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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 |
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For the fiscal year ended December 31, 2004 |
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OR |
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 |
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For the transition period
from to |
Commission file number 000-25311
AMICAS, INC.
(Exact name of registrant as specified in its charter)
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Delaware
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59-2248411 |
(State or other jurisdiction of
incorporation or organization) |
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(I.R.S. Employer
Identification No.) |
20 Guest Street, Suite 200, Boston, Massachusetts
02135
(Address of
principal executive offices, including zip code)
Registrant’s telephone number, including area code:
(617) 779-7878
Securities registered pursuant to Section 12(b) of the
Act:
None
Securities registered pursuant to Section 12(g) of the
Act:
Common Stock, par value $.001
Rights to purchase Series B Preferred Stock
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 þ No o
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not
contained herein, and will not be contained, to the best of
registrant’s knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this
Form 10-K or any amendment to this
Form 10-K. o
Indicate by check mark whether the registrant is an accelerated
filer (as defined in Rule 12b-2 of the Act).
Yes þ No o
The aggregate market value of the common equity held by
non-affiliates of the registrant (assuming for these purposes,
but without conceding, that all executive officers and directors
are “affiliates” of the registrant) as of
June 30, 2004 (based on the closing sale price of the
registrant’s common stock, par value $.001 per share,
as reported on the NASDAQ National Market on such date) was
approximately $104 million. 44,852,774 shares of
common stock were outstanding as of March 23, 2005.
Documents Incorporated by Reference
Portions of the registrant’s Proxy Statement for the 2005
Annual Meeting of Stockholders, expected to be held on
June 10, 2005, are incorporated into Part III herein
by reference.
AMICAS, INC.
Form 10-K
Contents
AMICAS is a registered trademark of AMICAS, Inc. All other
trademark and company names mentioned are the property of their
respective owners.
1
PART I
General
AMICAS, Inc. (“AMICAS” or the “Company”),
formerly known as VitalWorks Inc., is a leader in radiology and
medical image and information management solutions. The AMICAS
Vision
Seriestm
products provide a complete, end-to-end solution for imaging
centers, ambulatory care facilities, and radiology practices.
Acute care and hospital customers are provided a
fully-integrated, hospital information system
(“HIS”)/radiology information system
(“RIS”)-independent picture archiving communication
system (“PACS”), featuring advanced enterprise
workflow support and scalable design. Complementing the Vision
Series product family is AMICAS Insight
Servicestm,
a set of client-centered professional and consulting services
that assist our customers with a well-planned transition to a
digital enterprise. We provide our clients with ongoing software
support, implementation, training, and electronic data
interchange, or EDI, services for patient billing and claims
processing.
We were incorporated in Delaware in November 1996 as InfoCure
Corporation. On July 10, 1997, we completed our initial
public offering. During the remainder of 1997 through 1999, we
completed acquisitions of 16 medical and radiology software
companies. In addition, during the period July 1997 through
2000, we acquired 19 companies that made up our former
dental software business. We changed our name to VitalWorks Inc.
in July 2001.
On March 5, 2001, we completed a spin-off of our dental
software business through a pro rata distribution to our
shareholders of all the outstanding common stock (the
“Distribution”) of our previously wholly-owned
subsidiary, PracticeWorks, Inc. (“PracticeWorks”). As
a result of the Distribution, PracticeWorks became an
independent public company consisting of our former dental
business, which included the dental, orthodontic, and oral and
maxillofacial surgery business lines. We relocated our executive
offices to Connecticut, changed our name and began doing
business as “VitalWorks Inc.” following the
Distribution. Certain material terms of the Distribution are
described herein.
On November 25, 2003, we acquired 100% of the outstanding
capital stock of Amicas PACS, Corp. (formerly known as Amicas,
Inc.), a developer of Web-based diagnostic image management
software solutions. The addition of Amicas PACS provided us with
the ability to offer radiology groups and imaging center
customers a comprehensive, integrated information and image
management solution that incorporates the key components of a
complete radiology data management system (i.e., image
management, workflow management and financial management). The
acquisition was completed to position us to achieve our goal of
establishing a leadership position in the growing PACS market.
PACS allow radiologists to access, archive and distribute
diagnostic images for primary interpretation, such as the
creation of a radiology report, as well as to enable fundamental
workflow changes and place images and digital information in the
hands of the customers of radiologists — the referring
physicians.
On January 3, 2005, we completed the sale of substantially
all of the assets and liabilities of our medical division,
together with certain other assets, liabilities, properties and
rights of ours relating to our anesthesiology business (the
“Medical Division”) to Cerner Corporation (the
“Asset Sale”). The Asset Sale was completed in
accordance with the terms and conditions of the Asset Purchase
Agreement between us and Cerner dated as of November 15,
2004, or the Purchase Agreement. Accordingly, in this report the
Medical Division has been accounted for and presented as
discontinued operations. All information contained in this
report, unless otherwise indicated, has been restated to reflect
the Asset Sale. Our former Medical Division is a leading
provider of information technology and services targeted to
healthcare practices and organizations throughout the United
States. It provides IT-based, specialty-specific solutions for
medical practices specializing in anesthesiology, ophthalmology,
emergency medicine, plastic surgery, dermatology, and internal
medicine. The Medical Division offers enterprise-level systems
designed for large physician groups and networks. Its range of
software solutions provide workflow management and information
management related to administrative, financial, and clinical
functions for physicians and other healthcare providers. The
Medical Division also provides its clients with ongoing software
support, implementation, training, and EDI services for
2
patient billing and claims processing. It offers a wide range of
clinical and practice management software products to healthcare
providers in targeted specialty markets. These products are
designed to automate workflow, administrative, financial, and
clinical information management functions of office-based
physician practices, hospital-based physician practices, and
large healthcare enterprises, clinics and organizations.
Effective January 3, 2005, we changed our name from
VitalWorks Inc. to AMICAS, Inc.
Industry Background
The healthcare market is one of the largest vertical markets in
the United States with annual spending of more than $1.2
trillion, representing approximately 14% of the U.S. gross
domestic product. Medical diagnostic imaging represents
approximately $68 billion of healthcare spending in the
U.S., second only to the prescription drug segment in overall
medical spending. In the U.S., over 400 million diagnostic
imaging procedures, such as general radiography, computed
tomography, magnetic resonance imaging, nuclear medicine,
ultrasound and mammography were performed in 2000 at an average
cost of $169 per study, a $68 billion market. Of the
400 million procedures, 40% of these patient studies were
available directly out of the scanner in a standard digital
communications format known as DICOM. DICOM stands for digital
imaging and communication in medicine. In 2000, of the
$68 billion spent on medical imaging, $8 billion was
devoted to managing images, mostly spent on buying, developing,
storing, moving and filing costly, hard-to-transport x-ray film
and older-generation information systems. To achieve cost
savings, the healthcare industry is shifting towards the
direct-to-digital segment, driving 15% annual growth in the
DICOM standard digital format portion of the market. With costs
estimated to double in the next five years, and with
inefficiency due to unnecessary care and administration
estimated at 25%, new solutions are needed. Continued
improvement must now come by addressing the root cause of the
remaining inefficiencies including a lack of comprehensive
information technology and applications.
Imaging diagnostic scanners have become more sophisticated and
produce higher volume of high-quality images; these images aid
early diagnosis and detection. Multi-slice and helical CT
scanners, for example, output many more images per procedure,
allowing for detection of smaller abnormalities and better
reconstruction of three dimensional models to aid treatment
decisions. More images result in increased film costs, longer
reading time for primary diagnosis and cumbersome management of
the increasing volume of film. Advances in imaging diagnostic
technologies, an aging population and a more health-conscious
consumer are all contributing to increasing numbers of orders
for diagnostic imaging procedures. This increased demand comes
at a time when there is a shortage of radiologists. Therefore,
hospitals, imaging centers, radiology group practices, and
healthcare organizations have found themselves under increasing
pressure from referring physicians and specialists to process
more procedures, increase patient throughput, and improve the
turn-around time of both the initial diagnostic interpretation
and the final written report. The current film-based practices,
including the problem of lost and misplaced prior imaging
studies, non-scalable methods for capturing orders, detailing
accurate patient demographic information, scheduling
appointments and resources, as well as coding and preparing
billing and reimbursement data, cannot meet and address the new
demands.
