-----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, DOFp7i+EU7Gt0hMT7xMSIPMs5qNm6devovHrJ3HtVwpxxSHFj3oy3UAImwyQSEAL icNz7RVgY0tOkelSznvWGQ== 0001047469-98-033950.txt : 19980909 0001047469-98-033950.hdr.sgml : 19980909 ACCESSION NUMBER: 0001047469-98-033950 CONFORMED SUBMISSION TYPE: 8-K/A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19980625 ITEM INFORMATION: FILED AS OF DATE: 19980908 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: SEC FILE NUMBER: 000-22073 FILM NUMBER: 98705384 BUSINESS ADDRESS: STREET 1: 5120 SHOREHAM PL CITY: SAN DIEGO STATE: CA ZIP: 92122 BUSINESS PHONE: 6194522221 MAIL ADDRESS: STREET 1: 5120 SHOREHAM PL CITY: SAN DIEGO STATE: CA ZIP: 92122 8-K/A 1 FORM 8-K/A 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): June 25, 1998 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 the Current Reports on Form 8-K that were filed by DAOU Systems, Inc. ("Registrant") with the Securities and Exchange Commission (the "SEC") on July 10, 1998 and August 7, 1998. ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS. (a) FINANCIAL STATEMENTS OF BUSINESSES ACQUIRED: (1) AUDITED FINANCIAL STATEMENTS OF TECHNOLOGY MANAGEMENT, INC. AND AFFILIATE: (i) Report of Ernst & Young LLP, Independent Auditors (ii) Combined Balance Sheets - December 31, 1997 and 1996 (iii) Combined Statements of Income - Years Ended December 31, 1997 and 1996 (iv) Combined Statements of Shareholders' Equity - Years Ended December 31, 1997 and 1996 (v) Combined Statements of Cash Flows - Years Ended December 31, 1997 and 1996 (vi) Notes to Combined Financial Statements - December 31, 1997 (2) AUDITED FINANCIAL STATEMENTS OF RESOURCES IN HEALTHCARE INNOVATIONS, INC. AND AFFILIATES: (i) Report of Ernst & Young LLP, Independent Auditors (ii) Combined Balance Sheet - December 31, 1997 (iii) Combined Statement of Income - Year Ended December 31, 1997 (iv) Combined Statement of Shareholders' Equity - Year Ended December 31, 1997 (v) Combined Statement of Cash Flows - Year Ended December 31, 1997 (vi) Notes to Combined Financial Statements - December 31, 1997 (b) PRO FORMA FINANCIAL INFORMATION: The unaudited pro forma combined condensed balance sheets at June 30, 1998 and December 31, 1997 and the unaudited pro forma combined condensed statements of operations for the six months ended June 30, 1998 and for the years ended December 31, 1997 and 1996 give effect to Registrant's acquisition of Technology Management, Inc., an Indiana corporation ("TMI"), International Health Care Systems Inc., a Florida corporation ("IHCS"), Resources in Healthcare Innovations, Inc., an Indiana corporation ("RHI"), Healthcare Transition Resources, Inc., an Indiana corporation ("HTR") Innovative Systems Solutions, Inc., an Indiana corporation ("ISS"), Grand Isle Consulting, Inc., an Indiana corporation ("GIC") and Ultitech Resources Group, Inc., an Indiana corporation ("URG") as of (i) December 31, 1997 for the unaudited pro forma combined condensed balance sheet and (ii) January 1, 1996 for the unaudited pro forma combined condensed statements of operations for the years ended December 31, 1997 and 1996. The pro forma information is based on the historical financial statements of TMI, RHI and Registrant giving effect to the transactions 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. (c) EXHIBITS. The following exhibits are filed herewith or incorporated by reference as part of this report:
Exhibit No. Document Description -------- --------------------------------------------------------------- 2.1(1)+ Agreement and Plan of Merger, dated as of June 16, 1998, by and among Registrant, DAOU-TMI, Inc., a Delaware corporation and wholly-owned subsidiary of Registrant, TMI, and the stockholders of TMI. 2.2(1)+ Agreement and Plan of Merger, dated as of June 16, 1998, by and among Registrant, DAOU-TMI, Inc., a Delaware corporation and wholly-owned subsidiary of Registrant, IHCS and the stockholders of IHCS. 2.3(2)+ Agreement and Plan of Merger, dated as of June 26, 1998, by and among Registrant, DAOU-RHI, Inc., a Delaware corporation and wholly-owned subsidiary of Registrant, RHI, HTR, URG, ISS, GIC, and the respective shareholders of RHI, HTR, URG, ISS and GIC. 99.1(3) Press release, dated June 17, 1998, entitled "DAOU Systems Merges with Technology Management, Inc." 99.2(4) Press release, dated June 26, 1998, entitled "DAOU Systems Merges with Resources in Healthcare Innovations, Further Extending its Technology Reach."
