-----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, JD1+5c0HCBwW9e4vAX5PegCCHEthKTARYQJX5eFTP/KtrRaRiCYU5900a5jYyl8O xsM/Kpx5i9QJNDP8uq8NTQ== 0000950169-96-000283.txt : 19960814 0000950169-96-000283.hdr.sgml : 19960814 ACCESSION NUMBER: 0000950169-96-000283 CONFORMED SUBMISSION TYPE: 8-K/A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19960630 ITEM INFORMATION: Other events ITEM INFORMATION: Financial statements and exhibits FILED AS OF DATE: 19960813 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: HCIA INC CENTRAL INDEX KEY: 0000935001 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-COMPUTER PROGRAMMING, DATA PROCESSING, ETC. [7370] IRS NUMBER: 521407998 STATE OF INCORPORATION: MD FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K/A SEC ACT: 1934 Act SEC FILE NUMBER: 000-25378 FILM NUMBER: 96609769 BUSINESS ADDRESS: STREET 1: 300 EAST LOMBARD ST CITY: BALTIMORE STATE: MD ZIP: 21202 BUSINESS PHONE: 4103327532 MAIL ADDRESS: STREET 1: 300 EAST LOMBARD ST CITY: BALTIMORE STATE: MD ZIP: 21202 8-K/A 1 HCIA SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 8-K/A-1 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 19, 1996 HCIA INC. (Exact name of registrant as specified in its charter) Maryland 0-25378 52-1407998 (State or other jurisdiction of (Commission (I.R.S. Employer incorporation) File Number) Identification No.) 300 East Lombard Street, Baltimore, Maryland 21202 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (410) 895-7470 Not applicable (Former name or former address, if changed since last report) Item 5. Other Events. LBA Health Care Acquisition. On August 9, 1996, the Company consummated the acquisition of LBA Health Care Management, Inc. ("LBA"), through the purchase of all of the capital stock of HealthVISION, Inc., LBA's parent company. The acquisition price was approximately $130 million, $100 million of which was paid in cash and $30 million of which was paid by delivery of Company Common Stock (492,961 shares). Prior to the consummation of the LBA acquisition, all of the assets and liabilities of HealthVISION not associated with LBA were distributed to the former stockholders of HealthVISION. Eighty-six million dollars of the cash portion of the purchase price was provided by a $100 million loan facility which the Company obtained from a bank. The Company intends to repay the bank financing with a portion of the net proceeds of a public offering of its Common Stock. Second Quarter Results. On July 22, 1996 the Company announced results for the second quarter of 1996. See the press release attached hereto as Exhibit 99. Incorporation of Certain Information by Reference. Pursuant to Rule 411 of Regulation C under the Securities Act of 1933, as amended (the "Act"), the Registrant intends to incorporate by reference the financial statements included in Item 7 hereof in one or more registration statement(s) filed under Act. 2 Item 7. Financial Statements and Exhibits. (a) Financial Statements INDEX TO FINANCIAL STATEMENTS
Page Financial Statements of Datis Corporation: Independent Auditors' Report................................................................ F-1 Report of Independent Accountants........................................................... F-2 Balance Sheet (May 31, 1994, May 31, 1993 and March 31, 1993)............................... F-3 Statement of Operations (Year ended May 31, 1994, Two Months ended May 31, 1993 and Year ended March 31, 1993)............................................ F-4 Statement of Cash Flows (Year ended May 31, 1994, Two Months ended May 31, 1993 and Year ended March 31, 1993)............................................. F-5 Statement of Shareholders' Deficit (Year ended May 31, 1994, Two Months ended May 31, 1993 and Year ended March 31, 1993)....................................... F-6 Notes to Financial Statements............................................................... F-7 Unaudited Financial Statements of Datis Corporation: Balance Sheet (March 31, 1995).............................................................. F-17 Statement of Operations (Ten Months ended March 31, 1994 and March 31, 1995)......................................................................... F-18 Statement of Shareholders' Deficit (Ten Months ended March 31, 1995)........................ F-19 Statement of Cash Flows (Ten Months ended March 31, 1994 and March 31, 1995)................ F-20 Notes to Unaudited Financial Statements..................................................... F-21 Financial Statements of William M. Mercer, Incorporated National Health Analysis Unit (CHAMP): Independent Auditors' Report................................................................ F-22 Balance Sheets (December 31, 1994 and September 30, 1995)................................... F-23 Statements of Operations (Years ended December 31, 1993 and 1994 and the Nine Months ended September 30, 1995)................................................... F-24 Statements of Cash Flows (Years ended December 31, 1993 and 1994 and the Nine Months ended September 30, 1995)................................................... F-25 Notes to Financial Statements (December 31, 1993 and 1994 and September 30, 1995)..................................................................... F-26 Financial Statements of HealthVISION, Inc.: Report of Independent Auditors.............................................................. F-30 Consolidated Balance Sheets (December 31, 1994 and 1995).................................... F-31 Consolidated Statements of Operations (Period from February 2, 1994 (Inception) through December 31, 1994 and the year ended December 31, 1995)................................. F-32 Consolidated Statements of Changes in Stockholders' Equity (Period from February 2, 1994 (Inception) through December 31, 1994 and the year ended December 31, 1995)................................................... F-33 Consolidated Statements of Cash Flows (Period from February 2, 1994 (Inception) through December 31, 1994, and the year ended December 31, 1995)................................ F-34
3 Notes to Consolidated Financial Statements.................................................. F-35 Unaudited Financial Statements of HealthVISION, Inc: Consolidated Balance Sheets (December 31, 1995 and June 30, 1996).......................... F-50 Consolidated Statements of Operations (Six Months ended June 30, 1995 and 1996).............................................................. F-51 Consolidated Statements of Changes in Stockholders' Equity (Period from February 12, 1994 (Inception) through June 30, 1996).................... F-52 Consolidated Statements of Cash Flows (Six Months ended June 30, 1995 and 1996).............................................................................. F-53 Notes to Financial Statements............................................................... F-54 4 INDEPENDENT AUDITORS' REPORT The Board of Directors Datis Corporation: We have audited the accompanying balance sheet of Datis Corporation as of March 31, 1993, and the related statements of operations, shareholders' deficit, and cash flows for the year 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 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 financial position of Datis Corporation as of March 31, 1993, and the results of its operations and its cash flows for the year then ended in conformity with generally accepted accounting principles. KPMG PEAT MARWICK LLP San Jose, California June 17, 1993 F-1 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors of Datis Corporation In our opinion, the accompanying balance sheet and the related statements of operations, of cash flows and of shareholders' deficit present fairly, in all material respects, the financial position of Datis Corporation at May 31, 1994 and 1993, and the results of its operations and its cash flows for the year ended May 31, 1994 and the two months ended May 31, 1993, in conformity with generally accepted accounting principles. 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 of these statements in accordance with generally accepted auditing standards which 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, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. As described in Note 11, in connection with the acquisition of the Company by HCIA Inc. in April 1995, the Company has modified its financial statement presentation to conform with the financial reporting requirements of the Securities and Exchange Commission. PRICE WATERHOUSE LLP San Jose, California July 22, 1994, except as to Note 11 which is as of July 24, 1995 F-2 DATIS CORPORATION BALANCE SHEET
May 31, May 31, March 31, 1994 1993 1993 ----------- ----------- ---------- ASSETS Current assets: Cash and cash equivalents...................................... $ 123,000 $ 58,000 $ 53,000 Accounts receivable, net of allowance for doubtful accounts of $231,000, $343,000 and $185,000.................. 2,172,000 1,951,000 3,407,000 Income taxes receivable........................................ 563,000 -- -- Prepaid expenses and other..................................... 55,000 39,000 39,000 ------------ ------------ ---------- Total current assets......................................... 2,913,000 2,048,000 3,499,000 Property and equipment, net (Note 3).............................. 1,606,000 1,567,000 1,239,000 Other assets...................................................... 49,000 49,000 119,000 ------------ ------------ ---------- $ 4,568,000 $ 3,664,000 $4,857,000 ============ ============ ========== LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED STOCK AND SHAREHOLDERS' DEFICIT Current liabilities: Current portion of capital lease obligations (Note 6).......... $ 320,000 $ 323,000 $ 205,000 Accounts payable............................................... 508,000 274,000 653,000 Bank borrowings (Note 4)....................................... 922,000 200,000 -- Accrued liabilities (Note 3)................................... 1,802,000 1,781,000 2,427,000 Current portion of long-term debt (Note 5)..................... 118,000 79,000 67,000 ----------- ------------ --------- Total current liabilities.................................... 3,670,000 2,657,000 3,352,000 Capital lease obligations, net of current portion (Note 6)........ 230,000 288,000 113,000 Long-term debt, net of current portion (Note 5)................... 279,000 197,000 213,000 Other liabilities................................................. 32,000 43,000 39,000 ----------- ------------ --------- Total liabilities............................................ 4,211,000 3,185,000 3,717,000 ----------- ------------ ---------- Commitments (Note 6) Redeemable convertible preferred stock (Note 8): Series A, no par value, 1,500,000 shares authorized, 1,285,716, 1,285,716, and 1,285,716 shares issued and outstanding.................................................. 872,000 872,000 872,000 Series B, no par value, 1,000,000 shares authorized, 425,000, 425,000 and 425,000 shares issued and outstanding.................................................. 507,000 507,000 507,000 ----------- ------------ ---------- Total redeemable convertible preferred stock................. 1,379,000 1,379,000 1,379,000 ----------- ------------ ---------- Shareholders' deficit: Common stock, no par value, 10,000,000 shares authorized, 1,029,797, 1,003,097, and 1,003,097 shares issued and outstanding (Note 9).............................. 241,000 224,000 224,000 Accumulated deficit............................................ (1,223,000) (1,084,000) (423,000) Notes receivable from shareholders............................. (40,000) (40,000) (40,000) ----------- ------------ ---------- Total shareholders' deficit.................................. (1,022,000) (900,000) (239,000) ----------- ------------ ---------- $ 4,568,000 $ 3,664,000 $4,857,000 =========== ============ ==========
The accompanying notes are an integral part of these financial statements. F-3 DATIS CORPORATION STATEMENT OF OPERATIONS
Year ended Two Months Year ended May 31, ended May 31, March 31, 1994 1993 1993 ------------ ------------ ----------- Net revenues: Basic reports..................................................... $ 6,070,000 $ 247,000 $ 6,252,000 Special reports................................................... 2,920,000 182,000 2,570,000 ----------- ---------- ----------- 8,990,000 429,000 8,822,000 ----------- ---------- ----------- Total net revenues.............................................. Operating expenses: Cost of revenues.................................................. 3,639,000 513,000 2,708,000 Selling and marketing............................................. 3,435,000 353,000 3,047,000 General and administrative........................................ 1,383,000 451,000 1,071,000 Research and development.......................................... 576,000 95,000 562,000 ----------- ---------- ----------- Total operating expenses........................................ 9,033,000 1,412,000 7,388,000 ----------- ---------- ----------- Income (loss)from operations......................................... (43,000) (983,000) 1,434,000 Interest expense..................................................... 189,000 24,000 128,000 ----------- ---------- ----------- Income (loss) before income taxes.................................... (232,000) (1,007,000) 1,306,000 Income tax provision (benefit) (Note 7).............................. (93,000) (320,000) 515,000 ----------- ---------- ----------- Income (loss) before extraordinary credit and cumulative effect of change in accounting principle.................................... (139,000) (687,000) 791,000 Extraordinary credit - utilization of net operating loss carryforwards..................................................... -- -- 41,000 ----------- ---------- ----------- Income (loss) before cumulative effect of change in method of accounting for income taxes....................................... (139,000) (687,000) 832,000 Cumulative effect of change in method of accounting for income taxes............................................................. -- (26,000) -- ----------- ---------- ----------- -- Net income (loss).................................................... $ (139,000) $ (661,000) $ 832,000 =========== ========== ===========
The accompanying notes are an integral part of these financial statements. F-4 DATIS CORPORATION STATEMENT OF CASH FLOWS