In addition, the growing image management market is highly
competitive. Independently-owned ambulatory imaging centers, or
centers that are a part of a hospital’s strategic
initiative, find it more compelling to acquire clinical,
administrative and related financial solutions from a single
source to ensure compatibility, integration and a lower total
cost of ownership. This solution is referred to as RIS/ PACS.
Traditionally, RIS or PACS vendors have serviced this market
independently or through partnerships and alliances. Currently
the trends are moving towards creating a single platform where
both administrative and clinical functions are offered by a
single vendor through an integrated solution.
3
Within the next two years, industry experts predict that 20% to
40% of hospitals and imaging centers will adopt PACS to manage
images and handle the workflow required to achieve efficiencies,
from the receipt of an exam order all the way to producing and
distributing radiology reports. The following table illustrates
the anticipated adoption of PACS by hospitals and imaging
centers.
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Imaging | |
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Hospitals | |
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Total | |
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Centers | |
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Total | |
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with | |
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Penetration | |
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Imaging | |
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With | |
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Penetration | |
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Hospitals | |
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PACS | |
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Rate (%) | |
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Centers | |
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PACS | |
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Rate (%) | |
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2000
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7,140 |
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806 |
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11.3 |
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2,811 |
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135 |
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4.8 |
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2001
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7,111 |
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916 |
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12.9 |
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2,926 |
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173 |
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5.9 |
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2002
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7,083 |
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1,041 |
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14.7 |
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3,034 |
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221 |
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7.3 |
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2003
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7,040 |
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1,249 |
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17.7 |
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3,150 |
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280 |
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8.9 |
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2004
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6,991 |
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1,528 |
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21.9 |
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3,272 |
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351 |
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10.7 |
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2005
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6,942 |
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1,829 |
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26.3 |
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3,407 |
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435 |
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12.8 |
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2006
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6,879 |
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2,177 |
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31.6 |
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3,553 |
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533 |
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15.0 |
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2007
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6,824 |
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2,564 |
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37.6 |
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3,716 |
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647 |
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17.4 |
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2008
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6,783 |
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2,986 |
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44.0 |
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3,891 |
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779 |
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20.0 |
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2009
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6,742 |
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3,472 |
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51.5 |
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4,074 |
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941 |
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23.1 |
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2010
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6,702 |
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3,994 |
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59.6 |
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4,258 |
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1,064 |
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25.0 |
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CAGR (2003-2010):
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(0.7 |
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18.1 |
% |
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18.9 |
% |
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4.4 |
% |
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21.0 |
% |
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15.9 |
% |
Hospital and Imaging Center PACS Penetration 2000 to 2010
Note: The base year is 2003.
Source: Frost & Sullivan
Business Strategy
We are a leader in radiology and medical image and information
management solutions. We employ industry-leading technologies
and techniques and are committed to the highest levels of
quality in our products, in our professional services, and in
our technical support offerings.
We believe that our target market offers significant potential
opportunities represented by a large and growing market with a
low penetration of image management systems. With our existing
market presence, industry-recognized product and service
offerings, experienced management team, strong financial
condition and momentum based on increasing sales, we believe
that we are well-positioned to capitalize on the opportunities
available today.
Our target market is divided into two primary segments:
ambulatory care facilities, which consist primarily of radiology
group practices and imaging centers, and acute care facilities,
which consist primarily of hospitals and integrated delivery
networks (“IDNs”).
In the ambulatory care segment, our Vision
Seriestm
products provide a complete, end-to-end solution for imaging
centers and radiology group practices. We believe that we are
the only major vendor in the ambulatory care segment that owns
and directly offers all three core components of a comprehensive
image and information management system: PACS, RIS, and
radiology billing and financial management. These synergistic
applications offer distributed image management, cohesive
workflow and financial optimization for ambulatory care
practices, which can no longer afford to remain competitive
without the efficiencies offered by these integrated systems.
In the acute care segment, we provide a fully-integrated, HIS/
RIS-independent PACS, featuring advanced enterprise workflow,
tight HIS/ RIS/electronic medical record (“EMR”)
integration, and a highly scalable design.
Going forward, we plan to build upon and enhance the operating
successes we have achieved in 2004 by expanding our product
distribution as well as expanding our product offerings with
related, complementary
4
products, with the goal of further establishing ourselves as a
single-vendor solution for image management-related needs in the
healthcare information technology industry. We expect these
solutions to enable our customers to achieve both filmless and
paperless operations. We plan to achieve these objectives
through a combination of organic expansion of existing
operations, and with strategic partnerships and alliances. We
may also consider selective acquisitions as a part of our
corporate strategy. As we move forward, we intend to remain
focused on delivering value to our customers and shareholders.
Products and Services
We offer a comprehensive, integrated (yet modular) suite of RIS,
PACS and financial software solutions to radiology healthcare
providers in the ambulatory setting. These products are designed
to automate image management, enterprise and center-wide
workflow, administrative, financial, and clinical information
management functions of radiology group practices, ambulatory
care facilities, as well as single or multi-site imaging
centers. Within acute care environments, particularly community
hospitals, academic settings, and complex IDNs, we offer PACS
solutions that enable filmless and paperless radiology
operations, tight integration to multi-vendor HIS/ RIS/ EMR
products, as well as multi-specialty PACS services supporting
additional medical imaging disciplines (e.g., cardiology through
a partnership) and emerging technologies such as 3D
visualization.
In addition to our products, we offer a suite of customized
services, including workflow consulting, project management,
software implementation, systems integration, training and
ongoing technical support for our software applications. We
encourage our customers to purchase appropriate levels of
professional services to transform their practice from current
levels of competence, in both systems and know-how, to a digital
practice. Often, our customers find that the best path for
clinical and business transformation involves incremental
adoption of systems and know-how, where their final vision is
attained through a well planned set of individually viable and
valuable steps, going from little to no efficiency, to improved
and optimized efficiency.
Vision Series Products
Vision Series RIS. A Web-based radiology information
system designed to address the administrative functions for
capturing radiology orders, detailing the patient demographic
information, scheduling appointments and resources,
transcription processing, report generation, as well as coding
and preparing billing and reimbursement data.
Vision Series PACS. A Web-based picture archiving
and communications system designed to capture, store,
manipulate, and distribute diagnostic images for radiologists,
specialists, referring physicians, patients, and the entire
healthcare enterprise. This system can scale from single
radiologist staffed imaging centers, to distributed imaging
center chains, to radiology group practices who read for hybrid
environments comprised of both acute care and imaging centers,
to rural community hospitals, to the largest acute care
settings, managing hundreds of thousands of annual exams in
large academic environments. The system includes advanced
visualization and 3D capabilities, as well as an exclusive
real-time workflow engine, RealTime Worklist, that allows for
workflow customization and personalization for diverse clinical
environments.
Vision Series Document Management. A module of our
Web-based system for capturing, digitizing and associating paper
records with digital information. Today’s diagnostic
imaging environment involves existing and newly-generated
paper-based information that needs to be integrated with the
digital practice via an automated and workflow based system.
This system enables our customers to move to paperless, as well
as filmless operations, based upon our other Vision Series
applications.
Vision Series Financials. A comprehensive system of
patient accounting modules, which facilitate expedient and
compliant claims submission and payor follow-up. Vision
Series Financials provides modules for billing, coding,
insurance processing, accounts receivables, collection
management, EDI, and patient statements, helping our customers
increase collections and decrease costs, as well as providing
the information needed for effective business management.