(1) Filed as an exhibit to Registrant's Current Report on Form 8-K that was filed with the SEC on July 10, 1998 and is incorporated herein by reference. (2) Filed as an exhibit to Registrant's Current Report on Form 8-K that was filed with the SEC on August 7, 1998 and is incorporated herein by reference. (3) Filed as an exhibit to Registrant's Current Report on Form 8-K that was filed with the SEC on June 19, 1998 and is incorporated herein by reference. (4) Filed as an exhibit to Registrant's Current Report on Form 8-K that was filed with the SEC on July 6, 1998 and is incorporated herein by reference. + Confidential treatment has been granted for portions of this exhibit. Combined Financial Statements Technology Management, Inc. and Affiliate Technology Management, Inc. and Affiliate Combined Financial Statements Years ended December 31, 1997 and 1996 CONTENTS Report of Ernst & Young LLP, Independent Auditors. . . . . . . . . . . . . .1 Audited Combined Financial Statements Combined Balance Sheets. . . . . . . . . . . . . . . . . . . . . . . . . . .2 Combined Statements of Income. . . . . . . . . . . . . . . . . . . . . . . .3 Combined Statements of Stockholders' Equity (Deficit). . . . . . . . . . . .4 Combined Statements of Cash Flows. . . . . . . . . . . . . . . . . . . . . .5 Notes to Combined Financial Statements . . . . . . . . . . . . . . . . . . 6
Report of Ernst & Young LLP, Independent Auditors The Board of Directors and Stockholders Technology Management, Inc. and Affiliate We have audited the accompanying combined balance sheets as of December 31, 1997 and 1996, of Technology Management, Inc. and Affiliate (see Note 1), and the related combined statements of income, stockholders' equity and cash flows for the years then ended. These financial statements are the responsibility of the Companies' 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 audits 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 combined financial position at December 31, 1997 and 1996, of Technology Management, Inc. and Affiliate, and the combined results of their operations and their cash flows for the years then ended in conformity with generally accepted accounting principles. ERNST & YOUNG LLP San Diego, California August 4, 1998 Technology Management, Inc. and Affiliate Combined Balance Sheets
DECEMBER 31, 1997 1996 -------------------------- ASSETS Current assets: Cash and cash equivalents $2,209,300 $ 569,766 Available-for-sale investments 357,836 141,156 Accounts receivable, net of allowance of $10,000 and $0 at December 31, 1997 and 1996, respectively 1,184,780 996,376 Contract work in progress 879,635 339,272 Other current assets 48,728 3,533 -------------------------- Total current assets 4,680,279 2,050,103 Equipment, furniture and fixtures, net of accumulated depreciation of $269,088 and $224,793 at December 31, 1997 and 1996, respectively 152,292 132,802 Other 7,618 7,618 -------------------------- $4,840,189 $2,190,523 -------------------------- -------------------------- LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Trade accounts payable $ 590,543 $9,467 Accrued salaries, wages, and bonuses 728,525 237,629 Other accrued liabilities 143,557 3,987 Dividends payable 485,817 - -------------------------- Total current liabilities 1,948,442 251,083 Deferred compensation to stockholders 1,117,154 1,117,154 Commitments and contingencies (NOTE 3) Stockholders' equity (NOTE 4): Common stock, no par value Authorized shares (Technology Management, Inc.) - 1,000 Authorized Shares (International Health Care Systems, Inc.) - 1,000 Issued and outstanding shares (Technology Management, Inc.) - 400 at December 31, 1997 and 1996 81,376 81,376 Issued and outstanding shares (International Health Care Systems, Inc.) - 135 at December 31, 1997 and 1996 25,000 25,000 Retained earnings (deficit) (Technology Management, Inc.) (47,872) 241,688 Retained earnings (International Health Care Systems, Inc.) 1,712,866 490,863 Unrealized gain (loss) on available-for-sale investments 3,223 (16,641) -------------------------- Total stockholders' equity 1,774,593 822,286 -------------------------- $4,840,189 $2,190,523 -------------------------- --------------------------
SEE ACCOMPANYING NOTES. Technology Management, Inc. and Affiliate Combined Statements of Income
YEARS ENDED DECEMBER 31, 1997 1996 ------------------------ Revenues $6,371,388 $5,373,827 Cost of revenues 3,909,009 3,371,741 ------------------------ Gross profit 2,462,379 2,002,086 Operating expenses: Sales and marketing 123,891 318,491 General and administrative 719,060 723,985 ------------------------ 842,951 1,042,476 ------------------------ Income from operations 1,619,428 959,610 Other income (expense) Investment income 114,636 101,031 Interest expense (44,407) - ------------------------ Income before income taxes 1,689,657 1,060,641 Provision for income taxes 113,001 - ------------------------ Net income $1,576,656 $1,060,641 ------------------------ ------------------------
SEE ACCOMPANYING NOTES. Technology Management, Inc. and Affiliate Combined Statements of Stockholders' Equity (Deficit)
INTERNATIONAL HEALTH CARE TECHNOLOGY MANAGEMENT INC. SYSTEMS, INC. -------------------------------- ------------------------------- UNREALIZED GAIN (LOSS) TOTAL RETAINED ON STOCKHOLDERS' COMMON STOCK EARNINGS COMMON STOCK RETAINED AVAILABLE- EQUITY ------------------- FOR-SALE SHARES AMOUNT (DEFICIT) SHARES AMOUNT EARNINGS INVESTMENTS (DEFICIT) ------------------- ---------- ---------------------------------------------------------- Balance at December 31, 1995 400 $81,376 $ (328,090) - $ - $ - $(17,066) $ (263,780) Issuance of common stock upon formation of the S Corporation - - - 135 25,000 - - 25,000 Change in unrealized gain or loss on available-for sale investments - - - - - - 425 425 Net income - - 569,778 - - 490,863 - 1,060,641 ------------------- ---------- -------------------------------- -------- ------------ Balance at December 31, 1996 400 81,376 241,688 135 25,000 490,863 (16,641) 822,286 Change in unrealized gain on loss on available-for sale investments - - - - - - 19,864 19,864 Dividends - - (644,213) - - - - (644,213) Net income - - 354,653 - - 1,222,003 - 1,576,656 ------------------- ---------- -------------------------------- -------- ------------ Balance at December 31, 1997 400 $81,376 $ (47,872) 135 $25,000 $1,712,866 $ 3,223 $1,774,593 ------------------- ---------- -------------------------------- -------- ------------ ------------------- ---------- -------------------------------- -------- ------------
SEE ACCOMPANYING NOTES. Technology Management, Inc. and Affiliate Combined Statements of Cash Flows
