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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
__________________
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2002
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to _____________.
_________________________________
Commission File Number 001-12799
VitalWorks Inc.
(Exact name of registrant as specified in its charter)
Delaware 59-2248411
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
239 Ethan Allen Highway, Ridgefield, CT 06877
(Address of principal executive offices, including zip code)
(203) 894-1300
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
As of August 8, 2002, there were 42,527,802 shares of the registrant's common
stock, $.001 par value, outstanding.
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VITALWORKS INC.
FORM 10-Q
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INDEX
Part I. Financial Information Page
Item 1. Financial Statements (unaudited)
Condensed Consolidated Balance Sheets--
June 30, 2002 and December 31, 2001.......................................................................... 2
Condensed Consolidated Statements of Operations--
Three and Six Months Ended June 30, 2002 and 2001............................................................ 3
Condensed Consolidated Statements of Cash Flows--
Six Months Ended June 30, 2002 and 2001...................................................................... 4
Notes to Condensed Consolidated Financial Statements--
June 30, 2002............................................................................................... 5
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................................................................ 9
Item 3. Quantitative and Qualitative Disclosures about Market Risk................................................ 23
Part II. Other Information
Item 1. Legal Proceedings......................................................................................... 24
Item 4. Submission of Matters to a Vote of Security Holders....................................................... 25
Item 5. Other Information......................................................................................... 25
Item 6. Exhibits and Reports on Form 8-K.......................................................................... 26
Signatures........................................................................................................ 27
Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002................................................................... 27
For further information, refer to the VitalWorks Inc. annual report on Form 10-K
filed on March 29, 2002. VitalWorks is a registered trademark of VitalWorks Inc.
All other trademarks and company names mentioned are the property of their
respective owners.
VITALWORKS INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
June 30, December 31,
2002 2001
---------------------------------
Assets (unaudited) (Note)
Current assets:
Cash and cash equivalents $ 28,746 $ 12,988
Accounts receivable, net of allowances of $2,200 and $1,800 15,598 12,693
Computer hardware held for resale 472 323
Deferred income taxes, net 1,685 3,376
Prepaid expenses and other current assets 707 946
Headquarters building(s) held for sale, at fair value 5,836 7,184
---------------------------------
Total current assets 53,044 37,510
Property and equipment, at cost, less accumulated
depreciation and amortization of $7,601 and $6,294 5,698 6,435
Goodwill, less accumulated amortization of $55,898 20,256 20,256
Product development and deferred finance costs, less
accumulated amortization of $442 and $905 7,185 4,739
Deferred income taxes, net 25,049 23,358
Other assets 555 651
---------------------------------
Total assets $ 111,787 $ 92,949
=================================
Liabilities and stockholders' equity
Current liabilities:
Accounts payable and accrued expenses $ 9,210 $ 10,503
Accrued employee compensation and benefits 3,411 2,862
Accrued restructuring costs 1,626 2,900
Deferred revenue, including unearned discounts of $1,298 and $1,701 7,124 8,096
Current portion of long-term debt 9,878 14,063
---------------------------------
Total current liabilities 31,249 38,424
Long-term debt 17,339 16,490
Other liabilities, primarily unearned discounts re: outsourced printing
services 12,511 11,975
Commitments and contingencies -- Note D
Stockholders' equity:
Common stock $.001 par value; 200,000,000 shares authorized;
42,436,527 and 39,126,771 shares issued 42 39
Additional paid-in capital 197,802 191,585
Notes receivable from former director(s), net of allowance
of $6,000 in 2001 (2,154) (4,632)
Accumulated deficit (144,533) (160,463)
Treasury stock, at cost, 125,000 shares (469) (469)
---------------------------------
Total stockholders' equity 50,688 26,060
---------------------------------
Total liabilities and stockholders' equity $ 111,787 $ 92,949
=================================
Note: The balance sheet at December 31, 2001 has been derived from the audited
financial statements at that date.
See accompanying notes.
-2-
VITALWORKS INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Three Months Ended Six Months Ended
June 30, June 30,
2002 2001 2002 2001
---------------------------- --------------------------
Revenues
Maintenance and services $ 21,026 $ 20,515 $ 42,001 $ 41,644
Software licenses and system sales 7,673 5,335 14,716 9,624
---------------------------- --------------------------
Total revenues 28,699 25,850 56,717 51,268
---------------------------- --------------------------
Costs and expenses
Cost of revenues:
Maintenance and services 5,173 4,808 10,527 9,793
Software licenses and system sales, includes
amortization of product development costs
of $265 and $387 in 2002 2,207 1,578 3,801 2,798
Selling, general and administrative 11,928 13,623 24,542 28,783
Research and development 3,565 2,626 6,740 5,075
Depreciation and amortization, includes $5,821 and
$ 11,567 of goodwill amortization in 2001 630 6,589 1,234 13,237
Provision (credit) for loan losses, $6,000 charge in 2001
reversed in 2002, and other nonrecurring costs in 2001 (3,000) 655 (6,000) 8,402
---------------------------- --------------------------
20,503 29,879 40,844 68,088
---------------------------- --------------------------
Operating income (loss) 8,196 (4,029) 15,873 (16,820)
Interest income 649 90 1,219 193
Interest expense (521) (938) (1,112) (1,922)
---------------------------- --------------------------
Income (loss) from continuing operations,
before income taxes 8,324 (4,877) 15,980 (18,549)
Provision for income taxes 25 50
---------------------------- --------------------------
Income (loss) from continuing operations 8,299 (4,877) 15,930 (18,549)
Loss from discontinued operations (5,384)
---------------------------- --------------------------
Net income (loss) $ 8,299 $ (4,877) $ 15,930 $ (23,933)
============================ ==========================
Earnings (loss) per share
Basic:
Continuing operations $ 0.20 $ (0.13) $ 0.40 $ (0.51)
Discontinued operations (0.15)
---------------------------- --------------------------
$ 0.20 $ (0.13) $ 0.40 $ (0.66)
============================ ==========================
Diluted:
Continuing operations $ 0.17 $ (0.13) $ 0.33 $ (0.51)
Discontinued operations (0.15)
---------------------------- --------------------------
$ 0.17 $ (0.13) $ 0.33 $ (0.66)
============================ ==========================
Average number of shares outstanding
Basic 40,865 37,202 40,006 36,309
Diluted 49,690 37,202 48,625 36,309
See accompanying notes.
-3-
VITALWORKS INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(IN THOUSANDS)
Six Months Ended
June 30,
2002 2001
----------------------------------
Operating activities
Income (loss) from continuing operations $ 15,930 $ (18,549)
Adjustments to reconcile income (loss) from continuing operations to
cash provided by operating activities:
Provision (credit) for loan losses, $6,000 charge in 2001 reversed
in 2002, and other nonrecurring costs in 2001 (6,000) 7,478
Depreciation and amortization, primarily goodwill in 2001 1,234 13,237
Provisions for bad debts, returns and discounts 1,366 1,950
Amortization of deferred finance costs, charged to interest expense 194 117
Amortization of product development costs 387
Changes in operating assets and liabilities:
Accounts receivable (4,271) (230)
Computer hardware held for resale, prepaid expenses and other (462) (449)
Accounts payable, accrued costs and expenses (475) 363
Deferred revenue (570) (565)
Unearned discounts re: outsourced printing services (622) (730)
Interest payments on notes receivable from former directors 610
----------------------------------
Cash provided by operating activities 6,711 3,232
----------------------------------
Investing activities
Product development costs (2,380) (1,445)
Proceeds from sale of office buildings 1,369 800
Purchases of property and equipment (465) (836)
Net cash advances to PracticeWorks (discontinued operations) (344)
----------------------------------
Cash used in investing activities (1,476) (1,825)
----------------------------------
Financing activities
Long-term debt:
(Payments) (30,321) (1,913)
Proceeds 27,450 194
Loan payments from former directors 8,837 312
Exercise of stock options by employees 5,080 64
Deferred finance costs (523)
----------------------------------
Cash provided by (used in) financing activities 10,523 (1,343)
----------------------------------
Increase in cash and cash equivalents 15,758 64
Cash and cash equivalents at beginning of period 12,988 5,969
----------------------------------
Cash and cash equivalents at end of period $ 28,746 $ 6,033
==================================
Supplemental disclosure of cash flow information
Income taxes paid, net of refunds $ 61
Interest paid 1,297 $ 490
See accompanying notes.
-4-
VITALWORKS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 2002
A. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all
adjustments, consisting only of normal recurring accruals, considered necessary
for a fair presentation have been included in the accompanying unaudited
financial statements. Operating results for the three and six-month periods
ended June 30, 2002 are not necessarily indicative of the results that may be
expected for the full year ending December 31, 2002. For further information,
refer to the consolidated financial statements and footnotes thereto for the
year ended December 31, 2001 included in the VitalWorks Inc. (the "Company" or
"VitalWorks") annual report on Form 10-K filed on March 29, 2002. Certain
amounts in the condensed consolidated financial statements for 2001 have been
reclassified to conform to the 2002 presentation.
B. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted
earnings (loss) per share ("EPS") (in thousands, except per share data):
Second Quarter Ended Six Months Ended
June 30, June 30,
2002 2001 2002 2001
-------------------------------- ----------------------------
Numerator:
Continuing operations $ 8,299 $ (4,877) $ 15,930 $ (18,549)
Discontinued operations (5,384)
-------------------------------- ----------------------------
$ 8,299 $ (4,877) $ 15,930 $ (23,933)
================================ ============================
Denominator:
Basic EPS - weighted-average shares 40,865 37,202 40,006 36,309
Effect of dilutive securities, stock option
and warrant rights 8,825 8,619
-------------------------------- ----------------------------
Diluted EPS - adjusted weighted-average
shares and assumed conversions 49,690 37,202 48,625 36,309
================================ ============================
Basic EPS:
Continuing operations $ 0.20 $ (0.13) $ 0.40 $ (0.51)
Discontinued operations (0.15)
-------------------------------- ----------------------------
$ 0.20 $ (0.13) $ 0.40 $ (0.66)
================================ ============================
Diluted EPS:
Continuing operations $ 0.17 $ (0.13) $ 0.33 $ (0.51)
Discontinued operations (0.15)
-------------------------------- ----------------------------
$ 0.17 $ (0.13) $ 0.33 $ (0.66)
================================ ============================
Because their effect would be antidilutive, stock option and warrant
rights for up to .4 million and 1.1 million common shares were excluded from the
diluted EPS calculation for the three and six-month periods ended June 30, 2002,
respectively. For the same reason, all options and warrants were excluded from
the diluted calculation for the three and six-month periods ended June 30, 2001.
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VITALWORKS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 2002
C. COMPREHENSIVE INCOME
Comprehensive income is a measure of all changes in equity of an
enterprise that results from recognized transactions and other economic events
of a period other than transactions with owners in their capacity as owners. For
the Company, comprehensive income (loss) is equivalent to its consolidated net
income (loss).
D. CONTINGENT MATTERS
From time to time, in the normal course of business, various claims are
made against the Company. Except for proceedings described below, there are no
material proceedings to which the Company is a party, and management is unaware
of any material contemplated actions against the Company.
On April 19, 2001, a lawsuit styled David and Susan Jones v. InfoCure
Corporation (now known as VitalWorks Inc.), et al., was filed in Boone County
Superior Court in Indiana. The Company removed the case to the United States
District Court for the Southern District of Indiana. The complaint alleges state
securities law violations, breach of contract, and fraud claims against the
Company and certain former directors and officers. The complaint does not
specify the amount of damages sought by plaintiffs, but seeks rescission of a
transaction plaintiffs valued at $5 million, as well as punitive damages and
reimbursement for the plaintiffs' attorney's fees and associated costs and
expenses of the lawsuit. In a decision from the Court dated October 15, 2001,
the plaintiffs' request for a preliminary injunction to preserve their remedy of
rescission was denied, the Company's request to transfer the case to the
Northern District Court of Georgia was granted, and the Company's motion to
dismiss plaintiffs' complaint in its entirety was granted in part. On October
26, 2001, the plaintiffs filed a notice of appeal with the 7th Circuit Court of
Appeals. Oral argument took place on May 31, 2002 and the appeal has not yet
been decided.
The Company has been named as a defendant as successor to CDL
Healthcare Systems, Inc. ("CDL"), a company acquired by VitalWorks in December
1999, in a complaint filed in the Circuit Court of the Eleventh Judicial Circuit
in Dade County, Florida on February 27, 2001 by Sonia Abutog, individually,
Angelo Abutog, individually, and Sonia and Angelo Abutog, as parents and next
best friends to Aaron Abutog, a minor. Gary Weiner, former President of CDL, and
his daughter, Elisha Weiner, are also named as defendants. Plaintiffs allege
that they were injured at a time, prior to the merger between the Company and
CDL, when a motor vehicle operated by Elisha Weiner collided with plaintiff
Sonia Abutog, a pedestrian. The plaintiff contends that she and her unborn child
suffered severe personal injuries as a result of the accident and seeks to
recover damages in an unspecified amount in excess of $15,000, plus interest and
costs. The Company's motion for final summary judgment dismissing the action
against the Company was granted by order of the Court dated July 9, 2002.
While management believes that the Company has meritorious defenses in
each of the foregoing matters and the Company intends to pursue its positions
vigorously, litigation is inherently subject to many uncertainties. Thus the
outcome of these matters is uncertain and could be adverse to the Company.
However, even if the outcome of these cases is adverse, management does not
believe that the outcome of these cases, individually or in the aggregate, will
have a material adverse effect on the financial position of the Company.
However, depending on the amount and timing of an unfavorable resolution(s) of
the contingencies, it is possible that the Company's future results of
operations or cash flows could be materially affected in a particular reporting
period(s).
E. GOODWILL ASSETS
In 2001, depreciation and amortization expense consisted mainly of
goodwill amortization. The decrease in depreciation and amortization expense in
2002 is due primarily to the cessation of goodwill amortization in accordance
with Statement of Financial Accounting Standards No. 142, "Goodwill and Other
Intangible Assets". In July 2001, the Financial Accounting Standards Board
issued Statement 142, which provides that, upon adoption, the Company shall no
longer amortize its goodwill assets. Rather, the Company is required to test its
-6-
VITALWORKS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 2002
goodwill for impairment of value on at least an annual basis. Pursuant to
Statement 142, the Company discontinued amortizing goodwill on January 1, 2002
and based on the Company's initial test for impairment of value, the adoption of
Statement 142 did not have a negative impact on the Company's financial
statements.
Excluding goodwill amortization of $5.8 million, the Company would have
had net income of $.9 million, or $.02 per diluted share, for the June 2001
quarter, compared to net income of $8.3 million, or $.17 per diluted share, for
the corresponding period of 2002. Excluding goodwill amortization of $11.6
million for the six months ended June 30, 2001, the net loss would have been
$(12.4) million, or $(.34) per share, compared to net income of $15.9 million,
or $.33 per diluted share, for the first half of 2002.
F. ACCRUED RESTRUCTURING COSTS
On August 1, 2000, VitalWorks announced its intention to restructure
its operations through a plan of employee reductions and consolidation of office
facilities. Since then, the Company closed 14 facilities and terminated
approximately 400 employees.
The nature of the restructuring accrual as of December 31, 2001 and
June 30, 2002 was primarily the total cost of future payments that remained
outstanding under lease commitments regarding certain of the offices that were
closed. In the six months ended June 30, 2002, costs of $.8 million were applied
against the accrual. The accrual was reduced by another $.5 million reflecting a
savings credited to selling, general and administrative expenses in the June
2002 quarter in connection with the early termination of an office lease for a
facility closed in March 2001.
G. STOCKHOLDERS' EQUITY
EMPLOYEE SAVINGS AND STOCK OPTION PLANS
In the first half of 2002, the Company issued 3,309,756 shares of its
common stock, consisting of 2,914,221 shares in connection with the exercise of
stock options by certain employees, 222,012 shares with respect to the
Company-sponsored employee savings plan, and 173,523 shares in connection with
the exercise of warrants and, as a result, recognized $6.2 million as a credit
to additional paid-in capital.
NOTES RECEIVABLE FROM FORMER DIRECTORS
In the June 2002 quarter and in July 2002, VitalWorks received final
payments from three former directors satisfying their outstanding loans from the
Company, including interest. Consequently, the Company recorded a credit of $6.0
million, reflecting a complete reversal of the allowance for loan losses
established in March 2001, and related interest income of $1.1 million.
H. SEGMENT INFORMATION
The Company has identified two reportable operating segments: software
licenses and system sales, and maintenance and services. Software license fees
and system revenues are derived from the sale of software product licenses and
computer hardware. Maintenance and services revenues come from providing ongoing
product support, training and transaction processing services. The accompanying
statements of operations disclose the financial information of the Company's
reportable segments for the three and six-month periods ended June 30, 2002 and
2001. The Company does not account for or report its assets or capital
expenditures by segments.
The Company markets its products and services to three types of
physician practices: hospital-based practices, including radiology and
anesthesiology; large general and emergency medicine practices, such as
physician networks, clinics and management service organizations that include
ten or more doctors; and small
-7-
VITALWORKS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 2002
group practices of fewer than ten doctors that serve a local community,
including ophthalmology, dermatology and general medicine practices.