5
EDI Services. Our core software products offer
transaction-based EDI functions, including patient billing and
insurance claims submission and remittance. The use of EDI can
improve a healthcare practice’s cash flow by enabling more
accurate and rapid submission of claims to third-party payors
and more rapid receipt of corresponding reimbursements. We
generate revenues by facilitating EDI transactions, currently
processing in aggregate approximately five million EDI
transactions each month. Current EDI offerings include:
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Automated patient statement and collection letter processing
services; |
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Automated appointment reminder notification; |
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Automated electronic submission of insurance claims and claims
editing to include electronic remittance of insurance payments
and automatic posting of explanation of benefits
(EOB) data; and |
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Automated electronic access to insurance and managed care plans
to determine a patient’s eligibility and covered benefits. |
Professional Services: AMICAS Insight
Servicestm
We offer our professional services known as AMICAS Insight
Services to provide additional customer services before, during
and after the sale. We recognize that through a services
offering and the use of intelligent software tools, customers
can be more successful in realizing their goals and objectives.
AMICAS Insight Services include project management,
implementation, training, and support. We design these services
based upon our customers’ needs and expectations around our
products they have purchased. We utilize methodologies that are
improved based upon our customer implementation experiences and
utilization of well-trained and experienced staff. We believe
that the customer obtains the greatest benefits with our
products in conjunction with our AMICAS Insight Services.
Insight Technical Support
Software Support. Under the terms of our standard support
agreement, our customers pay a periodic (e.g., monthly,
quarterly, annually) support fee associated with the software
modules. The support fee is generally a fixed percentage of the
then-current list price of the licensed software at the time of
contract signing. This support fee entitles the customer to
technical support and software updates for their purchased
modules, if and when available updates are released.
Hardware Support. Customers may contract with us for
maintenance of the hardware that runs their AMICAS software. In
return for periodic maintenance fees, the customer is provided
comprehensive telephone diagnostic support and on-site support.
We subcontract with various third-party hardware support firms
to provide a significant amount of our hardware support services.
Our services organization in our continuing operations consisted
of 112 employees as of December 31, 2004.
Future Products
We continue to invest in research and development in order to
refine and build out our suite of RIS, PACS, and financial
applications within the Vision Series suite. We continue to
extend the capabilities of the Vision Series through the
addition of multi-specialty applications, both internally
developed and with integrations to solutions offered by our
corporate partners. We believe that these additional
capabilities will provide competitive advantages for our
customers, especially those in penetrated locales where
competing providers may already have digital solutions. Some
potential examples of these enhanced offerings are:
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Extended functionality for referring physicians; |
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Cardiology PACS; |
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Integrated 3D visualization; |
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Primary interpretation of full field digital mammography (FFDM); |
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Paperless operations; and |
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Portable, handheld device access. |
Research and Development
Our development efforts are focused on new products using our
Web-based platform, as well as maintaining the stability and
competitiveness of our current product offerings. We augment our
development staff with some third-party developers. Our research
and development organization consisted of 89 employees in our
continuing operations as of December 31, 2004.
In 2004, 2003, and 2002, our research and development expenses
were $9.5 million, $7.6 million, and
$6.0 million, or 22.4%, 22.1% and 15.9% of total revenues,
respectively. In addition, for 2003 and 2002, we incurred
$.1 million and $4.3 million, respectively, of
software development fees that we capitalized. There were no
software development fees capitalized in 2004.
Sales and Marketing
We market and sell our products in the United States primarily
through a direct sales force, composed of 50 sales and marketing
personnel in our continuing operations as of December 31,
2004. We have sales personnel located in our Daytona Beach,
Florida and Boston, Massachusetts offices. We organize our sales
force by region and market segment including acute and
ambulatory care. All members of our sales organization
participate in sales training, which enables them to understand
the specialty-specific needs of our prospective customers.
Within our existing customer base, we promote and sell system
upgrades, product add-ons, ancillary products, support services,
and EDI services. In addition, we target new customers
principally through trade shows, direct mail campaigns,
telemarketing, live seminars, Web-based seminars, and
advertisements in various trade publications. Moreover, our
senior personnel and members of management assist in sales and
marketing initiatives to larger and more technically-advanced
prospective customers. Sales cycles generally range from an
average of three to four months, to as many as six months to two
years for large-scale or multi-location systems.
For each of the past three fiscal years, no single customer has
accounted for more than 10% of total revenues.
Intellectual Property
We rely primarily on a combination of patent, copyright and
trademark laws, trade secrets, confidentiality procedures, and
contractual provisions to protect our intellectual property and
proprietary rights. These laws and procedures afford only
limited protection.
Despite our efforts to protect our proprietary rights,
unauthorized parties may attempt to copy aspects of our products
or obtain and use information that we regard as proprietary.
Policing unauthorized use of our products is difficult, and such
problems may persist. There can be no assurance that our means
of protecting our proprietary rights will be adequate or that
competitors will not independently develop similar technology.
Some of our programs may have been delivered along with their
applicable source code, which is protected by contractual
provisions. In other cases, we have entered into source code
escrow agreements with a limited number of our customers
requiring release of source code under certain limited
conditions, including any bankruptcy proceeding by or against
us, cessation of our business, or our failure to meet our
contractual obligations.
We rely upon certain software that is licensed from third
parties, including software that is integrated with some of our
internally developed software and/or is used with some of our
products to perform certain
7
functions. In some cases, we private label third-party software
for re-licensing. There can be no assurance that these
third-party software licenses will continue to be available to
us on commercially reasonable terms, which could adversely
affect our business, operating results and financial condition.
In addition, there can be no assurance that third parties will
not claim infringement by us with respect to our products, any
parts thereof, or enhancements thereto.
We distribute our software under software license agreements
that grant customers a nonexclusive, nontransferable perpetual
license to our products and that contain terms and conditions
prohibiting the unauthorized reproduction or transfer of our
products.
Competition
Our principal competitors include international, national, and
regional clinical, practice management and image management
system vendors including medical device and film manufacturers.
We believe that the larger, international and national vendors
are broadening 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,
additional competitors are likely to enter this market. We
believe that the primary competitive factors in our markets are:
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Product features and functionality; |
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Ongoing product enhancements; |
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Customer service, support, and satisfaction; |
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The reputation and stability of the vendor; and |
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Price. |
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 to face additional competition as other established and
emerging companies enter into the clinical and practice
management software markets and as 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.
Current and potential competitors may make strategic
acquisitions or establish cooperative relationships among
themselves or with third parties, thereby increasing the ability
of their products to address the needs of our existing and
prospective customers. Further competitive pressures, such as
those resulting from competitors’ discounting of their
products, may require us to reduce the price of our software and
complementary products, which would materially and adversely
affect our business, operating results, cash flows, and
financial condition. There can be no assurance that we will be
able to compete successfully against current and future
competitors, and the failure to do so would have a material
adverse effect upon our business, operating results, cash flows,
and financial condition.
Privacy Issues
Because our customers use our applications and services to
transmit and manage highly sensitive and confidential health
information, we must address the security and confidentiality
concerns of our customers and their patients. To enable the use
of our applications and services for the transmission of
sensitive and
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confidential medical information, we use various methods to
ensure an appropriate level of security. These methods generally
include:
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Security that requires both user IDs and passwords to access our
systems locally or remotely, with the potential of requiring
digital certificates for remote, Internet-based access, should
such measures be required; |
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Encryption of data relating to our application service provider,
or ASP, applications transmitted over the Internet; and |
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Use of a mechanism for preventing unauthorized access to private
data resources on our internal network and our ASP applications,
commonly referred to as a “firewall.” |
The level of data encryption used by our products is in
compliance with the encryption guidelines set forth in rules
regarding security and electronic signature standards in
connection with HIPAA (see “Healthcare Regulation”
below). We also encourage our customers to implement their own
firewall and security procedures to protect the confidentiality
of information being transferred into and out of their computer
networks.
Internally, we work to ensure the safe handling of confidential
data by employees in our electronic services department by:
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Using individual network user IDs and passwords for each
employee handling electronic data within our internal
network; and |
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Requiring each employee to sign an agreement to comply with all
Company policies, including our policy regarding the handling of
confidential information. |
We monitor proposed regulations that might affect our
applications and services to ensure our compliance with such
regulations when and if they are implemented.