YEARS ENDED DECEMBER 31, 1997 1996 --------------------------- OPERATING ACTIVITIES Net income $1,576,656 $1,060,641 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 44,295 42,196 Provision for uncollectible accounts 10,000 - Changes in operating assets and liabilities: Accounts receivable (198,404) (261,466) Contract work in progress (540,363) (34,528) Other current assets (45,195) 85 Trade accounts payable 581,076 (42,891) Accrued salaries, wages, and bonuses 490,896 (235,851) Other accrued liabilities 139,570 - --------------------------- Net cash provided by operating activities 2,058,531 528,186 INVESTING ACTIVITIES Purchases of equipment, furniture and fixtures (63,785) (42,002) Purchase of available-for-sale investments (235,949) - Proceeds from sales and maturities of available- for-sale investments 39,133 14,933 --------------------------- Net cash used in investing activities (260,601) (27,069) FINANCING ACTIVITIES Dividends paid (158,396) - Proceeds from issuance of common stock upon formation of International Health Care Systems, Inc. - 25,000 --------------------------- Net cash (used in) provided by financing activities (158,396) 25,000 Increase in cash and cash equivalents 1,639,534 526,117 Cash and cash equivalents at beginning of year 569,766 43,649 --------------------------- Cash and cash equivalents at end of year $2,209,300 $ 569,766 --------------------------- --------------------------- SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid during the year for: Interest $ 86,802 $ - --------------------------- --------------------------- Tax on built-in gains $ 113,001 $ - --------------------------- ---------------------------
SEE ACCOMPANYING NOTES. 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ORGANIZATION Technology Management, Inc. and Affiliate provides independent consulting on information technologies management and technical issues to commercial, governmental, and not-for-profit organizations operating primarily in the healthcare industry located throughout the United States. Its services relate to the strategic, operational, current effectiveness and future directions of an organization's information technology. BASIS OF PRESENTATION The combined financial statements include the accounts of Technology Management, Inc. and International Health Care Systems, Inc. ("IHCS") an affiliated S Corporation. Together they comprise the operations of TMI (the "Company"). All intercompany accounts and transactions have been eliminated. These financial statements have been presented on a combined basis as the affiliated S corporations are under common control and, as described in Note 8, were acquired together by DAOU Systems, Inc. REVENUE RECOGNITION Contract revenue is recognized as services are provided based on labor hours incurred. Contract work in progress represents unbilled revenue earned for services provided. CONCENTRATION OF CREDIT RISK AND MAJOR CUSTOMER Substantially all of the Company's accounts receivable are from hospitals and others within the healthcare industry and generally the Company does not require collateral for its receivables. The Company has provided for losses from uncollectible accounts and such losses have historically been minimal. During the year ended December 31, 1997 one customer accounted for approximately 37% of revenues. During the year ended December 31, 1996, another customer accounted for approximately 29% of revenues. No other customer accounted for greater than 10% of revenues for the years ended December 31, 1997 and 1996. 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) CASH, CASH EQUIVALENTS AND AVAILABLE-FOR-SALE INVESTMENTS Cash and cash equivalents consist of cash and highly liquid investments with original maturities of three months or less when purchased. The Company historically has not experienced any losses on its cash equivalents. Available-for-sale investments are recorded at fair value, with the unrealized gains and losses, net of tax, reported in a separate component of stockholders' equity. EQUIPMENT, FURNITURE AND FIXTURES Equipment, furniture and fixtures are carried at cost. Depreciation is computed using the straight-line method over the estimated useful lives of the assets, generally five years for equipment and seven years for furniture. 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 combined financial statements and disclosures made in the accompanying notes of the combined financial statements. The actual results could differ from those estimates. NEW ACCOUNTING STANDARDS In June 1997, the Financial Accounting Standards Board issued SFAS No. 130, REPORTING COMPREHENSIVE INCOME. This standard is effective for fiscal years beginning after December 15, 1997. SFAS No. 130 requires that all components of comprehensive income, including net income, be reported in the financial statements in the period in which they are recognized. Comprehensive income is defined as the change in equity during a period from transactions and other events and circumstances from non-owner sources. Net income and other comprehensive income, including foreign currency translation adjustments and unrealized gains and losses on investments, shall be reported, net of their related tax effect, to arrive at comprehensive income. The Company does not believe that comprehensive income or loss will be materially different than net income or loss. 2. AVAILABLE-FOR-SALE INVESTMENTS The following is a summary of available-for-sale investments at December 31, 1997:
AVAILABLE-FOR-SALE INVESTMENTS ----------------------------------------------- GROSS GROSS UNREALIZED UNREALIZED MARKET COST GAINS LOSSES VALUE ----------------------------------------------- Government and corporate bonds $307,398 $228 $(5,733) $301,893 Common and preferred stock 47,215 10,608 (1,880) 55,943 ----------------------------------------------- Available-for-sale investments $354,613 $10,836 $(7,613) $357,836 ----------------------------------------------- -----------------------------------------------
The following is a summary of available-for-sale investments at December 31, 1996:
AVAILABLE-FOR-SALE INVESTMENTS ----------------------------------------------- GROSS GROSS UNREALIZED UNREALIZED MARKET COST GAINS LOSSES VALUE ----------------------------------------------- Government and corporate bonds $109,525 $ 103 $(18,407) $ 91,221 Common and preferred stock 48,272 6,932 (5,269) 49,935 ----------------------------------------------- Available-for-sale investments $157,797 $ 7,035 $(23,676) $141,156 ----------------------------------------------- -----------------------------------------------
Government and corporate bonds by contractual maturity are as follows at December 31, 1997: Due in one year or less $100,240 Due after one year through two years 30,135 Greater than two years 171,518 -------- $301,893 -------- --------