Year ended Two Months ended Year ended May 31, May 31, March 31, 1994 1993 1993 ------------ -------------- ------------ Net income (loss).................................................... $ (139,000) $ (661,000) $ 832,000 Adjustments to reconcile net income (loss) to net cash provided (used) by operating activities: Depreciation and amortization..................................... 620,000 102,000 331,000 Loss on sale of property and equipment............................ 7,000 -- -- Change in assets and liabilities: Accounts receivable............................................. (221,000) 1,456,000 (1,793,000) Income taxes receivable......................................... (563,000) -- -- Prepaid expenses and other...................................... (16,000) -- (1,000) Other assets.................................................... -- (17,000) (18,000) Deferred income taxes........................................... -- 94,000 (51,000) Accounts payable and accrued expenses........................... 222,000 (724,000) 579,000 Deferred revenue................................................ 104,000 139,000 441,000 Income taxes payable............................................ (71,000) (440,000) 322,000 Other liabilities............................................... (11,000) (3,000) (13,000) ----------- ----------- ------------ Net cash provided (used) by operating activities.............. (68,000) (54,000) 629,000 ----------- ----------- ------------ Cash flows from investing activities: Purchases of property and equipment............................. (336,000) (70,000) (557,000) Proceeds from the sale of property and equipment................ 4,000 -- -- ----------- ------------ ------------ Net cash used by investing activities......................... (332,000) (70,000) (557,000) ----------- ----------- ------------ Cash flows from financing activities: Borrowings under revolving line of credit....................... 722,000 200,000 -- Proceeds from issuance of long-term debt........................ 297,000 -- -- Principal payments on capital lease obligations................. (395,000) (67,000) (166,000) Repayment of long-term debt..................................... (176,000) (4,000) (96,000) Issuance of common stock, net................................... 17,000 -- 29,000 Payment of note receivable from shareholders.................... -- -- 6,000 ----------- ----------- ------------ Net cash provided (used) by financing activities.............. 465,000 129,000 (227,000) ----------- ----------- ------------ Net increase (decrease) in cash and cash equivalents................. 65,000 5,000 (155,000) Cash and cash equivalents at beginning of period..................... 58,000 53,000 208,000 ----------- ----------- ------------ Cash and cash equivalents at end of period........................... $ 123,000 $ 58,000 $ 53,000 =========== =========== ============ Supplemental disclosures of cash flow information: Cash paid during the period for: Interest........................................................ $ 197,000 $ 20,000 $ 97,000 Income taxes.................................................... 116,000 -- 243,000 Noncash investing and financing activities: Equipment acquired under capital leases......................... 334,000 360,000 132,000 Conversion of convertible subordinated debentures to common stock.................................................. -- -- 20,000
The accompanying notes are an integral part of these financial statements. F-5 DATIS CORPORATION STATEMENT OF SHAREHOLDERS' DEFICIT
Common Stock Notes Receivable Total ------------ Accumulated from Shareholders' Shares Amount Deficit Shareholders Deficit ------- -------- ------------ ---------------- ------------- Balance at March 31, 1992............... 954,097 $176,000 $(1,255,000) $(46,000) $(1,125,000) Net income............................. -- -- 832,000 -- 832,000 Conversion of subordinated debentures to common stock..................... 20,000 20,000 -- -- 20,000 Exercise of stock options.............. 29,000 28,000 -- -- 28,000 Payment of Note Receivable............. -- -- -- 6,000 6,000 --------- -------- ----------- -------- ----------- Balance at March 31, 1993.............. 1,003,097 224,000 (423,000) (40,000) (239,000) Net loss............................... -- -- (661,000) -- (661,000) --------- -------- ----------- -------- ----------- Balance at May 31, 1993................ 1,003,097 224,000 (1,084,000) (40,000) (900,000) Net loss............................... -- -- (139,000) -- (139,000) Issuance of common stock............... 27,300 21,000 -- -- 21,000 Repurchase of common stock............. (600) (4,000) -- -- (4,000) --------- -------- ----------- -------- ----------- Balance at May 31, 1994................ 1,029,797 $241,000 $(1,223,000) $(40,000) $(1,022,000) ========= ======== =========== ======== =========== The accompanying notes are an integral part of these financial statements. F-6 DATIS CORPORATION NOTES TO FINANCIAL STATEMENTS 1. The Company Datis Corporation (the "Company") provides customized and syndicated research in the form of reports and data bases for hospital associations and business coalitions throughout the United States using patient case abstracts provided by participating hospitals and other available information. Such reports are used by hospital management to help make decisions involving hospital operations, financial and strategic planning marketing, and regulatory reporting. The Company changed its fiscal year end from March 31 to May 31, effective April 1, 1993. The Company enters into contracts with individual client hospitals through state hospital associations. For the year ended May 31, 1994, four state hospital associations and their affiliated hospitals accounted for approximately 16%, 13%, 12% and 12% of the Company's total revenues. For the year ended March 31, 1993, five associations accounted for approximately 17%, 14%, 13%, 13% and 11% of total revenues. 2. Significant Accounting Policies Property and equipment Property and equipment are stated at cost. Depreciation is calculated using the straight-line method over the estimated useful lives of the assets, which range from three to seven years. Computer equipment under capital leases is amortized over the shorter of the lease term or the estimated useful lives of the equipment. Leasehold improvements are amortized over the shorter of the lease term or the estimated useful lives of the improvements. Revenue recognition Revenue is recognized at the culmination of the earnings process when the data collection and editing process has been completed. Costs incurred subsequent to the completion of the earnings process and prior to delivery of the product to the customer are accrued at the time of revenue recognition. Such costs relate primarily to printing and fulfillment and are not significant in relation to the overall product costs. Cash collections made prior to the completion of specific reports are presented as deferred revenue in the accompanying balance sheet. Income taxes Effective April 1, 1993, income taxes are computed under the provisions of Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("FAS 109"). Current income tax expense or benefit represents the amount of income taxes expected to be payable or refundable for the current period. A deferred income tax liability or asset, net of valuation allowance, is established for the expected future consequences resulting from the difference F-7 between the financial reporting and income tax bases of assets and liabilities and from net operating loss and tax credit carryforwards. Deferred income tax expense or benefit represents the net change during the period in the deferred income tax liability or asset. During fiscal 1993 deferred income taxes were computed under the provisions of Accounting Principles Board Opinion No. 11. Cash equivalents The Company considers all highly liquid financial instruments purchased with an original maturity of three months or less to be cash equivalents. Concentration of credit risk The majority of the Company's accounts receivable are from hospitals throughout the United States with credit terms of generally 30 days and which are not collateralized. The Company maintains adequate reserves for potential credit losses and such losses, which have been minimal, have been within management estimates. Research and development Research and development costs are experienced as incurred. Reclassifications The Company's previously issued fiscal 1993 financial statements presented its operating expenses under the following captions: personnel, office, travel and meeting, purchased services, data processing, and other operating. Subsequent to the issuance of the fiscal 1993 financial statements, the Company determined that the presentation of its operating expenses under the following captions would be more meaningful and in accordance with industry practice: cost of revenues, selling and marketing, general and administrative, and research and development. Accordingly, the fiscal 1993 operating expenses have been reclassified to conform to the current presentation. Such reclassification had no effect on total revenues, total operating expenses, operating income or net income. F-8 3. Balance Sheet Components Property and equipment:
May 31, May 31, March 31, 1994 1993 1993 ---------- ----------- ------------ Computer and office equipment........................ $ 2,628,000 $ 2,069,000 $ 1,681,000 Furniture and fixtures............................... 464,000 385,000 358,000 Leasehold improvements............................... 211,000 206,000 191,000 ----------- ----------- --------- 3,303,000 2,660,000 2,230,000 Less accumulated depreciation and amortization....... (1,697,000) (1,093,000) (991,000) ----------- ----------- --------- $1,606,000 $1,567,000 $1,239,000 ========== ========== ==========
Included in the table above are property and equipment acquired under capital leases as follows:
May 31, May 31, March 31, 1994 1993 1993 ---------- ---------- ---------- Computer and office equipment........................ $1,320,000 $ 986,000 $ 626,000 Furniture and fixtures............................... 58,000 58,000 58,000 ---------- ---------- ---------- 1,378,000 1,044,000 684,000 Less accumulated amortization........................ (792,000) (461,000) (399,000) ---------- ---------- ---------- $ 586,000 $ 583,000 $ 285,000 ========== ========== ========== Accrued liabilities: May 31, May 31, March 31, 1994 1993 1993 ---------- ---------- ---------- Salaries and commissions............................. $ 631,000 $ 545,000 $ 891,000 Deferred revenue..................................... 1,016,000 912,000 773,000 Income taxes payable................................. -- 71,000 511,000 Other................................................ 155,000 253,000 252,000 ---------- --------- ---------- $1,802,000 $1,781,000 $2,427,000 ========== ========== ==========
4. Bank Borrowings The Company has a revolving line of credit arrangement with a bank. The arrangement, which allows for up to $1,000,000 to be drawn (based on 75% of eligible accounts receivable), is secured by certain assets of the Company, and bears interest at prime plus 2.5% (9.75%, 9.0% and 9.0% at May 31, 1994, 1993 and March 31, 1993, respectively). This arrangement also allows for additional sub-facility borrowings of up to $250,000 in excess of the qualifying accounts receivable collateral base; however, total borrowings cannot exceed $1,000,000. Upon receipt of the Company's 1994 income tax refund, this sub-facility will be deleted in its entirety. Under the credit arrangement, the Company must maintain specified financial ratios on a monthly basis. The line of credit is payable upon demand and expires September 30, 1994. The credit arrangement also has a sublimit of $150,000 for the issuance of letters of credit, of which $32,000 was outstanding in connection with the guaranty of certain operating lease commitments at May 31, 1994. The Company had total outstanding borrowings of $922,000 under the credit arrangement at May 31,1994. F-9 5. Long-term Debt The Company has outstanding a series of subordinated notes which originated in 1990 and 1991 and mature in fiscal 1995 and 1996. The notes bear interest at the rate of 10% per annum and provide holders the option to receive the Company's services in lieu of principal and interest payments. For the years ended May 31, 1994 and March 31, 1993, approximately $147,000 and $77,000, respectively, in subordinated debt principal and related interest were exchanged for services. Revenues include billings to hospitals who are holders of subordinated notes of the Company in the amounts of $243,000, $2,000 and $365,000 for the periods ended May 31,1994, May 31, 1993 and March 31, 1993, respectively. At May 31, 1994, the Company had three secured notes totaling $268,000. These notes, which are secured by specific furniture and equipment, bear interest at rates ranging from 9.99% to 11.25% and mature between 1996 and 1998. Aggregate maturities of long-term debt at May 31, 1994 are as follows: Year ending May 31, 1995................................................ $118,000 1996................................................ 164,000 1997................................................ 67,000 1998................................................ 28,000 1999 and thereafter................................. 20,000 -------- $397,000 ======== 6. Leases The Company leases certain computer and office equipment, furniture and office space under noncancelable capital and operating leases which expire in various years through 1999. F-10 A schedule of future minimum noncancelable lease payments is as follows:
Capital Operating Year ending May 31, Leases Leases -------- --------- 1995......................................................... $358,000 $508,000 1996......................................................... 213,000 548,000 1997......................................................... 29,000 540,000 1998......................................................... -- 289,000 1999 and thereafter.......................................... -- 106,000 -------- ------- Total minimum lease payments................................. 600,000 $1,991,000 ========== Less amount representing interest............................ (50,000) -------- Present value of future minimum lease payments............... 550,000 Less current portion......................................... (320,000) ---------- $ 230,000 ==========
Rent expenses on the office lease is recognized on the straight-line basis over the lease term to properly reflect certain escalation clauses. Total rent expense under operating leases was approximately $414,000, $57,000 and $309,000 for the periods ended May 31, 1994 and 1993 and March 31, 1993, respectively. 7. Income Taxes The income tax provision (benefit) comprises the following:
Year Two Months Year ended ended ended May 31, May 31, March 31, 1994 1993 1993 ---------- ---------- --------- Current: Federal..................................................... $(93,000) $(440,000) $455,000 State....................................................... -- -- 111,000 ----------- --------- -------- (93,000) (440,000) 566,000 -- Deferred: Federal..................................................... -- 120,000 (44,000) State....................................................... -- -- (7,000) ----------- --------- -------- -- 120,000 (51,000) ----------- --------- -------- $(93,000) $(320,000) $515,000 =========== ========= ======== Utilization of net operating loss carryforwards............... $ -- $ -- $(41,000) =========== ========= ========