Healthcare Regulation
The healthcare industry is highly regulated and is subject to
changing political, regulatory, and other influences. As a
participant in the healthcare industry, our operations and
relationships are subject to regulation by federal and state
laws and regulations as well as to enforcement by federal and
state governmental agencies. Sanctions may be imposed for
violation of these laws. We review our practices in an effort to
ensure compliance with all applicable laws. However, laws
governing healthcare are both broad and, in some respects,
vague. As a result, it is often difficult or impossible to
determine precisely how laws will be applied, particularly to
new products or to services similar to ours. Any determination
by a state or federal regulatory agency that any of our
practices violate any of these laws could subject us to civil or
criminal penalties, require us to change or terminate some
portions of our business, and have a material adverse effect on
our business.
The healthcare laws most relevant to our business are:
Health Insurance Portability and Accountability Act of
1996, or HIPAA. The administrative simplification
provisions of HIPAA and the various regulations which have been
proposed and enacted to implement the administrative
simplification provisions, include five healthcare-related
standards governing, among other things:
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Electronic transactions involving healthcare information; |
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Privacy of individually identifiable health information; and |
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Security of healthcare information and electronic signatures. |
The regulations governing the electronic exchange of information
establish a standard format for the most common healthcare
transactions, including claims, remittances, eligibility, and
claims status. The regulations required compliance by
October 16, 2002, unless a covered entity submitted a
compliance plan by such date
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requesting an extension for compliance until October 16,
2003. Many of our customers are subject to the transaction
standards and the standards will continue to affect our
processing of healthcare transactions among physicians, payors,
patients, and other healthcare industry participants.
The regulations promulgated pursuant to HIPAA establish national
privacy standards for the protection of individually
identifiable health information by certain healthcare
organizations. Most healthcare entities covered by the rule were
required to comply by April 14, 2003. A substantial part of
our activities involve the receipt or delivery of confidential
health information concerning patients of our customers in
connection with the processing of healthcare transactions and
the provision of technical services to participants in the
healthcare industry. The regulations may restrict the manner in
which we transmit and use certain information. The regulations
also provide for the execution of business associate agreements
with many of our customers and vendors. Such agreements, or the
failure to execute such an agreement, may impose additional
obligations and potential liability on us.
The security regulations enacted pursuant to HIPAA establishing
security and electronic HIPAA signature standards were effective
April 21, 2003, and most covered entities will have until
April 21, 2005 to comply with the standards. The
regulations require certain healthcare organizations to
implement administrative safeguards, physical safeguards,
technical security services, and technical security mechanisms
with respect to information that is electronically maintained or
transmitted in order to protect the confidentiality, integrity
and availability of individually identifiable health
information. The security standards may require us to enter into
agreements with certain of our customers and business partners
restricting the dissemination of protected health information
and requiring implementation of specified security measures.
Overall, HIPAA has required and may continue to require
substantial changes to many of our applications, services,
policies, and procedures that obligate us to make significant
financial investments, and may require us to charge higher
prices to our customers and may also affect our customers’
purchasing practices.
See further discussion regarding HIPAA below in
“Forward-Looking Statements and Risk Factors That May
Affect Future Results.”
Other Privacy Requirements. In addition to the
privacy rules under HIPAA, most states have enacted or are
considering enacting patient confidentiality laws, which would
further prohibit the disclosure of confidential medical
information. HIPAA establishes minimum standards and preempts
conflicting state laws, which are less restrictive than HIPAA
regarding health information privacy, but does not preempt
conflicting state laws that are more restrictive than HIPAA. The
Federal Trade Commission and various state attorneys general
have applied federal and state consumer protection laws to
privacy issues.
FDA. The Food and Drug Administration, or FDA, is
responsible for assuring the safety and effectiveness of medical
devices under the 1976 Medical Device Amendments to the Food,
Drug and Cosmetic Act, as well as the 1990 Safe Medical Devices
Act, and the Food and Drug Administration Modernization Act of
1997. Certain computer applications and software are generally
subject to regulation as medical devices, requiring registration
with the FDA, application of detailed record-keeping and
manufacturing standards, and FDA approval or clearance prior to
marketing when such products are intended to be used in the
diagnosis, cure, mitigation, treatment, or prevention of
disease. Our PACS product is subject to FDA regulation. If the
FDA were to decide that any of our other products and services
should be subject to FDA regulation or if in the future we
expanded our application and service offerings into areas that
may subject us to further FDA regulation, the costs of complying
with such FDA requirements would most likely be substantial.
Application of the approval or clearance requirements would
create delays in marketing, and the FDA would require
supplemental filings or object to certain of these products. FDA
compliance efforts with regard to our PACS product are time
consuming and very significant and any failure to comply could
create legal and operational risks and could have a material
adverse effect on us. We have an active program in place that we
believe reduces the risk of such occurrence.
The Federal Anti-Kickback Law. The federal
Anti-Kickback Law includes a prohibition against the direct or
indirect payment or receipt of any remuneration in order to
induce the referral of business or patients
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reimbursable under Medicare, Medicaid and certain other federal
healthcare programs. Violations of the federal Anti-Kickback Law
may result in criminal liability, a felony conviction punishable
by a maximum fine of $125,000, imprisonment up to five years, or
both, exclusion from the government programs, and civil monetary
sanctions. Many states also have similar anti-kickback laws that
are not limited to items or services for which payment is made
by a federal or state healthcare program, such as Medicare or
Medicaid. The Federal Anti-Kickback Law has been in effect since
1977 and applies broadly to all kinds of providers and
suppliers. Enforcement is under the authority of the Office
Inspector General and the United States Department of Justice.
If the activities of a customer of ours or other entity with
which we have a business relationship were found to violate the
Federal Anti-Kickback Law or other similar anti-kickback or
anti-referral laws, and we, as a result of the provision of
products or services to such customer or entity, were found to
have knowingly and willfully participated in such activities, we
could be subject to sanction or liability under such laws.
Stark Law. The federal Stark Law restricts
referrals by physicians of Medicare, Medicaid and other
government-program patients to providers of a broad range of
designated health services with which they have ownership or
certain other financial arrangements. Many states have adopted
or are considering similar legislative proposals to prohibit the
payment or receipt of remuneration for the referral of patients
and physician self-referrals, regardless of the source of the
payment for the care. These laws and regulations are extremely
complex, and little judicial or regulatory interpretation
exists. Penalties for violations include denial of payment,
mandatory refund of any payments previously received, civil
money penalties of up to $15,000 per prohibited referral,
and exclusion from the Medicare and Medicaid programs. In
addition, so-called “circumvention schemes” are
punishable by civil money penalties of up to $100,000 per
scheme. If the activities of a customer of ours or other entity
with which we have a business relationship were found to
constitute a violation of anti-referral laws, and we were found
to have knowingly participated in such activities, we could be
subject to sanction or liability under such law.
The Federal Civil False Claims Act and the Medicare/
Medicaid Civil Money Penalties. Federal regulations
prohibit, among other things, the filing of claims for services
that were not provided as claimed, were not medically necessary,
or which were otherwise false or fraudulent. Violations of these
laws may result in civil penalties, including treble damages. In
addition, Medicare, Medicaid and federal statutes provide for
criminal penalties for such false claims. The government does
not have to prove specific intent to establish a false claim.
Those who act with “reckless disregard” or
“deliberate ignorance” of the facts can be held liable
for violations of this statute. If, during the course of
providing services to our customers, we provide assistance with
the filing of such claims, and if we were found to have
knowingly participated, or participated with reckless disregard
in such activities, we could be subject to sanction or liability
under such laws.
Employees
As of December 31, 2004, we employed 316 persons in our
continuing operations, including 50 in sales and marketing, 112
in customer support and services, 89 in research and development
and 65 in finance and senior management, administration, human
resources, and information technology. Including the Medical
Division, as of December 31, 2004 we employed 724 persons,
including 103 in sales and marketing, 335 in customer support
and services, 178 in research and development, and 108 in
finance and senior management, administration, human resources,
and information technology. None of our employees is subject to
a collective bargaining agreement. We consider our relations
with our employees to be satisfactory.