I. SUBSEQUENT EVENT
In August 2002, the Company completed the sale of a former headquarters
building in Atlanta for $6.3 million, after closing costs. Proceeds from the
sale were used to repay the $5.5 million mortgage loan.
-8-
VITALWORKS INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
FORWARD-LOOKING STATEMENTS AND RISK FACTORS THAT MAY AFFECT FUTURE RESULTS
Except for the historical information contained in this Report on Form
10-Q, the matters discussed herein contain "forward-looking statements" within
the meaning of the federal securities laws. Statements regarding future events
and developments and our future performance, as well as our management's
expectations, beliefs, intentions, plans, estimates or projections relating to
the future, are forward-looking statements within the meaning of these laws. Our
management believes that these forward-looking statements are reasonable and are
based on reasonable assumptions and forecasts. However, these forward-looking
statements are subject to a number of risks and uncertainties. As a result,
actual results may vary materially from those anticipated by the forward-looking
statements.
Among the important factors that could cause actual results to differ
materially are the risk factors described below. You should read these factors
and the other cautionary statements made in this document as being applicable to
all related forward-looking statements wherever they appear in this Report on
Form 10-Q. You should also consider the forward-looking statements contained in
this document in light of the cautionary language contained in our other filings
with the Securities and Exchange Commission, including our Annual Report on Form
10-K.
You are cautioned not to place undue reliance on the forward-looking
statements, which speak only as of the date of this report. Except as required
by law, we undertake no obligation to publicly update any forward-looking
statements, whether as a result of new information, future events or otherwise.
You should carefully consider the following risk factors. Any of the
following risks could seriously harm our business, financial condition, cash
flows and results of operations and cause the value of our common stock to
decline. The risks and uncertainties described below are those that we currently
believe may materially affect us. Additional risks and uncertainties that we are
currently unaware of or that we currently consider to be immaterial may also
become important factors that affect us.
OUR OPERATING RESULTS WILL VARY FROM PERIOD TO PERIOD. IN ADDITION, WE HAVE
EXPERIENCED LOSSES IN THE PAST AND MAY NEVER ACHIEVE OR MAINTAIN CONSISTENT
PROFITABILITY.
Our operating results will vary significantly from quarter to quarter
and from year to year. In addition, prior to the first quarter of 2002, we have
experienced net losses. Our net loss was $(27.8) million for the year ended
December 31, 2001 and $(78.1) million for the year ended December 31, 2000.
Our operating results have been and may be influenced significantly by
factors such as:
- release of new products, product upgrades and services, and the rate of
adoption of these products and services by new and existing customers;
- timing of and costs related to development of our products;
- length of sales and delivery cycles;
- size and timing of orders for our products and services;
- availability of specified computer hardware for resale;
- deferral and/or realization of deferred software license and system
revenues according to contract terms;
- changes in customer purchasing patterns;
- competition, including product offerings, price and service;
- timing of and charges associated with acquisitions or other strategic
events or transactions;
- timing and levels of advertising and promotional expenditures;
-9-
VITALWORKS INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
- changes of accounting estimates used to prepare the prior periods'
financial statements; and
- uncertainties concerning pending litigation against us.
In addition, we operate with a minimal amount of software licensing and
system sales backlog. Therefore, quarterly and annual revenues and operating
results are highly dependent on the volume and timing of the signing of license
agreements and product deliveries during each quarter. A significant portion of
our quarterly sales of software product licenses and computer hardware is
concluded in the last month of the fiscal quarter, generally with a
concentration of our quarterly revenues earned in the final ten business days of
that month. Also, our projections for revenues and operating results,
particularly for the December 2002 quarter and beyond, include significant sales
of new product and service offerings, especially our new radiology information
system, or RIS, which may not be realized. Due to these and other factors, our
revenues and operating results are very difficult to forecast. A major portion
of our costs and expenses, such as personnel and facilities, are of a fixed
nature and, accordingly, a shortfall or decline in quarterly and/or annual
revenues typically results in lower profitability or losses. As a result,
comparison of our period-to-period financial performance is not necessarily
meaningful and should not be relied upon as an indicator of future performance.
Due to the many variables in forecasting our revenues and operating results, it
is likely that at some point in the future our results will not meet our
expectations or the expectations of public market analysts or investors. Failure
to attain these expectations would likely cause the price of our common stock to
decline.
OUR COMPETITIVE POSITION COULD BE SIGNIFICANTLY HARMED IF WE FAIL TO PROTECT OUR
INTELLECTUAL PROPERTY RIGHTS FROM THIRD-PARTY CHALLENGES.
Our ability to compete depends in part on our ability to protect our
intellectual property rights. We rely on a combination of copyright, trademark
and trade secret laws and restrictions on disclosure to protect the intellectual
property rights related to our software applications. Our software technology is
not patented and existing copyright laws offer only limited practical
protection. In addition, in the past we have not generally entered into
confidentiality agreements with our employees. Although current practices
require all new employees to sign confidentiality agreements, not all existing
employees have signed agreements. We cannot assure you that the legal
protections that we rely on will be adequate to prevent misappropriation of our
technology.
Further, we may need to bring lawsuits or pursue other legal or
administrative proceedings in order to enforce our intellectual property rights.
Generally, lawsuits and proceedings of this type, even if successful, are
costly, time consuming and could divert our personnel and other resources away
from our business, which could harm our business.
Moreover, these protections do not prevent independent third-party
development of competitive products or services. Unauthorized parties may
attempt to copy or otherwise obtain and use our products or technology.
Monitoring use of our products is difficult, and we cannot assure you that the
steps we have taken will prevent unauthorized use of our technology,
particularly in foreign countries where the laws may not protect our proprietary
rights as fully as in the United States.
INTELLECTUAL PROPERTY INFRINGEMENT CLAIMS AGAINST US COULD BE COSTLY TO DEFEND
AND COULD DIVERT OUR MANAGEMENT'S ATTENTION AWAY FROM OUR BUSINESS.
As the number of software products in our target markets increases and
as the functionality of these products overlaps, we may become increasingly
subject to the threat of intellectual property infringement claims. Any
infringement claims alleged against us, regardless of their merit, can be time
consuming and expensive to defend. Infringement claims may also divert our
management's attention and resources and could also cause
-10-
VITALWORKS INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
delays in the delivery of our applications to our customers. Settlement of any
infringement claims could require us to enter into royalty or licensing
agreements on terms that are costly or cost-prohibitive. If a claim of product
infringement against us were successful and we were unable to license the
infringing or similar technology or redesign our products to avoid infringement,
our business, financial condition, cash flows and results of operations could be
harmed.
WE MAY UNDERTAKE ACQUISITIONS, WHICH MAY INVOLVE SIGNIFICANT UNCERTAINTIES AND
MAY INCREASE COSTS, DIVERT MANAGEMENT RESOURCES FROM CORE BUSINESS ACTIVITIES,
OR FAIL TO REALIZE ANTICIPATED BENEFITS OF SUCH ACQUISITIONS.
We may undertake acquisitions if we identify companies with
complementary applications, services, businesses or technologies. We may not
achieve any of the anticipated synergies and other benefits that we expected to
realize from these acquisitions. In addition, software companies are very
dependent on their employees to maintain the quality of their software offerings
and related customer services. If we were unable to retain the acquired
companies' personnel or integrate them into our operations, the value of the
acquired products, technology and/or client base could be compromised. The
amount and timing of the expected benefits of any acquisition are also subject
to other significant risks and uncertainties. These risks and uncertainties
include:
- our ability to cross-sell products and services to customers with which
we have established relationships and those with which the acquired
business has established relationships;
- diversion of our management's attention from our existing business;
- potential conflicts in customer and supplier relationships;
- our ability to coordinate organizations that are geographically diverse
and may have different business cultures;
- dilution to existing stockholders if we issue equity securities;
- assumption of liabilities or other obligations in connection with the
acquisition; and
- compliance with regulatory requirements.
Further, our profitability may also suffer because of
acquisition-related costs and/or amortization or impairment of intangible
assets.
IF OUR NEW PRODUCTS, INCLUDING PRODUCT UPGRADES, AND SERVICES DO NOT ACHIEVE
SUFFICIENT MARKET ACCEPTANCE, OUR BUSINESS, FINANCIAL CONDITION, CASH FLOWS AND
OPERATING RESULTS WILL SUFFER.
The success of our business will depend in part on the market acceptance
of:
- new products and services, such as our radiology information system, or
RIS, products and services; and
- enhancements to our existing products and services.
There can be no assurance that our clients will accept any of these
products, product upgrades and services. In addition, there can be no assurance
that any pricing strategy that we implement for any of our new products, product
upgrades and services will be economically viable or acceptable to our target
markets. Failure to achieve significant penetration in our target markets with
respect to any of our new products, product upgrades and services could have a
material adverse effect on our business prospects.