3. LEASE COMMITMENTS The Company leases its office and certain equipment under operating lease agreements. Rent expense totaled $84,078 and $90,240 for the years ended December 31, 1997 and 1996, respectively. 3. LEASE COMMITMENTS (CONTINUED) The Company leases its operating facilities under an operating lease which expires in April 2000. Annual future minimum lease payments under noncancellable operating leases with initial terms of one year or more at December 31, 1997, consist of the following: 1998 $ 81,376 1999 83,828 2000 28,217 ---------- $ 193,421 ---------- ----------
4. STOCKHOLDERS' EQUITY In August 1997, the Company issued rights to employees to buy up to 73 shares of stock. Each right could be exercised to purchase one share of the Company's Common Stock at an exercise price of $12,352. Effective January 1, 1998, the Company issued 41 shares of Common Stock to employees under terms of stock rights outstanding. The remaining 32 shares in the stock rights plan expire on December 31, 1998 under the terms of the original issuance. 5. INCOME TAXES The stockholders of the Company have elected under Subchapter S of the Internal Revenue Service Code to include the Company's income in their own income for federal and state income tax purposes. Accordingly, the Company is not subject to federal and state income taxes. The provision for income taxes in 1997 consists of $113,001 for tax on built-in-gains relating to the Company's Subchapter S election. 6. BENEFIT PLANS The Company maintains a defined contribution profit sharing plan for all eligible employees. Contributions are discretionary and are made solely by the Company. Actual contributions are based on a formula applied to each participants' annual compensation. Contribution expense for the plan was approximately $89,000 and $74,000 for the years ended December 31, 1997 and 1996, respectively. 7. RELATED PARTY TRANSACTIONS In June 1997, the Company entered into an agreement to pay interest on the deferred compensation to stockholders. The interest rate is based upon the 30 year Treasury Bond rate plus 1%, adjusted annually. Interest expense was $44,407 and zero for the year ended December 31, 1997 and 1996, respectively. 8. SUBSEQUENT EVENTS On January 1, 1998, the Company entered into promissory note agreements (the "notes") with certain shareholders related to undistributed dividend payments totaling $485,817. The notes were repaid by the Company on March 31, 1998. On June 16, 1998, the Company was acquired by DAOU Systems, Inc. whereby the Company's stockholders exchanged all of their shares in the Company for 1,303,631 shares of DAOU Systems, Inc. common stock. In connection with the sale of the Company, the Subchapter S election will be terminated. As a result, the Company will be subject to corporate income taxes subsequent to the termination of its S corporation status. 9. YEAR 2000 ISSUE - UNAUDITED The Company has developed a plan to modify its information technology to be ready for the year 2000 and has begun converting critical data processing systems. The Company currently expects the project to be substantially complete by late 1998. The Company does not expect this project to have a significant effect on operations. Combined Financial Statements Resources in Healthcare Innovations, Inc. and Affiliates Resources in Healthcare Innovations, Inc. and Affiliates Combined Financial Statements Year ended December 31, 1997 CONTENTS Report of Ernst & Young LLP, Independent Auditors. . . . . . . . . . . . . . 1 Audited Combined Financial Statements Combined Balance Sheet . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Combined Statement of Income . . . . . . . . . . . . . . . . . . . . . . . . 3 Combined Statement of Stockholders' Equity . . . . . . . . . . . . . . . . . 4 Combined Statement of Cash Flows . . . . . . . . . . . . . . . . . . . . . . 5 Notes to Combined Financial Statements . . . . . . . . . . . . . . . . . . . 6
Report of Ernst & Young LLP, Independent Auditors The Board of Directors and Stockholders Resources in Healthcare Innovations, Inc. and Affiliates We have audited the accompanying combined balance sheet as of December 31, 1997, of Resources in Healthcare Innovations, Inc. and Affiliates (see Note 1) and the related combined statement of income, stockholders' equity and cash flows for the year ended December 31, 1997. These financial statements are the responsibility of the Companies' management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit 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 audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the combined financial position at December 31, 1997, of Resources in Healthcare Innovations, Inc. and Affiliates and the results of their operations and their cash flows for the year then ended in conformity with generally accepted accounting principles. ERNST & YOUNG LLP San Diego, California August 4, 1998 Resources in Healthcare Innovations, Inc. and Affiliates Combined Balance Sheet December 31, 1997 ASSETS Current assets: Cash $ 73,300 Accounts receivable, net of $100,000 allowance for doubtful accounts 2,147,385 Other current assets 7,000 ----------- Total current assets 2,227,685 Equipment, net of accumulated depreciation of $116,164 206,173 ----------- $2,433,858 ----------- ----------- LIABILITIES AND STOCKHOLDERS' DEFICIT Current liabilities: Accounts payable $ 39,191 Accrued salaries, wages and commissions 189,794 Line of credit and note payable 1,350,000 Current portion of severance payable 210,000 ----------- Total current liabilities 1,788,985 Long-term portion of severance payable 822,500 Stockholders' deficit: Common stock, no par value: Authorized shares (Resources in Healthcare Innovations, Inc.) - 100,000 Authorized shares (Healthcare Transition Resources, Inc.) - 1,000 Authorized shares (Innovative Systems Solutions) - 1,000 Issued and outstanding shares (Resources in Healthcare Innovations, Inc.) - 20,278 Issued and outstanding shares (Healthcare Transition Resources, Inc.) - 100 Issued and outstanding (Innovative Systems Solutions) - 100 109,825 Accumulated deficit (287,452) ----------- Total stockholders' deficit (177,627) ----------- Total liabilities and stockholders' deficit $2,433,858 ----------- -----------
SEE ACCOMPANYING NOTES. Resources in Healthcare Innovations, Inc. and Affiliates Combined Statement of Income Year Ended December 31, 1997 Professional fees revenue $9,545,521 Cost of professional fees 6,072,252 ----------- Gross profit 3,473,269 Operating expenses: Sales and marketing 819,427 General and administrative 2,587,400 ----------- 3,406,827 ----------- Income from operations 66,442 Interest expense 39,293 ----------- Net income $ 27,149 ----------- -----------
