-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, WauS1ZtA1NQHna5CrBdi0wNthg1LGZ6ijOJbfiJKUDObj704gbnY/WECyaypAyqU S5LV9KZui7H8yk0ujn1bQg== 0000912057-97-027557.txt : 19970814 0000912057-97-027557.hdr.sgml : 19970814 ACCESSION NUMBER: 0000912057-97-027557 CONFORMED SUBMISSION TYPE: 8-K/A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19970718 ITEM INFORMATION: Financial statements and exhibits FILED AS OF DATE: 19970813 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: DAOU SYSTEMS INC CENTRAL INDEX KEY: 0001003989 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-RETAIL STORES, NEC [5990] IRS NUMBER: 330284454 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K/A SEC ACT: 1934 Act SEC FILE NUMBER: 000-22073 FILM NUMBER: 97658593 BUSINESS ADDRESS: STREET 1: 5120 SHOREHAM PL CITY: SAN DIEGO STATE: CA ZIP: 92122 BUSINESS PHONE: 6196462996 MAIL ADDRESS: STREET 1: 5120 SHOREHAM PL CITY: SAN DIEGO STATE: CA ZIP: 92122 8-K/A 1 8-K/A UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 8-K/A CURRENT REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 Date of Report (Date of earliest event reported): July 18, 1997 DAOU SYSTEMS, INC. (Exact name of registrant as specified in its charter) DELAWARE (State or other jurisdiction of incorporation) 0-22073 330284454 (Commission File Number) (IRS Employer Identification No.) 5120 Shoreham Place, San Diego, California 92122 (Address of principal executive offices, including zip code) (619) 452-2221 (Registrant's telephone number, including area code) This Form 8-K/A amends and completes registrant's Form 8-K filed on July 18, 1997. ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS. (a) Financial Statements of business acquired. Audited Financial Statements of Integrex Systems Corporation Report of Ernst & Young LLP, Independent Auditors Balance Sheets - December 31, 1996 and 1995 Statements of Income - Years ended December 31, 1996 and 1995 Statements of Stockholders' Equity - Years ended December 31, 1996 and 1995 Statements of Cash Flows - Years ended December 31, 1996 and 1995 Notes to Financial Statements - December 31, 1996 (b) Pro Forma Financial Information: The unaudited pro forma combined condensed balance sheets at December 31, 1996 and at June 30, 1997 and the pro forma combined condensed statements of operations for the six months ended June 30, 1996 and 1997 and for the years ended December 31, 1995 and 1996 give effect to the acquisition of Integrex as of December 31, 1996 for the combined condensed pro forma balance sheet and January 1, 1995 for the combined condensed pro forma statements of operations. The pro forma information is based on the historical financial statements of Integrex and DAOU giving effect to the transaction under the pooling-of-interests method of accounting and assumptions and adjustments described in the accompanying notes to the unaudited pro forma combined condensed financial statements. -2- (c) Exhibits. The following exhibits are filed herewith or incorporated by reference as part of this report: Exhibit No. Document Description -------- ---------------------------------------------------- 2.1* Agreement and Plan of Merger, dated as of July 8, 1997, by and among DAOU Systems, Inc., a Delaware corporation, DAOU-Integrex, Inc., a Delaware corporation and wholly owned subsidiary of DAOU Systems, Inc., Integrex Systems Corporation, a Delaware corporation, and the Stockholders of Integrex Systems Corporation. 99.1** Press release entitled "DAOU Systems Merges with INTEGREX Systems Corp." * Filed as an exhibit to the Company's Current Report on Form 8-K which was filed with the Securities and Exchange Commission on July 18, 1997 and incorporated herein by reference. ** Filed as an exhibit to the Company's Current Report on Form 8-K which was filed with the Securities and Exchange Commission on July 9, 1997 and incorporated herein by reference. -3- Financial Statements Integrex Systems Corporation YEARS ENDED DECEMBER 31, 1996 AND 1995 WITH REPORT OF INDEPENDENT AUDITORS -4- Integrex Systems Corporation Financial Statements Years ended December 31, 1996 and 1995 CONTENTS Report of Ernst & Young LLP, Independent Auditors . . . . . . . . . 6 Financial Statements Balance Sheets . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 Statements of Income . . . . . . . . . . . . . . . . . . . . . . . . 8 Statements of Stockholders' Equity . . . . . . . . . . . . . . . . . 