F-11 The significant components of deferred income taxes are as follows:
May 31, May 31, April 1, 1994 1993 1993 ---------- ---------- -------- Deferred tax liabilities: Depreciation.................................................... $ 42,000 $ 22,000 $ -- ---------- ----------- --------- 42,000 22,000 -- ---------- ----------- --------- Deferred tax assets: Depreciation.................................................... -- -- (10,000) Accrued liabilities and reserves not currently deductible.......................................... (139,000) (174,000) (110,000) Net operating loss carryforwards................................ (210,000) (360,000) (360,000) ----------- ----------- --------- (349,000) (534,000) (480,000) ----------- ----------- --------- (307,000) (512,000) (480,000) Less valuation allowance............................................. 307,000 512,000 360,000 ---------- ----------- --------- Net deferred tax assets.............................................. $ -- $ -- $ 120,000 ========== =========== =========
Upon adoption of FAS 109 at April 1, 1993, the Company had $480,000 of net deferred tax assets. At that time, management believed it was more likely than not that approximately $120,000 of such assets were realizable based on projected future operating results. Due to the Company's operating results in the two months ended May 31, 1993 and fiscal 1994, management concluded it was more likely than not that such assets were not realizable and, therefore, a full valuation allowance was provided. The components of the deferred income tax provision (benefit) are as follows:
Year ended March 31, 1993 -------------- Leases.......................................................... $ 51,000 Accrued liabilities and reserves not currently deductible....... (60,000) Depreciation.................................................... (39,000) Other........................................................... (3,000) ------ $ (51,000)
====== F-12 The effective tax rates differ from the federal statutory rates by applying the applicable federal statutory income tax rate to pretax income as follows:
May 31, May 31, March 31, 1994 1993 1993 ---------- ---------- ---------- Federal statutory rate.......................................... (34)% (34)% 34% State taxes, net of federal benefit............................. -- -- 5 Change in valuation allowance................................... (6) 4 -- Alternative minimum tax effect and other........................ -- (2) -- (40)% (32)% 39% ===== ===== ===
At May 31, 1994, the Company had federal net operating loss carryforwards of approximately $600,000 which expire between 2001 and 2009. As a result of an "ownership change," as defined under Internal Revenue Code Section 382, which occurred in April 1988, the utilization of approximately $400,000 of federal net operating loss carryforwards is subject to an annual limitation of approximately $40,000. Due to a change in the Company's tax year end, as defined under Revenue Procedure 84-34, which occurred at March 31, 1991, the utilization of approximately $200,000 of federal net operating loss carryforwards is subject to an annual limitation of approximately $70,000. 8. Redeemable Convertible Preferred Stock Through May 31, 1994, the Company authorized 2,500,000 shares of preferred stock of which 1,500,000 shares were designated Series A and 1,000,000 shares were designated Series B. At May 31, 1994 and May 31, 1993, and at March 31, 1993, 1,285,716 shares of Series A and 425,000 shares of Series B redeemable convertible preferred stock were issued and outstanding. The rights, preferences, privileges, and restrictions relating to the Series A and B redeemable convertible preferred stocks are as follows: (bullet) Commencing on March 31, 1994 and on each of the next three anniversaries (the "Scheduled Redemption Dates"), upon receipt of a written request received from holders of two-thirds of the Series A and Series B redeemable convertible preferred stock, the Company will redeem 25% per year of the outstanding shares, at a rate of $.70 per share for Series A and $1.20 per share for Series B (the "Redemption Price"). (bullet) At the shareholders' option, each share of Series A and B redeemable convertible preferred stock is convertible into one share of common stock, subject to certain antidilution provisions, at any time after issuance and on or prior to the fifth day prior to any redemption date. Shares of common stock reserved for conversion of the Series A and B stock total F-13 1,500,000 and 1,000,000, respectively. The preferred shares are automatically converted in the event of an initial public offering with minimum proceeds of $3,000,000 and an offering price of at least $1.40 per share. (bullet) Holders are entitled to a preferential cash dividend at the rate of $.07 per share for Series A and $.12 per share for Series B per year, as declared by the Board of Directors. Holders are also entitled to proportional cash or stock dividends as, and if, paid to common shareholders. The rights to cash dividends are noncumulative until December 30, 1994. (bullet) Each holder is entitled to the number of votes equal to the number of shares of common stock into which shares of Series A and B redeemable convertible preferred stock could be converted. Voting rights and powers are equal to the voting rights and powers of common stock. (bullet) In the event of liquidation, the holders are entitled to receive distributions, in the amount of $.70 per share for Series A and $1.20 per share for Series B, plus all declared and cumulative dividends. (bullet) In the event of an acquisition of the Company or a sale of all or substantially all the Company's assets, the holders shall be paid for $.70 per share for Series A and $1.20 per share for Series B in cash or in securities of the acquiring corporation. 9. Common Stock During 1986, the Company adopted an employee stock purchase plan and reserved 200,000 shares of common stock for sale and issuance to employees, directors, officers, and consultants of the Company at prices not less than the current estimated fair value of the shares, as determined by the Board of Directors, at the date of grant. During 1988, the Company adopted the 1988 Stock Option Plan (the "Plan") and reserved 500,000 shares of common stock for sale and issuance to employees, directors, officers, and consultants. On April 27, 1993, the number of shares of common stock reserved for sale under the Plan was increased to 750,000. Under the Plan, the Company may grant either nonstatutory stock options or incentive stock options. Incentive stock options are granted to employees, directors, or officers at prices not less than the estimated fair value of the Company's common stock, as determined by the Board of Directors, on the grant date. Nonstatutory stock options are granted to employees, directors, officers, or consultants at prices not less than 85% of the estimated fair value of the Company's common stock. Options vest 20% each year over five years, provided that such person is still employed by the Company. F-14 Activity under the Plan is summarized as follows:
Shares Outstanding Options Available Number of Exercise for Grant Shares Price --------- ----------- ------------ Balance at March 31, 1992.............................. 218,400 278,200 $ 0.40-$1.00 Granted................................................ (207,650) 207,650 $ 1.00-$4.00 Canceled............................................... 35,500 (35,500) $ 1.00-$2.00 Exercised.............................................. -- (29,000) $ 0.45-$1.00 -------- ------- Balance at March 31, 1993.............................. 46,250 421,350 $ 0.40-$4.00 Additional shares reserved............................. 250,000 -- -- Granted................................................ (5,700) 5,700 $ 4.00 2,700 (2,700) $ 0.45-$2.00 -------- ------- Balance at May 31, 1993................................ 293,250 424,350 $ 0.40-$4.00 Granted................................................ (112,600) 112,600 $ 2.00-$8.00 Canceled............................................... 48,120 (48,120) $ 0.45-$8.00 -- (27,300) $ 0.40-$8.00 -------- ------- Balance at May 31, 1994................................ 228,770 461,530 $ 0.40-$8.00 ========= ======= Exercisable at May 31, 1994............................ 204,040 $ 0.40-$8.00
10. Subsequent Events On June 10, 1994, the Board authorized an offer to individuals who had previously received options at exercise prices of $4.00 and $8.00 per share the right to exchange those options for new options at an exercise price of $2.00 per share. Holders of options for approximately 138,550 shares are expected to exchange existing options for the new grants at $2.00 per share. In July 1994, the Company borrowed $55,000 from a shareholder under a Promissory Note Agreement. The Note bears interest at 9.5% with principal and interest due on September 15, 1994. In a separate transaction, the Company received $200,000 from nine other shareholders under a $500,000 Loan and Warrant Agreement. Effective July 28, 1994, the nine Convertible Promissory Notes bear an interest rate of 9%. The principal and accrued interest is due and payable upon demand at any time after January 27, 1995, unless otherwise earlier converted into equity securities as set forth in the Loan and Warrant Agreements. In August 1994, the Texas Hospital Association and the Louisiana Hospital Association advised the Company that they were terminating their Association Agreements effective F-15 December 31, 1994. The Texas program will be open to bidding by prospective vendors for the period beginning January 1, 1995 and the Company has been invited to submit a bid. For the year ended May 31, 1994, approximately 19% of the Company's revenues came from affiliated hospitals under these agreements. 11. Subsequent Event (Unaudited) On April 11, 1994, the Company agreed to be acquired by HCIA Inc. ("HCIA") for approximately $14.25 million in cash. The acquisition was effected through an Agreement and Plan of Reorganization (the "Agreement") whereby a subsidiary of HCIA merged into Datis. Pursuant to the Agreement, each share of Datis Capital Stock was converted to the right to receive cash equal to the quotient obtained by dividing (a) the sum of cash purchase price and the aggregate exercise price of all options to purchase Datis common stock which are exercised between the date of the Agreement and the effective date of the merger and (b) the total number of shares of Datis Capital Stock outstanding on the effective date of the Merger. The acquisition was completed on April 28, 1995. In connection with its acquisition by HCIA, the Company has modified its financial statements to conform with the financial reporting requirements of the Securities and Exchange Commission. In addition to including expanded footnote disclosures, the Company has classified its redeemable preferred stock in the accompanying balance sheet outside shareholders' deficit. In the Company's previously-issued financial statements, the Company classified its redeemable preferred stock as a component of shareholders' equity, which is an acceptable presentation for a non-public entity. This reclassification has no effect on the Company's previously-reported operations or net income. F-16 DATIS CORPORATION BALANCE SHEET March 31, 1995 (in thousands) (Unaudited) ASSETS Current assets: Cash and cash equivalents....................................................... $ 350 Accounts receivable, net........................................................ 1,036 Prepaid expenses and other...................................................... 65 -------- Total current assets......................................................... 1,451 Property and equipment, net.......................................................... 1,400 Other assets......................................................................... 36 -------- Total assets................................................................. $2,887 ======== LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED STOCK AND SHAREHOLDERS' DEFICIT Current liabilities: Current portion of capital lease obligations.................................... $ 282 Accounts payable and accrued expenses........................................... 944 Bank borrowings................................................................. 400 Deferred revenue................................................................ 1,066 Current portion of long-term debt............................................... 133 Notes payable to shareholders................................................... 500 -------- Total current liabilities....................................................... 3,325 Capital lease obligations, net of current portion.................................... 128 Long-term debt, net of current portion............................................... 162 Other liabilities.................................................................... 23 -------- Total liabilities............................................................. 3,638 -------- Redeemable convertible preferred stock: Series A.......................................................................... 872 Series B.......................................................................... 507 -------- Total redeemable convertible preferred stock.................................. 1,379 -------- Shareholders' deficit: Common Stock.................................................................... 241 Accumulated deficit............................................................. (2,371) ------- Total shareholders' deficit................................................... (2,130) Total liabilities, redeemable convertible preferred stock ------- and shareholders' deficit................................................... $ 2,887 =======
See accompanying notes to financial statements. F-17 DATIS CORPORATION STATEMENT OF OPERATIONS Ten Months ended March 31, 1994 and 1995 (in thousands) (Unaudited)
