sub-tenants' handling, treatment or disposal of any
Hazardous Materials which contaminates any of the demised premises or
surrounding lands or ground water.
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<PAGE> 13
17.4 The obligations of Tenant to indemnify and hold
harmless under this Article shall survive any conveyance, transfer or
foreclosure of the Landlord's interest herein and further service the
termination or expiration of the Lease.
ARTICLE XVIII
DESTRUCTION OR DAMAGE BY FIRE OR OTHER CASUALTY
18.1 In the event of a fire or other casualty in the
Leased Premises, Tenant shall immediately give notice thereof to Landlord. If
the Leased Premises shall be partially destroyed by fire or other casualty so
as to render the Leased Premises untenable in whole or in part, the rental
provided for herein shall abate as to the portion of the Leased Premises
rendered untenable until such time as the Leased Premises are made tenantable
as determined by Landlord and Landlord agrees to commence and complete such
repair work promptly and with reasonable diligence, or in the event of total or
substantial damage or destruction of the building where Landlord decides to
rebuild, then all rent owed up to the date of such damage or destruction shall
be paid by Tenant and this Lease shall terminate upon notice thereof to Tenant.
Landlord shall give Tenant written notice of its decisions, estimates or
elections under this ARTICLE XVIII within one hundred twenty (120) days after
any such damage or destruction.
18.2 Should Landlord elect to effect any repairs under
ARTICLE XVIII or ARTICLE XIX, Landlord shall only be obligated to restore or
rebuild the Leased Premises to a building standard condition, and then only to
the extent that insurance proceeds or condemnation awards or agreed
condemnation settlement proceeds are available to Landlord therefor.
ARTICLE XIX
CONDEMNATION
19.1 If the Leased Premises, building, or any part thereof
other than parking, shall be taken or condemned for any public purpose (or
conveyed in lieu or in settlement thereof) to such an extent as to render the
remainder of the building or Leased Premises, in the opinion of Landlord, not
reasonably suitable for occupancy, this Lease shall, at the option of either
party, forthwith cease and terminate, and all proceeds from any taking or
condemnation of the building and the Leased Premises shall belong to and be
paid to Landlord. If a material portion of off-street parking is taken, Tenant
may terminate the Lease if substitute parking is not provided to Tenant by
Landlord. If this Lease is not so terminated, Landlord shall repair any damage
resulting from such taking, to the extent and in the manner provided in ARTICLE
XVIII and rental hereunder shall be abated to the extent the Leased Premises
are rendered untenable during the period of repair, and thereafter be adjusted
on an equitable basis considering the areas of the Leased Premises taken and
remaining.
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<PAGE> 14
ARTICLE XX
SIGNS
20.1 No signs, symbols or identifying marks shall be
placed upon the building or in the halls, elevators, staircases, entrances,
parking areas or upon the doors of walls without prior written approval of
Landlord. Landlord agrees to provide and install, at Tenant's cost, all
letters or numerals on doors in the Leased Premises. All such letters and
numerals shall be in the building standard graphics, and no others shall be
used or permitted on the Leased Premises.
ARTICLE XXI
DEFAULT BY LANDLORD OR TENANT
21.1 Each of the following shall be deemed a default by
the Tenant and a breach of this Lease:
a) The filing of a petition by or against the
Tenant for adjudication s a bankrupt under the Bankruptcy Code, as now or
hereafter amended or supplemented, or for reorganization within the meaning of
Chapter XI of said Bankruptcy Code, or for arrangement within the meaning of
Chapter XI of said Bankruptcy Code, or the filing of any petition by or against
the Tenant under any further bankruptcy act for the same or similar relief.
The dissolution or the commencement of any action or proceeding for the
dissolution or liquidation of the Tenant, whether instituted by or against the
Tenant or for the appointment of a receiver or trustee of the property of the
Tenant.
b) The taking of possession of the premises or
property of the Tenant upon the premises by any governmental officer or agency
pursuant to statutory authority for the dissolution, rehabilitation,
reorganization or liquidation of the Tenant.
c) The making by the Tenant of any "assignment
for the benefit of creditors under Federal bankruptcy law".
d) A failure to pay the rent herein reserved, or
additional rent, or any part thereof, s and when due.
e) Failure in the performance of any other
covenant or condition of this Lease on the part of the Tenant to be performed,
for a period of thirty (30) days after receipt of written notice.