9 Statements of Cash Flows . . . . . . . . . . . . . . . . . . . . . . 10 Notes to Financial Statements. . . . . . . . . . . . . . . . . . . . 11 -5- Report of Ernst & Young LLP, Independent Auditors Board of Directors Integrex Systems Corporation We have audited the accompanying balance sheets of Integrex Systems Corporation as of December 31, 1996 and 1995 and the related statements of income, stockholders' equity, and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Integrex Systems Corporation at December 31, 1996 and 1995 and the results of its operations and its cash flows for the years then ended in conformity with generally accepted accounting principles. ERNST & YOUNG LLP San Diego, California July 9, 1997 -6- Integrex Systems Corporation Balance Sheets DECEMBER 31, 1996 1995 ASSETS -------------------- Current assets: Cash and cash equivalents $ 162,921 $ 101,571 Accounts receivable, net of allowance for doubtful accounts of $0 in 1995 and $7,000 in 1996 1,201,913 812,450 Other current assets 29,566 6,738 -------------------------- Total current assets 1,394,400 920,759 Equipment, furniture and fixtures, net 205,877 112,704 Other assets 12,956 8,825 -------------------------- $1,613,233 $1,042,288 -------------------------- -------------------------- LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Trade accounts payable $ 24,886 $ 155,126 Accrued salaries and wages 292,766 184,622 Deferred revenue 166,899 50,470 Line of credit 150,000 180,000 -------------------------- Total current liabilities 634,551 570,218 Commitments Stockholders' equity: Common stock, $1 par value: Authorized shares - 25,000 Issued and outstanding shares - 11,525 in 1996 and 10,950 in 1995, respectively 11,525 10,950 Additional paid-in capital 89,737 61,326 Retained earnings 877,420 399,794 -------------------------- Total stockholders' equity 978,682 472,070 -------------------------- $1,613,233 $1,042,288 -------------------------- -------------------------- SEE ACCOMPANYING NOTES. -7- Integrex Systems Corporation Statements of Income YEARS ENDED DECEMBER 31, 1996 1995 ------------------------- Revenues $4,455,432 $2,547,691 Cost of revenues 3,318,819 1,995,641 ------------------------- Gross profit 1,136,613 552,050 Operating expenses: Sales and marketing 292,938 117,160 General and administrative 375,076 261,973 ------------------------- 668,014 379,133 ------------------------- Income from operations 468,599 172,917 Interest income, net 11,169 5,847 ------------------------- Income before income taxes 479,768 178,764 Provision for state income taxes 2,142 - ------------------------- Net income $ 477,626 $ 178,764 ------------------------- ------------------------- SEE ACCOMPANYING NOTES. -8- Integrex Systems Corporation Statements of Stockholders' Equity
COMMON STOCK ADDITIONAL TOTAL --------------------- PAID-IN RETAINED STOCKHOLDERS' SHARES AMOUNT CAPITAL EARNINGS EQUITY --------------------------------------------------------------------- Balance at December 31, 1994 9,800 $ 9,800 $39,200 $221,030 $270,030 Issuance of common stock at $20.24 per share in exchange for services 1,150 1,150 22,126 - 23,276 Net income - - - 178,764 178,764 --------------------------------------------------------------------- Balance at December 31, 1995 10,950 10,950 61,326 399,794 472,070 Issuance of common stock at $50.41 per share in exchange for services 575 575 28,411 - 28,986 Net income - - - 477,626 477,626 --------------------------------------------------------------------- Balance at December 31, 1996 11,525 $11,525 $89,737 $877,420 $978,682 --------------------------------------------------------------------- ---------------------------------------------------------------------