1994 1995 ---- ---- Net revenues: Basic reports...................................................... $4,898 $ 4,559 Special reports.................................................... 2,280 1,898 ------ -------- Total net revenues............................................... 7,178 6,457 ------ -------- Operating expenses: Cost of revenues................................................... 3,007 3,292 Selling and marketing.............................................. 2,732 2,470 General and administrative......................................... 1,228 1,305 Research and development........................................... 491 404 ------ -------- Total operating expenses......................................... 7,458 7,471 ------ -------- Loss from operations.................................................... (280) (1,014) Interest expense, net................................................... 129 134 ------ -------- Loss before income taxes................................................ (409) (1,148) Income tax benefit...................................................... (163) -- ------ -------- Net loss $ (246) $ (1,148) ====== ========
See accompanying notes to financial statements. F-18 DATIS CORPORATION STATEMENT OF SHAREHOLDERS' DEFICIT Ten Months ended March 31, 1995 (in thousands) (Unaudited)
Notes Receivable Total Common Stock Accumulated from Shareholder's Shares Amount Deficit Shareholders Deficit ------ ------- ----------- ------------ ------------- Balance June 1, 1994............... 1,030 $241 $(1,223) $(40) $(1,022) Payment of Note Receivable......... -- -- -- 40 40 Net loss........................... -- -- (1,148) -- (1,148) ----- ---- ------- ---- ------- Balance March 31, 1995............. 1,030 $241 $(2,371) -- $(2,130) ===== ==== ======= ==== =======
See accompanying notes to financial statements. F-19 DATIS CORPORATION STATEMENTS OF CASH FLOWS Ten months ended March 31, 1994 and 1995 (in thousands) (Unaudited)
1994 1995 ------- -------- Net loss................................................................................ $ (246) $(1,148) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation and amortization........................................................ 495 543 Change in operating assets and liabilities: Accounts receivable.................................................................. 540 1,136 Income taxes receivable.............................................................. (621) 569 Prepaid expenses and other........................................................... (58) (9) Other assets......................................................................... (86) 13 Accounts payable and accrued expenses................................................ (45) (351) Deferred revenue..................................................................... 41 51 ------ -------- Net cash provided by operating activities............................................... 20 804 ------ -------- Cash flows from investing activities: Purchases of property and equipment.................................................. (266) (179) ------ -------- Cash flows from financing activities: Borrowings (repayments) under line of credit......................................... 550 (522) Borrowings from shareholders......................................................... -- 500 Proceeds from issuance of long-term debt............................................. 212 -- Repayment of long-term debt.......................................................... (59) (112) Principal payments on capital lease obligations...................................... (327) (298) Issuance of common stock............................................................. 21 34 ------ -------- Net cash provided (used) by financing activities........................................ 397 (398) ------ -------- Net increase in cash and cash equivalents............................................... 151 227 Cash and cash equivalents at beginning of period........................................ 58 123 ------ -------- Cash and cash equivalents at end of period.............................................. $ 209 $ 350 ====== ========
See accompanying notes to financial statements. F-20 DATIS CORPORATION NOTES TO FINANCIAL STATEMENTS March 31, 1995 (Unaudited) (1) Basis of Presentation The accompanying unaudited interim financial statements of Datis have been prepared on the basis of generally accepted accounting principles. In the opinion of management, these statements reflect all adjustments, consisting only of normal, recurring adjustments, necessary for a fair presentation of Datis' financial condition, results of operations and cash flows for the periods presented. The results of operations for the ten months ended March 31, 1995 may not be indicative of the results that may be expected for the full year ending May 31, 1995. These financial statements and notes should be read in conjunction with the financial statements and notes included elsewhere herein. F-21 INDEPENDENT AUDITORS' REPORT The Board of Directors William M. Mercer, Incorporated: We have audited the accompanying balance sheet of William M. Mercer, Incorporated National Health Analysis Unit (the Unit) as of December 31, 1994 and September 30, 1995, and the related statements of operations and cash flows for the years ended December 31, 1993 and 1994 and the nine months ended September 30, 1995. These financial statements are the responsibility of the Unit'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 audit provides 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 William M. Mercer, Incorporated National Health Analysis Unit as of December 31, 1994 and September 30, 1995, and the results of its operations and its cash flows for the years ended December 31, 1993 and 1994 and the nine months ended September 30, 1995 in conformity with generally accepted accounting principles. As described in note 5, the operations and certain assets of the Unit were sold to HCIA Inc. pursuant to an asset purchase agreement dated November 8, 1995. KPMG PEAT MARWICK LLP Baltimore, Maryland January 30, 1996 F-22 WILLIAM M. MERCER, INCORPORATED NATIONAL HEALTH ANALYSIS UNIT BALANCE SHEETS December 31, 1994 and September 30, 1995
December 31, September 30, 1994 1995 ------------ ------------- ASSETS Current assets: Accounts receivable, net of allowance for doubtful accounts of $199,417 in 1994 and $295,663 in 1995............... $876,241 $778,940 Prepaid expenses and other assets, net............................... 106,818 96,766 -------- -------- Total current assets................................................... 983,059 875,706 Furniture and equipment, net........................................... 1,400 8,000 -------- -------- Total assets........................................................... $984,459 $883,706 ======== ======== LIABILITIES Current liabilities: Accrued salaries and wages........................................... $144,500 $176,000 Accrued expenses..................................................... 120,600 122,000 Amount payable to other divisions.................................... 719,359 585,706 -------- -------- Total liabilities...................................................... $984,459 $883,706 ======== ========
F-23 WILLIAM M. MERCER, INCORPORATED NATIONAL HEALTH ANALYSIS UNIT STATEMENTS OF OPERATIONS Years ended December 31, 1993 and 1994 and nine months ended September 30, 1995
Nine months Year ended December 31, ended ----------------------- September 30, 1993 1994 1995 ---- ---- ---------- Revenue.............................................. $ 4,736,848 $7,287,936 $5,752,768 ----------- ---------- ---------- Expenses Salaries, wages and benefits.................... 4,049,247 4,976,713 3,918,852 Other operating expenses........................ 1,821,042 2,146,777 1,672,043 Provision for doubtful accounts................. 1,947 136,269 90,446 Depreciation and amortization................... 6,829 23,989 51,505 ----------- ---------- ---------- Total operating expenses............................. 5,879,065 7,283,748 5,732,846 ----------- ---------- ---------- Operating income (loss).............................. $(1,142,217) $ 4,188 $ 19,922 =========== ========== ==========
See accompanying notes to financial statements. F-24 WILLIAM M. MERCER, INCORPORATED NATIONAL HEALTH ANALYSIS UNIT STATEMENTS OF CASH FLOWS Years ended December 31, 1993 and 1994 and nine months ended September 30, 1995
Nine months Year ended December 31, ended ------------------------ September 30, 1993 1994 1995 ---- ---- ------------- Cash flows from operating activities: Operating income (loss)................................... $(1,142,217) $4,188 $ 19,922 Adjustments to reconcile to net cash provided by (used in) operating activities: Depreciation and amortization.......................... 6,829 23,989 51,505 (Increase) decrease in accounts receivable............. (240,179) (76,171) 97,301 Increase in prepaid expenses and other assets.......... (37,028) (58,611) (41,064) Increase in accrued salaries and wages................. 32,400 40,500 31,500 Increase (decrease) in accrued expenses................ 45,700 (19,000) 1,400 Increase (decrease) in amount payable to other divisions............................................ 192,278 89,293 (133,653) ----------- ------- --------- Net cash provided by (used in) operating activities............................... (1,142,217) 4,188 26,911 ----------- ------- --------- Cash flows from investing activities -- acquisition of furniture and equipment -- -- (6,989) ----------- ------- --------- Cash flows from financing activities -- funding (distribution) of net loss (income) by (to) parent 1,142,217 (4,188) (19,922) ----------- ------- --------- Net increase in cash...................................... -- -- -- Cash at beginning of period............................... -- -- -- ----------- ------- --------- Cash at end of period..................................... $ -- $ -- $ -- =========== ======= =========
See accompanying notes to financial statements. F-25 WILLIAM M. MERCER, INCORPORATED NATIONAL HEALTH ANALYSIS UNIT NOTES TO FINANCIAL STATEMENTS December 31, 1993 and 1994 and September 30, 1995 (1) Background William M. Mercer, Incorporated ("Mercer"), a subsidiary of Mercer Consulting Group, Inc., is a consulting firm providing advice and services to the management of organizations throughout the world in the areas of human resources, including retirement, health care and compensation consulting. The National Health Analysis Unit of Mercer (the "Unit") provides a database service to clients of other Mercer divisions for the analysis of healthcare costs. The service, known as the Comprehensive Health Analysis Management Program ("CHAMP") was begun in 1988. The accompanying financial statements reflect the historical accounts of the Unit as recorded by Mercer. Included in these accounts are allocations of shared expenses and overhead costs associated with operating the facility in which the Unit is located as well as all local level general and administrative costs. These accounts do not include allocations of corporate office general and administrative costs or income taxes that were incurred by Mercer, as such costs are not allocated by Mercer to its operating division. In management's opinion, the Mercer corporate office general and administrative costs, if allocated, would not be material to the expenses of the Unit. Net income or loss from operations of the Unit accrues to Mercer; therefore no Unit equity accounts are maintained. (2) Summary of Significant Accounting Policies Furniture and Equipment Furniture and equipment are stated at cost less accumulated depreciation. Depreciation is calculated on a straight-line basis over their estimated useful lives of three to ten years. Computer Software Costs Costs for internally developed software are accounted for in accordance with Statement of Financial Accounting Standards No. 86, "Accounting for the Costs of Computer Software to be Sold, Leased or Otherwise Marketed." At December 31, 1994 and September 30, 1995, as technological feasibility related to current software development had not yet been achieved, no such costs had been capitalized. F-26 WILLIAM M. MERCER, INCORPORATED NATIONAL HEALTH ANALYSIS UNIT NOTES TO FINANCIAL STATEMENTS -- (Continued) During 1993, 1994 and the nine months ended September 30, 1995, the Unit incurred expenses for research and development of approximately $1,040,000, $1,360,000 and $1,020,000, respectively. Computer software that is purchased from outside vendors is capitalized when purchased and amortized on a straight-line basis over an estimated life of three years. Revenue Recognition Revenues are derived from contracts and agreements for standard services, special projects and software licensing fees. Revenue for standard services is recognized in the period that the service is provided to the customer. Revenue for special projects is recognized on a percentage of completion basis using the cost to cost method. Revenue from software license agreements is recognized when delivery has occurred, collectibility is probable and remaining obligations are no longer significant. Allocations of Shared Expenses and Overheads Certain expenses incurred by Mercer which benefit more than one of its divisions, including the Unit, are allocated according to an estimate of each division's proportionate share of the pooled expenses. Expenses allocated to the Unit include those for compensation, employee benefits, facilities, communications, shared administrative and accounting services and information technology. (3) Related Party Transactions Services provided by the Unit are to clients of other Mercer divisions. Revenues for such services are derived directly from such clients or via pass-through billing from the other Mercer divisions. The sources of revenue included in the accompanying statements of operation are as follows:
Nine months ended Year ended December 31, September 30, 1993 1994 1995 ---- ---- ------------ Direct billing to Mercer clients..................... $ 127,002 $ 282,892 $ 401,345 Pass-through billing from other Mercer divisions..... 4,609,846 7,005,044 5,351,423 ----------- ---------- ----------- Total.............................. $4,736,848 $7,287,936 $5,752,768 ========== ========== ==========
F-27 WILLIAM M. MERCER, INCORPORATED NATIONAL HEALTH ANALYSIS UNIT NOTES TO FINANCIAL STATEMENTS -- (Continued) Operating expenses of the Unit include allocations from Mercer of shared expenses as follows:
Nine months ended Year ended December 31, September 30, 1993 1994 1995 ---- ---- ------------ Compensation......................................... $ 72,679 $ 59,772 $ 47,015 Employee benefits.................................... 64,639 79,230 62,208 Facilities........................................... 596,426 563,247 401,959 Communications....................................... 91,441 106,578 71,196 Shared Administrative and Accounting Services........ 108,937 144,488 136,764 Information Technology............................... 200,000 200,000 150,000 ---------- ---------- ---------- Total.............................. $1,134,122 $1,153,315 $ 869,142 ========== ========== ==========