(i) For the purposes of subdivision e)
of this ARTICLE XXI, no failure on the part of the Tenant in the performance of
work required to be performed or acts to be done or conditions to be modified
shall be deemed to exist if steps shall have, in good faith, been commenced
promptly by the Tenant to rectify the same and shall be prosecuted to
completion
-14-
<PAGE> 15
with diligence and continuity. If the matter in question shall involve
building construction, and if the Tenant shall be subject to unavoidable delay,
either by reason of governmental regulations restricting the availability of
labor or materials, or by strikes or other labor troubles, or by reason of
conditions beyond the control of the Tenant, the Tenant's time to perform under
said subdivision e) of this ARTICLE XXI shall be extended for a period
commensurate with such delay.
(ii) In the event of any such default of
the Tenant, the Landlord may serve a written notice upon the Tenant that the
Landlord elects to terminate this Lease upon a specified date not less than ten
(10) days after the date of the serving of such notice, except in the case of a
default under subdivision d) hereof where no notice is required, and if the
default remains uncured or the TIME PERIOD IS NOT EXTENDED AS HEREIN PROVIDED,
this Lease shall then expire on the date so specified as if that date had been
originally fixed as the expiration date of the term herein granted.
(iii) In the event this Lease shall be
terminated as hereinbefore provided, or by summary proceedings or otherwise, or
in the event the demised premises or any part thereof shall be abandoned by the
Tenant, the Landlord, or its agents, servants or representatives, may
immediately or at any time thereafter, re-enter and resume possession of said
premises or such part hereof, and remove all persons and property therefrom,
either by summary dispossess proceedings or by a suitable action or proceeding
at law, without being liable for any damages therefor. Moving out of the
premises or leaving the premises vacant shall not be deemed an abandonment of
the premises, provided the Tenant continues to pay the rent as and when due.
No re-entry by the Landlord shall be deemed an acceptance of surrender of this
Lease.
In the event this Lease be terminated by summary proceedings,
or otherwise as provided herein, or if the premises shall have been abandoned
and whether or not the premises be relet, the entire amount of rent which would
be paid to the expiration date of this Lease shall become due and payable. In
the event the premises are relet by the Landlord, the Landlord shall be
entitled to recover from Tenant, and the Tenant shall pay to the Landlord, in
addition to any other damages becoming due hereunder, an amount equal to the
amount of all rents and additional rent reserved under this Lease, less the net
rent, if any, collected by the Landlord on reletting the demised premises,
which shall be due and payable by the Tenant to the Landlord on the several
days on which the rent and additional rent reserved in this Lease would have
become due and payable; that is to say, upon each of such days the Tenant shall
pay to the Landlord the amount of deficiency then existing. Such net rent
collected on reletting by the Landlord shall be computed by deducting from the
gross rents collected, all reasonable expenses incurred by the Landlord in
connection with the reletting of the premises or any part thereof, including
brokers' commission and the cost of repairing, renovating or remodeling said
premises; however, the expenses to be deducted in computing the net rent
collected on reletting shall not include the cost of performing any covenant
contained herein required to be performed by Tenant.
-15-
<PAGE> 16
Any effort by the Landlord to relet premises or mitigate
damages it may have against Tenant shall not preclude the right of the Landlord
to obtain by judicial process a Judgment for the entire amount of rent which
would be paid to the expiration date of this Lease, if said Lease is terminated
by summary proceedings or otherwise as provided herein.
21.2 Landlord's liability for a default by Landlord under
this Lease shall, in all events, be limited to its interest in the Leased
Premises if the Leased Premises is unencumbered by a mortgage or, if the Leased
Premises is encumbered, limited to an amount equal to the value of a fee simple
interest in the Leased Premises.
ARTICLE XXII
SUBORDINATION
This Lease, its terms, conditions and all leasehold interests and
rights hereunder are expressly made, given and granted subject and subordinate
to the lien of any bona fide first mortgage which the Landlord may secure from
any bank, life insurance company, savings and loan association or other
recognized lending institution; and Tenant agrees to execute any instrument or
instruments required by the mortgagee to subordinate the terms of this Lease to
any such first mortgage that may be placed upon the premises by the Landlord.
In the event of foreclosure when this Lease is not terminated, the Tenant
agrees to attorn rent due hereunder to the mortgagee or its successor in
interest or to the successful purchaser at foreclosure sale (new substitute
landlord).