Our executive officers are:
Stephen N. Kahane, M.D., M.S., age 47, has served as
our President and Chief Executive Officer since September 2004
and as a director since March 2001. From March 2001 until August
2004, Dr. Kahane served as our Vice Chairman and Chief
Strategy Officer. From November 1999 until March 2001,
Dr. Kahane served as President of E-Health and then as
Chief Strategy Officer of our medical software division. From
October 1996 until November 1999, he served as president and
chief executive officer of Datamedic Holding Corp., a
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practice management and clinical software company specializing
in ophthalmology and general medical practices. We acquired
Datamedic in 1999. Prior to joining Datamedic, Dr. Kahane
was a co-founder and senior executive at a clinical software
company, Clinical Information Advantages, Inc. Dr. Kahane
also trained and served on the faculty at The Johns Hopkins
Medical Center.
Joseph D. Hill, age 42, has served as our Senior Vice
President and Chief Financial Officer since October 2004. Prior
to this, from April 2003 until March 2004, Mr. Hill served
as Vice President and Chief Financial Officer of Dirig Software,
an application performance management solutions provider based
in Nashua, New Hampshire. In February 2004, Dirig Software was
acquired by Allen Systems Group of Naples, Florida. From August
2000 until June 2002, Mr. Hill served as Vice President and
Chief Financial Officer of Maconomy Corporation, a Web-based
business management solutions provider with headquarters in
Copenhagen, Denmark and Marlborough, Massachusetts. Prior to
joining Maconomy, Mr. Hill was Vice President and Chief
Financial Officer of Datamedic Holding Corp., a practice
management and clinical software company specializing in
ophthalmology and general medical practices. We acquired
Datamedic in 1999.
Hamid Tabatabaie, age 43, has served as our Senior Vice
President, Product and Services, since January 2005. From 1999
until January 2005, Mr. Tabatabaie served as Chief
Executive Officer of Amicas PACS. Prior to joining Amicas PACS,
he was Vice President of Sales and Marketing for HealthGate Data
Corp., a provider of Web medical content. He came to HealthGate
via System Architects Inc., a patient educational interaction
and entertainment company that he founded, which was later
acquired by HealthGate in April 1998. From 1993 to 1997,
Mr. Tabatabaie was founder and Chief Executive Officer of
System Concepts Associates, a healthcare information systems
consulting and integration company that merged with Multimedia
Medical Systems. Prior to that, he served as director of the
healthcare division of Data General Corporation.
Stephen Hicks, age 46, has served as our Vice President and
General Counsel since March 2001. He was Vice President of our
medical software division between August 2000 and March 2001.
Prior to joining us, he was First Deputy Commissioner at the New
York State Division of Housing from January 1999, and worked
from February 1995 to December 1998 on the executive staff of
Dennis C. Vacco, the New York State Attorney General. From 1983
until 1995, Mr. Hicks worked for McCullough, Goldberger and
Staudt, a New York law firm.
Medical Division Sale
On January 3, 2005, we completed the sale of substantially
all of the assets and liabilities of our medical division
together with certain other assets, liabilities, properties and
rights of ours relating to our anesthesiology business,
together, the Medical Division, to Cerner Corporation. The Asset
Sale was completed in accordance with the terms and conditions
of the Asset Purchase Agreement between us and Cerner dated as
of November 15, 2004. The sale of our Medical Division will
allow us to focus on our radiology business. As consideration
for the Asset Sale, we received $100 million in cash,
subject to a post-closing purchase price adjustment to be
determined within 90 days following the closing. We expect
to pay Cerner approximately $1.2 million relating to the
post-closing purchase price adjustment. In the first quarter of
2005, we also expect to record a net gain on the sale of
$45.6 million (net of income taxes of $35 million).
In connection with the Asset Sale, we entered into a Transition
Services Agreement on January 3, 2005. Pursuant to the
Transition Services Agreement, in exchange for specified fees,
we will provide to Cerner services including accounting, tax,
information technology, customer support, and use of facilities,
and Cerner will provide services to us such as EDI services
including patient billing and claims processing, and use of
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facilities. Certain of these services that we will provide
extend through December 31, 2005. Certain of the
Cerner-provided services extend through March 31, 2009.
In connection with the Purchase Agreement, each company has
indemnified the other with respect to specified liabilities and
breaches of certain representations and warranties. For a period
of five years from the closing date we cannot, except for
certain limited situations, compete with the Medical Division,
and we cannot induce a Medical Division customer or prospect
from terminating its relationship with Cerner. In addition, for
a period of five years from closing we cannot directly or
indirectly attempt to induce any former Medical Division
employee to work for us, and are prohibited from hiring certain
specified former Medical Division employees.
PracticeWorks Distribution and Tax Disaffiliation
Agreement
On March 5, 2001, or the Distribution Date, we completed
the Distribution of PracticeWorks to our stockholders in a
tax-free distribution. The spin-off of PracticeWorks was
affected by way of a pro rata dividend of all of the issued and
outstanding shares of common stock of PracticeWorks to our
stockholders of record as of February 21, 2001. This
resulted in PracticeWorks becoming an independent,
publicly-traded company. Immediately prior to the Distribution,
we effectively transferred to PracticeWorks the division’s
assets and liabilities and, thereby, distributed
$28.5 million of net assets, as adjusted, in connection
with the spin-off. Our stockholders received one share of
PracticeWorks common stock for every four shares of our common
stock owned as of the record date. No proceeds were received by
us in connection with the Distribution.
For purposes of governing certain of the ongoing relationships
between PracticeWorks and us, and to provide for an orderly
transition to the status of two independent companies, we and
PracticeWorks entered into various agreements. Among other
things, these agreements continued or continue to define the
ongoing relationship between the parties since the Distribution.
Because these agreements were negotiated while PracticeWorks was
a wholly-owned subsidiary of ours, they were not the result of
negotiations between independent parties, although we and
PracticeWorks set pricing terms for interim services believed to
be comparable to what would have been achieved through
arm’s-length negotiations. Following the Distribution,
additional or modified agreements, arrangements and transactions
were entered into between PracticeWorks and us and such
agreements and transactions were determined through
arm’s-length negotiations. In connection with the
Distribution, each company has indemnified the other, and either
may incur obligations with respect to certain representations,
warranties, commitments, and/or contingencies of the other
entered into on or prior to the Distribution Date. A brief
description of a material agreement which still applies follows:
We and PracticeWorks entered into the Tax Disaffiliation
Agreement on the Distribution Date which identifies each
party’s rights and obligations with respect to deficiencies
and refunds, if any, of federal, state, local, or foreign taxes
for periods before and after the Distribution and related
matters such as the filing of tax returns and the handling of
Internal Revenue Service matters and other audits. Under the Tax
Disaffiliation Agreement, PracticeWorks or its successors will
indemnify us for any tax liability attributable to PracticeWorks
or its affiliates for any period. PracticeWorks or its
successors will also indemnify us for all taxes and liabilities
incurred solely because (i) PracticeWorks breaches a
representation or covenant given to the law firm King &
Spalding LLP in connection with rendering its tax opinion in the
Distribution, which breach contributes to an Internal Revenue
Service determination that the Distribution was not tax-free, or
(ii) a post-Distribution action or omission by
PracticeWorks or any affiliate of PracticeWorks contributes to
an Internal Revenue Service determination that the Distribution
was not tax-free. We will indemnify PracticeWorks for all taxes
and liabilities incurred solely because (i) we breach a
representation or covenant given to King & Spalding LLP
in connection with rendering its tax opinion in the
Distribution, which breach contributes to an Internal Revenue
Service determination that the Distribution was not tax-free, or
(ii) a post-Distribution action or omission by us or any
affiliate contributes to an Internal Revenue Service
determination that the Distribution was not tax-free. If the
Internal Revenue Service determines that the Distribution was
not tax-free for any other reason, we, and PracticeWorks or its
successors will indemnify each other against 50% of all taxes
and liabilities.
