<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
(Amendment No. 1)
Date of Report (Date of earliest event reported): March 6, 1996
ENVOY CORPORATION
- - -------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
<TABLE>
<CAPTION>
<S> <C> <C>
Tennessee 0-25062 62-1575729
- - --------------------------------------------- ----------------------- -------------------
(State or other jurisdiction of incorporation) (Commission File Number) (I.R.S. Employer
Identification No.)
15 Century Boulevard, Suite 600, Nashville, TN 37214
- - ----------------------------------------------------- -------------------
(Address of principal executive offices) (Zip Code)
</TABLE>
Registrant's telephone number, including area code: (615) 885-3700
Not Applicable
- - --------------------------------------------------------------------------------
(Former name or former address, if changed since last report)
<PAGE> 2
This Current Report on Form 8-K/A amends, to the extent set forth herein,
the Current Report on Form 8-K filed by the Registrant with the Securities
and Exchange Commission on March 21, 1996.
2
<PAGE> 3
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits
Certain of the financial statements required by this Item 7 were
previously filed with the Securities and Exchange Commission in the Registrant's
Form 8-K/A (dated May 17, 1996).
(a) Financial Statements of Business Acquired:
Audited consolidated balance sheets of National Electronic Information
Corporation and its subsidiaries as of December 31, 1994 and 1995, and the
related consolidated statements of operations, shareholders' equity and
cashflows for each of the three years in the period ended December 31, 1995
(b) Pro Forma Financial Information
The unaudited pro forma financial information required under this Item
7(b) was reported by the Registrant in the Form 8-K/A (dated May 17, 1996) and
therefore, pursuant to general instruction B(3), need not be filed herewith.
(c) Exhibits:
99.1 Audited consolidated balance sheets of National Electronic
Information Corporation and its subsidiaries as of December 31,
1994 and 1995, and the related consolidated statements of
operations, shareholders' equity and cashflows for each of the
three years in the period ended December 31, 1995
3
<PAGE> 4
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
ENVOY CORPORATION
Date: May 20, 1996 By: /s/ Kevin M. McNamara
-------------------------------------
Kevin M. McNamara
Chief Financial Officer and Secretary
4
<PAGE> 5
EXHIBIT INDEX
No. Exhibit
- - -------- ----------------------------------------------------------------
99.1 Audited consolidated balance sheets of National Electronic
Information Corporation and its subsidiaries as of December 31,
1994 and 1995, and the related consolidated statements of
operations, shareholders' equity and cashflows for each of the
three years in the period ended December 31, 1995
5
<PAGE> 1
EXHIBIT 99.1
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of
National Electronic Information Corporation and Subsidiaries
We have audited the accompanying consolidated balance sheets of National
Electronic Information Corporation and Subsidiaries (the "Company") as of
December 31, 1994 and 1995, and the related consolidated statements of
operations, shareholders' equity (deficiency) and cash flows for each of the
three years in the period ended December 31, 1995. These consolidated financial
statements are the responsibility of the Company's 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 consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated 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, such consolidated financial statements present fairly, in
all material respects, the financial position of National Electronic Information
Corporation and Subsidiaries as of December 31, 1994 and 1995, and the results
of its operations and its cash flows for each of the three years in the period
ended December 31, 1995, in conformity with generally accepted accounting
principles.