SEE ACCOMPANYING NOTES. Resources in Healthcare Innovations, Inc. and Affiliates Combined Statement of Stockholders' Equity (Deficit)
RESOURCES IN HEALTHCARE HEALTHCARE TRANSITION INNOVATIVE SYSTEMS INNOVATIONS, INC. RESOURCES, INC. SOLUTIONS, INC. ---------------------------------------------------------------------- COMMON STOCK COMMON STOCK COMMON STOCK SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT ---------------------------------------------------------------------- Balance at December 31, 1996 27,778 $ 113,575 - $ - - $ - Shares issues in connection with the formation of the Companies - - 100 - 100 - Repurchase of founders stock in accordance with buy/sell agreement between the original founders (NOTE 4) (7,500) (3,750) - - - - Net income - - - - - - ---------------------------------------------------------------------- Balance at December 31, 1997 20,278 $ 109,825 100 $ - 100 $ - ---------------------------------------------------------------------- ---------------------------------------------------------------------- TOTAL RETAINED STOCKHOLDERS' EARNINGS EQUITY (DEFICIT) (DEFICIT) ------------------------ Balance at December 31, 1996 $ 801,649 $ 915,224 Shares issues in connection with the formation of the Companies - - Repurchase of founders stock in accordance with buy/sell agreement between the original founders (NOTE 4) (1,116,250) (1,120,000) Net income 27,149 27,149 ------------------------ Balance at December 31, 1997 $ (287,452) $ (177,627) ------------------------ ------------------------
SEE ACCOMPANYING NOTES. Resources in Healthcare Innovations, Inc. and Affiliates Combined Statement of Cash Flows Year Ended December 31, 1997 OPERATING ACTIVITIES Net income $ 27,149 Adjustments to reconcile net income to net cash used in operating activities: Depreciation 43,837 Changes in operating assets and liabilities: Accounts receivable (600,123) Other current assets (7,000) Accounts payable (7,394) Accrued salaries, wages, and commissions (508,541) Severance payable 1,032,500 ------------ Net cash used in operating activities (19,572) ------------ INVESTING ACTIVITIES Purchase of equipment (170,245) ------------ Net cash used in investing activities (170,245) ------------ FINANCING ACTIVITIES Proceeds from line of credit 1,555,000 Repayments of line of credit (1,205,000) Proceeds from notes payable to bank 1,000,000 Repurchase of founders stock (1,120,000) ------------ Net cash provided by financing activities 230,000 ------------ Increase in cash and cash equivalents 40,183 Cash and cash equivalents at beginning of year 33,117 ------------ Cash and cash equivalents at end of year $ 73,300 ------------ ------------ SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid during the year for: Interest $ 39,293 ------------ ------------
SEE ACCOMPANYING NOTES. 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ORGANIZATION Resources in Healthcare Innovations, Inc. and Affiliates is a healthcare information technology consulting firm, dedicated to assisting healthcare organizations with improving patient care and lowering costs by providing systems integration and support services. BASIS OF PRESENTATION The combined financial statements include the accounts of Resources in Healthcare Innovations, Inc., Healthcare Transitions Resources, Inc. ("HTR") and Innovative Systems Solutions ("ISS") (affiliated S Corporations). Together they comprise the operations of RHI (the "Company"). All intercompany accounts and transactions have been eliminated. These financial statements have been presented on a combined basis as the affiliated S corporations are under common control and, as described in Note 7, were acquired together by DAOU Systems, Inc. REVENUE RECOGNITION Revenues on professional services and support are based on contractual rates for time and materials and are recognized as labor hours are incurred. CONCENTRATION OF CREDIT RISK Substantially all of the Company's accounts receivable are from hospitals and other healthcare providers. The carrying amounts for accounts receivable approximate their fair value. Losses from uncollectible accounts have historically been minimal and the Company generally does not require collateral for its receivables. EQUIPMENT Equipment is carried at cost. Depreciation is computed using the straight-line method over the estimated useful lives of the assets, generally 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 combined financial statements and disclosures made in the accompanying notes of the combined financial statements. The actual results could differ from those estimates. 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) NEW ACCOUNTING STANDARDS In June 1997, the Financial Accounting Standards Board issued SFAS No. 130, REPORTING COMPREHENSIVE INCOME. This standard is effective for fiscal years beginning after December 15, 1997. SFAS No. 130 requires that all components of comprehensive income, including net income, be reported in the financial statements in the period in which they are recognized. Comprehensive income is defined as the change in equity during a period from transactions and other events and circumstances from non-owner sources. Net income and other comprehensive income, including foreign currency translation adjustments and unrealized gains and losses on investments, shall be reported, net of their related tax effect, to arrive at comprehensive income. The Company does not believe that comprehensive income or loss will be materially different than net income or loss. 2. DEBT The Company has a line of credit agreement with a bank for $700,000 which expires on May 1, 1999. Under the terms of the agreement, advances bear interest at the bank's prime rate plus .25% or 8.75% at December 31, 1997. There are no compensating cash balance requirements and borrowings under the line of credit are limited to 65% of qualifying receivables. At December 31, 1997, $350,000 was outstanding under the line of credit. Borrowings under the line of credit are collateralized by substantially all of the Company's assets and are personally guaranteed by the stockholders of the Company. The Company also has a $1,000,000 note payable to a bank which has a maturity date of September 1, 1998 and an interest rate of 8.5%. As of December 31, 1997, no principal payments had been made. 3. SEVERANCE PAYABLE In connection with the retirement of one of the Company's original founders, the Company entered into a severance agreement whereby the Company will pay the retiring founder a total of $1,050,000 in severance payments, payable in sixty consecutive monthly installments of $17,500 beginning on December 20, 1997. At December 31, 1997, the Company had an outstanding payable of $1,032,500. 3. SEVERANCE PAYABLE (CONTINUED) The aggregate minimum future payments under the severance agreement as of December 31, 1997 are as follows: 1998 $ 210,000 1999 210,000 2000 210,000 2001 210,000 2002 192,500 ---------- $1,032,500 ---------- ----------