ARTICLE XXIII
ACCESS BY LANDLORD
Tenant shall permit Landlord or its agents or representatives to enter
into and upon any part of the Leased Premises at all reasonable hours to
inspect same; to clean; to make repairs, alterations or additions thereto, as
Landlord may deem necessary or desirable; to show the Leased Premises to
prospective purchasers or tenants; or for any other purpose deemed reasonable
by Landlord.
ARTICLE XXIV
LAWFUL USE OF PREMISES
Tenant further covenants and agrees that said demised land and all
buildings and improvements thereon during the term of this Lease shall be used
only and exclusively for lawful purposes; and that said Tenant will not
knowingly use or suffer anyone to use said premises or building for any purpose
in violation of the laws of the United States, the State of Florida, the County
of Broward, or any other governmental unit wherein the premises may be located.
-16-
<PAGE> 17
ARTICLE XXV
QUIET ENJOYMENT
Landlord covenants that so long as Tenant pays the rent reserved in
this Lease and performs its agreements hereunder, Tenant shall have the right
to quietly enjoy and use the Leased Premises for the term hereof, subject only
to the provisions of this Lease.
ARTICLE XXVI
TENANT FORBIDDEN TO ENCUMBER LANDLORD'S INTEREST
It is expressly agreed and understood between the parties hereto that
nothing in this Lease contained shall ever be construed as empowering the
Tenant to encumber or cause to be encumbered the title interest of Landlord in
the demised premises in any manner whatsoever. In the event tat regardless of
this prohibition any person furnishing or claiming to have furnished labor or
materials at the request of the Tenant, or of any person claiming by, through
or under the Tenant shall file a lien against Landlord's interest therein,
Tenant, within thirty (3) days after being notified thereof, shall cause said
lien to be satisfied of record or the premises released therefrom by the
posting of a bond or other security as prescribed by law, or shall cause same
to be discharged as a lien against Landlord's interest in the demised premises
by an order of a court having jurisdiction to discharge such lien.
ARTICLE XXVII
APPLICABLE LAW
This Lease is entered into in the State of Florida and shall be
governed by the applicable law of said State, the forum to resolve any dispute
to be the Broward County Circuit Court.
ARTICLE XXVIII
SECURITY DEPOSIT
Tenant has not paid to Landlord any amount to secure performance of
Tenant's obligations hereunder.
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<PAGE> 18
ARTICLE XXIX
RECOVERY OF LITIGATION EXPENSE
In the event that litigation is instituted between Landlord and
Tenant, each shall, as the case may be, indemnify and pay to the prevailing
party, all costs and expenses including, but not limited to, reasonable
attorneys' fees incurred in enforcing the terms and provisions of this Lease or
incurred in any Court action including attorneys' fees which may be incurred on
appeal.
ARTICLE XXX
NOTICES AND ESTOPPELS
30.1 All notices required by the law and this Lease to be
given by one party to the other shall be in writing, and the same shall be
served by Certified Mail, Return Receipt Requested, in postage prepaid
envelopes addressed to the following addresses or such other addresses as may
be by one party to the other designated in writing:
AS TO LANDLORD: O'DONNELL DAVIS, INC.
P.O. Box 7395
Princeton, NJ 08543-7395
AS TO TENANT: INFOMED HOLDINGS, INC.
Controller
InfoMed Holdings, Inc.
4365 Route 1 South
Princeton, NJ 08540-5705
30.2 Tenant shall execute such estoppel certificates to
confirm the term of Tenant's Lease; renewal options; rent paid; occupancy
acceptance subject only to minor punch-list items; obligations to pay rent,
etc., as may from time to time be reasonably requested by Landlord.
ARTICLE XXXI
ENTIRE AGREEMENT, BINDING EFFECT AND SEVERABILITY
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<PAGE> 19
This Lease and any written addenda and all exhibits hereto (which are
expressly incorporated herein by this reference) shall constitute the entire
agreement between Landlord and Tenant; no prior written or prior or
contemporaneous oral promises or representations shall be binding. This Lease
shall not be amended, changed or extended except by written instrument signed
by both parties hereto. The provisions of this Lease shall be binding upon and
inure to the benefit of the heirs, executors, administrators, successors and
assigns of the parties, but this provision shall in no way alter the
restrictions on assignment and subletting applicable to Tenant hereunder. If
any provision of this Lease or the application thereof to any person or
circumstance shall at any time or to any extent be held invalid or
unenforceable, and the basis of the bargain between the parties hereto is not
destroyed or rendered ineffective thereby, the remainder of this Lease or the
application of such provision to persons or circumstances other than those as
to which it is held invalid or unenforceable shall not be affected thereby.