Achieving market acceptance for our new products, product upgrades and
services is likely to require substantial marketing and service efforts and
expenditure of significant funds to create awareness and demand by participants
in the healthcare industry. In addition, deployment of new or newly integrated
products or product
-11-
VITALWORKS INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
upgrades may require the use of additional resources for training our existing
sales force and customer service personnel and for hiring and training
additional salespersons and customer service personnel. There can be no
assurance that the revenue opportunities for our new products, product upgrades
and services will justify the amounts that we spend for their development,
marketing and roll-out.
TECHNOLOGY SOLUTIONS MAY CHANGE FASTER THAN WE ARE ABLE TO UPDATE OUR
TECHNOLOGY, WHICH COULD CAUSE A LOSS OF CUSTOMERS AND HAVE A NEGATIVE IMPACT ON
OUR REVENUES.
The information management technology market in which we compete is
characterized by rapidly changing technology, evolving industry standards,
emerging competition and the frequent introduction of new services, software and
other products. Our success depends partly on our ability to:
- develop new or enhance existing applications, software and services to
meet our customers' changing needs in a timely and cost-effective way;
and
- respond effectively to technological changes, new product offerings,
product enhancements and new services of our competitors.
We cannot be sure that we will be able to accomplish these goals. Our
development of new and enhanced products and services may take longer than
originally expected, require more testing than originally anticipated and
require the acquisition of additional personnel and other resources. In
addition, there can be no assurance that the products and/or services we develop
or license will be able to compete with the alternatives available to our
customers. Our competitors may develop products or technologies that are better
or more attractive than our products or technologies, or that may render our
products or technology obsolete. If we do not succeed in adapting our products,
technology and services or developing new products, technologies and services,
our business could be harmed.
THE NATURE OF OUR PRODUCTS AND SERVICES EXPOSES US TO PRODUCT LIABILITY CLAIMS
THAT MAY NOT BE ADEQUATELY COVERED BY INSURANCE OR CONTRACTUAL INDEMNIFICATION.
As a product and service provider in the healthcare industry, we
operate under the continual threat of product liability claims being brought
against us. For example, if patient information processed through our systems is
incorrect, patients may receive inadequate or inapplicable medical treatment,
which could subject us to significant liability. Errors or malfunctions with
respect to our products or services could also result in product liability
claims. Although we believe that we carry adequate insurance coverage against
product liability claims, we cannot assure you that claims in excess of our
insurance coverage will not arise. In addition, our insurance policies must be
renewed annually. Although we have been able to obtain what we believe to be
adequate insurance coverage at an acceptable cost in the past, we cannot assure
you that we will continue to be able to obtain adequate insurance coverage at an
acceptable cost.
In many instances, we also have provisions in our agreements that
provide that the other party to the agreement will indemnify us against certain
liabilities. However, any indemnification of this type is limited, as a
practical matter, to the creditworthiness of the indemnifying party. If the
contractual indemnification rights available under our agreements are not
adequate or inapplicable to the product liability claims that may be brought
against us, then, to the extent not covered by our insurance, our business,
operating results, cash flows and financial condition could be materially
adversely affected.
OUR BUSINESS COULD SUFFER IF OUR PRODUCTS AND SERVICES CONTAIN ERRORS,
EXPERIENCE FAILURES, RESULT IN LOSS OF OUR CUSTOMERS' DATA OR DO NOT MEET
CUSTOMER EXPECTATIONS.
-12-
VITALWORKS INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
The products and services that we offer are inherently complex. Despite
testing and quality control, we cannot be certain that errors will not be found
in prior versions, current versions or future versions or enhancements of our
products and services. We also cannot assure you that our products and services
will not experience partial or complete failure. It is also possible that as a
result of any of these errors and/or failures, our customers may suffer loss of
data. The loss of business, medical or patient data for any length of time may
be a significant problem for some of our customers who have time-sensitive or
mission-critical practices. We could face breach of warranty or other claims or
additional development costs if our software contains undetected errors, if our
customers suffer loss of data, if our products and/or services experience
failures, do not perform in accordance with their documentation, or do not meet
the expectations that our customers have for them. Even if these claims do not
result in liability to us, investigating and defending against them could be
expensive and time consuming and could divert management's attention away from
our operations. In addition, negative publicity caused by these events may delay
market acceptance of our products and services, including unrelated products and
services.
WE MAY BE SUBJECT TO CLAIMS RESULTING FROM THE ACTIVITIES OF OUR STRATEGIC
PARTNERS.
We rely on third parties to provide services critical to our business.
For example, we use national clearinghouses in the processing of insurance
claims and we outsource some of our hardware maintenance services and the
printing and delivery of patient billings for our customers. We also have
relationships with certain third parties where these third parties serve as
sales channels through which we generate a portion of our revenues. Due to these
third-party relationships, we could be subject to claims as a result of the
activities, products, or services of these third-party service providers even
though we were not directly involved in the circumstances leading to those
claims. Even if these claims do not result in liability to us, defending and
investigating these claims could be expensive, time-consuming, divert personnel
and other resources from our business and result in adverse publicity that could
harm our business.
WE ARE SUBJECT TO GOVERNMENT REGULATION AND LEGAL UNCERTAINTIES, THE COMPLIANCE
WITH WHICH COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR BUSINESS.
HIPAA
Federal regulations have been adopted, and others have been proposed,
that will impact the manner in which we conduct our business. Regulations under
the Health Insurance Portability and Accountability Act of 1996, commonly
referred to as HIPAA, may require us to expend significant resources to comply
with applicable requirements. Because these regulations are new, there is
uncertainty as to how they will be interpreted and enforced. In addition, the
delay in adopting final security regulations creates uncertainties as to what
security requirements ultimately will be imposed, to what extent we will be
required to comply with those requirements, and what the deadline for compliance
will be.
Although we will make a good faith effort to ensure that we comply
with, and that our products enable compliance with, applicable HIPAA
requirements, we may not be able to conform our operations and products to such
requirements in a timely manner, or at all. The failure to do so could subject
us to civil liability when we are the business associate of a covered entity,
and could subject us to civil liability and criminal sanctions to the extent we
are regulated directly as a covered entity. In addition, delay in developing or
failure to develop products that would enable HIPAA compliance for our current
and prospective customers could put us at a significant disadvantage in the
marketplace. Accordingly, the sale of our products and our business could be
harmed by the implementation of HIPAA regulations.
-13-
VITALWORKS INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
Other E-Commerce Regulations
We may be subject to additional federal and state statutes and
regulations in connection with offering Internet services and products. On an
increasingly frequent basis, federal and state legislators are proposing laws
and regulations that apply to Internet commerce and communications. Areas being
affected by this regulation include user privacy, pricing, content, taxation,
copyright protection, distribution, and quality of products and services. To the
extent that our products and services are subject to these laws and regulations,
the sale of our products and services could be harmed.
CHANGES IN STATE AND FEDERAL LAWS RELATING TO CONFIDENTIALITY OF PATIENT MEDICAL
RECORDS COULD LIMIT OUR CUSTOMERS' ABILITY TO USE OUR SERVICES.
The confidentiality of patient records and the circumstances under
which records may be released are already subject to substantial regulation by
state governments. Although compliance with these laws and regulations is
principally the responsibility of the healthcare provider under these current
laws, statutes and regulations governing patient confidentiality rights are
evolving rapidly. In addition to the obligations being imposed at a state level,
legislation governing the dissemination of medical information is being passed
at the federal level. The legislation may require holders of this information to
implement security measures, which could entail substantial expenditures on our
part. Adoption of these types of legislation or other changes to state or
federal laws could materially affect or restrict the ability of healthcare
providers to submit information from patient records using our products and
services. These kinds of restrictions would likely decrease the value of our
applications to our customers, which could materially harm our business.
CHANGES IN THE REGULATORY AND ECONOMIC ENVIRONMENT IN THE HEALTHCARE INDUSTRY
COULD CAUSE US TO LOSE REVENUE AND INCUR SUBSTANTIAL COSTS TO COMPLY WITH NEW
REGULATIONS.
The healthcare industry is highly regulated and is subject to changing
political, economic and regulatory influences. These factors affect the
purchasing practices and operations of healthcare organizations. Changes in
current healthcare financing and reimbursement systems could require us to make
unplanned enhancements of applications or services, or result in delays or
cancellations of orders or in the revocation of endorsement of our services by
our strategic partners and others. Federal and state legislatures have
periodically considered programs to reform or amend the U.S. healthcare system
at both the federal and state level. These programs may contain proposals to
increase governmental involvement in healthcare, lower reimbursement rates or
otherwise change the environment in which healthcare industry participants
operate. Healthcare industry participants may respond by reducing their
investments or postponing investment decisions, including investments in our
applications and services.