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PracticeWorks or its successors will also indemnify us for any
taxes resulting from any internal realignment undertaken to
facilitate the Distribution on or before the Distribution Date.
Forward-Looking Statements and Risk Factors That May Affect
Future Results
Our disclosure and analysis in this Annual Report on
Form 10-K contain forward-looking statements that set forth
anticipated results based on management’s plans and
assumptions. From time to time, we may also provide
forward-looking statements in other materials that we release to
the public as well as oral forward-looking statements.
Forward-looking statements discuss our strategy, expected future
financial position, results of operations, cash flows, financing
plans, intellectual property, competitive position, and plans
and objectives of management. We often use words such as
“anticipate,” “estimate,”
“expect,” “project,” “intend,”
“plan,” “believe,” “will” and
similar expressions to identify forward-looking statements. In
particular, the statements regarding the potential results of
our acquisition of Amicas PACS and the effects on our operations
of the Asset Sale are forward-looking statements. Additionally,
forward-looking statements include those relating to future
actions, prospective products, future performance, financing
needs, liquidity, sales efforts, expenses, interest rates and
the outcome of contingencies, such as legal proceedings, and
financial results.
We cannot guarantee that any forward-looking statement will be
realized. Achievement of future results is subject to risks,
uncertainties and potentially inaccurate assumptions. Should
known or unknown risks or uncertainties materialize, or should
underlying assumptions prove inaccurate, actual results could
differ materially from past results and those anticipated,
estimated or projected by our forward-looking statements. You
should bear this in mind as you consider forward-looking
statements.
We undertake no obligation to publicly update forward-looking
statements. You are advised, however, to consult any further
disclosures we make on related subjects in our Quarterly Reports
on Form 10-Q and Current Reports on Form 8-K. Also
note that we provide the following cautionary discussion of
risks, uncertainties and possibly inaccurate assumptions
relevant to our businesses. These are important factors that,
individually or in the aggregate, we think could cause our
actual results to differ materially from expected and historical
results. You should understand that it is not possible to
predict or identify all such factors. Consequently, you should
not consider the following to be a complete discussion of all
potential risks or uncertainties.
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Our operating results will vary from period to period. In
addition, we have experienced losses in the past and may never
achieve consistent profitability. |
Our operating results will vary significantly from quarter to
quarter and from year to year. We had a net loss of
$(12.5) million for the year ended December 31, 2004.
Although we had net income of $8.0 million and
$24.2 million for the years ended December 31, 2003
and 2002, we had consistently experienced net losses prior to
that. 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. On a continuing operations basis,
we had losses of $(26.5) million and $(10.7) million,
respectively, for the years ended December 31, 2004 and
2003, and income of $4.0 million for the year ended
December 31, 2002.
Our operating results have been and/or may be influenced
significantly by factors such as:
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release of new products, product upgrades and services, and the
rate of adoption of these products and services by new and
existing customers; |
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timing, cost and success or failure of our new product and
service introductions and upgrade releases; |
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length of sales and delivery cycles; |
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size and timing of orders for our products and services; |
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changes in the mix of products and/or services sold; |
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availability of specified computer hardware for resale; |
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deferral and/or realization of deferred software license and
system revenues according to contract terms; |
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interpretations of accounting regulations, principles or
concepts that are or may be considered relevant to our business
arrangements and practices; |
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changes in customer purchasing patterns; |
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changing economic, political and regulatory conditions,
particularly with respect to the IT-spending environment; |
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competition, including alternative product and service
offerings, and price pressure; |
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customer attrition; |
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timing of, and charges or costs associated with, mergers,
acquisitions or other strategic events or transactions,
completed or not completed; |
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timing, cost and level of advertising and promotional programs; |
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changes of accounting estimates and assumptions used to prepare
the prior periods’ financial statements and accompanying
notes, and management’s discussion and analysis of
financial condition and results of operations (e.g., our
valuation of assets and estimation of liabilities); and |
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uncertainties concerning threatened, pending and new litigation
against us, including related professional services fees. |
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, which are
very difficult to forecast. 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 include
significant sales of new product and service offerings,
including our new image management systems, AMICAS® Vision
Seriestm
PACS, and our radiology information system, Vision
Seriestm
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, is 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 our results for any particular reporting period 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.
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Our future success is dependent in large part on the
success of our current products. |
In the first quarter of 2005 we sold our Medical Division, which
represented 63%, 69%, and 67% of our total revenues in 2004,
2003 and 2002, respectively. We have devoted substantial
resources to the development and marketing of our current
products. We believe that our future financial performance will
be dependent in large part on the success of our ability to
market our PACS and RIS solutions.
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We may fail to realize the long-term financial benefits
that we anticipate will result from our acquisition of Amicas
PACS. |
Our expectations with regard to the long-term financial benefits
that we anticipate will result from our acquisition of Amicas
PACS are subject to significant risks and uncertainties
including:
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our ability to retain Amicas PACS key personnel or integrate
them into our operations. In particular, the loss of these
employees would compromise the value of the Amicas PACS client
base and/or its software products and technologies; |
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our ability to integrate the RIS and PACS products as may be,
and/or to the extent, required by the marketplace, including our
ability to deliver the related professional services; |
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our ability to sell Amicas PACS products and services into the
imaging center market, including to our existing radiology
customers; |
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our ability to execute on our strategy and realize our revenue
goals and control costs and expenses relating to the acquisition; |
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our ability to coordinate the business cultures of the two
organizations; |
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the integrity of the intellectual property of Amicas
PACS; and |
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continued compliance with all government laws, rules and
regulations for all applicable products. |
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If our new products, including product upgrades, and
services do not achieve sufficient market acceptance, our
business, financial condition, cash flows, revenues, and
operating results will suffer. |
The success of our business will depend in large part on the
market acceptance of:
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new products and services, such as our medical image management
systems and our radiology information system, or RIS, existing
products and services; and |
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enhancements to our existing products and services. |
There can be no assurance that our customers will accept any of
these products, product upgrades, or services. In addition,
there can be no assurance that any pricing strategy that we
implement for any of our new products, product upgrades, or
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, or services could have a material adverse effect on
our business.
Achieving market acceptance for our new products, product
upgrades and services is likely to require substantial marketing
and service efforts and the 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 upgrades may require the use of additional
resources for training our existing sales force and customer
service personnel and for hiring and training additional sales
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 rollout.
If we are unable to sell our new and next-generation software
products to healthcare providers that are in the market for
healthcare information and/or image management systems, such
inability will likely have a material adverse effect on our
business, revenues, operating results, cash flows and financial
condition. If new software sales do not materialize, our
maintenance and electronic data interchange, or EDI, services
revenues can be expected to decrease over time due to the
combined effects of attrition of existing customers and a
shortfall in new client additions.
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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. |
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, current 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, especially with respect to our new
product or service offerings. 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, diagnostic,
or patient data or the loss of the ability to process 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 errors, if our
customers suffer loss of data or are unable to process their
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 or reduce market acceptance of our products and
services, including unrelated products and services. Such
errors, failures or claims could materially adversely affect our
business, revenues, operating results, cash flows and financial
condition.
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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. Most of our software technology is
not patented and existing copyright laws offer only limited
practical protection. In addition, prior to 2002 we did not
generally enter into confidentiality agreements with our
employees. Our practice is to require all new employees to sign
a confidentiality agreement and most of our employees have done
so. However, not all existing employees have signed
confidentiality 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 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 technology or services.
Unauthorized parties may attempt to copy or otherwise obtain and
use our technology. Monitoring use of our technology 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.
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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 and services in our target
markets increases and as the functionality of these products and
services 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 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 infringement against us were to
be successful and if we were unable to license the infringing or
similar technology or redesign our products and services to
avoid infringement, our business, financial condition, cash
flows, and results of operations could be harmed.