SEE ACCOMPANYING NOTES. -9- Integrex Systems Corporation Statements of Cash Flows YEARS ENDED DECEMBER 31, 1996 1995 ----------------------- OPERATING ACTIVITIES Net income $477,626 $ 178,764 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 36,942 15,635 Provision for uncollectible accounts 7,000 - Common stock issued in exchange for services 28,986 23,276 Changes in operating assets and liabilities: Accounts receivable (396,463) (554,617) Other assets (26,960) (9,353) Trade accounts payable (130,240) 128,235 Accrued salaries and wages 108,145 101,084 Deferred revenue 116,429 125,648 ----------------------- Net cash provided by operating activities 221,465 8,672 INVESTING ACTIVITIES Purchases of equipment, furniture and fixtures (130,115) (100,894) ----------------------- Net cash used in investing activities (130,115) (100,894) FINANCING ACTIVITIES Proceeds from (payments on) line of credit (30,000) 165,000 ----------------------- Net cash (used in) provided by financing activities (30,000) 165,000 Net increase in cash and cash equivalents 61,350 72,778 Cash and cash equivalents at beginning of year 101,571 28,793 ----------------------- Cash and cash equivalents at end of year $162,921 $ 101,571 ----------------------- ----------------------- SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Interest paid $ 4,993 $ 2,183 ----------------------- ----------------------- SEE ACCOMPANYING NOTES. -10- Integrex Systems Corporation Notes to Financial Statements December 31, 1996 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ORGANIZATION Integrex Systems Corporation (the "Company") was incorporated in the State of Delaware and began conducting business on September 7, 1993. The Company was formed to provide advanced network design, integration and advanced consulting support services to its customers which are primarily healthcare organizations and include educational and governmental institutions. The Company specializes in voice and video networks and also designs integrated cable plants capable of supporting voice, video and high-speed data transmission. REVENUE RECOGNITION Contract revenue for the development and installation of network solutions is recognized on the percentage-of-completion method with progress to completion measured based upon labor hours incurred. Revenue from technical support and network management services is recognized over the periods the services are performed. CASH, CASH EQUIVALENTS Cash and cash equivalents consist of cash and highly liquid investments with maturities of three months or less when purchased. EQUIPMENT, FURNITURE AND FIXTURES Equipment, furniture and fixtures are stated at cost, less allowances for depreciation computed using the straight-line method over the estimated useful lives of the assets, generally five to seven years. USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions about the future that affect the amounts reported in the financial statements and disclosures made in the accompanying notes of the financial statements. The actual results could differ from those estimates. RECENTLY ISSUED ACCOUNTING STANDARDS The Company adopted Statement of Financial Accounting Standards No. 121, ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF ("SFAS 121") in 1996. SFAS 121 established accounting standards -11- Integrex Systems Corporation Notes to Financial Statements (Continued) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) for recording the impairment of long-lived assets, certain identifiable intangibles and goodwill. The adoption of SFAS 121 did not have an impact on the Company's financial statements. 2. EQUIPMENT, FURNITURE AND FIXTURES Equipment, furniture and fixtures consist of the following at: DECEMBER 31, 1996 1995 --------------------- Computer and software $176,187 $ 92,570 Telecommunications equipment 22,924 18,512 Furniture and office equipment 63,700 21,614 --------------------- Total cost 262,811 132,696 Less accumulated depreciation and amortization (56,934) (19,992) --------------------- $205,877 $112,704 --------------------- --------------------- 3. LINE OF CREDIT On July 31, 1996, the Company obtained a $300,000 bank line of credit for the purpose of financing its receivables. The line of credit is due on demand but if not demanded is due in full on July 31, 1997. Interest is payable monthly at prime plus 1% (9.25% at December 31, 1996). The line of credit is personally guaranteed by the Company's stockholders. At December 31, 1996, the outstanding balance was $150,000. 4. LEASE COMMITMENTS The Company has a three-year lease for its office space that commenced April 1, 1995. The lease is subject to annual escalations of 3%. Minimum annual lease payments for the years ended December 31 are as follows: 1997 $133,818 1998 45,043 -------- $178,861 -------- -------- Rent expense for the years ended December 31, 1996 and 1995 was $101,000 and $54,000, respectively. -12- Integrex Systems Corporation Notes to Financial Statements (Continued) 5. STOCKHOLDERS' EQUITY On October 20, 1994, the Board of Directors approved a stock grant to an employee contingent on that employee meeting certain performance goals for years ended December 31, 1995, 1996, and 1997. During 1995 and 1996, the employee met the performance goals and was issued 1,150 shares of common stock at a deemed fair value of $23,276 and 575 shares at a deemed value of $28,986, respectively. The Company recorded compensation expense at the deemed fair value for financial reporting purposes. 