4. STOCKHOLDERS' EQUITY (DEFICIT) During 1997, the Company repurchased the stock of one of the original founders under a buy/sell agreement dated December 14, 1993 in connection with his retirement. Based on the terms of the agreement the Company obtained an independent valuation for the stock and based on the valuation paid $1,120,000 to repurchase all 7,500 shares of the founder's stock. The retained earnings activity of HTR and ISS is not presented separately because the amounts are not material 5. INCOME TAXES The stockholders of the Company have elected under Subchapter S of the Internal Revenue Service Code to include the Company's income in their own income for federal and state income tax purposes. Accordingly, the Company is not subject to federal and state income taxes. 6. BENEFIT PLAN The Company has a 401(k) savings plan available to employees who have completed 6 months of eligibility service and are 21 years of age. Employees can voluntarily contribute up to 10% of their gross salaries, subject to IRS limitations. Matching contributions to the plan are at the Company's discretion. The Company made matching contributions to the plan for 1997 of approximately $100,000. The Company pays all administrative costs associated with the plan, which were $2,415 in 1997. 7. SUBSEQUENT EVENTS In January 1998, two other affiliated S corporations were formed, Ulitech Resource Group, Inc. ("URG") and Grand Isle Consulting, Inc. ("GIC"). These companies provide specialized healthcare information technology consulting services, which were not previously available by RHI. On June 26, 1998, all the outstanding stock of the five affiliated companies was acquired by DAOU Systems, Inc. ("DAOU") in exchange for approximately 2.9 million of DAOU's common shares. The shares were allocated to the affiliated companies based on each company's estimated fair value at the date of the transaction. In connection with this transaction, the Subchapter S status will be terminated. As a result, the Company will be subject to corporate income taxes for all periods subsequent to the termination of the S corporation status. 8. YEAR 2000 ISSUE - UNAUDITED The Company has developed a plan to modify its information technology to be ready for the year 2000 and has begun converting critical data processing systems. The Company currently expects the project to be substantially complete by late 1998. The Company does not expect this project to have a significant effect on operations. UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS The following unaudited pro forma combined condensed financial statements give effect to the merger of DAOU Systems, Inc. ("DAOU") and Technology Management Inc. and International Health Care Systems, Inc. (collectively "TMI") and the merger of DAOU and Resources in Healthcare Innovations, Inc., Healthcare Transition Resources, Inc., Ultitech Resources Group, Inc., Innovative Systems Solutions, Inc. and Grand Isle Consulting, Inc. (collectively "RHI"), such mergers collectively referred herein as the "Merger". The Merger was accounted for using the pooling-of-interests method of accounting. These pro forma financial statements are presented for illustrative purposes only and 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. A pro forma combined condensed balance sheet is provided as of June 30, 1998 and December 31, 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 period ended June 30, 1998 and the years ended December 31, 1997 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, 1997 and 1996 are derived from the audited historical financial statements of DAOU, the audited historical combined financial statements of TMI, the audited historical combined financial statements of RHI for the year ended December 31, 1997 and the unaudited combined financial statements of RHI for the year ended December 31, 1996. The pro forma combined condensed financial statements as of and for the six-month period ended June 30, 1998 have been prepared on the same basis as the historical information derived from the audited financial statements. In the opinion of DAOU's, TMI's and RHI's management, the unaudited financial statements of DAOU, TMI and RHI 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. DAOU SYSTEMS, INC. UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEETS June 30, 1998 (in thousands)
Pro Forma Adjustments DAOU TMI RHI for the Pro Forma Historical Historical Historical Transaction Combined ---------------------------------------------------------------------------- ASSETS CURRENT ASSETS: Cash and cash equivalents $ 4,656 $ 933 $ 206 $ - $ 5,795 Short-term investments 3,004 - - - 3,004 Accounts receivable, net 14,828 1,266 3,884 - 19,978 Contract work-in-progress 20,812 1,123 394 - 22,329 Other current assets 3,003 24 30 - 3,057 ---------------------------------------------------------------------------- Total current assets 46,303 3,346 4,514 - 54,163 Due from officers/stockholders 544 - - - 544 Equipment, furniture and fixtures, net 4,091 197 341 - 4,629 Other assets 451 100 - - 551 ---------------------------------------------------------------------------- $51,389 $3,643 $4,855 $ - $59,887 ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Trade accounts payable $ 1,777 $ 480 $ 865 $ - $ 3,122 Accrued salaries and wages 1,751 1,013 - - 2,764 Deferred revenue 247 - - - 247 Other accrued liabilities 7,330 23 151 - 7,504 Line of credit/Current portion of long-term debt 485 - 1,870 - 2,355 ---------------------------------------------------------------------------- Total current liabilities 11,590 1,516 2,886 - 15,992 Deferred rent 31 - - - 31 Other long-term liabilities 2,011 1,117 718 - 3,846 Stockholders' equity: Common stock 11 622 114 (729)(a) 18 Additional paid-in capital 36,497 - - 729 (a) 37,226 Deferred compensation (778) - - - (778) Unrealized gain (loss) on short-term Investments 240 (8) - - 232 Retained earnings 1,787 396 1,137 - 3,320 ---------------------------------------------------------------------------- Total stockholders' equity 37,757 1,010 1,251 - 40,018 ---------------------------------------------------------------------------- $51,389 $3,643 $4,855 $ - $59,887 ---------------------------------------------------------------------------- ----------------------------------------------------------------------------
(a) Reclassifications to conform presentation to DAOU's financial data. DAOU SYSTEMS, INC. UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEETS December 31, 1997 (in thousands)