LARGER COMPETITORS AND CONSOLIDATION OF COMPETITORS COULD CAUSE US TO LOWER OUR
PRICES OR TO LOSE CUSTOMERS.
Our principal competitors include both national and regional vendors of
practice management systems. Currently, the practice management system industry
in the United States is characterized by a large number of relatively small,
regionally focused companies, resulting in a highly fragmented industry with
only a few national vendors. Until recently, larger, national vendors have
targeted primarily large healthcare providers. We believe that the larger,
national vendors may broaden their markets to include both small and large
healthcare providers. In addition, we compete with national and regional
providers of computerized billing, insurance processing and record management
services to healthcare practices. As the market for our products and services
expands,
-14-
VITALWORKS INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
additional competitors are likely to enter this market. We believe that the
primary competitive factors in our markets are:
- product features and functionality;
- customer service, support and satisfaction;
- price;
- ongoing product enhancements; and
- the reputation and stability of the vendor.
We have experienced, and we expect to continue to experience, increased
competition from current and potential competitors, many of whom have
significantly greater financial, technical, marketing and other resources than
us. Such competitors may be able to respond more quickly to new or emerging
technologies and changes in customer requirements or devote greater resources to
the development, promotion and sale of their products than us. Also, certain
current and potential competitors have greater name recognition or more
extensive customer bases that could be leveraged, thereby gaining market share
to our detriment. We expect additional competition as other established and
emerging companies enter into the practice management software market and new
products and technologies are introduced. Increased competition could result in
price reductions, fewer customer orders, reduced gross margins and loss of
market share, any of which would materially adversely affect our business,
operating results, cash flows and financial condition.
WE DEPEND ON PARTNERS/SUPPLIERS FOR DELIVERY OF ELECTRONIC DATA INTERCHANGE
(INSURANCE CLAIMS PROCESSING AND INVOICE PRINTING SERVICES), COMMONLY REFERRED
TO AS EDI, HARDWARE MAINTENANCE SERVICES AND SALES LEAD GENERATION; ANY
INABILITY OR UNWILLINGNESS OF THESE SUPPLIERS TO PERFORM THESE SERVICES COULD
NEGATIVELY IMPACT CUSTOMER SATISFACTION AND REVENUES.
We utilize various third-party suppliers to provide our customers with
EDI transactions and on-site hardware maintenance. EDI revenue would be
particularly vulnerable to a supplier failure because EDI revenues are earned on
a daily basis. Although other vendors are available in the marketplace to
provide these services, it would take time to switch suppliers. If these
suppliers were unable to perform such services or the quality of these services
declined, it could have a negative impact on customer satisfaction and
ultimately result in a decrease in our revenues.
OUR SYSTEMS MAY BE VULNERABLE TO SECURITY BREACHES AND VIRUSES.
The success of our strategy to offer our EDI services and Internet
solutions depends on the confidence of our customers in our ability to securely
transmit confidential information. Our EDI services and Internet solutions rely
on encryption, authentication and other security technology licensed from third
parties to achieve secure transmission of confidential information. We may not
be able to stop unauthorized attempts to gain access to or disrupt the
transmission of communications by our customers. Anyone who is able to
circumvent our security measures could misappropriate confidential user
information or interrupt our, or our customers', operations. In addition, our
EDI and Internet services may be vulnerable to viruses, physical or electronic
break-ins, and similar disruptions. Any failure to provide secure electronic
communication services could result in a lack of trust by our customers causing
them to seek out other vendors, and/or, damage our reputation in the market
making it difficult to obtain new customers.
IF THE MARKETPLACE DEMANDS SUBSCRIPTION PRICING AND/OR APPLICATION SERVICE
PROVIDER, OR ASP, DELIVERED OFFERINGS, OUR REVENUES MAY BE ADVERSELY IMPACTED.
-15-
VITALWORKS INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
We currently derive substantially all of our revenues from traditional
software license, maintenance and service fees, as well as the resale of
computer hardware. Today, customers pay an initial license fee for the use of
our products, in addition to a periodic maintenance fee. If the marketplace
demands subscription pricing and/or ASP-delivered offerings, we may be forced to
adjust our strategy accordingly, by offering a higher percentage of our products
and services through these means. Shifting to subscription pricing and/or
ASP-delivered offerings could adversely impact our financial condition, cash
flows and quarterly and annual results of operations, as our revenues would
initially decrease substantially. We cannot assure you that the marketplace will
not embrace subscription pricing and/or ASP-delivered offerings.
WE STRUCTURED THE SPIN-OFF OF OUR DENTAL PRACTICE MANAGEMENT SOFTWARE BUSINESS
TO PRACTICEWORKS, INC. AS A TAX-FREE TRANSACTION AND PRACTICEWORKS AGREED TO
INDEMNIFY US FOR ANY TAX LIABILITIES ARISING OUT OF THE TRANSACTION. IF THE
SPIN-OFF DOES NOT QUALIFY AS A TAX-FREE TRANSACTION, WE MAY BE SUBJECT TO
LIABILITIES AND WE CANNOT ASSURE YOU THAT PRACTICEWORKS WILL HONOR THEIR
INDEMNIFICATION OBLIGATIONS.
The spin-off of our dental practice management software business was
structured to qualify as a tax-free distribution under Section 355 of the
Internal Revenue Code of 1986. Section 355 places certain requirements that must
be complied with in order to qualify for tax-free treatment. Failure to comply
with those restrictions could cause us to incur significant liabilities.
PracticeWorks has generally agreed to indemnify us under certain circumstances
to the extent any action or omission on their part contributes to a
determination by the Internal Revenue Service that the spin-off was not a
tax-free transaction. However, we cannot assure you that PracticeWorks will have
sufficient resources to fulfill their indemnification obligations and even if
they have the resources, we cannot assure you that they will not refute their
indemnifications altogether. In either case, if we are not indemnified, we may
incur substantial liabilities, which could have a material adverse effect on our
business, financial condition, cash flows and results of operations.
OUR GROWTH COULD BE LIMITED IF WE ARE UNABLE TO ATTRACT AND RETAIN QUALIFIED
PERSONNEL.
We believe that our success depends largely on our ability to attract
and retain highly skilled technical, managerial and sales personnel to develop,
sell and implement our products and services. Individuals with the information
technology, managerial and selling skills we need to further develop, sell and
implement our products and services are in short supply and competition for
qualified personnel is particularly intense. We may not be able to hire the
necessary personnel to implement our business strategy, or we may need to pay
higher compensation for employees than we currently expect. We cannot assure you
that we will succeed in attracting and retaining the personnel we need to
continue to grow and to implement our business strategy. In addition, we depend
on the performance of our executive officers and other key employees. The loss
of any member of our senior management team could negatively impact our ability
to execute our business strategy.
IF OUR INTERPRETATION OF THE ACCOUNTING PRONOUNCEMENTS REGARDING REVENUE
RECOGNITION IS NOT CORRECT OR IF THE AMERICAN INSTITUTE OF CERTIFIED PUBLIC
ACCOUNTANTS, OR AICPA, OR OTHER REGULATORS OF ACCOUNTING STANDARDS MODIFIES OR
ISSUES NEW PRONOUNCEMENTS, THEN OUR BUSINESS AND FINANCIAL CONDITION COULD BE
ADVERSELY AFFECTED.
Based on our reading and interpretations of Statement of Positions
81-1, 97-2 and 98-9, issued by the AICPA, and Staff Accounting Bulletin No. 101,
issued by the United States Securities and Exchange Commission, we believe our
current sales contract terms and business arrangements have been properly
reported. However, the AICPA and its Software Revenue Recognition Task Force
continue to issue interpretations and guidance for applying the relevant
standards to a wide range of sales contract terms and business arrangements that
are prevalent in the software industry. Future interpretations or changes by the
AICPA or other regulators of
-16-
VITALWORKS INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
existing accounting standards or changes in our business practices could result
in future changes in our revenue recognition accounting policies and practices
that could have a material adverse effect on our business, financial condition,
cash flows and results of operations.
OVERVIEW
VitalWorks Inc. is a leading, nationwide provider of information
management technology and services targeted to healthcare practices and
organizations. We provide information technology-based solutions for general
medical practices and have specialty-specific products and services for
practices such as radiology, anesthesiology, ophthalmology, emergency medicine,
plastic surgery, and dermatology. We also offer enterprise-level systems
designed for large physician groups and networks. Our range of software
solutions, which include workflow features related to patient encounters,
automate the administrative, financial, and clinical information management
functions for physicians and other healthcare providers. We provide our clients
with ongoing software support, training, electronic data interchange, or EDI,
services for patient billing and claims processing, and a variety of Web-based
services.