New York, New York
April 19, 1996
1
<PAGE> 2
NATIONAL ELECTRONIC INFORMATION CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1994 AND 1995
(IN THOUSANDS EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
1994 1995
-------- --------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents............................................ $ 4,401 $ 4,681
Accounts receivable, net of allowance for doubtful accounts of $283
and $421 in 1994 and 1995......................................... 2,383 4,125
Accounts receivable -- affiliates.................................... 1,518 2,063
Prepaid expenses and other assets.................................... 336 144
Deferred income taxes................................................ 2,965 4,620
Investments.......................................................... 549 4,409
-------- --------
Total current assets......................................... 12,152 20,042
Property and equipment -- At cost:
Office furniture and equipment....................................... 1,887 2,312
Computer equipment................................................... 3,523 4,822
Leasehold improvements............................................... 806 809
-------- --------
6,216 7,943
Less accumulated depreciation and amortization....................... 2,750 4,137
-------- --------
Property and equipment -- net.......................................... 3,466 3,806
-------- --------
Investments............................................................ 1,553 --
Goodwill............................................................... -- 3,892
Deferred income taxes.................................................. 6,455 2,063
-------- --------
Total Assets................................................. $ 23,626 $ 29,803
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued expenses................................ $ 4,735 $ 5,635
Current portion of due to affiliates................................. 2,209 2,385
Deferred revenue..................................................... 144 --
Current portion of capital lease obligations......................... 62 174
State and Federal income taxes payable............................... 100 31
-------- --------
Total current liabilities.................................... 7,250 8,225
-------- --------
Deferred rent.......................................................... 242 81
Due to affiliates...................................................... 2,141 78
Long term capital lease obligations.................................... 82 224
-------- --------
Total liabilities............................................ 9,715 8,608
Commitments
Shareholders' Equity:
Class A Common Stock, $10 par value; authorized, 50,000 shares;
issued and outstanding -- 32,379 and 33,819 shares in 1994 and
1995.............................................................. 324 338
Class B Common Stock, $10 par value; authorized, 157 shares, issued
and outstanding, 69 shares........................................ 1 1
Additional paid-in capital........................................... 34,407 36,957
Unrealized (loss)/gain on investments................................ (93) 25
Accumulated deficit.................................................. (20,728) (16,126)
-------- --------
Total shareholders' equity................................... 13,911 21,195
-------- --------
Total Liabilities and Shareholders' Equity................... $ 23,626 $ 29,803
======== ========
</TABLE>
See notes to consolidated financial statements.
2
<PAGE> 3
NATIONAL ELECTRONIC INFORMATION CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
1993 1994 1995
------- ------- -------
<S> <C> <C> <C>
REVENUES
Processing service revenue.................................... $20,561 $25,053 $32,574
Participation fees............................................ 3,429 3,610 4,177
Other income.................................................. 473 437 693
------- ------- -------
24,463 29,100 37,444
------- ------- -------
OPERATING EXPENSES
Cost of processing services revenue........................... 12,222 12,331 14,757
------- ------- -------
GROSS MARGIN FROM OPERATIONS.................................. 12,241 16,769 22,687
------- ------- -------
Selling, general and administrative........................... 9,178 11,204 13,862
Depreciation and amortization................................. 798 910 1,221
Acquisition expenses.......................................... 330 599 267
------- ------- -------
10,306 12,713 15,350
INCOME FROM OPERATIONS........................................ 1,935 4,056 7,337
------- ------- -------
OTHER INCOME (EXPENSE)
Interest income............................................... 136 140 325
Interest expense.............................................. (317) (233) (179)
------- ------- -------
(181) (93) 146
------- ------- -------
INCOME BEFORE INCOME TAXES.................................... 1,754 3,963 7,483
INCOME TAX PROVISION (BENEFIT)................................ 75 (9,320) 2,881
------- ------- -------
NET INCOME.................................................... $ 1,679 $13,283 $ 4,602
======= ======= =======
</TABLE>
See notes to consolidated financial statements.
3
<PAGE> 4
NATIONAL ELECTRONIC INFORMATION CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
1993 1994 1995
------- ------- -------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income.................................................... $ 1,679 $13,283 $ 4,602
Adjustments to reconcile net income to net cash provided by
operating activities:
Deferred income taxes....................................... -- (9,420) 2,736
Depreciation and amortization............................... 798 910 1,221
Allowance for doubtful accounts............................. 41 232 117
Gain on sale of investments................................. -- -- (9)
Interest expense on affiliate loans......................... 312 227 162
Decrease (increase) in assets:
Accounts receivable......................................... (667) (7) (2,141)
Prepaid and other current assets............................ (209) (3) 210
Increase (decrease) in liabilities:
Accounts payable and accrued expenses....................... 1,370 456 524
Deferred revenue............................................ (104) (6) (144)
State and Federal income taxes payable...................... 48 25 (69)
Deferred rent............................................... (159) (161) (161)
------- ------- -------
Net cash provided by operating activities........... 3,109 5,536 7,048
------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in Synaptek -- Net of cash acquired.............. -- -- (1,313)
Purchase of investments..................................... (196) -- (4,184)
Proceeds from the sale of investments....................... -- -- 2,004
Purchase of property and equipment.......................... (1,485) (1,748) (1,127)
------- ------- -------
Net cash used by investing activities............... (1,681) (1,748) (4,620)
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of affiliate loans................................ (1,170) (1,646) (2,048)
Issuance of capital stock................................... 17 -- --
Principal payments on capital lease obligations............. (32) 5 (100)
------- ------- -------
Net cash used by financing activities............... (1,185) (1,641) (2,148)
------- ------- -------
NET INCREASE IN CASH AND CASH EQUIVALENTS..................... 243 2,147 280
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR.................. 2,011 2,254 4,401
------- ------- -------
CASH AND CASH EQUIVALENTS, END OF YEAR........................ $ 2,254 $ 4,401 $ 4,681
------- ------- -------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for interest...................... $ 5 $ 6 $ 18
------- ------- -------
Cash paid during the year for income taxes.................. $ 4 $ 55 $ 97
------- ------- -------
Property and equipment financed through capital leases...... $ 171 $ 227 $ 83
------- ------- -------
</TABLE>
See notes to consolidated financial statements.