Compensation, employee benefits, communications costs and shared administrative and accounting expenses are allocated based upon the number of employees within the division, with consideration of actual direct benefit derived when applicable. Facility expenses are allocated on a square footage basis. Information technology costs have been allocated based on an estimate of the market value of services provided. In management's opinion, the methods of allocation are reasonable. (4) Contingent Liabilities From time to time, the Unit is subject to claims and suits arising in the ordinary course of business. In the opinion of management, after consultation with legal counsel, the ultimate resolution of pending legal proceedings will not have a material effect on the Unit's financial statements. F-28 (5) Subsequent Event On December 15, 1995, Mercer sold the Unit to HCIA Inc. ("HCIA") for $17,500,000 in cash pursuant to an Asset Purchase Agreement ("Agreement") dated November 8, 1995. HCIA is primarily engaged in providing clinical and financial information on the health care industry. Included in the sale are the CHAMP database service, the related software documentation, client information and certain fixed assets. In addition, certain of the Unit's staff will become employees of HCIA and Mercer has agreed not to compete with HCIA in providing services similar to those previously provided by the Unit. F-29 Report of Independent Auditors To the Board of Directors and Stockholders HealthVISION, Inc. We have audited the accompanying consolidated balance sheets of HealthVISION, Inc. as of December 31, 1995 and 1994, and the related consolidated statements of operations, stockholders' equity and cash flows for the year ended December 31, 1995 and for the period February 2, 1994 (inception) through December 31, 1994. 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 consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of HealthVISION, Inc. as of December 31, 1995 and 1994 and the consolidated results of its operations and its cash flows for the year ended December 31, 1995 and for the period February 2, 1994 (inception) through December 31, 1994 in conformity with generally accepted accounting principles. ERNST & YOUNG LLP Walnut Creek, California January 26, 1996, except Note 12, as to which the date is July 30, 1996 F-30 HealthVISION, Inc. Consolidated Balance Sheets
December 31, December 31, 1994 1995 --------------------- -------------------- Assets Current assets: Cash and cash equivalents $ 6,207,043 $ 1,589,457 Accounts receivable, less allowance for doubtful accounts of $35,645 and $413,126, respectively 1,205,964 1,664,784 Intercompany receivable -- 129,009 Prepaid expenses 70,117 521,951 Investment in LBA Health Care Management Inc. -- 15,978,182 --------------------- -------------------- Total current assets 7,483,124 19,883,383 Equipment and furniture, net 640,196 1,946,000 Intangibles, net 4,486,093 3,208,781 --------------------- -------------------- Total assets $12,609,413 $25,038,164 ===================== ==================== Liabilities and stockholders' equity Current liabilities: Accounts payable $ 1,729,517 $ 1,280,222 Accrued compensation and related liabilities 151,828 1,080,644 Deferred revenue 1,875,506 1,177,358 Other accrued liabilities 104,114 1,134,640 Current portion of long-term debt 314,702 557,979 --------------------- -------------------- Total current liabilities 4,175,667 5,230,843 Long-term debt, less current portion 309,178 703,129 Commitments and contingencies Stockholders' equity: 7% preferred stock, $.01 par value; authorized - 1,000,000 shares; issued and outstanding - 201,900 and 256,900 shares at December 31, 1994 and 1995, respectively (aggregate liquidation preference $28,225,867) 2,020 2,570 Convertible preferred stock, Series A-1, $.01 par value; authorized - 5,500,000 shares; issued and outstanding 5,278,529 shares at December 31, 1995 (none at December 31, 1994) (aggregate liquidation preference $10,978,182) -- 52,785 Convertible preferred stock, Series A-2, $.01 par value; authorized - 3,000,000 shares; issued and outstanding - 2,883,756 shares at December 31, 1995 (none at December 31, 1994) (aggregate liquidation preference $10,000,000) -- 28,838 Common stock, $.01 par value; authorized - 40,000,000 shares; issued and outstanding - 4,575,918 and 4,588,438 shares at December 31, 1994 and December 31, 1995, respectively 45,759 45,884 Additional paid-in capital 22,145,443 48,546,696 Accumulated deficit (14,127,983) (29,252,891) Cumulative translation adjustment 59,329 (319,690) --------------------- -------------------- Total stockholders' equity 8,124,568 19,104,192 --------------------- -------------------- Total liabilities and stockholders' equity $ 12,609,413 $ 25,038,164 ===================== ====================
See accompanying notes. F-31 HealthVISION, Inc. Consolidated Statements of Operations
For the period February 2, 1994 (inception) through Year ended December 31, December 31, 1994 1995 --------------------- ------------------- Revenue: Software licenses $ 1,371,285 $ 2,144,612 Maintenance and services 3,255,923 4,005,525 Hardware 3,001,538 999,197 --------------------- ------------------- Total revenue 7,628,746 7,149,334 Cost of revenue: Software licenses, maintenance and services 3,832,351 4,537,400 Hardware 2,496,165 825,799 --------------------- ------------------- Total cost of revenue 6,328,516 5,363,199 --------------------- ------------------- Gross profit 1,300,230 1,786,135 Operating expenses: Product development 3,386,533 6,761,448 Sales and marketing 2,150,206 5,593,380 General and administration 1,655,259 4,289,450 Write-off of in-process technology 8,400,000 700,000 --------------------- ------------------- Total operating expenses 15,591,998 17,344,278 --------------------- ------------------- Loss from operations (14,291,768) (15,558,143) Other income (expense): Foreign exchange gain - 362,711 Interest income 171,243 104,932 Interest expense (7,458) (34,408) --------------------- ------------------- Total other income (expense), net 163,785 433,235 --------------------- ------------------- Net loss (14,127,983) (15,124,908) Preferred stock dividend 1,052,951 1,482,916 --------------------- ------------------- Net loss available to common stockholders $(15,180,934) $(16,607,824) ===================== ===================
See accompanying notes. F-32 HealthVISION, Inc. Consolidated Statements of Changes in Stockholders' Equity For the Period February 2, 1994 (Inception) through December 31, 1995
Series A-1 Series A-2 7% Convertible Convertible Additional Preferred Preferred Preferred Common Paid-In Stock Stock Stock Stock Capital ----------------------------------------------------------------------------- Balance at February 2, 1994 $ -- $ -- $ -- $ -- $ -- Issuance of 156,250 shares of 7% preferred stock at $100 per share 1,563 -- -- -- 15,623,437 Issuance of 3,317,850 shares of common stock at $.449 per share -- -- -- 33,179 1,455,548 Exchange of 288,604 shares of common stock at $.449 per share in connection with the acquisition of HVC Holdings Canada Ltd. And HealthVISION Corporation -- -- -- 2,886 126,609 Issuance of 45,650 share of 7% preferred stock at $100 per share 457 -- -- -- 4,564,543 Issuance of 969,464 shares of common stock at $.398 per share -- -- -- 9,694 375,306 Net loss -- -- -- -- -- Translation adjustment -- -- -- -- -- ----------------------------------------------------------------------------- Balance at December 31, 1994 2,020 -- -- 45,759 22,145,443 Issuance of 5,278,529 shares of convertible preferred Series A-1 stock for $2.080 per share in connection with the acquisition -- 52,785 -- -- 10,925,397 of LBA Issuance of 1,441,878 shares of convertible preferred Series A-2 stock for cash at $3.468 per share -- -- 14,419 -- 4,985,581 Issuance of 1,441,878 shares of convertible preferred Series A-2 stock for cash at $3.468 -- -- 14,419 -- 4,985,581 per share Issuance of 12,520 shares of common stock at $.429 per share upon exercise of options -- -- -- 125 5,244 Issuance of 55,000 shares of 7% preferred stock for conversion of bridge financing at $100 per share 550 -- -- -- 5,499,450 Net loss -- -- -- -- -- Translation adjustment -- -- -- -- -- ============================================================================= Balance at December 31, 1995 $ 2,570 $ 52,785 $ 28,838 $ 45,884 $48,546,696 =============================================================================
Cumulative Total Accumulated Translation Stockholders' Deficit Adjustment Equity ------------------------------------------------ Balance at February 2, 1994 $ -- $ -- $ -- Issuance of 156,250 shares of 7% preferred stock at $100 per share -- -- 15,625,000 Issuance of 3,317,850 shares of common stock at $.449 per share -- -- 1,488,727 Exchange of 288,604 shares of common stock at $.449 per share in connection with the acquisition of HVC Holdings Canada Ltd. And HealthVISION Corporation -- -- 129,495 Issuance of 45,650 share of 7% preferred stock at $100 per share -- -- 4,565,000 Issuance of 969,464 shares of common stock at $.398 per share -- -- 385,000 Net loss (14,127,983) -- (14,127,983) Translation adjustment -- 59,329 59,329 ------------------------------------------------ Balance at December 31, 1994 (14,127,983) 59,329 8,124,568 Issuance of 5,278,529 shares of convertible preferred Series A-1 stock for $2.080 per share in connection with the acquisition -- -- 10,978,182 of LBA Issuance of 1,441,878 shares of convertible preferred Series A-2 stock for cash at $3.468 per share -- -- 5,000,000 Issuance of 1,441,878 shares of convertible preferred Series A-2 stock for cash at $3.468 -- -- 5,000,000 per share Issuance of 12,520 shares of common stock at $.429 per share upon exercise of options -- -- 5,369 Issuance of 55,000 shares of 7% preferred stock for conversion of bridge financing at $100 per share -- -- 5,500,000 Net loss (15,124,908) -- (15,124,908) Translation adjustment -- (379,019) (379,019) ================================================ Balance at December 31, 1995 $(29,252,891) $ (319,690) $ 19,104,192 ================================================
F-33 HealthVISION, Inc. Consolidated Statements of Cash Flows
For the Period February 2, 1994 (Inception) through Year Ended December 31, December 31, 1994 1995 ------------------- ------------------- Operating activities Net loss $(14,127,983) $(15,124,908) Adjustments to reconcile net loss to net cash used by operating activities: Depreciation and amortization of equipment and furniture 256,145 608,076 Write-off of in-process technology 8,400,000 700,000 Amortization of intangibles 1,202,695 1,323,501 Changes in operating assets and liabilities: Accounts receivable 3,055,790 (458,820) Intercompany receivable -- (129,009) Prepaid expenses 28,937 (451,834) Accounts payable 348,657 (449,295) Accrued compensation and related liabilities 151,828 928,816 Deferred revenue (2,064,323) (698,148) Other accrued liabilities (988,819) 1,030,526 ------------------- ------------------- Total adjustments 10,390,910 2,403,813 ------------------- ------------------- Net cash used in operating activities (3,737,073) (12,721,095) Investing activities Purchase of equipment and furniture (471,801) (972,763) Capitalized software development costs (81,502) (46,189) Purchase of software license -- (700,000) Acquisition of HVC Holdings Canada Ltd. and HealthVISION Corporation (12,416,927) -- Cash acquired from purchase of subsidiaries 851,192 -- Acquisition of LBA Health Care Management Inc. -- (5,000,000) ------------------- ------------------- Net cash used in investing activities (12,119,038) (6,718,952) Financing activities Proceeds from issuance of common stock 1,873,727 5,369 Proceeds from issuance of 7% redeemable preferred stock 20,190,000 -- Proceeds from issuance of convertible Series A-2 preferred stock -- 5,000,000 Proceeds from long-term debt and bridge financing -- 10,500,000 Principal payments made on long-term debt (38,220) (303,889) ------------------- ------------------- Net cash provided by financing activities 22,025,507 15,201,480 Effect of exchange rate changes on cash 37,647 (379,019) ------------------- ------------------- Net increase (decrease) in cash and equivalents 6,207,043 (4,617,586) Cash and equivalents, beginning of period -- 6,207,043 ------------------- ------------------- Cash and equivalents, end of period $ 6,207,043 $ 1,589,457 =================== =================== Supplemental schedule of non-cash investing and financing activities: Purchase of equipment under capital lease arrangements $ -- $ 941,117 =================== =================== Issuance of common stock to acquire HVC Holdings Canada Ltd. and HealthVISION Corporation $ 129,495 $ -- =================== =================== Issuance of 7% preferred stock to convert bridge financing $ -- $ 5,500,000 =================== =================== Issuance of Series A-1 convertible preferred stock to acquire LBA Health Care Management, Inc. $ -- $10,978,182 =================== =================== Issuance of A-2 convertible preferred stock to convert bridge financing $ -- $ 5,000,000 =================== ===================