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We may undertake additional acquisitions, which may
involve significant uncertainties and may increase costs, divert
management resources from our core business activities, or we
may fail to realize anticipated benefits of such
acquisitions. |
We may undertake additional acquisitions if we identify
companies with desirable 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 depend
heavily on their employees to maintain the quality of their
software offerings and related customer services. If we are
unable to retain 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:
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our ability to cross-sell products and services to customers
with which we have established relationships and those with
which the acquired business had established relationships; |
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diversion of our management’s attention from our existing
business; |
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potential conflicts in customer and supplier relationships; |
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our ability to coordinate organizations that are geographically
diverse and may have different business cultures; |
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dilution to existing stockholders if we issue equity securities
in connection with acquisitions; |
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assumption of liabilities or other obligations in connection
with the acquisition; and |
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compliance with regulatory requirements. |
Further, our profitability may also suffer because of
acquisition-related costs and/or amortization or impairment of
intangible assets.
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Technology solutions may change faster than we are able to
update our technologies, 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:
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develop new or enhance existing products and services to meet
our customers’ changing needs in a timely and
cost-effective way; and |
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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
technologies 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.
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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. Errors or malfunctions with respect to
our products or services could result in product liability
claims. In addition, certain agreements require us to indemnify
and hold others harmless against certain matters. Although we
believe that we carry adequate insurance coverage
18
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, agreements which we enter into contain
provisions requiring the other party to the agreement to
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 such
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.
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We may be subject to claims resulting from the activities
of our strategic partners. |
We rely on third parties to provide certain services and
products 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 against and
investigating these claims could be expensive and
time-consuming, divert personnel and other resources from our
business and result in adverse publicity that could harm our
business.
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We are subject to government regulation and legal
uncertainties, the compliance with which could have a material
adverse effect on our business. |
Federal regulations impact the manner in which we conduct our
business. We have been, and may continue to be, required to
expend additional resources to comply with regulations under
HIPAA. The total extent and amount of resources to be expended
is not yet known. Because some of these regulations are new and
some are not yet effective, there is uncertainty as to how they
will be interpreted and enforced.
Although we have made, and will continue to make, a good faith
effort to ensure that we comply with, and that our go-forward
products enable compliance with, applicable HIPAA requirements,
we may not be able to conform all of our operations and products
to such requirements in a timely manner, or at all. The failure
to do so could subject us to penalties and damages, as well as
civil liability and criminal sanctions to the extent we are a
business associate of a covered entity or regulated directly as
a covered entity. In addition, any delay in developing or
failure to develop products and or deliver services that would
enable HIPAA compliance for our current and prospective
customers could put us at a significant disadvantage in the
marketplace. Accordingly, our business, and the sale of our
products and services, could be materially harmed by failures
with respect to our implementation of HIPAA regulations.
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Other E-Commerce Regulations |
We may be subject to additional federal and state statutes and
regulations in connection with offering services and products
via the Internet. 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
these regulations 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.
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The Food and Drug Administration, or FDA, is responsible for
ensuring the safety and effectiveness of medical devices under
the 1976 Medical Device Amendments to the Food, Drug and
Cosmetic Act, as well as the 1990 Safe Medical Devices Act, and
the Food and Drug Administration Modernization Act of 1997.
Certain computer applications and software are generally subject
to regulation as medical devices, requiring registration with
the FDA, application of detailed record-keeping and
manufacturing standards, and FDA approval or clearance prior to
marketing when such products are intended to be used in the
diagnosis, cure, mitigation, treatment, or prevention of
disease. Our PACS product is subject to FDA regulation. If the
FDA were to decide that any of our other products and services
should be subject to FDA regulation or, if in the future we were
to expand our application and service offerings into areas that
may subject us to further FDA regulation, the costs of complying
with FDA requirements would most likely be substantial.
Application of the approval or clearance requirements would
create delays in marketing, and the FDA could require
supplemental filings or object to certain of these products. In
addition, we are subject to periodic FDA inspections and there
can be no assurances that we will not be required to undertake
specific actions to further comply with the Federal Food, Drug
and Cosmetic Act, its amendments and any other applicable
regulatory requirements. The FDA has available several
enforcement tools, including product recalls, seizures,
injunctions, civil fines and/or criminal prosecutions. FDA
compliance efforts with regard to our PACS product are time
consuming and very significant and any failure to comply could
have a material adverse effect on our business, revenues,
operating results, cash flows, and financial condition.
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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 governmental regulation. Although compliance with
these laws and regulations is principally the responsibility of
the healthcare provider, under these current laws and
regulations patient confidentiality rights are evolving rapidly.
In addition to the obligations being imposed at the state level,
there is also legislation governing the dissemination of medical
information at the federal level. The federal regulations 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.
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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.
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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
practice management and clinical systems vendors. Until
recently, larger, national vendors have targeted primarily large
healthcare providers. We believe
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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, additional competitors are likely to enter
this market. We believe that the primary competitive factors in
our markets are:
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product features and functionality; |
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customer service, support and satisfaction; |
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price; |
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ongoing product enhancements; and |
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vendor reputation and stability. |
We have experienced, and we expect to continue to experience,
increased competition from current and potential competitors,
many of which 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 and clinical
software markets and as 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.
Current and potential competitors may make strategic
acquisitions or establish cooperative relationships among
themselves or with third parties, thereby increasing their
abilities to address the needs of our existing and prospective
customers. Further competitive pressures, such as those
resulting from competitors’ discounting of their products,
may require us to reduce the price of our software and
complementary products, which would materially adversely affect
our business, operating results, cash flows and financial
condition. There can be no assurance that we will be able to
compete successfully against current and future competitors, and
our failure to do so would have a material adverse effect upon
our business, operating results, cash flows and financial
condition.
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We depend on partners/suppliers for delivery of electronic
data interchange (e.g., insurance claims processing and invoice
printing services), commonly referred to as EDI, hardware
maintenance services, third-party software or software or
hardware components of our offerings, and sales lead generation.
Any failure, inability or unwillingness of these suppliers to
perform these services or provide their products could
negatively impact customer satisfaction and revenues. |
We use various third-party suppliers to provide our customers
with EDI transactions and on-site hardware maintenance. EDI
revenues would be particularly vulnerable to a supplier failure
because EDI revenues are earned on a daily basis. We rely on
numerous third-party products that are made part of our software
offerings and/or that we resell. Although other vendors are
available in the marketplace to provide these products and
services, it would take time to switch suppliers. If these
suppliers were unable or unwilling to perform such services,
provide their products or if the quality of these services or
products declined, it could have a negative impact on customer
satisfaction and result in a decrease in our revenues, cash
flows, and operating results.
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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
21
gain access to or disrupt the transmission of communications by
our customers. Some of our customers have had their use of our
software significantly impacted by computer viruses. 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
solutions 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.
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If the marketplace demands subscription pricing and/or
application service provider, or ASP, delivered offerings, our
revenues may be adversely impacted. |
We currently derive substantially all of our revenues from
traditional software license, maintenance and service fees, as
well as from 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 materially adversely impact our financial
condition, cash flows and quarterly and annual revenues and
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.
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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.
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We may be subject to product related liability
lawsuits. |
Our software is used by healthcare providers in providing care
to patients. Although no product liability lawsuits have been
brought against us to date related to the use of our software
solutions, such lawsuits may be made against us in the future.
We maintain product liability insurance coverage in an amount
that we believe is adequate; such coverage may not be adequate
or such coverage may not continue to remain available on
acceptable terms, if at all. A successful lawsuit brought
against us, which is uninsured or underinsured, could materially
harm our business and financial condition.
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We may be exposed to credit risks of our customers. |
We recorded revenues from continuing operations of
$42.3 million in 2004 and we bill substantial amounts to
many of our customers. A deterioration of the credit worthiness
of any of our customers could impact our ability to collect
revenue or provide future services, which could negatively
impact the results of our operations. While we are focused on
managing working capital, we can give no assurances that the
deterioration of the credit risks relative to our customers
would not have an adverse impact on our results of operations,
financial condition or cash flow from operations.