Software license fees and system revenues are derived from the sale of
software product licenses and computer hardware. Maintenance and services
revenues come from providing ongoing product support, training and transaction
processing services. Approximately two-thirds of our total revenues are of a
recurring nature.
We market our products and services to three types of physician practices:
- hospital-based practices, including radiology and anesthesiology;
- large general and emergency medicine practices, such as physician
networks, clinics and management service organizations that include ten
or more doctors; and
- small group practices of fewer than ten doctors that serve a local
community, including ophthalmology, dermatology and general medicine
practices.
In 2002, approximately 40% of revenues were derived from the
hospital-based market and 30% from each of our other markets. Approximately an
equal amount of revenues was derived from each of these three markets in 2001.
Revenues from the small group market are skewed more towards maintenance and
services.
RESULTS OF OPERATIONS
REVENUES
Second Quarter Ended Six Months Ended
June 30, 2002 Change 2001 2002 Change 2001
- ---------------------------------------------------------------------------------------------------------------------------
(dollars in thousands)
Maintenance and services $21,026 2.5% $ 20,515 $42,001 0.9% $41,644
Percentage of total revenues 73.3% 79.4% 74.1% 81.2%
- ---------------------------------------------------------------------------------------------------------------------------
Software licenses and system sales $ 7,673 43.8% $ 5,335 $14,716 52.9% $ 9,624
Percentage of total revenues 26.7% 20.6% 25.9% 18.8%
- ---------------------------------------------------------------------------------------------------------------------------
We recognize software license revenues (initial fees) and system
(computer hardware) sales upon execution of the sales contract and delivery of
the software and/or hardware. In all cases, however, collection of
-17-
VITALWORKS INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
any related receivable must be probable, and no significant post-contract
obligations of ours shall be remaining. Otherwise, we defer the sale until all
of the requirements for revenue recognition have been satisfied. Maintenance
fees for routine support and product updates are recognized ratably over the
term of the license agreement, which is typically three years. Training,
consulting and EDI service revenues are recognized as the services are
performed. We provide allowances for estimated future returns and discounts, as
well as bad debts, upon recognition of revenues.
If we were to adopt new, or change our current, licensing practices in
response to a preference from the market or otherwise, then our revenue
recognition practices may be subject to significant change to comply with the
requisite accounting principles. For example, contracts for strictly software
services and support (e.g., subscription type contract) would result in the
recognition of revenues ratably over the term of the contract.
The increase in maintenance and services revenues is mainly
attributable to (i) an increase in training and other professional services
revenues of $.7 million for the June quarter and $.9 million for the six months,
corresponding to the favorable trend in sales of software licenses and systems,
and (ii) additional EDI revenues, net of customer attrition, of approximately
$.6 million for the June quarter and $1.1 million for the six months, which
reflects the conversion of a number of customer accounts to direct billing from
us for printing services performed by certain third parties that, in the first
half of 2001, had been billed directly by the printing vendor. Our revised
agreements with these printers now call for us to bill our physician practices
directly for printing services and, in turn, remit a specified dollar amount per
page to the printer. Accordingly, based on the amended agreements, we recognize
100% of our direct billings as revenue versus an amount that was net of the
printers' fees. These increases were partly offset by the loss of revenues
totaling $.9 million earned in the June 2001 quarter and $1.8 million earned in
the first half of 2001 under agreements to promote third-party product and
services, which agreements were terminated in May and October 2001. Maintenance
revenues have remained substantially unchanged.
Software license and system revenues rose primarily as a result of an
increase in the number of licenses and systems sold (unit volume versus, for
example, price increases). This increase was led by software sales made
primarily to larger group practices.
COST OF REVENUES
Second Quarter Ended Six Months Ended
June 30, 2002 Change 2001 2002 Change 2001
- ---------------------------------------------------------------------------------------------------------------------------
(dollars in thousands)
Maintenance and services $ 5,173 7.6% $ 4,808 $10,527 7.5% $ 9,793
Percentage of maintenance and services
revenue 24.6% 23.4% 25.1% 23.5%
- ---------------------------------------------------------------------------------------------------------------------------
Software licenses and system sales $ 2,207 39.9% $ 1,578 $ 3,801 35.8% $ 2,798
Percentage of software licenses and
system sales 28.8% 29.6% 25.8% 29.1%
- ---------------------------------------------------------------------------------------------------------------------------
Cost of maintenance and services revenues consists primarily of the
cost of EDI claims processing, outsourced hardware maintenance and billing and
statement printing services, and postage. The increase in the cost of
maintenance and services revenues principally reflects additional costs of EDI
services incurred in connection with the conversion of a number of customers to
direct billing for printing services, as discussed above regarding EDI revenues.
-18-
VITALWORKS INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
Cost of software license and system revenues consists primarily of
costs incurred to purchase computer hardware, third-party software and other
items for resale in connection with sales of new systems and software, and, in
2002, amortization of product development costs. The increase primarily reflects
the increase in the corresponding sales of software products and computer
hardware.
OPERATING EXPENSES
Second Quarter Ended Six Months Ended
June 30, 2002 Change 2001 2002 Change 2001
- ---------------------------------------------------------------------------------------------------------------------------
(dollars in thousands)
Selling, general and administrative $11,928 (12.4)% $13,623 $24,542 (14.7)% $28,783
Percentage of total revenues 41.6% 52.7% 43.3% 56.1%
- ---------------------------------------------------------------------------------------------------------------------------
Research and development $ 3,565 35.8% $ 2,626 $ 6,740 32.8% $ 5,075
Percentage of total revenues 12.4% 10.2% 11.9% 9.9%
- ---------------------------------------------------------------------------------------------------------------------------
Depreciation and amortization $ 630 (90.4)% $ 6,589 $ 1,234 (90.7)% $13,237
Percentage of total revenues 2.2% 25.5% 2.2% 25.8%
- ---------------------------------------------------------------------------------------------------------------------------
Selling, general and administrative expenses include fixed and variable
compensation and benefits of all personnel other than research and development
personnel, facilities, travel, communications, bad debt, legal, marketing,
insurance and other administrative expenses. The decrease is related to the
savings that resulted from a major restructuring plan that we initiated in
August 2000. We closed 14 offices, the last five of which were closed in March
and April 2001, and our employee-base average was reduced to 649 for the first
half of 2002, from 720 for the corresponding period of 2001. The decrease also
reflects (i) declines in legal fees of $.3 million and $.6 million, and bad debt
expense of $.4 million and $.6 million regarding the three and six-month
comparisons, respectively, and (ii) a savings of $.5 million recognized in the
June 2002 quarter in connection with the early termination of an office lease
for a facility closed in March 2001 as part of the restructuring.
The increase in research and development expenses is mainly
attributable to additional personnel costs and third-party software developer
fees associated with our expanded product research and development activities.
For the quarter and six months ended June 30, 2002, we capitalized $1.6 million
(or 31.4% of total research and development expenditures) and $2.4 million (or
26.1% of total research and development expenditures) of third-party software
developer fees, respectively, in accordance with Statement of Financial
Accounting Standards No. 86, "Accounting for the Costs of Computer Software to
be Sold, Leased or Otherwise Marketed". For the same periods of 2001, we
capitalized $.9 million (or 26.1% of total research and development
expenditures) and $1.4 million (or 22.2% of total research and development
expenditures) of third-party developer fees. The amounts capitalized relate to
our development of Web-based applications, including a radiology information
system, or RIS, which is a workflow solution for medical imaging centers. We
amortize capitalized software development costs over the estimated economic life
of the products. Depending on the nature and success of the product, we
generally expect to amortize these deferred costs over a three to five-year
period. Amortization commences when the product is made commercially available.
One new application became commercially available in the first quarter of 2002.
The new RIS product was made available in the second quarter of 2002. We expect
the remaining products to become commercially available in the December 2002
quarter.
-19-
VITALWORKS INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
In the three and six-month periods ended June 30, 2001, depreciation
and amortization expense consisted mainly of $5.8 million and $11.6 million of
goodwill amortization, respectively. The decrease in depreciation and
amortization expense in 2002 is due primarily to the cessation of goodwill
amortization in accordance with Statement of Financial Accounting Standards No.
142, "Goodwill and Other Intangible Assets". In July 2001, the Financial
Accounting Standards Board issued Statement 142, which provides that, upon
adoption, we shall no longer amortize our goodwill assets. Rather, we are
required to test these assets for impairment of value on at least an annual
basis. Pursuant to Statement 142, we discontinued amortizing goodwill on January
1, 2002 and based on our initial test for impairment of value, the adoption of
Statement 142 did not have a negative impact on our financial statements.