4
<PAGE> 5
NATIONAL ELECTRONIC INFORMATION CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIENCY)
YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
(IN THOUSANDS EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
CAPITAL STOCK CAPITAL STOCK
---------------- ---------------- UNREALIZED
CLASS A CLASS B PAID-IN (LOSS)/GAIN ON ACCUMULATED
TOTAL SHARES AMOUNT SHARES AMOUNT CAPITAL INVESTMENTS DEFICIT
------- ------- ------ ------- ------ ------- -------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1,
1993................ $ (975) 30,712 $307 69 $ 1 $34,407 -- $ (35,690)
Net income.......... 1,679 -- -- -- -- -- -- 1,679
Stock issued for
cash............. 17 1,667 17 -- -- -- -- --
------- ------- ------ -- ------ ------- ------- -----------
BALANCE, JANUARY 1,
1994................ 721 32,379 324 69 1 34,407 -- (34,011)
Net income.......... 13,283 -- -- -- -- -- -- 13,283
Unrealized (loss) on
investments...... (93) -- -- -- -- -- (93) --
------- ------- ------ -- ------ ------- ------- -----------
BALANCE, JANUARY 1,
1995................ 13,911 32,379 324 69 1 34,407 (93) (20,728)
Net income.......... 4,602 -- -- -- -- -- -- 4,602
Unrealized gain on
investments...... 118 -- -- -- -- -- 118 --
Stock issuance...... 2,564 1,440 14 -- -- 2,550 -- --
------- ------- ------ -- ------ ------- ------- -----------
BALANCE, DECEMBER 31,
1995................ $21,195 33,819 $338 69 $ 1 $36,957 $ 25 $ (16,126)
======= ====== ====== ====== ====== ======= ========== =========
</TABLE>
See notes to consolidated financial statements.
5
<PAGE> 6
NATIONAL ELECTRONIC INFORMATION CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS ORGANIZATION -- National Electronic Information Corporation
("NEIC") and Subsidiaries (the "Company") was founded in 1981 by an insurance
consortium including five of the nation's largest health insurance companies to
implement a claims processing system to support the submission, editing and
distribution of electronic claims for hospital, medical and dental services to
commercial insurance and Medicare payers. The Company currently receives claims
from over 3,000 hospitals, 160,000 physicians and 20,000 dentists. Claims are
processed and routed to over 200 payers, including commercial insurers, Medicare
and Medicaid payers, health maintenance organizations and dental insurers.
Transaction fees for the Company's core claim processing business are paid by
payers, and are a function of claim volume and price per claim.
CONSOLIDATION -- The consolidated financial statements include the accounts
of NEIC, Medical Electronic Data Exchange, Inc. and Medical Electronic Index,
Inc. All intercompany accounts have been eliminated.
USE OF ESTIMATES AND CONCENTRATION -- The financial statements are prepared
in accordance with generally accepted accounting principles which require
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the balance sheet dates and the reported amounts of revenue and expenses during
the reporting periods. Actual results could differ from those estimates.
Approximately 62 percent, 55 percent, and 40 percent of the Company's revenues
were provided by the top five payers in 1993, 1994, and 1995. See note 5 to the
consolidated financial statements.
REVENUE RECOGNITION -- Processing service revenue and annual participation
fees are charged to insurance carriers. Health service providers are charged
annual participation fees and processing service revenue for Medicare claims.
Annual participation fees are generally recognized upon billing. Participation
fees not yet recognized upon billing are classified as deferred revenue.
Transaction fee revenue is recognized as claims are processed. Fees earned from
the licensing of software to health care providers are recognized when the
licenses are granted.
PROPERTY AND EQUIPMENT -- Property and equipment are stated at cost, less
accumulated depreciation and amortization. Depreciation of property and
equipment is provided by the straight-line method over five to seven years.