6. INCOME TAXES The Company, with the consent of its stockholders, has elected under the Internal Revenue Code to be an S Corporation. In lieu of federal corporate income taxes, the shareholders of an S Corporation are taxed on their proportionate share of the Company's taxable income. Therefore, no provision or liability for federal income taxes has been included in these financial statements. Several states in which the Company conducts business impose income taxes on the corporation. All income taxes reflected in these financial statements are for obligations payable to those states. 7. BENEFIT PLAN On October 20, 1994, the Board of Directors of the Company approved the adoption of a retirement benefit plan effective January 1, 1995. The plan is intended to qualify under Internal Revenue Code Section 401(a) and provides for employee salary deferrals under Internal Revenue Code Section 401(k), company matching payments, and company profit sharing payments. The Board of Directors approved no matching payments for 1996. On October 24, 1996, the Board of Directors approved a company profit sharing payment for 1996 of $97,605. -13- UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS The following unaudited pro forma combined condensed financial statements give effect to the Merger of DAOU and Integrex accounted for using the pooling-of-interests method of accounting. These pro forma financial statements are presented for illustrative purposes only and therefore are not necessarily indicative of the operating results or financial position that might have been achieved had the Merger occurred as of an earlier date, nor are they necessarily indicative of operating results or financial position which may occur in the future. Pro forma combined condensed balance sheets are provided as of December 31, 1996 and June 30, 1997, giving effect to the Merger as though it had been consummated on that date. Pro forma combined condensed statements of operations are provided for the six-month periods ended June 30, 1996 and 1997 and the years ended December 31, 1995 and 1996, giving effect to the Merger as though it had occurred at the beginning of the earliest period presented. The pro forma combined condensed statements of operations for the years ended December 31, 1995 and 1996 are derived from the audited historical financial statements of DAOU and audited historical financial statements of Integrex. The pro forma combined condensed financial statements as of and for the six-month periods ended June 30, 1996 and 1997 have been prepared on the same basis as the historical information derived from the audited financial statements. In the opinion of DAOU's and Integrex's management, the unaudited financial statements of DAOU and Integrex referred to above include all adjustments, consisting only of normal recurring accruals, necessary for a fair presentation of the financial position and results of operations for such periods. -14- DAOU Systems, Inc. UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEETS June 30, 1997 (in thousands)
PRO FORMA ADJUSTMENTS DAOU INTEGREX FOR THE PRO FORMA HISTORICAL HISTORICAL TRANSACTION COMBINED ------------------------------------------------------- ASSETS CURRENT ASSETS: Cash and cash equivalents $ 5,071 $ 606 $ - $ 5,677 Short-term investments 9,513 - - 9,513 Accounts receivable 5,593 1,314 - 6,907 Contract work-in-progress 5,297 - - 5,297 Deferred income taxes 176 - - 176 Other current assets 604 20 - 624 ------------------------------------------------------- Total current assets 26,254 1,940 - 28,194 Due from officers/stockholders 253 - - 253 Equipment, furniture and fixtures, net 1,885 304 - 2,189 Deferred income taxes 23 - - 23 Other assets 73 13 - 86 ------------------------------------------------------- $28,488 $2,257 $ - $30,745 ------------------------------------------------------- ------------------------------------------------------- LIABILTIIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Trade