ARTICLE XXXII
RENEWAL OF LEASE
At the conclusion of this Lease, the Tenant shall have the option for
renewing for an additional five (5) year term, at a rent equal to the then
current market rate of equivalent space in the area.
The Tenant shall exercise this option to renew for the additional five
(5) year period in writing, delivered to Landlord's place of business as
hereinafter set forth at least three (3) months in advance of the expiration of
the initial term of this Lease.
-19-
<PAGE> 20
IN WITNESS WHEREOF, the parties have executed this Lease as of the day
and year first above written.
GATEWAY, LLC
O'DONNELL DAVIS, INC.,
Manager
By /s/ Craig H. Davis
------------------------------
Craig H. Davis, Vice President
O'Donnell Davis, Inc.
INFOMED HOLDINGS, INC.
By /s/ Barrett C. O'Donnell
-------------------------------
Barrett C. O'Donnell, President
-20-
<PAGE> 1
EXHIBIT 11
INFOMED HOLDINGS, INC.
COMPUTATION OF EARNINGS (LOSS) PER SHARE
FOR THE YEARS ENDED JUNE 30
<TABLE>
<CAPTION>
1996 1995 1994
---------- ----------- ----------
<S> <C> <C> <C>
PRIMARY EARNINGS PER SHARE:
Net Income (loss) $1,044,375 ($6,698,215) $ 803,932
Less dividends on the Company's preferred stock (265,000) (185,355) (51,500)
---------- ----------- ----------
Net income (loss) available to common stockholders $ 779,375 ($6,883,570) $ 752,432
---------- ----------- ----------
Weighted average shares outstanding 2,256,710 2,304,770 2,210,498
Add additional shares issuable upon exercise of
common stock options and warrants 1,323,578 - (B) 725,787
---------- ----------- ----------
Adjusted weighted average shares outstanding 3,580,288 2,304,770 2,936,285
---------- ----------- ----------
Net income (loss) per share $ 0.22 ($2.99) $ 0.26
========== =========== ==========
FULLY DILUTED EARNINGS PER SHARE: (A)
Net Income (loss) N/A N/A $ 803,932
---------- ----------- ----------
Weighted average shares outstanding N/A N/A 2,210,498
Add additional shares issuable upon exercise of
common stock options and warrants and
conversion of preferred stock N/A N/A 1,146,566
---------- ----------- ----------
Adjusted weighted average shares outstanding N/A N/A 3,357,064
---------- ----------- ----------
Net income per share N/A N/A $ 0.24
========== =========== ==========
</TABLE>
Notes:
(A) Fully diluted earnings per share data is not presented for 1996
and 1995 as these amounts differ by less than 3% from primary
earnings per share.
(B) Not applicable to 1995 as calculation is antidilutive.
<PAGE> 1
[LETTERHEAD] ARTHUR ANDERSEN LLP
EXHIBIT 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
To InfoMed Holdings, Inc.:
As independent public accountants, we hereby consent to the incorporation by
reference of our report dated September 23, 1996, included in this Form 10-K,
into InfoMed Holding, Inc.'s previously filed Registration Statement on Form
S-8 for the 1994 Incentive Stock Option and Non-Qualified Stock Option Plan,
Registration No. 33-97772.
/s/ Arthur Andersen LLP
Arthur Andersen LLP
Princeton, New Jersey
September 25, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF INFOMED HOLDINGS FOR THE YEAR ENDED JUNE 30, 1996, AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> JUL-01-1995
<PERIOD-END> JUN-30-1996
<CASH> 1,116,222
<SECURITIES> 0
<RECEIVABLES> 3,186,865
<ALLOWANCES> 1,427,000
<INVENTORY> 157,475
<CURRENT-ASSETS> 3,095,757
<PP&E> 1,664,676
<DEPRECIATION> 994,179
<TOTAL-ASSETS> 4,030,237
<CURRENT-LIABILITIES> 5,898,238
<BONDS> 0
0
265
<COMMON> 2,337
<OTHER-SE> (1,744,317)
<TOTAL-LIABILITY-AND-EQUITY> 4,030,237
<SALES> 5,836,055
<TOTAL-REVENUES> 13,473,725
<CGS> 1,272,699
<TOTAL-COSTS> 12,969,254
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,044,375
<INCOME-TAX> 0
<INCOME-CONTINUING> 1,044,375
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,044,375
<EPS-PRIMARY> 0.22
<EPS-DILUTED> 0.22
</TABLE>