See accompanying notes. F-34 HealthVISION, Inc. Notes to Consolidated Financial Statements For the year ended December 31, 1995 and for the period February 2, 1994 (inception) through December 31, 1994 1. The Company, Organization and Basis of Presentation HealthVISION, Inc. (the "Company") was organized as a Delaware corporation on February 2, 1994, began operations on February 15, 1994 and was incorporated to acquire HVC Holdings Canada Ltd., HealthVISION Corporation and their subsidiaries. The Company develops, markets and supports health care information products focused on lowering costs of health care and improving clinical processes for integrated delivery systems, hospitals and office-based physicians. On February 14, 1994, the Company acquired substantially all of the business, assets, and liabilities of HVC Holdings Canada Ltd., HealthVISION Corporation (the "Predecessor Company") and their subsidiaries for $13,994,016. The transaction was recorded using the purchase method of accounting. Accordingly, a basis of accounting of $13,994,016 was established based on the purchase price, resulting in purchase price in excess of fair market value of net liabilities assumed. On September 27, 1995, LBA Health Care Management, Inc., a newly formed subsidiary of the Company, acquired substantially all of the business, assets, and liabilities of LBA Health Care Management, Inc. and Healthcare Data Source, Inc. (collectively, "LBA") for approximately $51,178,000. The transaction was recorded using the purchase method of accounting. Accordingly, a basis of accounting of $49,850,853 was established based on the purchase price, resulting in purchase price in excess of fair market value of net assets acquired. The consolidated financial statements include the accounts of HealthVISION, Inc. and its subsidiary companies, all of which are wholly owned, except for LBA, which is being accounted for on the cost basis in accordance with FASB 94 as the Company has committed to sell this subsidiary and therefore control is deemed temporary (see Note 12). These statements reflect the activity of the Company and its subsidiaries, except for LBA, and all related intercompany transactions and balances have been eliminated in consolidation. The Company's financial statements have been prepared on the basis that the Company will continue as a going concern. The Company has incurred significant losses of $15,124,908 for the year ended December 31, 1995, resulting in an accumulated deficit of $29,252,891. The Company's future plans include successful completion of additional financings, adjusting the level of its operations to provide the cash necessary to continue operations through at least January 1, 1997 and achieving future profitable operations. F-35 HealthVISION, Inc. Notes to Consolidated Financial Statements (Continued) 2. Summary of Significant Accounting Policies Revenue recognition Software license - Revenue from license contracts is recognized on a percentage-of-completion method with progress-to-completion measured based upon labor costs incurred. Maintenance and services - Maintenance and services include revenue derived from maintenance, implementation and professional services related to project management, training and hardware support. Revenue from maintenance is recognized over the period the customer support services are provided. Service revenues are recognized on a percentage-of-completion method with progress-to-completion measured based upon labor costs incurred. Hardware revenue - Hardware revenues represent revenue from sales of computers and related network equipment. Revenue from hardware sales is recognized at the later of shipment of the product or completion of significant obligations to the customer. Deferred revenue - Deferred revenues result from advance billings for which revenues have not been recognized. The Company's revenue recognition policy is in accordance with the provisions of the American Institute of Certified Public Accountants' Statement of Position 91-1, "Software Revenue Recognition." Cash and cash equivalents Cash and cash equivalents consist of demand deposits and commercial paper in highly liquid short-term investments with original maturities of less than 90 days. Such investments are stated at cost, which approximates market value. Accounts receivable Accounts receivable are primarily from health care organizations in the United States and Canada. The Company conducts ongoing credit evaluations of its customers, maintains reserves for potential credit losses and does not require collateral. Intangibles Intangibles reflect the allocation of the excess purchase price resulting from the acquisition. Amortization is based upon the period of expected economic benefit which are as follows: assembled workforce -- 3 years and software -- 4-5 years. F-36 HealthVISION, Inc. Notes to Consolidated Financial Statements (Continued) 2. Summary of Significant Accounting Policies (continued) Intangibles (continued) Acquired technology which is in process, has not reached technological feasibility, and has no alternative future use is written off in the period in which it is acquired. The write-off of in-process technology was $8,400,000 and $700,000 for the period February 2, 1994 (inception) through December 31, 1994 and the year ended December 31, 1995, respectively. The Company performs evaluations as of each balance sheet date assessing the recoverability and amortization of intangibles by determining whether the intangibles can be recovered through the estimated undiscounted cash flows of the businesses acquired over the remaining amortization period. The Company considers external factors relating to each acquired business, including technological advances, competition, regulatory developments and trends of the businesses and other pertinent factors in making its assessment. The Company does not believe there currently are any factors that would require an adjustment to the carrying value of its intangibles or their remaining lives as of December 31, 1995. Equipment and furniture Equipment and furniture are recorded at cost less accumulated depreciation. Depreciation is computed using rates calculated to amortize the cost of the assets less their residual values over their estimated useful lives of three to five years. Leasehold improvements are amortized over the terms of the respective leases, or useful lives of the assets, whichever is shorter. Software development costs In accordance with Statement of Financial Accounting Standards No. 86, "Accounting for the Costs of Computer Software to be Sold, Leased or Otherwise Marketed," costs to complete a software product once technological feasibility has been established are capitalized and amortized over the estimated economic life of the software product on the straight-line basis, generally over three to five years. At each balance sheet date, the Company performs an evaluation assessing the recoverability of the unamortized capitalized costs by comparing such costs to the net realizable value of the related product. Costs related to the development of new software products incurred prior to establishing technological feasibility are expensed as incurred. Software development costs capitalized in periods ending December 31, 1994 and December 31, 1995 amounted to $81,502 and $46,189, respectively. Amortization charged to operations as an element of cost of sales of purchased software and capitalized software development costs amounted to $869,576 and $996,834 for the periods ended December 31, 1994 and December 31, 1995, respectively. F-37 HealthVISION, Inc. Notes to Consolidated Financial Statements (Continued) 2. Summary of Significant Accounting Policies (continued) Research and development Costs to develop the Company's products are expensed as incurred in accordance with Statement of Financial Accounting Standards No. 2, "Accounting for Research and Development Costs," which establishes accounting and reporting standards for research and development. Income taxes The Company accounts for income taxes in accordance with Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes". Under Statement 109, the liability method is used to account for income taxes. Under this method, deferred tax assets and liabilities are determined based on differences between the financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. Foreign currency translation Assets and liabilities denominated in foreign currencies (primarily Canadian dollars) are translated into U.S. dollars at the exchange rate on the balance sheet date. Income and expense items are translated at average rates of exchange prevailing during the period. Translation adjustments are accumulated and reported as a separate component of stockholders' equity. Transaction adjustments are recorded in other income/expense in the period in which they occur. Use of estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Stock-based compensation In October 1995, the Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation," was issued and is effective for the Company's fiscal year 1996. The Company intends to continue to account for employee stock options in accordance with APB Opinion No. 25 and will make the necessary pro forma disclosures in fiscal year 1996. F-38 HealthVISION, Inc. Notes to Consolidated Financial Statements (Continued) 3. Business Acquisitions On February 14, 1994, the Company acquired all of the outstanding common shares of the Predecessor Company. The business acquisition was accounted for by the purchase method and the results of operations of the Predecessor Company are included in the Company's consolidated financial statements beginning February 15, 1994. The allocation of the purchase price of $13,994,016 was as follows: Current assets $ 5,212,000 Equipment and furniture 416,128 ---------- 5,628,128 Liabilities 7,075,722 ---------- Net liabilities assumed 1,447,594 Cash and stock consideration 12,546,422 ---------- Total purchase price $13,994,016 ========== A summary of the purchase price allocation at February 14, 1994 is as follows: Current and other assets $ 5,628,128 In-process technology 8,400,000 Software 4,580,000 Assembled workforce 1,014,016 Deferred tax asset 2,170,000 Deferred tax liability (2,170,000) ---------- Total purchase price 19,622,144 Liabilities assumed (7,075,722) ---------- Cash and stock consideration $12,546,422 ========== On September 27, 1995, the Company acquired substantially all of the assets of LBA. The aggregate purchase price (including closing costs) of LBA was $51,178,182. The acquisition was financed through the issuance of debt financings aggregating $35,000,000, the issuance of $10,978,172 (5,278,529 shares) of Series A-1 convertible preferred stock and $5,000,000 of cash proceeds from the issuance of 1,441,878 shares of Series A-2 convertible preferred stock. As discussed in Note 1, LBA has not been consolidated due to control being temporary. Therefore, the Company has only recorded its investment of $15,978,172, which is recorded on a cost basis, and has pushed down all debt, net assets and excess purchase price relating to the purchase to LBA. The allocation of the purchase price was as follows: Total purchase price $51,178,182 Fair market value of net assets acquired (1,327,329) ----------- Excess purchase price over fair market value of net assets acquired ("excess purchase price") $49,850,853 =========== F-39 HealthVISION, Inc. Notes to Consolidated Financial Statements (Continued) 4. Intangibles December 31, ---------------------------- 1994 1995 ---------------------------- Assembled work force $1,014,016 $1,014,016 Software 4,661,502 4,707,691 --------- --------- 5,675,518 5,721,707 Less accumulated amortization (1,189,425) (2,512,926) --------- --------- Intangibles, net $4,486,093 $3,208,781 ========= ========= 5. Equipment and Furniture December 31, --------------------------- 1994 1995 --------------------------- Furniture and fixtures $ 87,126 $ 512,741 Computer equipment 643,109 1,954,383 Office equipment 109,513 235,277 Leasehold improvements 48,181 99,408 -------- --------- 887,929 2,801,809 Less accumulated depreciation and amortization (247,733) (855,809) -------- --------- Equipment and furniture, net $640,196 $1,946,000 ======== ========= F-40 HealthVISION, Inc. Notes to Consolidated Financial Statements (Continued) 6. Long-Term Debt
December 31, ----------------------------- 1994 1995 ----------------------------- Loan from Western Diversification Fund, noninterest bearing, due in six semiannual installments beginning October 1, 1994 $ 615,842 $ 421,846 Other amounts, including capital lease obligations, bearing interest at rates ranging from 8% to 15.5% per annum, payable in varying monthly installments plus interest through 1998 8,038 839,262 -------- --------- 623,880 1,261,108 Less current portion (314,702) (557,979) -------- --------- Long-term debt $ 309,178 $ 703,129 ======== ========= Scheduled maturities of long-term debt for the periods ended December 31 are as follows: Notes Capital Lease Payable Obligations ---------- ------------ 1996 $ 316,385 $ 332,793 1997 105,461 363,046 1998 - 318,223 1999 - - 2000 - - -------- --------- Total minimum payments $ 421,846 1,014,062 ======== Less amount representing interest (174,800) --------- Present value of minimum payments $ 839,262 ========= Equipment and furniture and the related accumulated depreciation under capital leases at December 31, 1994 and December 31, 1995 were $632,938 and $632,938 and $941,117 and $156,853, respectively. F-41 HealthVISION, Inc. Notes to Consolidated Financial Statements (Continued) 6. Long-Term Debt (continued) Master Equipment Lease Agreement Effective July 24, 1995, the Company entered into a Master Equipment Lease Agreement which provides for a lease facility of up to $2,000,000. The lease facility is available to be drawn until December 31, 1995. The initial term of each lease schedule is 36 months, at the end of which the Company must renew the lease or purchase the leased equipment. As of December 31, 1995, $941,117 was outstanding under the lease facility. 7. Income Taxes Deferred income taxes reflect the tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company's deferred tax assets and liabilities as of December 31, 1994 and 1995 are as follows:
December 31, ------------------------------ 1994 1995 ------------------------------ Deferred tax assets: Net operating loss carryforwards $ 4,200,000 $ 9,700,000 --------- --------- Total deferred tax assets 4,200,000 9,700,000 Deferred tax liabilities: Purchased intangibles from business acquisitions (1,700,000) (1,200,000) --------- --------- Total deferred tax liabilities (1,700,000) (1,200,000) Valuation allowance for deferred tax assets (2,500,000) (8,500,000) --------- --------- Net deferred tax assets $ -- $ -- ========= =========