accounts payable $ 1,883 $ 516 $ - $ 2,399 Accrued salaries and wages 752 333 - 1,085 Deferred revenue 744 98 - 842 Other accrued liabilities 472 - 400(2) 872 Income taxes payable 23 - - 23 ------------------------------------------------------- Total current liabilities 3,874 947 400 5,221 Deferred rent 55 - - 55 Stockholders' equity: Preferred stock - - - - Common stock 11 12 (11)(1) 12 Additional paid-in capital 24,563 90 11 (1) 24,664 Deferred compensation (1,037) - - (1,037) Retained earnings 1,022 1,208 (400)(2) 1,830 ------------------------------------------------------- Total stockholders' equity 24,559 1,310 (400) 25,469 ------------------------------------------------------- $28,488 $2,257 $ - $30,745 ------------------------------------------------------- -------------------------------------------------------
SEE NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS. -15- DAOU Systems, Inc. UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEETS December 31, 1996 (in thousands)
PRO FORMA ADJUSTMENTS DAOU INTEGREX FOR THE PRO FORMA HISTORICAL HISTORICAL TRANSACTION COMBINED --------------------------------------------------------- ASSETS CURRENT ASSETS: Cash and cash equivalents $ 2,284 $ 163 $ - $ 2,447 Accounts receivable 4,085 1,202 - 5,287 Contract work-in-progress 3,600 - - 3,600 Deferred income taxes 176 - - 176 Other current assets 572 30 - 602 --------------------------------------------------------- Total current assets 10,717 1,395 - 12,112 Due from officers/stockholders 228 - - 228 Equipment, furniture and fixtures, net 827 206 - 1,033 Deferred income taxes 23 - - 23 Other assets 115 13 - 128 --------------------------------------------------------- $11,910 $1,614 $ - $13,524 --------------------------------------------------------- --------------------------------------------------------- LIABILTIIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Trade accounts payable $ 530 $ 25 $ - $ 555 Accrued salaries and wages 583 292 - 875 Deferred revenue 844 167 - 1,011 Other accrued liabilities 745 - 400(2) 1,145 Income taxes payable 99 - - 99 Line of credit - 150 - 150 --------------------------------------------------------- Total current liabilities 2,801 634 400 3,835 Deferred rent 62 - - 62 Redeemable preferred stock 8,190 - - 8,190 Stockholders' equity: Preferred stock - - - - Common stock 7 12 (11)(1) 8 Additional paid-in capital 1,246 90 11 (1) 1,347 Deferred compensation (1,166) - - (1,166) Accretion of preferred stock (572) - - (572) Retained earnings 1,342 878 (400)(2) 1,820 --------------------------------------------------------- Total stockholders' equity 857 980 (400) 1,437 --------------------------------------------------------- $11,910 $1,614 $ - $13,524 --------------------------------------------------------- ---------------------------------------------------------
SEE NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS. -16- DAOU Systems, Inc. UNAUDITED PRO FORMA COMBINED CONDENSED STATMENTS OF OPERATIONS Six months ended June 30, 1997 (in thousands, except per share data)
PRO FORMA ADJUSTMENTS DAOU INTEGREX FOR THE PRO FORMA HISTORICAL HISTORICAL TRANSACTION COMBINED -------------------------------------------------------- Revenues $11,208 $2,969 $14,177 Cost of revenues 7,604 2,083 9,687 ---------------------------- ------------ Gross profit 3,604 886 4,490 Operating expenses: Sales and marketing 2,096 248 2,344 General and administrative 2,120 264 2,384 ---------------------------- ------------ 4,216 512 4,728 ---------------------------- ------------ Income (loss) from operations (612) 374 (238) Interest, net 323 6 329 ---------------------------- ------------ Income (loss) before income taxes (289) 380 91 Provision for income taxes 31 - 156 (1) 187 -------------------------------------------------------- Net income (loss) (320) 380 (156) (96) Accretion of redeemable preferred stock - - - -------------------------------------------------------- Net income (loss) attributable to common stock $ (320) $ 380 $(156) $ (96) -------------------------------------------------------- -------------------------------------------------------- Loss per share data: Net loss per common share $ (.01) ------------ ------------ Weighted average number of common shares outstanding 11,029 ------------ ------------