In the June 2002 quarter and in July 2002, we received final payments
from three former directors satisfying their outstanding loans from VitalWorks,
including interest. Consequently, we recorded a credit of $6.0 million ($3.0
million each in the March and June quarters) reflecting a complete reversal of
the allowance for loan losses established in March 2001. In 2001, we recognized
impairment charges and incurred other nonrecurring costs of $8.4 million. These
costs and expenses included the $6.0 million provision for loan losses relating
to the notes receivable from former directors and $.9 million for unused equity
financing, both recorded in the March 2001 quarter, and $.8 million of executive
severance paid in the June 2001 quarter.
INTEREST INCOME
The increase in interest income reflects interest not previously
recognized on the notes receivable from former directors. We received
substantial interest and principal payments in the June 2002 quarter and a final
payment in July 2002.
INTEREST EXPENSE
Interest expense consists primarily of interest costs incurred in
connection with our outstanding term and real estate mortgage loans. The
decrease in interest expense is due to a decline in both the outstanding
principal balances and associated interest rates under our credit agreement.
INCOME TAXES
For the three and six-month periods ended June 30, 2002, we recorded an
income tax provision of $25,000 and $50,000, respectively. For the first six
months of 2001, we did not record an income tax provision or benefit. Management
has assessed the realizable value of our deferred tax assets of $51.1 million
and determined that a valuation allowance of $21.9 million was necessary as of
June 30, 2002 to, along with deferred tax liabilities of $2.5 million, reduce
the net deferred tax asset to $26.7 million, an amount which we believe is more
likely than not to be realized. In reaching this conclusion, management noted
that internal projections indicate that we will generate sufficient taxable
income to realize the net deferred tax assets within three to four years.
The effective income tax rate was less than 1% for the three and
six-month periods ended June 30, 2002 and is expected to remain at less than 1%
for the rest of 2002 due primarily to our net operating loss carryforwards.
LOSS FROM DISCONTINUED OPERATIONS
Discontinued operations represent the results of PracticeWorks, Inc., a
provider of practice management software for dental and oral surgery practices,
through March 5, 2001. On that date, we distributed 100% of the
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VITALWORKS INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
common stock of PracticeWorks to our stockholders. For the period January 1,
2001 to March 5, 2001, our net loss from discontinued operations was $5.4
million.
NET INCOME (LOSS)
As a result of the above factors, operating results for the three and
six-month periods ended June 30, 2002 increased to net income of $8.3 million
from a net loss of $(4.9) million and to net income of $15.9 million from a net
loss of $(23.9) million, respectively, for the corresponding periods of 2001.
To date, the overall impact of inflation on us has not been material.
LIQUIDITY AND CAPITAL RESOURCES
To date, we have financed our business through positive cash flows from
operations and proceeds from the issuance of common stock and long-term
borrowings. For fiscal years 1999, 2000 and 2001, and for the six months ended
June 30, 2002, we generated positive cash flows from operations of $3.4 million,
$12.8 million, $18.2 million and $6.7 million, respectively.
Days sales outstanding (calculated as accounts receivable, net of
allowances, divided by total quarterly revenues multiplied by 90 days) for the
second quarter of 2002 was 49 days. Looking forward, as license and systems
sales increase, we expect our days sales outstanding to range from 50 to 60
days.
Investing activities for the six months ended June 30, 2002 resulted in
a use of cash of $1.5 million. This total includes $2.4 million for software
development costs and $.5 million used primarily for purchases of computer
equipment and software, offset partially by net proceeds of $1.4 million from
the sale of an office building.
Cash provided by financing activities for the six months ended June 30,
2002 amounted to $10.5 million, consisting of proceeds of $27.5 million received
in connection with a new four-year credit agreement, $8.8 million of loan
payments received from former directors, and $5.1 million of payments received
in connection with the exercise of stock options by employees. These amounts
were partly offset by $30.3 million of principal payments of long-term debt and
$.5 million of finance costs.
As of June 30, 2002, we had cash and cash equivalents of $28.7 million
and $27.2 million of total long-term debt. Cash equivalents are comprised
primarily of investment-grade commercial paper, time deposits, and U.S. federal,
state and political subdivision obligations with varying terms of three months
or less. In March 2002, we entered into a new four-year credit agreement with
Foothill Capital Corporation, a wholly-owned subsidiary of Wells Fargo &
Company. The new agreement includes a term loan of $22.0 million at an interest
rate of prime plus 2% and a mortgage loan of $5.5 million with respect to our
Atlanta property that was held for sale, at an interest rate of prime plus 1.5%.
Subject to achieving certain specified earnings targets, the margin by which our
interest rate on the term loan exceeds prime may be reduced by as much as 1.1%
over the life of the loan. Interest is payable monthly in arrears. Principal is
payable over the life of the agreement, including a balloon payment in March
2006. Should we decide to prepay the term loan in full prior to year four, we
would incur a prepayment fee equal to 3% in year one, 2% in year two, and 1% in
year three of the then outstanding principal balance of the term loan. The
prepayment fee may be reduced should the loan be prepaid in connection with a
change of control of VitalWorks. The loans, which are collateralized by
substantially all of our assets and intellectual property rights, subject us to
certain restrictive covenants, including (i) the required maintenance of minimum
levels of recurring revenues and earnings, as defined, (ii) an annual limit on
the amount of capital expenditures and (iii) the prohibition of dividend
payments to shareholders.
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VITALWORKS INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
In July 2002, we received $2.2 million from a former director
satisfying his outstanding loan, including interest. In August 2002, we
completed the sale of a former headquarters building in Atlanta for $6.3
million, after closing costs.
The following table summarizes, as of June 30, 2002, the general timing
of future payments under our outstanding loan agreement and under lease
agreements that include noncancellable terms. Maturities of long-term debt in
the table reflect the repayment of the $5.5 million mortgage loan in connection
with the sale of the Atlanta property.
Payments Due by Period
---------------------------------------------------------------------------
Contractual 2003 to
Obligations Totals 2002 2005 2006 Thereafter
---------------------------------------------------------------------------
(in thousands)
Long-term debt................... $ 26,200 $ 6,700 $ 7,500 $ 12,000
Capital leases................... 1,094 354 740
Operating leases................. 9,213 1,700 5,320 1,216 $ 977
---------------------------------------------------------------------------
$ 36,507 $ 8,754 $ 13,560 $ 13,216 $ 977
===========================================================================
We anticipate capital expenditures of approximately $4 million for the
remainder of 2002, including software development costs of approximately $2.5
million. We intend to review potential strategic acquisitions and other business
alliances.
From time to time, in the normal course of business, various claims are
made against us. Except for proceedings described below, there are no material
proceedings to which we are a party, and management is unaware of any material
contemplated actions against us.
On April 19, 2001, a lawsuit styled David and Susan Jones v. InfoCure
Corporation (now known as VitalWorks Inc.), et al., was filed in Boone County
Superior Court in Indiana. We removed the case to the United States District
Court for the Southern District of Indiana. The complaint alleges state
securities law violations, breach of contract, and fraud claims against us and
certain former directors and officers. The complaint does not specify the amount
of damages sought by plaintiffs, but seeks rescission of a transaction
plaintiffs valued at $5 million, as well as punitive damages and reimbursement
for the plaintiffs' attorney's fees and associated costs and expenses of the
lawsuit. In a decision from the Court dated October 15, 2001, the plaintiffs'
request for a preliminary injunction to preserve their remedy of rescission was
denied, our request to transfer the case to the Northern District Court of
Georgia was granted, and our motion to dismiss plaintiffs' complaint in its
entirety was granted in part. On October 26, 2001, the plaintiffs filed a notice
of appeal with the 7th Circuit Court of Appeals. Oral argument took place on May
31, 2002 and the appeal has not yet been decided.
We have been named as a defendant as successor to CDL Healthcare
Systems, Inc. ("CDL"), a company acquired by us in December 1999, in a complaint
filed in the Circuit Court of the Eleventh Judicial Circuit in Dade County,
Florida on February 27, 2001 by Sonia Abutog, individually, Angelo Abutog,
individually, and Sonia and Angelo Abutog, as parents and next best friends to
Aaron Abutog, a minor. Gary Weiner, former President of CDL, and his daughter,
Elisha Weiner, are also named as defendants. Plaintiffs allege that they were
injured at a time, prior to the merger between us and CDL, when a motor vehicle
operated by Elisha Weiner collided with plaintiff Sonia Abutog, a pedestrian.
The plaintiff contends that she and her unborn child suffered severe personal
injuries as a result of the accident and seeks to recover damages in an
unspecified amount in excess of $15,000, plus interest and costs. Our motion for
final summary judgment dismissing the action against us was granted by order of
the Court dated July 9, 2002.