The change in the valuation allowance for the years ended December 31, 1994 and 1995 was $2,500,000 and $6,000,000, respectively. F-42 HealthVISION, Inc. Notes to Consolidated Financial Statements (Continued) 7. Income Taxes (continued) As of December 31, 1995, the Company has total U.S. and foreign (primarily Canada) net operating and other loss carryforwards of approximately $25,000,000 for income tax purposes that expire in various years, depending upon the country in which the loss was incurred. When realized, the tax benefit of the utilization of acquired net operating loss carryforwards of HVC Holdings Canada, Ltd., HealthVISION Corporation and their subsidiaries will first be utilized to reduce noncurrent intangible assets related to the acquisition of these companies and then income tax expense. Due to the "change in ownership" provisions of the Tax Reform Act of 1986, utilization of the Company's net operating carryforwards could be subject to an annual limitation if a more than 50% change in ownership of the value of the Company's stock has occurred over a three-year period. 8. Stockholders' Equity 7% preferred stock The Company's 7% preferred stock consists of 1,000,000 authorized shares of $.01 par preferred stock of which 201,900 and 55,000 shares had been issued in 1994 and 1995, respectively at $100 per share totaling $25,690,000. The 7% preferred stock is non-voting, cumulative and is entitled to a dividend rate of 7% of the amount contributed. Preferred stock shares are not convertible into common stock. The Company may redeem any or all of the 7% preferred stock, at any time, at a price equal to $100 per share plus an amount equal to any and all dividends accrued and unpaid. In the event of any liquidation, dissolution or winding up of the Company, before any distribution or payment is made to the holders of Series A-1 and A-2 convertible preferred stock and common stock, the holders of 7% preferred stock shall be entitled to an amount equal to $100 per share plus any and all dividends accrued and unpaid as of the date of such distribution or payment. Cumulative dividends earned but undeclared were $1,052,951 and $2,535,867 at December 31, 1994 and December 31, 1995, respectively. Convertible preferred stock In September 1995, the Board of Directors authorized the designation of 5,500,000 shares of Series A-1 convertible preferred stock and 3,000,000 shares of Series A-2 convertible preferred stock with stated par value of $.01. F-43 HealthVISION, Inc. Notes to Consolidated Financial Statements (Continued) 8. Stockholders' Equity (continued) Convertible preferred stock (continued) The following table summarizes the convertible preferred stock as of December 31, 1995: Total Per Share Proceeds Authorized Outstanding Liquidation Liquidation Net of Series Shares Shares Preferences Preference Issuance Costs ------ ----------- ----------- ----------- ----------- -------------- A-1 5,500,000 5,278,529 $10,978,182 $2.08 $10,978,182 A-2 3,000,000 2,883,756 10,000,000 $3.47 10,000,000 -------- -------- ---------- ---------- 8,500,000 8,162,285 $20,978,182 $20,978,182 ========= ========= ========== ========== In addition to the liquidation preference, holders of Series A-1 and A-2 convertible preferred stock are entitled to receive any declared but unpaid dividends with respect to such stock. No dividends have been declared as of December 31, 1995. If liquidation occurs, redeemable preferred stockholders are entitled to receive a distribution of their liquidation preference first, followed by a pro-rata distribution to Series A-1 and A-2 convertible preferred stockholders, and thereafter, any remaining assets will be distributed to common stockholders. The convertible preferred stock has voting rights equivalent to the number of common shares into which it is convertible. Each share of convertible preferred stock is convertible into one share of common stock at the option of the stockholder, subject to certain antidilution adjustments. Additionally, conversion is automatic upon the closing of an underwritten public offering of common stock with aggregate proceeds to the Company of at least $15,000,000. The Company, at the option of the Board of Directors, may on or after January 1, 2002 redeem at any time all, or from time to time any portion, of the Series A-1 or A-2 convertible preferred stock at the following cash redemption prices per share if redeemed during the periods specified plus, in each case, an amount per share equal to all dividends declared but unpaid: Twelve Months Series A-1 Series A-2 Beginning January 1 Redemption Price Redemption Price ------------------ --------------- ---------------- 2002 $3.18 $5.31 2003 $3.41 $5.68 2004 $3.64 $6.08 2005 $3.90 $6.50 2006 and thereafter $4.17 $6.96 F-44 HealthVISION, Inc. Notes to Consolidated Financial Statements (Continued) 8. Stockholders' Equity (continued) Convertible preferred stock (continued) The Company may also, at its option, redeem all or any portion of the Series A-1 or A-2 convertible preferred stock concurrently with the closing of an underwritten public offering of common shares at a cash redemption price of 100% of the public offering price plus an amount per share in cash equal to all dividends declared but unpaid. Reverse stock split On November 27, 1995, the Board of Directors approved a 1-for-2.5208 reverse stock split of issued and outstanding common shares. All shares and per share information in the accompanying consolidated financial statements have been retroactively adjusted to reflect the reverse stock split. Warrants In connection with the acquisition of LBA in September 1995, the Company issued warrants to purchase 555,380 shares of its common stock at a price of $.63 per share. The warrants vest at a rate of 25% after each anniversary date. The warrants expire at the earlier of ten years from the date of grant or any unvested warrants are automatically terminated pursuant to a public offering of at least $30,000,000. In connection with its Master Equipment Lease Agreement, the Company issued to the lessor a warrant to purchase 39,670 shares of its common stock at a price of $5.04 per share (the "Warrant"). The Warrant expires at the earlier of ten years after the date of grant (July 1995) or five years after the closing of an initial public offering of the Company's common stock. The holder also has the right to convert the Warrant into a number of shares of the Company's common stock based on the value of the warrant given the then-current fair market value of the Company's common stock. F-45 HealthVISION, Inc. Notes to Consolidated Financial Statements (Continued) 9. Stock Options 1994 Stock Option Plan The Company's 1994 Stock Option Plan (the "Stock Option Plan") was adopted in February 1994. The maximum number of shares authorized to be issued under the Stock Option Plan, as amended, is 1,309,108 shares of common stock. The Compensation Committee of the Company designated 362,583 of the shares authorized to be issued under the Stock Option Plan as bonus options (the "Bonus Options"). Outstanding options granted under the Plan generally vest and become exercisable at a rate of 30% 18 months after the date of grant and an additional 10% every 6 months thereafter, subject to continued service as an employee; however, outstanding Bonus Options vest and become exercisable 10 days prior to the termination date of the Bonus Option, subject to continued service as an employee. Generally, the term of each outstanding option is ten years. The exercise price for options granted under the Stock Option Plan is at least equal to 100% of the fair market value of the common stock of the Company on the date of grant. The Stock Option Plan permits the granting of stock options, including incentive stock options ("ISOs") as defined under Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"), and non-qualified stock options ("NQSOs") which do not qualify as ISOs. In order to protect all of the rights of Bonus Option holders in the event of a Liquidity Event (as defined below), Bonus Option agreements provide for the acceleration of vesting of all or a portion of outstanding Bonus Options upon the occurrence of a Liquidity Event. A Liquidity Event is defined as either (i) the consummation of an underwritten initial public offering of the Company's common stock, which has been registered under the Securities Act of 1933, as amended, or successor provision, or (ii) a Change of Control, as defined. F-46 HealthVISION, Inc. Notes to Consolidated Financial Statements (Continued) 9. Stock Options (continued) 1994 Stock Option Plan (continued) Stock option transactions are summarized as follows: Exercise Options Price ----------- -------------- Outstanding at February 2, 1994 -- $ -- Granted 138,250 .43 Exercised -- -- Canceled -- -- -------- ---------- Outstanding at December 31, 1994 138,250 .43 Granted 1,166,739 .43 Exercised (12,519) .43 Canceled (288,773) .43 - 1.05 -------- ---------- Outstanding at December 31, 1995 1,003,697 $.43 - 1.05 ========= ============= Of the shares under options granted, 28,799 shares ranging in price from $.43 to $1.05 are exercisable and 292,892 shares under options are available for future grant as of December 31, 1995. 1995 Non-Employee Director Stock Option Plan On November 27, 1995, the Company adopted the 1995 Non-Employee Director Stock Option Plan (the "Director Stock Option Plan"). The Director Stock Option Plan provides for an automatic grant of NQSOs to purchase 3,000 shares of common stock to non-employee directors on the date such individuals are first appointed directors of the Company, and an automatic grant of an option to purchase an additional 1,000 shares of common stock on the day after each subsequent annual meeting of the Company's stockholders. The option price is equal to the fair market value of the common stock on the date of grant. Initial option grants vest and become exercisable as to one-third of the shares covered by the option on each annual anniversary of the date of grant if the holder remains a director on such date, provided that such options may become fully exercisable upon a director's resignation from the Board of Directors or death of the holder. Annual option grants vest and become exercisable as to 100% of the shares covered by the option on the six-month anniversary of the date of grant if the holder remains a director on such date, provided that such options may become fully exercisable upon a director's resignation from the Board of Directors or death of the holder. The Company has reserved 50,000 shares of common stock for issuance under the Director Stock Option Plan. F-47 HealthVISION, Inc. Notes to Consolidated Financial Statements (Continued) 10. Commitments and Contingencies Guarantee of loan facilities of LBA On September 27, 1995, LBA entered into a Senior Credit Agreement by and between LBA and the senior bank. Subject to the terms and conditions of the Senior Credit Agreement, LBA is entitled to borrow up to $25,750,000 from the senior bank, on a revolving basis, through the maturity date of the credit facility, which is September 1999. As of December 31, 1995, the entire balance of $25,750,000 was outstanding. The LBA obligations under the Senior Credit Agreement are secured by a security interest in favor of the senior bank in substantially all of the assets of LBA. In addition, the Company provided a security interest in substantially all of its assets, including its shares of capital stock in subsidiary and affiliated corporations, to secure the obligations of LBA to the senior bank under the Senior Credit Agreement, and the Company provided an unlimited guaranty in favor of the senior bank with respect to the obligations of LBA under the Senior Credit Agreement. Similarly, another subsidiary of the Company granted a security interest in substantially all of its assets, including its shares of capital stock of subsidiary and affiliated corporations, to secure the obligations of LBA to the senior bank under the Senior Credit Agreement, and an unlimited guaranty in favor of the senior bank with respect to the obligations of LBA and the Senior Credit Agreement. A second and subordinated credit facility in the amount of $10,150,000 was entered into by and between LBA and a bank pursuant to a Credit Agreement by and between LBA and a bank also dated September 27, 1995 (the "Subordinated Credit Agreement"). Under the terms of the Subordinated Credit Agreement, LBA borrowed $10,150,000 from the bank. As of December 31, 1995, the entire balance of $10,150,000 was outstanding. To secure these obligations, LBA granted a security interest in substantially all of its assets in favor of the bank. The Company granted a security interest to the bank in its shares of capital stock in its subsidiaries and affiliates to secure the obligations of LBA under the Subordinated Credit Agreement. The Company also provided an unlimited guaranty of LBA's obligations under the Subordinated Credit Agreement and major stockholders of the Company provided limited guaranties in favor of the bank with respect to LBA's obligations under the Subordinated Credit Agreement similar to those provided for the senior bank. In addition, the bank received a $9,239,000 letter of credit bearing an interest rate of 1.5%, due quarterly, if the letter of credit is outstanding, naming the bank as beneficiary. The above agreements contain certain restrictive covenants, including the maintenance of certain financial ratios and limitations on additional borrowings, mergers, acquisitions, dispositions and the payment of dividends. The agreements also provide for additional payments of principal from excess cash flow. F-48 HealthVISION, Inc. Notes to Consolidated Financial Statements (Continued) 10. Commitments and Contingencies (continued) Guarantee of loan facilities of LBA (continued) In addition, the above borrowings under the Senior Credit and Credit Agreements are not shown as outstanding on the Company's consolidated financial statements since LBA is not consolidated (See Note 1). Operating leases Future minimum payments, under noncancellable office and equipment operating leases with initial terms of one year or more, consist of the following for the periods ended December 31: 1996 $ 860,918 1997 870,799 1998 867,016 1999 808,628 2000 152,436 Thereafter 31,950 --------- $3,591,747 ========= Total rent expense under all operating leases was approximately $488,000 and $1,074,000 for the period ended December 31, 1994 and for the year ended December 31, 1995, respectively. Legal proceedings A subsidiary of the Company is currently a defendant to a civil complaint filed on July 6, 1995, in the Supreme Court of British Columbia, Canada, by Stratford General Hospital. The complaint alleges that Stratford General Hospital entered into a contract with the subsidiary for the maintenance and support of an integrated hospital management information system and that the subsidiary has refused to perform its obligations under such alleged contract. Stratford General Hospital is seeking unspecified compensatory damages from the subsidiary. The subsidiary has filed a defense denying that it entered into such alleged contract with Stratford General Hospital. The Company believes that the suit is totally without merit and intends to defend its position vigorously. While the ultimate outcome of this lawsuit cannot at this time be predicted with certainty, management does not presently expect that this matter will have a material adverse effect on the consolidated financial position, cash flows or results of operations of the Company. F-49 HealthVISION, Inc. Notes to Consolidated Financial Statements (Continued) 11. Information by Geographic Area Information regarding the Company's operations by geographic area for the periods February 2, 1994 through December 31, 1994 and the year ended December 31, 1995 and for the periods then ended is as follows: 1994 1995 -------- -------- Revenues: Canada $ 5,704,972 $ 5,872,663 United States 329,244 309,297 Other 1,594,530 967,354 ------------ ------------ Total $ 7,628,746 $ 7,149,334 ------------ ------------ Operating losses: Canada $ (4,581,920) $ (5,232,133) United States (9,397,136) (10,351,197) Other (312,712) 25,187 ------------ ------------ Total $(14,291,768) $(15,558,143) ------------ ------------ Total assets: Canada $ 1,586,726 $ 2,453,637 United States 10,559,703 22,169,386 Other 462,984 415,141 ------------ ------------ Total $ 12,609,413 $ 25,038,164 ------------ ------------ 12. Subsequent Events Proposed sale of LBA On July 19, 1996, the Company entered into a definitive agreement to sell LBA. 7% Preferred Stock Subsequent to December 31, 1995, the Company issued 80,000 shares of 7% preferred at $100 per share for total cash proceeds of $8,000,000. The 7% preferred stock has the same terms as previously issued 7% preferred (see Note 8). In connection with the purchase by HealthVISION, Inc. in September 1995 of the assets of the predecessor of LBA, a current minority stockholder of HealthVISION, Inc. threatened suit. The Company and certain other parties executed an agreement on July 30, 1996, which, upon consummation of the Company's contemplated transaction with HCIA, Inc. will resolve any disagreements between the parties as of that date and provides for a release of all claims. HealthVISION, Inc. Consolidated Balance Sheets (unaudited)