(1) Adjust the income tax provision for income taxes based on an incremental tax rate of 41%. Prior to Merger transaction, Integrex was an S corporation, therefore income taxes were the responsibility of the individual stockholders. SEE NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS. -17- DAOU Systems, Inc. UNAUDITED PRO FORMA COMBINED CONDENSED STATMENTS OF OPERATIONS Year ended December 31, 1996 (in thousands, except per share data)
PRO FORMA ADJUSTMENTS DAOU INTEGREX FOR THE PRO FORMA HISTORICAL HISTORICAL TRANSACTION COMBINED -------------------------------------------------------- Revenues $19,311 $4,456 $23,767 Cost of revenues 13,556 3,319 16,875 ---------------------------- ------------ Gross profit 5,755 1,137 6,892 Operating expenses: Sales and marketing 1,865 293 2,158 General and administrative 3,885 375 4,260 ---------------------------- ------------ 5,750 668 6,418 ---------------------------- ------------ Income from operations 5 469 474 Interest, net 197 11 208 ---------------------------- ------------ Income before income taxes 202 480 682 Provision for income taxes 119 2 195 (1) 316 -------------------------------------------------------- Net income 83 478 (195) 366 Accretion of redeemable preferred stock 485 - - 485 -------------------------------------------------------- Net income (loss) attributable to common stock $ (402) $ 478 $(195) $ (119) -------------------------------------------------------- -------------------------------------------------------- Loss per share data: Net loss per common share $ ( .01) ------------ ------------ Weighted average number of common shares outstanding 9,553 ------------ ------------
(1) Adjust the income tax provision for income taxes based on an incremental tax rate of 41%. Prior to Merger transaction, Integrex was an S corporation, therefore income taxes were the responsibility of the individual stockholders. SEE NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS. -18- DAOU Systems, Inc. UNAUDITED PRO FORMA COMBINED CONDENSED STATMENTS OF OPERATIONS Six months ended June 30, 1996 (in thousands, except per share data)
PRO FORMA ADJUSTMENTS DAOU INTEGREX FOR THE PRO FORMA HISTORICAL HISTORICAL TRANSACTION COMBINED -------------------------------------------------------- Revenues $7,530 $2,110 $9,640 Cost of revenues 5,343 1,567 6,910 ---------------------------- ------------ Gross profit 2,187 543 2,730 Operating expenses: Sales and marketing 706 125 831 General and administrative 1,735 163 1,898 ---------------------------- ------------ 2,441 288 2,729 ---------------------------- ------------ Income (loss) from operations (254) 255 1 Interest, net 120 3 123 ---------------------------- ------------ Income (loss) before income taxes (134) 258 124 Provision for income taxes 22 - 106 (1) 128 -------------------------------------------------------- Net income (loss) (156) 258 (106) (4) Accretion of redeemable preferred stock 39 - 39 -------------------------------------------------------- Net income (loss) attributable to common stock $(195) $ 258 $(106) $ (43) -------------------------------------------------------- -------------------------------------------------------- Loss per share data: Net loss per common share $ - ----------- ----------- Weighted average number of common shares outstanding 9,465 ------------ ------------
(1) Adjust the income tax provision for income taxes based on an incremental tax rate of 41%. Prior to Merger transaction, Integrex was an S corporation, therefore income taxes were the responsibility of the individual stockholders. SEE NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS. -19- DAOU Systems, Inc. UNAUDITED PRO FORMA COMBINED CONDENSED STATMENTS OF OPERATIONS Year ended December 31, 1995 (in thousands, except per share data)
PRO FORMA ADJUSTMENTS DAOU INTEGREX FOR THE PRO FORMA HISTORICAL HISTORICAL TRANSACTION COMBINED -------------------------------------------------------- Revenues $14,330 $2,548 $16,878 Cost of revenues 8,475 1,996 10,471 ---------------------------- ------------ Gross profit 5,855 552 6,407 Operating expenses: Sales and marketing 938 117 1,055 General and administrative 2,893 262 3,155 ---------------------------- ------------ 3,831 379 4,210 ---------------------------- ------------ Income from operations 2,024 173 2,197 Interest, net 67 6 73 ---------------------------- ------------ Income before income taxes 2,091 179 2,270 Provision for income taxes 851 - 73 (1) 924 -------------------------------------------------------- Net income 1,240 179 (73) 1,346 Accretion of redeemable preferred stock 87 - 87 -------------------------------------------------------- Net income attributable to common stock $ 1,153 $ 179 $(73) $1,259 -------------------------------------------------------- -------------------------------------------------------- Earnings per share data: Net income per common share and common share equivalents $ .16 ------------ ------------ Weighted average number of common shares and common share equivalents outstanding 8,116 ------------ ------------