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VITALWORKS INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
While management believes that we have meritorious defenses in each of
the foregoing matters and we intend to pursue our positions vigorously,
litigation is inherently subject to many uncertainties. Thus the outcome of
these matters is uncertain and could be adverse to us. However, even if the
outcome of these cases is adverse, management does not believe that the outcome
of these cases, individually or in the aggregate, will have a material adverse
effect on our financial position. However, depending on the amount and timing of
an unfavorable resolution(s) of the contingencies, it is possible that our
future results of operations or cash flows could be materially affected in a
particular reporting period(s).
We believe that our current cash and cash equivalent balances together
with the funds we expect to generate from our operations will be sufficient to
finance our business for the next twelve months.
RECENT ACCOUNTING PRONOUNCEMENTS
In July 2001, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 141, "Business Combinations." Statement
141 requires the use of the purchase method of accounting and prohibits the use
of the pooling-of-interests method of accounting for business combinations
initiated after June 30, 2001. Statement 141 also requires us to recognize
acquired intangible assets apart from goodwill if the acquired intangible assets
meet certain criteria. Statement 141 applies to all business combinations
initiated after June 30, 2001 and for purchase business combinations completed
on or after July 1, 2001. It also requires that, upon adoption of Statement 142,
"Goodwill and Other Intangible Assets" (adoption of Statement 142 is discussed
in the operating expenses section above), we reclassify the carrying amounts of
intangible assets and goodwill based on the criteria in Statement 141.
Our previous business combinations were accounted for using both the
pooling-of-interests and purchase methods. The pooling-of-interests method does
not result in the recognition of acquired goodwill or other intangible assets.
As a result, the adoption of Statements 141 and 142 will not affect the results
of past transactions accounted for under the pooling-of-interests method.
However, all future business combinations would be accounted for under the
purchase method, which may result in the recognition of goodwill and other
intangible assets, some of which would be recognized through operations, either
by amortization or impairment charges, in the future.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our primary market risk is fluctuations in the "prime rate" of interest
announced from time to time by Wells Fargo Bank N.A. Approximately $26.2 million
of outstanding debt at June 30, 2002 related to long-term indebtedness under our
credit agreement with Foothill Capital Corporation, a wholly-owned subsidiary of
Wells Fargo & Company. We expect interest on the outstanding balance of the
loans to be charged based on a variable rate related to the prime rate. Thus,
interest expense is subject to market risk in the form of fluctuations in the
prime rate of interest. The effect of a hypothetical one hundred basis point
increase across all maturities of variable rate debt would result in an annual
decrease of approximately $.3 million in pre-tax results assuming no further
changes in the amount of borrowings subject to variable rate interest from
amounts outstanding at June 30, 2002. We do not hold derivative securities and
have not entered into contracts embedded with derivative instruments, such as
foreign currency and interest rate swaps, options, forwards, futures, collars,
and warrants, either to hedge existing risks or for speculative purposes.
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VITALWORKS INC.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
From time to time, in the normal course of business, various claims are
made against us. Except for proceedings described below, there are no material
proceedings to which we are a party, and management is unaware of any material
contemplated actions against us.
On April 19, 2001, a lawsuit styled David and Susan Jones v. InfoCure
Corporation (now known as VitalWorks Inc.), et al., was filed in Boone County
Superior Court in Indiana. We removed the case to the United States District
Court for the Southern District of Indiana. The complaint alleges state
securities law violations, breach of contract, and fraud claims against us and
certain former directors and officers. The complaint does not specify the amount
of damages sought by plaintiffs, but seeks rescission of a transaction
plaintiffs valued at $5 million, as well as punitive damages and reimbursement
for the plaintiffs' attorney's fees and associated costs and expenses of the
lawsuit. In a decision from the Court dated October 15, 2001, the plaintiffs'
request for a preliminary injunction to preserve their remedy of rescission was
denied, our request to transfer the case to the Northern District Court of
Georgia was granted, and our motion to dismiss plaintiffs' complaint in its
entirety was granted in part. On October 26, 2001, the plaintiffs filed a notice
of appeal with the 7th Circuit Court of Appeals. Oral argument took place on May
31, 2002 and the appeal has not yet been decided.
We have been named as a defendant as successor to CDL Healthcare
Systems, Inc. ("CDL"), a company acquired by us in December 1999, in a complaint
filed in the Circuit Court of the Eleventh Judicial Circuit in Dade County,
Florida on February 27, 2001 by Sonia Abutog, individually, Angelo Abutog,
individually, and Sonia and Angelo Abutog, as parents and next best friends to
Aaron Abutog, a minor. Gary Weiner, former President of CDL, and his daughter,
Elisha Weiner, are also named as defendants. Plaintiffs allege that they were
injured at a time, prior to the merger between us and CDL, when a motor vehicle
operated by Elisha Weiner collided with plaintiff Sonia Abutog, a pedestrian.
The plaintiff contends that she and her unborn child suffered severe personal
injuries as a result of the accident and seeks to recover damages in an
unspecified amount in excess of $15,000, plus interest and costs. Our motion for
final summary judgment dismissing the action against us was granted by order of
the Court dated July 9, 2002.
While management believes that we have meritorious defenses in each of
the foregoing matters and we intend to pursue our positions vigorously,
litigation is inherently subject to many uncertainties. Thus the outcome of
these matters is uncertain and could be adverse to us. However, even if the
outcome of these cases is adverse, management does not believe that the outcome
of these cases, individually or in the aggregate, will have a material adverse
effect on our financial position. However, depending on the amount and timing of
an unfavorable resolution(s) of the contingencies, it is possible that our
future results of operations or cash flows could be materially affected in a
particular reporting period(s).
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VITALWORKS INC.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At our Annual Meeting of Stockholders held on June 12, 2002, our
stockholders adopted the following proposals by the margins indicated:
1. To elect members of the Board of Directors to serve for a one-year term.
Number of Shares
For Against Abstain
-------------------------------------------------
Joseph M. Walsh 29,589,904 0 3,052,771
Stephen N. Kahane, M.D., M.S. 29,551,862 0 3,090,813
Michael A. Manto 29,591,075 0 3,051,600
Kenneth R. Adams 32,436,010 0 206,665
Stephen J. DeNelsky 32,399,972 0 242,703
David B. Shepherd 32,437,886 0 204,789
2. To approve the 2002 Employee Stock Purchase Plan.
Number of Shares
For Against Abstain
------------------------------------------------
30,589,457 2,021,672 31,546
3. To ratify our appointment of BDO Seidman, LLP as our independent
certified public accountants for the fiscal year ending December 31,
2002.
Number of Shares
For Against Abstain
------------------------------------------------
32,322,774 295,973 23,928
ITEM 5. OTHER INFORMATION
In April and May 2002, each executive officer entered into an
individual stock trading plan, or so-called Rule 10b5-1 plan. These plans
specify trading periods that generally extend for up to one year, number of
shares to be sold, and prices at which shares may be sold. If all conditions of
the plans are met, the total number of shares that may be sold under the plans
would equal 19.9% of the aggregate number of shares, including unvested option
shares, then held by the executive officers. More specifically, the Rule 10b5-1
plan of Joseph M. Walsh, President and CEO, provides for the sale of not more
than 90,000 shares on-average per quarter over the twelve months ending May 30,
2003, which may begin now that we have announced our operating results for the
June 2002 quarter. The aggregate number of shares that may be sold under this
plan represents 11.3% of the number of shares, including unvested option shares,
then held by Mr. Walsh.
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VITALWORKS INC.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit No Description
- ---------- -----------
10.1 VitalWorks Inc. 401(k) Profit Sharing Plan
10.2 VitalWorks Inc. 2002 Employee Stock Purchase Plan
(b) Reports on Form 8-K
None
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VITALWORKS INC.
FORM 10-Q FOR THE THREE-MONTH PERIOD ENDED JUNE 30, 2002
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
VitalWorks Inc.
/s/ Michael A. Manto 8/9/02
----------------------------------------------------
Michael A. Manto Date
Executive Vice President and Chief Financial Officer
/s/ Joseph M. Walsh 8/9/02
----------------------------------------------------
Joseph M. Walsh Date
Chairman and Chief Executive Officer
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION
906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with this Quarterly Report on Form 10-Q of VitalWorks
Inc. (the "Company") for the period ended June 30, 2002 (the "Report"), the
undersigned, Joseph M. Walsh, Chief Executive Officer of the Company, and
Michael A. Manto, Chief Financial Officer of the Company, each hereby certifies,
pursuant to 18 U.S.C. Section 1350, that:
(1) The Report fully complies with the requirements of Section 13(a) or
15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations of the
Company.
/s/ Joseph M. Walsh 8/9/02
----------------------------------------------------
Joseph M. Walsh Date
Chief Executive Officer
/s/ Michael A. Manto 8/9/02
----------------------------------------------------
Michael A. Manto Date
Chief Financial Officer
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