December 31, June 30, 1995 1996 ------------ --------- (unaudited) Assets Current assets: Cash and cash equivalents $ 1,589,457 $ -- Accounts receivable 1,664,784 1,690,081 Intercompany receivable 129,009 3,135 Prepaid expenses 521,951 668,453 Investment in LBA Health Care Management Inc. 15,978,182 15,978,182 ----------- ----------- Total current assets 19,883,383 18,339,851 Equipment and furniture, net 1,946,000 1,841,686 Intangible, net 3,208,781 3,185,717 ----------- ----------- Total assets $25,038,164 $23,367,254 =========== =========== Liabilities and stockholders' equity Current liabilities: Accounts payable $ 1,280,222 396,475 Accrued compensation and related liabilities 1,080,644 1,401,845 Deferred revenue 1,177,358 1,236,457 Other accrued liabilities 1,134,640 1,007,529 Current portion of long-term debt 557,979 515,241 ----------- ----------- Total current liabilities 5,230,843 4,557,547 Long-term debt, less current portion 703,129 797,517 Commitments and contingencies Stockholders' equity: 7% preferred stock, $.01 par value, authorized -1,000,000 shares; issued and outstanding -256,900 shares at December 31, 1995 and 326,900 shares at June 30, 1996 (unaudited) (aggregate liquidation preference $36,238,778 at June 30, 1996--unaudited) 2,570 3,270 Convertible preferred stock, Series A-1, $.01 par value; authorized -5,500,000 shares; issued and outstanding - 5,278,529 shares at December 31, 1995 (5,278,529 at June 30, 1996--unaudited) (aggregate liquidation preference $10,978,182 at June 30, 1996--unaudited) 52,785 52,785 Convertible preferred stock, Series A-2, $.01 par value; authorized 3,000,000 shares; issued and outstanding -2,883,756 shares at December 31, 1995 (2,883,756 at June 30, 1996--unaudited) (aggregate liquidation preference $10,000,000 at June 30, 1996--unaudited) 28,838 28,838 Common stock, $.01 par value; authorized 40,000,000 shares; issued and outstanding -4,588,438 shares at December 31, 1995 (4,588,438 at June 30, 1996 --unaudited) 45,884 45,884 Additional paid-in capital 48,546,696 55,545,996 Accumulated deficit (29,252,891) (37,295,396) Cumulative translation adjustment (319,690) (369,187) ----------- ----------- Total stockholders' equity 19,104,192 18,012,190 ----------- ----------- Total liabilities and stockholders' equity $25,038,164 $23,367,254 =========== ===========
See Independent Accountants' Review Report. F-50 HealthVISION Inc. Consolidated Statements of Operations (Unaudited)
For the Six Month Periods Ended June 30, 1995 1996 --------------------------- (unaudited) Revenues: Software licenses $ 1,078,718 $1,488,578 Maintenance and services 1,673,348 1,864,455 Hardware 534,610 231,712 ------------ ------------ Total revenue 3,286,676 3,584,745 ------------ ------------ Cost of revenues: Software licenses, maintenance and services 2,345,711 3,141,840 Hardware 313,966 138,511 ------------ ------------ Total cost of revenue 2,659,677 3,280,351 ------------ ------------ Gross profit 626,999 304,394 Operating expenses: Product development 2,799,199 3,387,155 Sales and marketing 2,398,081 2,671,102 General and administration 2,016,396 2,241,320 ------------ ------------ Total operating expenses 7,213,676 8,299,577 ------------ ------------ Loss from operations (6,586,677) (7,995,183) ------------ ------------ Other income (expense): Foreign exchange gain -- (43) Interest income 83,398 26,996 Interest expense -- (74,275) ------------ ------------ Total other income (expense), net 83,398 (47,322) ------------ ------------ Net loss (6,503,279) (8,042,505) Preferred stock dividend 700,842 1,012,911 ------------ ------------ Net loss available to common stockholders $ (7,204,121) $ (9,055,416) ============ ============
F-51 HealthVISION Inc. Consolidated Statements of Changes in Stockholders' Equity For the Period February 2, 1994 (Inception) Through June 30, 1996 (unaudited)
SERIES A-1 SERIES A-2 7% CONVERTIBLE CONVERTIBLE ADDITIONAL CUMULATIVE PREFERRED PREFERRED PREFERRED COMMON PAID-IN ACCUMULATED TRANSLATION STOCK STOCK STOCK STOCK CAPITAL DEFICIT ADJUSTMENT --------- ----------- ----------- ------- ---------- ----------- ----------- Balance at February 2, 1994........ $ -- $ -- $ -- $ -- $ -- $ -- $ -- Issuance of 156,250 shares of 7% preferred stock at $100 per share.......................... 1,563 -- -- -- 15,623,437 -- -- Issuance of 3,317,850 shares of common stock at $.449 per share.......................... -- -- -- 33,179 1,455,548 -- -- Exchange of 288,604 shares of common stock at $.449 per share in connection with the acquisition of HVC Holdings Canada Ltd. And HealthVISION Corporation.................... -- -- -- 2,886 126,609 -- -- Issuance of 46,650 share of 7% preferred stock at $100 per share.......................... 457 -- -- -- 4,564,543 -- -- Issuance of 969,464 shares of common stock at $.398 per share.......................... -- -- -- 9,694 375,306 -- -- Net loss......................... -- -- -- -- -- (14,127,983) -- Translation adjustment........... -- -- -- -- -- -- 59,329 ------- ------- -------- ------- ----------- ----------- --------- Balance at December 31, 1994....... 2,020 -- -- 45,759 22,145,443 (14,127,983) 59,329 Issuance of 5,278,529 shares of convertible preferred Series A-1 stock for $2.080 per share in connection with the acquisition of LBA............. -- 52,785 -- -- 10,925,397 -- -- Issuance of 1,441,878 shares of convertible preferred Series A-2 stock for cash at $3.468 per share...................... -- -- 14,419 -- 4,985,581 -- -- Issuance of 1,441,878 shares of convertible preferred Series A-2 stock for cash at $3.468 per share...................... -- -- 14,419 -- 4,985,581 -- -- Issuance of 12,520 shares of common stock at $.429 per share upon exercise of options....... -- -- -- 125 5,244 -- -- Issuance of 55,000 shares of 7% preferred stock for conversion of bridge financing at $100 per share.......................... 550 -- -- -- 5,499,450 -- -- Net loss......................... -- -- -- -- -- (15,124,908) -- Translation adjustment........... -- -- -- -- -- -- (379,019) ------- ------- -------- ------- ----------- ------------ --------- Balance at December 31, 1995....... $ 2,570 $52,785 $28,838 $45,884 $48,546,696 $(29,252,891) $(319,690) Issuance of 70,000 shares of 7% preferred stock at $100 per share.......................... 700 -- -- -- 6,999,300 -- -- Net loss......................... -- -- -- -- -- (8,042,505) -- Translation adjustment........... -- -- -- -- -- -- (49,497) ------- ------- -------- ------- ----------- ------------ --------- Balance at June 30, 1996.......... $ 3,270 $52,785 $28,838 $45,884 $55,545,996 $(37,295,396) $(369,187) ======= ======= ======== ======= =========== ============ ========= TOTAL STOCKHOLDERS' EQUITY -------------- Balance at February 2, 1994........ $ -- Issuance of 156,250 shares of 7% preferred stock at $100 per share.......................... 15,625,000 Issuance of 3,317,850 shares of common stock at $.449 per share.......................... 1,488,727 Exchange of 288,604 shares of common stock at $.449 per share in connection with the acquisition of HVC Holdings Canada Ltd. And HealthVISION Corporation.................... 129,495 Issuance of 46,650 share of 7% preferred stock at $100 per share.......................... 4,565,000 Issuance of 969,464 shares of common stock at $.398 per share.......................... 385,000 Net loss......................... (14,127,983) Translation adjustment........... 59,329 ------------ Balance at December 31, 1994....... 8,124,568 Issuance of 5,278,529 shares of convertible preferred Series A-1 stock for $2.080 per share in connection with the acquisition of LBA............. 10,978,182 Issuance of 1,441,878 shares of convertible preferred Series A-2 stock for cash at $3.468 per share...................... 5,000,000 Issuance of 1,441,878 shares of convertible preferred Series A-2 stock at $3.468 per share...................... 5,000,000 Issuance of 12,520 shares of common stock at $.429 per share upon exercise of options....... 5,369 Issuance of 55,000 shares of 7% preferred stock for conversion of bridge financing at $100 per share.......................... 5,500,000 Net loss......................... (15,124,908) Translation adjustment........... (379,019) ------------ Balance at December 31, 1995....... $ 19,104,192 Issuance of 30,000 shares of 7% preferred stock at $100 per share.......................... 7,000,000 Net loss......................... (8,042,505) Translation adjustment........... (49,497) ------------ Balance at June 30, 1996.......... $ 18,012,190 ============
F-52 HealthVISION, Inc. Consolidated Statements of Cash Flows For the Six Months Ended June 30, 1995 and 1996 (unaudited)
For the Six Month Periods Ended June 30, ----------------------------------- 1995 1996 ---- ---- (unaudited) Cash flows from operating activities: Net loss $(6,503,279) $(8,042,505) Adjustments to reconcile net loss to net cash used by operating activities: Depreciation and amortization 987,459 1,200,908 Change in operating assets and liabilities: Accounts receivable (429,184) (25,297) Intercompany receivable -- 125,874 Prepaid expenses (72,947) (146,502) Accounts payable 315,232 (883,747) Accrued compensation and related liabilities 616,017 321,201 Deferred revenue (203,647) 59,099 Other accrued liabilities (71,881) (127,111) ----------- ----------- Total adjustments 1,141,049 524,425 ----------- ----------- Net cash used in operating activities (5,362,230) (7,518,080) Cash flows used by investing activities: Purchase of equipment and furniture (1,467,473) -- Capitalized software development costs -- (641,813) ----------- ----------- Net cash used in investing activities (1,467,473) (641,813) ----------- ----------- Cash flows provided by financing activities: Proceeds from issuance of 7% redeemable preferred stock -- 7,000,000 Proceeds from long-term debt and bridge financing 3,869,382 -- Principal payments made on long-term debt and capital leases (198,322) (380,067) ----------- ----------- Net cash provided by (used in) financing activities 3,671,060 6,619,933 ----------- ----------- Effect of exchange rate changes on cash 70,398 (49,497) ----------- ----------- Net decrease in cash and equivalents (3,088,245) (1,589,457) Cash and equivalents, beginning of period 6,207,043 1,589,457 ----------- ----------- Cash and equivalents, end of period $ 3,118,798 $ -- =========== =========== Supplemental schedule of non-cash investing and financing activities: Purchase of equipment under capital lease arrangements $ -- $ 431,717 =========== ===========
F-53 HealthVISION, Inc. Notes to Consolidated Financial Statements For the Six-Month Periods Ended June 30, 1996 and 1995 (unaudited) 1. THE COMPANY, ORGANIZATION AND BASIS OF PRESENTATION HealthVISION, Inc. (the "Company") was organized as a Delaware corporation on February 2, 1994, began operations on February 15, 1994 and was incorporated to acquire HVC Holdings Canada Ltd., HealthVISION Corporation and their subsidiaries. The Company develops, markets and supports healthcare information products focused on lowering costs of health care and improving clinical processes for integrated delivery systems, hospitals and office-based physicians. On February 14, 1994, the Company acquired substantially all of the business, assets, and liabilities of HVC Holdings Canada Ltd., HealthVISION Corporation (the "Predecessor Company") and their subsidiaries for $13,994,016. The transaction was recorded using the purchase method of accounting. Accordingly, a basis of accounting of $13,994,016 was established based on the purchase price, resulting in purchase price in excess of fair market value of net liabilities assumed. On September 27, 1995, LBA Health Care Management, Inc., a newly formed subsidiary of the Company, acquired substantially all of the business, assets, and liabilities of LBA Health Care Management, Inc. and Healthcare Data Source, Inc. (collectively, "LBA") for approximately $51,178,000. The transaction was recorded using the purchase method of accounting. Accordingly, a basis of accounting of $49,850,853 was established based on the purchase price, resulting in purchase price in excess of fair market value of net assets acquired. The consolidated financial statements include the accounts of HealthVISION, Inc. and its subsidiary companies, all of which are wholly owned, except for LBA, which is being accounted for on the cost basis in accordance with FASB 94 as the Company has committed to sell this subsidiary and therefore control is deemed temporary. These statements reflect the activity of the Company and its subsidiaries, except for LBA, and all related intercompany transactions and balances have been eliminated in consolidation. The Company's financial statements have been prepared on the basis that the Company will continue as a going concern. The Company has incurred significant losses of $15,124,908 for the year ended December 31, 1995 and $8,042,505 for the six-month period ended June 30, 1996, resulting in an accumulated deficit of $37,295,396 at June 30, 1996. The Company's future plans include successful completion of additional financing, adjusting the level of its operations to provide the cash necessary to continue operations through at least January 1, 1997 and achieving future profitable operations. F-54 2. INTERIM FINANCIAL INFORMATION The financial information for the six-month periods ended June 30, 1995 and 1996 is unaudited but includes all adjustments (consisting only of normal recurring adjustments) which the Company considers necessary for a fair presentation of the financial position at such date and of the operating results and cash flows for such periods. The results for the interim periods are not necessarily indicative of results expected for the entire year ended December 31, 1996. These interim financial statements should be read in conjunction with the summary of significant accounting policies and notes to the consolidated financial statements included in the Company's December 31, 1995 consolidated financial statements included elsewhere herein. F-55 (c) Exhibits. Exhibit No. 2 Agreement and Plan of Reorganization by and between the Company and HealthVISION, Inc. dated as July 19, 1996, previously filed. 99 Press Releases, previously filed. 5 SIGNATURE 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. HCIA Inc. Date: August 13, 1996 By: /s/ Barry C. Offutt Barry C. Offutt, Senior Vice President and Chief Financial Officer 6 -----END PRIVACY-ENHANCED MESSAGE-----