Leasehold improvements are amortized over the shorter of the duration of the
lease or estimated life of the improvement.
INVESTMENTS -- Statement of Financial Accounting Standards No. 115,
"Accounting for Certain Investments in Debt and Equity Securities" (SFAS No.
115), requires that investments in debt and equity securities be classified in
three categories (held-to-maturity, trading and available-for-sale). SFAS No.
115 has previously been adopted by the Company, and the Company classified its
investment in accordance with the standard. Management has since adopted the
implementation guidance contained in the November 1995 Financial Accounting
Standards Board Special Report "Questions and Answers -- A Guide to
Implementation of Statement 115 on Accounting for Certain Investments in Debt
and Equity Securities" (the Special Report). The Special Report permitted
management to reassess the appropriateness of the classification of all
securities held when such guidance was implemented (no later than December 31,
1995) and account for the reclassification at fair value. On December 29, 1995,
management transferred 100 percent of its held-to-maturity securities to the
available-for-sale classification at fair value. The net unrealized gains on
such securities transferred is included in shareholders' equity at December 31,
1995.
COMPUTER SOFTWARE COSTS -- The cost of purchased, licensed or internally
developed computer software, incurred subsequent to establishing the
technological feasibility of the software, that is to be sold or marketed, is
capitalized and amortized using the straight-line method over five years. Costs
incurred to establish the
6
<PAGE> 7
NATIONAL ELECTRONIC INFORMATION CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
technological feasibility of computer software to be sold, leased or otherwise
marketed are expensed as incurred. Amortization of capitalized computer software
costs amounted to $76,000, $52,000 and $89,000 for the years ended December 31,
1993, 1994 and 1995.
INCOME TAXES -- The Company follows SFAS No. 109, "Accounting for Income
Taxes," which requires the asset and liability method of accounting for income
taxes. Under the asset and liability method, deferred income taxes are
recognized for the tax consequences of temporary differences by applying enacted
statutory tax rates applicable to future years to differences between the
financial statement carrying amounts and the tax basis of existing assets and
liabilities. Under SFAS No. 109, the effect on deferred taxes of a change in tax
rates is recognized in income in the period of enactment. Additionally, SFAS No.
109 allows the recognition, in certain circumstances, of the tax benefit of net
operating loss carryforwards. See Note 2.
GOODWILL -- Goodwill represents the excess of the purchase price over the
fair value of the net assets of acquired companies and is amortized using the
straight-line method over 20 years in accordance with APB No. 17. The Company
carries its goodwill assets at purchase prices, less amortized amounts, and is
subject to annual review for impairment. When reviewing for impairment, the
Company's accounting policy for long-lived assets, including goodwill, requires
the cost of capital to be considered in calculating the present value of the
projected future cash flows expect to be generated over the estimated lives of
the related assets. The discounted amount is then compared to the carrying value
of the long-lived assets.
DEFERRED RENT -- The Company has recorded a deferred rent credit for rent
abatements granted under its office lease agreement. Rent expense is being
charged to operations ratably over the term of the lease.
CASH EQUIVALENTS -- The Company considers all highly liquid investments
with a maturity of three months or less to be cash equivalents.
RECLASSIFICATIONS -- Certain 1993 and 1994 amounts have been reclassified
to conform to the 1995 presentation.
2. INCOME TAXES
As discussed in Note 1, the Company follows SFAS No. 109 which permits the
recognition of certain deferred tax assets when it is more likely than not that
such income tax benefits will be realized in future years.
<TABLE>
<CAPTION>
1993 1994 1995
------- ----------- ----------
<S> <C> <C> <C>
Current:
Federal................................................... $32,000 $ 85,000 $ 85,000
State and local........................................... 43,000 15,000 115,000
------- ----------- ----------
Total............................................. 75,000 100,000 200,000
Deferred:
Federal................................................... -- (8,319,000) 2,367,636
State and local........................................... -- (1,101,000) 313,364
------- ----------- ----------
Total............................................. -- (9,420,000) 2,681,000
------- ----------- ----------
Income tax provision (benefit).............................. $75,000 $(9,320,000) $2,881,000
======= ========== =========
</TABLE>
As of December 31, 1993, 1994, and 1995, the Company has a deferred tax
asset of $10,850,000, $9,420,000 and $6,683,000 with a related valuation
allowance of $10,850,000, $0 and $0, respectively. A valuation allowance is
provided when it is more likely than not that some portion or all of the
deferred tax asset will not be realized. The significant component of the
deferred tax asset relates to net operating loss carryforwards. There are no
significant deferred tax liabilities. The Company has approximately $19,500,000
of net operating loss carryforwards which expire in varying amounts from 1996
through 2007. At Decem-
7
<PAGE> 8
NATIONAL ELECTRONIC INFORMATION CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
ber 31, 1994, the valuation allowance was eliminated since management believes
that it is more likely than not that the Company will generate sufficient
profits to enable it to realize the asset.