(1) Adjust the income tax provision for income taxes based on an incremental tax rate of 41%. Prior to Merger transaction, Integrex was an S corporation, therefore income taxes were the responsibility of the individual stockholders. SEE NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS. -20- NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS 1. The unaudited pro forma combined condensed financial statements of DAOU Systems, Inc. ("DAOU") and Integrex Systems Corporation ("Integrex") give retroactive effect to the Merger using the pooling-of-interests method of accounting, and, as a result, the unaudited pro forma combined condensed balance sheets and statements of operations are presented as if the condensed financial statements will become the historical financial statements of DAOU upon issuance of financial statements for a period that includes the Merger date. The unaudited pro forma combined condensed financial statements reflect the issuance of 700,000 fully paid and nonassessable shares of DAOU's common stock for 11,525 shares of Integrex common stock to effect the Merger. 2. The unaudited pro forma combined condensed balance sheets combine DAOU's December 31, 1996 historical balance sheet with Integrex's December 31, 1996 historical balance sheet and DAOU's June 30, 1997 unaudited balance sheet with Integrex's June 30, 1997 unaudited balance sheet. The adjustments relate to the estimated costs of the merger transaction and integration of the businesses and are estimated to be approximately $400,000, net of estimated tax benefits of approximately $100,000. 3. The unaudited pro forma combined condensed statements of operations combine DAOU's historical results for the years ended December 31, 1996 and 1995 and the unaudited six months ended June 30, 1997 and 1996 with the Integrex historical results for the years ended December 31, 1996 and 1995 and the unaudited six months ended June 30, 1997 and 1996, respectively. 4. The unaudited pro forma data are presented for informational purposes only and do not give effect to any synergies that may occur due to the combining of DAOU's and Integrex's existing operations. DAOU expects to incur charges currently estimated to approximate $400,000, net of taxes, in the quarter ending September 30, 1997, the quarter in which the Merger was consummated, to reflect costs associated with combining the operations of the two companies and transaction fees and costs incident to the Merger. This charge is reflected in the unaudited pro forma combined condensed balance sheet but is not included in the unaudited pro forma combined condensed statement of operations. -21- SIGNATURES Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. Date: August 13, 1997 DAOU SYSTEMS, INC. By: /s/ Fred. C. McGee ------------------------------------------ Fred C. McGee, Chief Financial Officer -22- EXHIBIT INDEX Exhibit No. Document Description -------- ---------------------------------------------------- 2.1* Agreement and Plan of Merger, dated as of July 8, 1997, by and among DAOU Systems, Inc., a Delaware corporation, DAOU-Integrex, Inc., a Delaware corporation and wholly owned subsidiary of DAOU Systems, Inc., Integrex Systems Corporation, a Delaware corporation, and the Stockholders of Integrex Systems Corporation. 99.1** Press release entitled "DAOU Systems Merges with INTEGREX Systems Corp." * Filed as an exhibit to the Company's Current Report on Form 8-K which was filed with the Securities and Exchange Commission on July 18, 1997 and incorporated herein by reference. ** Filed as an exhibit to the Company's Current Report on Form 8-K which was filed with the Securities and Exchange Commission on July 9, 1997 and incorporated herein by reference. -23- -----END PRIVACY-ENHANCED MESSAGE-----