Pro Forma Adjustments DAOU TMI RHI for the Pro Forma Historical Historical Historical Transaction Combined ------------------------------------------------------------------------------ ASSETS CURRENT ASSETS: Cash and cash equivalents $ 5,692 $2,209 $ 73 $ - $ 7,974 Short-term investments 9,949 358 - - 10,307 Accounts receivable, net 11,935 1,185 2,148 - 15,268 Contract work-in-progress 12,412 879 - - 13,291 Other current assets 2,029 49 7 - 2,085 ----------------------------------------------------------------------------- Total current assets 42,017 4,680 2,228 - 48,925 Due from officers/stockholders 371 - - - 371 Equipment, furniture and fixtures, net 3,483 152 206 - 3,841 Other assets 457 8 - - 465 ----------------------------------------------------------------------------- $46,328 $4,840 $2,434 $ - $53,602 ----------------------------------------------------------------------------- ----------------------------------------------------------------------------- LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Trade accounts payable $ 1,027 $ 591 $ 39 $ - $ 1,657 Accrued salaries and wages 1,752 728 190 - 2,670 Deferred revenue 369 - - - 369 Other accrued liabilities 4,547 629 210 945(b) 6,331 Line of credit/Current portion of Long-term debt 87 - 1,350 - 1,437 ----------------------------------------------------------------------------- Total current liabilities 7,782 1,948 1,789 945(b) 12,464 Deferred rent 55 - - - 55 Other long-term liabilities 439 1,117 822 - 2,378 Stockholders' equity: Common stock 13 107 110 (212)(a) 18 Additional paid-in capital 35,828 - - 212 (a) 36,040 Deferred compensation (907) - - - (907) Unrealized gain on short-term investments 143 3 - - 146 Retained earnings 2,975 1,665 (287) (945)(b) 3,408 ----------------------------------------------------------------------------- Total stockholders' equity (deficit) 38,052 1,775 (177) (945)(b) 38,705 ----------------------------------------------------------------------------- $46,328 $4,840 $2,434 $ - $53,602 ----------------------------------------------------------------------------- -----------------------------------------------------------------------------
(a) Reclassifications to conform presentation to DAOU's financial data. (b) Estimated charge, net of tax, for merger related costs, including costs to integrate the operations of the two companies. DAOU SYSTEMS, INC. UNAUDITED PRO FORMA COMBINED CONDENSED STATMENTS OF OPERATIONS Year ended December 31, 1997 (in thousands, except per share data)
Pro Forma Adjustments DAOU TMI RHI for the Pro Forma Historical Historical Historical Transaction Combined --------------------------------------------------------------------------- Revenues $51,561 $6,371 $9,545 $ - $67,477 Cost of revenues 34,302 3,909 6,072 - 44,283 --------------------------------------------------------------------------- Gross profit 17,259 2,462 3,473 - 23,194 Operating expenses: Sales and marketing 6,803 124 820 - 7,747 General and administrative 8,969 719 2,587 - 12,275 Merger and related expenses 718 - - - 718 --------------------------------------------------------------------------- 16,490 843 3,407 - 20,740 --------------------------------------------------------------------------- Income from operations 769 1,619 66 - 2,454 Interest income (expense), net 841 71 (39) - 873 --------------------------------------------------------------------------- Income before income taxes 1,610 1,690 27 - 3,327 Provision for income taxes 1,108 113 - 591 (a) 1,812 --------------------------------------------------------------------------- Net income $ 502 $1,577 $ 27 $(591)(a) $ 1,515 --------------------------------------------------------------------------- --------------------------------------------------------------------------- Earnings per share data: Net income per common share: Basic $ 0.09 --------- --------- Diluted $ 0.09 --------- --------- Shares used in computing net income per common share: Basic 16,765 --------- --------- Diluted 17,724 --------- ---------
(a) Adjust the income tax provision for income taxes based on an incremental tax rate of 41%. Prior to merger transaction, TMI and RHI were S corporations, therefore income taxes were the responsibility of the individual stockholders. DAOU SYSTEMS, INC. UNAUDITED PRO FORMA COMBINED CONDENSED STATMENTS OF OPERATIONS Year ended December 31, 1996 (in thousands, except per share data)
Pro Forma (Unaudited) Adjustments DAOU TMI RHI for the Pro Forma Historical Historical Historical Transaction Combined ----------------------------------------------------------------------------- Revenues $38,115 $5,374 $5,778 $ - $49,267 Cost of revenues 25,511 3,372 4,451 - 33,334 ----------------------------------------------------------------------------- Gross profit 12,604 2,002 1,327 15,933 Operating expenses: Sales and marketing 3,453 318 515 - 4,286 General and administrative 7,614 724 280 - 8,618 ----------------------------------------------------------------------------- 11,067 1,042 795 - 12,904 ----------------------------------------------------------------------------- Income from operations 1,537 960 532 - 3,029 Interest income (expense), net 255 101 (16) - 340 ----------------------------------------------------------------------------- Income before income taxes 1,792 1,061 516 - 3,369 Provision for income taxes 431 - - 647 (a) 1,078 ----------------------------------------------------------------------------- Net income $ 1,361 $1,061 $ 516 $(647)(a) $ 2,291 ----------------------------------------------------------------------------- ----------------------------------------------------------------------------- Earnings per share data: Net income per common share: Basic $ 0.15 --------- --------- Diluted $ 0.15 --------- --------- Shares used in computing net income per common share: Basic 14,880 --------- --------- Diluted 15,082 --------- ---------
(a) Adjust the income tax provision for income taxes based on an incremental tax rate of 41%. Prior to merger transaction, TMI and RHI were S corporations, therefore income taxes were the responsibility of the individual stockholders. DAOU SYSTEMS, INC. UNAUDITED PRO FORMA COMBINED CONDENSED STATMENTS OF OPERATIONS Six months ended June 30, 1998 (in thousands, except per share data)