The differences between income taxes computed by applying the federal
statutory rate to income before income taxes in 1993 is due to the utilization
of net operating loss carryforwards. In 1994, an income tax asset of $9,420,000
was established and in 1995, income tax expense reflects income taxes computed
at the statutory rates.
3. DUE TO AFFILIATES
As of January 1, 1990, the Company began charging shareholder carriers
amounts in excess of the claim fee charged to other commercial carriers for
processing service revenue (the "Surcharge"). The Company stopped charging these
amounts on December 31, 1991.
The repayment of the Surcharge to shareholder carriers in the form of a
discounted fee per claim began in 1993. The discount is $.05 below rates charged
to other commercial carriers. In 1995, two of the affiliates agreed to be repaid
in four equal installments in 1996.
The maximum amount discounted to shareholders in each calendar year cannot
exceed one-third of the aggregate Surcharge and the aggregate discount per
shareholder cannot exceed the aggregate Surcharge to that shareholder.
Due to affiliates as of December 31:
<TABLE>
<CAPTION>
1993 1994 1995
----------- ----------- -----------
<S> <C> <C> <C>
Balance, January 1.......................... $ 6,627,815 $ 5,768,994 $ 4,350,038
Interest accrued on surcharge............... 311,573 226,662 161,547
Repayment on surcharge...................... (1,170,394) (1,645,618) (2,047,795)
----------- ----------- -----------
Balance, December 31........................ 5,768,994 4,350,038 2,463,790
Less current portion........................ 2,001,000 2,209,271 2,385,378
----------- ----------- -----------
$ 3,767,994 $ 2,140,767 $ 78,412
========== ========== ==========
</TABLE>
Interest expense relating to the Surcharge was computed based upon the
prime rate in effect on the final day of the preceding year. Based on this
formula, an interest rate of 6.0 percent was applied for the years 1993 and 1994
and 8.0 percent was applied for 1995, respectively.
The current portion is estimated based on a $.05 discount per claim
multiplied by the 1996 estimated claims volume applicable to the shareholder
carriers plus the full amount of the Surcharge for those shareholder carriers
who have agreed to be repaid in equal installments during 1996.
4. SHAREHOLDERS' EQUITY
The shares of Class A common stock and Class B common stock are identical
except that the entire voting power is vested in the holders of Class A common
stock. Each share of Class B common stock may be converted, at the election of
the holder, into one share of Class A common stock.
5. RELATED PARTY TRANSACTIONS
a. The Company is owned by fourteen shareholders, ten of whom are major
insurance carriers. Participation fees and processing service revenue earned
from these shareholders amounted to approximately $15,127,000, $16,126,000 and
$14,985,000 in 1993, 1994 and 1995, respectively. Amounts receivable from
shareholders for the above fees approximated $1,518,000 and $2,063,000 at
December 31, 1994 and 1995, respectively.
8
<PAGE> 9
NATIONAL ELECTRONIC INFORMATION CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
b. The Company incurred personnel expenses in connection with health and
disability insurance supplied by shareholders of the Company approximating
$515,000, $27,000 and $25,800 for the years ended December 31, 1993, 1994 and
1995, respectively.
6. RETIREMENT PLAN
The Company sponsors a contributory 401(k) retirement plan that covers
substantially all employees. The Company will match, based upon years of
service, a percentage of employee contributions to a maximum of 5 percent. For
1993, 1994 and 1995, the Company's 401(k) retirement plan expense was
approximately $168,000, $241,000 and $278,000, respectively.
7. COMMITMENTS AND CONTINGENCIES
The Company leases equipment and office space under capital and operating
leases. The Company has entered into various capital lease agreements and the
principal payments due are as follows:
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31, TOTAL
- - ------------- --------
<S> <C>
1996............................................................ $173,636
1997............................................................ 108,967
1998............................................................ 65,490
1999............................................................ 49,158
--------
$397,251
========
</TABLE>
At December 31, 1994 and 1995, assets purchased under the capital lease
were $227,000 and $449,000. The related accumulated depreciation was $49,000 and
$173,000, respectively.