Pro Forma Adjustments DAOU TMI RHI for the Pro Forma Historical Historical Historical Transaction Combined ----------------------------------------------------------------------------- Revenues $38,278 $5,748 $8,002 $ - $52,028 Cost of revenues 25,349 3,562 4,524 - 33,435 ----------------------------------------------------------------------------- Gross profit 12,929 2,186 3,478 - 18,593 Operating expenses: Sales and marketing 4,531 197 1,074 - 5,802 General and administrative 6,089 258 326 - 6,673 Merger and related expenses 2,546 89 190 - 2,825 ----------------------------------------------------------------------------- 13,166 544 1,590 - 15,300 ----------------------------------------------------------------------------- Income (loss) from operations (237) 1,642 1,888 - 3,293 Interest income (expense), net 224 37 (60) - 201 ----------------------------------------------------------------------------- Income (loss) before income taxes (13) 1,679 1,828 - 3,494 Provision for income taxes 1,676 3 - - (a) 3,114 ----------------------------------------------------------------------------- Net income (loss) $(1,689) $1,676 $1,828 $ - (a) $ 380 ----------------------------------------------------------------------------- ----------------------------------------------------------------------------- Earnings per share data: Net income per common share: Basic $ 0.02 --------- --------- Diluted $ 0.02 --------- --------- Shares used in computing net income per common share: Basic 17,620 --------- --------- Diluted 18,513 --------- ---------
(a) No pro forma adjustment was made for the incremental income tax as DAOU has recorded an adjustment in its historical financial statements for the quarter ended June 30, 1998 to reflect the change in its acquired businesses tax status from S corporations to C corporations. NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS 1. The unaudited pro forma combined condensed financial statements of DAOU Systems, Inc. ("DAOU"), Technology Management, Inc. ("TMI"), International Health Care Systems, Inc., ("IHCS"), Resources in Healthcare Innovations, Inc. ("RHI"), Healthcare Transition Resources, Inc., ("HTR"), Ultitech Resources Group, Inc. ("URG"), Innovative Systems Solutions, Inc. ("ISS") and Grand Isle Consulting, Inc. ("GIC") 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 1,078,963 fully paid and nonassessable shares of DAOU's common stock for 441 shares of TMI common stock to effect the Merger, reflect the issuance of 224,668 fully paid and nonassessable shares of DAOU's common stock for 135 shares of IHCS common stock to effect the Merger, reflect the issuance of 275,662, 282,551, 308,583 and 223,645 fully paid and nonassessable shares of DAOU's common stock for 100 shares of HTR, URG, ISS and GIC common stock, respectively, to effect the Merger and reflect the issuance of 1,839,381 fully paid and nonassessable shares of DAOU's common stock for 202,780 shares of RHI common stock to effect the Merger. 2. The unaudited pro forma combined condensed balance sheets combine DAOU's June 30, 1998 unaudited balance sheet with TMI and RHI's June 30, 1998 unaudited balance sheets. The unaudited pro forma combined condensed balance sheets combine DAOU's December 31, 1997 audited balance sheet with TMI and RHI's December 31, 1997 audited balance sheets. The adjustment related to the estimated costs of the merger transaction and integration of the businesses and are estimated to be approximately $945,000, net of estimated tax benefits of approximately $84,000. No pro forma adjustment was reflected in the combined condensed balance sheets as of June 30, 1998 as these costs were accrued during such quarter. 3. The unaudited pro forma combined condensed statements of operations combine DAOU's audited historical results for the years ended December 31, 1997 and 1996 with the TMI audited historical results for the years ended December 31, 1997 and 1996, with the RHI audited historical results for the year ended December 31, 1997 and with the RHI unaudited results for the year ended December 31, 1996, respectively. The unaudited pro forma combined condensed statements of operations for June 30, 1998 combine DAOU's unaudited six-months ended June 30, 1998 with the TMI and RHI unaudited six-months ended June 30, 1998 results. 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, TMI's and RHI's existing operations. DAOU expects to incur charges currently estimated to approximate $945,000, net of taxes, in the quarter ending June 30, 1998, the quarter in which the Merger was consummated, to reflect costs associated with combining the operations of the three companies and transaction fees and costs incident to the Merger. This non-recurring charge is reflected in the unaudited pro forma combined condensed balance sheet as of December 31, 1997 but is not included in the unaudited pro forma combined condensed statement of operations. 5. The accounting policies of the separate companies are currently being studied from a conformity perspective. The impact of conforming accounting policies, if any, is not presently estimable. 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: September 8, 1998 DAOU SYSTEMS, INC. By: ----------------------------------------- Fred C. McGee, Chief Financial Officer EXHIBIT INDEX
Exhibit No. Document Description --------- -------------------------------------------------------- 2.1(1)+ Agreement and Plan of Merger, dated as of June 16, 1998, by and among Registrant, DAOU-TMI, Inc., a Delaware corporation and wholly-owned subsidiary of Registrant, TMI, and the stockholders of TMI. 2.2(1)+ Agreement and Plan of Merger, dated as of June 16, 1998, by and among Registrant, DAOU-TMI, Inc., a Delaware corporation and wholly-owned subsidiary of Registrant, International Health Care Systems, Inc., a Florida corporation, and the stockholders of International Health Care Systems, Inc. 2.3(2)+ Agreement and Plan of Merger, dated as of June 26, 1998, by and among Registrant, DAOU-RHI, Inc., a Delaware corporation and wholly-owned subsidiary of Registrant, RHI, Healthcare Transition Resources, Inc., an Indiana corporation ("HTR"), Ultitech Resources Group, Inc., an Indiana corporation ("URG"), Innovative Systems Solutions, Inc., an Indiana corporation ("ISS"), Grand Isle Consulting, Inc., an Indiana corporation ("GIC"), and the respective shareholders of RHI, HTR, URG, ISS and GIC. 99.1(3) Press release, dated June 17, 1998, entitled "DAOU Systems Merges with Technology Management, Inc." 99.2(4) Press release, dated June 26, 1998, entitled "DAOU Systems Merges with Resources in Healthcare Innovations, Further Extending its Technology Reach."
(1) Filed as an exhibit to Registrant's Current Report on Form 8-K that was filed with the SEC on July 10, 1998 and is incorporated herein by reference. (2) Filed as an exhibit to Registrant's Current Report on Form 8-K that was filed with the SEC on August 7, 1998 and is incorporated herein by reference. (3) Filed as an exhibit to Registrant's Current Report on Form 8-K that was filed with the SEC on June 19, 1998 and is incorporated herein by reference. (4) Filed as an exhibit to Registrant's Current Report on Form 8-K that was filed with the SEC on July 6, 1998 and is incorporated herein by reference. + Confidential treatment has been granted for portions of this exhibit. -----END PRIVACY-ENHANCED MESSAGE-----