Minimum future cash obligations under all noncancelable operating leases at
December 31, 1995 are as follows:
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31, TOTAL
- - ------------- ----------
<S> <C>
1996........................................................... $1,129,579
1997........................................................... 603,579
1998........................................................... 47,553
1999........................................................... --
----------
$1,780,711
=========
</TABLE>
The headquarters office space rental is subject to lessor cost escalation
and contains two five-year renewable options. The Company has agreed to renew
this lease for a term of one year ending on June 30, 1997. Rent expense for all
office space operating leases in 1993, 1994, and 1995 amounted to approximately
$554,000, $938,000 and $1,012,000, respectively.
While various claims have been asserted against the Company, management
believes that the ultimate liability, if any, from the resolution of these
matters will not be material to the operating income or financial position of
the Company.
8. ACQUISITION
On July 25, 1995, NEIC executed an Agreement and Plan of Merger (the
"Merger Agreement") by and between the Company and Medical Electronic Data
Exchange, Inc. ("Synaptek") and Medical Electronic Data Index, Inc. ("Index")
and Kepa Zubeldia, Robert C. Brown and Zelda Brown (collectively the "Synaptek
Shareholders"). In the merger, all of the outstanding shares of Synaptek and
Index were retired in exchange for $1,000,000 cash, repayment of an obligation
for $106,000 and 1,440 shares of the Company's
9
<PAGE> 10
NATIONAL ELECTRONIC INFORMATION CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
common stock valued at approximately $2,550,000. Synaptek and Index act as a
clearinghouse for commercial, Medicare and Medicaid healthcare transactions.
In conjunction with the Merger Agreement, the Company also entered into a
Put Option Agreement with the Synaptek Shareholders whereby the Synaptek
Shareholders could cause the Company to repurchase the Company's common stock at
the greater of the fair market value of such shares or $2,600,000 during a six
month period beginning July 13, 1998. In conjunction with the sale of the
Company, the Put Option Agreement has terminated (see Note 9).
The acquisition has been accounted for using the purchase method and
accordingly, the purchase price has been allocated to the assets purchased and
the liabilities assumed based upon the fair values at the date of acquisition.
The excess of the purchase price over the fair values of the net assets acquired
was $3,975,000, has been recorded as goodwill and is being amortized on the
straight-line method over 20 years. The operating results of Synaptek and Index
have been included in the consolidated statement of operations from the date of
acquisition. The aggregate purchase price comprising goodwill consists of the
following:
<TABLE>
<S> <C>
Cash paid.................................................... $1,000,000
Stock issued................................................. 2,550,000
Debt paid down............................................... 106,000
Negative fair value of net assets acquired................... 28,000
Acquisition costs............................................ 291,000
----------
Total Goodwill..................................... $3,975,000
=========
</TABLE>
The allocation of the purchase price to the fair value of the assets
acquired and liabilities assumed is as follows:
<TABLE>
<S> <C>
Cash paid.................................................... $ 65,000
Accounts receivable.......................................... 264,000
Prepaid expenses and other assets............................ 18,000
Property and equipment....................................... 267,000
Goodwill..................................................... 3,975,000
Accounts payable and expenses................................ (369,000)
Capital lease obligations.................................... (273,000)
----------
$3,947,000
=========
</TABLE>
9. SUBSEQUENT EVENTS
On November 30, 1995, the Company entered into an agreement and plan of
merger (the "Purchase Agreement") with ENVOY Corporation ("ENVOY") and ENVOY
Acquisition Company ("EAC") whereas the respective Boards of Directors of ENVOY,
EAC and the Company agreed to consummate a business combination, whereas, ENVOY
and EAC would acquire all the issued and outstanding common stock of the Company
for $2,626.29 per share, less a transaction bonus of $27.97, in cash. The common
stock shares issued and outstanding for purposes of the transaction are
33,888.05 shares.
In connection with the above transaction, the Company has offered NEIC
Cumulative Redeemable Preferred Stock ("NEIC Preferred Stock") to certain
Synaptek Shareholders who own 840.21 shares of NEIC Common Stock in exchange for
the previously issued common shares at an exchange ratio of one share of NElC
Preferred Stock for each share of NEIC Common Stock. Each holder of NEIC
Preferred Stock has the option to sell their shares to the Company at a price of
$2,606.94 plus any unpaid cumulative and current accrued dividends payable after
August 1, 1996.
The Put Option Agreement referred to in Note 8 has terminated as of the
effective date of the merger (March 6, 1996).
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