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Our future success depends on our ability to successfully
develop new products and adapt to new technology change. |
To remain competitive, we will need to develop new products,
evolve existing ones, and adapt to technology change. Technical
developments, customer requirements, programming languages and
industry
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standards change frequently in our markets. As a result, success
in current markets and new markets will depend upon our ability
to enhance current products, develop and introduce new products
that meet customer needs, keep pace with technology changes,
respond to competitive products, and achieve market acceptance.
Product development requires substantial investments for
research, refinement and testing. There can be no assurance that
we will have sufficient resources to make necessary product
development investments. We may experience difficulties that
will delay or prevent the successful development, introduction
or implementation of new or enhanced products. Inability to
introduce or implement new or enhanced products in a timely
manner would adversely affect future financial performance. Our
products are complex and may contain errors. Errors in products
will require us to ship corrected products to customers. Errors
in products could cause the loss of or delay in market
acceptance or sales and revenue, the diversion of development
resources, injury to our reputation, or increased service and
warranty costs which would have an adverse effect on financial
performance.
* * * * *
Access to Our Filings with the Securities and Exchange
Commission
Our Internet address is www.amicas.com. The information
on our website is not a part of, or incorporated into, this
Annual Report on Form 10-K. We make our annual reports on
Form 10-K, quarterly reports on Form 10-Q, current
reports on Form 8-K, and amendments to those reports, filed
or furnished pursuant to Section 13(a) or 15(d) of the
Securities Exchange Act of 1934 available, without charge, on
our website as soon as reasonably practicable after they are
filed electronically with, or otherwise furnished to, the
Securities and Exchange Commission.
Our code of business conduct and ethics and the charters of the
Audit Committee and Nominating and Corporate Governance
Committee of our board of directors are available on the
corporate governance section of our website. Stockholders may
request a free copy of any of these documents by writing to
Investor Relations, AMICAS, Inc., 20 Guest Street,
Suite 200, Boston, MA 02135-2040.
We currently occupy and lease three facilities in our continuing
operations. These facilities are located in: Boston,
Massachusetts; Daytona Beach, Florida; and Ridgefield,
Connecticut. In December 2004, we relocated our headquarters to
Boston, Massachusetts. In March 2005, we entered into subleases
for additional office space at our Boston headquarters. See
Note N of the accompanying financial statements for
additional details. We plan to exit our Ridgefield, Connecticut
office, which served as our previous headquarters, in the second
quarter of 2005. Our Ridgefield, Connecticut office lease, which
we do not intend to renew, expires on December 31, 2005. If
we require additional space in the future, we believe that
suitable additional or alternative space will be available on
commercially reasonable terms as needed. Leases for our Medical
Division facilities were assigned to Cerner in connection with
the Asset Sale in January 2005.
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| Item 3. |
Legal Proceedings |
From time to time, in the normal course of business, various
claims are made against us. Except for the proceeding 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 AMICAS, Inc.),
et al., was filed in Boone County Superior Court in Indiana
and the case was subsequently transferred to the Northern
District Court of Georgia. The complaint alleged state
securities law violations, breach of contract, and fraud claims
against the defendants. The complaint did not specify the amount
of damages sought by plaintiffs, but sought rescission of a
transaction that the plaintiffs valued at $5 million, as
well as punitive damages and reimbursement for the
plaintiffs’ attorneys’ fees and associated costs and
expenses of the lawsuit. In October 2001, the plaintiffs’
request for a preliminary injunction to preserve their remedy of
rescission was denied and part of their complaint was dismissed.
The plaintiffs’ subsequent appeal of this decision was
denied. Thereafter, plaintiffs retained new counsel and served
an amended complaint that
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added additional former officers and directors as defendants,
dropped the claim for rescission, and asserted new state
securities law violations. After disqualification of
plaintiffs’ second counsel in May 2003, plaintiffs retained
new counsel and, in July 2003, served a second amended complaint
upon us which added, among other things, a claim for Georgia
RICO violations. In August 2003, we filed with the Court a
partial motion to dismiss the second amended complaint which
motion was granted in part and denied in part on January 9,
2004. On February 6, 2004, we served an answer to the
second amended complaint. The discovery process is now complete.
On December 20, 2004, the defendants filed a motion for
summary judgment and the plaintiffs filed a motion for partial
summary judgment. These motions are now fully submitted.
While management believes that we have meritorious defenses in
the foregoing pending matter and we intend to pursue our
positions vigorously, litigation is inherently subject to many
uncertainties. Thus, the outcome of this matter is uncertain and
could be adverse to us. Depending on the amount and timing of an
unfavorable resolution of the contingencies, it is possible that
our financial position, future results of operations or cash
flows could be materially affected in a particular reporting
period(s).
In September 2004, a lawsuit styled DR Systems, Inc. v.
VitalWorks Inc. and Amicas, Inc. was filed in the United States
District Court for the Southern District of California. The
complaint alleged that VitalWorks and Amicas infringed the
plaintiff’s patent through the manufacture, use,
importation, sale and/or offer for sale of automated medical
imaging and archival systems. The plaintiff sought monetary
damages, treble damages and a permanent injunction. On
November 3, 2004, we served our answer. On January 26,
2005, the parties entered into a Settlement, Release and License
agreement, and on February 4, 2005, a stipulation of
dismissal, dismissing the lawsuit with prejudice, was entered.
In connection with this agreement, we paid the plaintiff
$.5 million in 2005. This amount was accrued at
December 31, 2004.
On or about July 31, 2003, a Consolidated Class Action
Complaint was filed in the United States District Court for the
District of Connecticut on behalf of purchasers of the common
stock of the Company during the class period of January 24,
2002 to October 23, 2002. The defendants were the Company
and three of our individual officers and directors. Plaintiffs
had asserted claims against the defendants under
Section 10(b) of the Securities Exchange Act of 1934 and
against the individual defendants under Section 20(a) of
the Exchange Act. According to the Consolidated Complaint, the
defendants were alleged to have made materially false and
misleading statements during the Class Period concerning
our products and financial forecasts. In addition, the
Consolidated Complaint alleged that the individual defendants
acted as controlling persons in connection with our alleged
securities law violations. Compensatory damages in an
unspecified amount, pre-judgment and post-judgment interest,
costs and expenses, including reasonable attorneys’ fees
and experts’ fees and other costs, as well as other relief
the Court may deem just and proper were sought. On
November 14, 2003, the defendants filed with the Court a
motion to dismiss the Consolidated Complaint pursuant to Federal
Rules of Civil Procedure 12(b)(6) and (9)(b). In a decision
entered on October 1, 2004, United States District Judge
Janet Bond Arterton dismissed with prejudice the Consolidated
Complaint as to all defendants. No appeal of this decision was
filed and the statutory time period to file an appeal has
expired.
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| Item 4. |
Submission of Matters to a Vote of Security Holders |
In the fourth quarter of the year covered by this report, no
matter was submitted to a vote of security holders through the
solicitation of proxies or otherwise.
PART II
Item 5. Market for the Registrant’s Common
Equity and Related Stockholder Matters and Issuer Purchases of
Equity Securities
Effective January 4, 2005, we changed our trading symbol on
the NASDAQ National Market to “AMCS.” From
March 6, 2001 until January 3, 2005, our common stock
was traded on the NASDAQ National Market under the trading
symbol “VWKS.” From January 29, 1999 until
March 5, 2001, our common stock was traded on the NASDAQ
National Market under the trading symbol “INCX.” From
July 10, 1997 until January 29, 1999, our common stock
was traded on the American Stock Exchange under
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the symbol “INC.” On March 23, 2005, the last
reported sale price of our common stock on the NASDAQ National
Market was $3.85 and there were 1,250 record holders of our
common stock. The following table sets forth the high and low
sales price per share of our common stock for the periods
indicated, as reported on the NASDAQ National Market.
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|
|
|
|
|
|
|
| Year Ended December 31, 2003 |
|
High | |
|
Low | |
| |
|
| |
|
| |
|
First Quarter
|
|
$ |
4.39 |
|
|
$ |
3.60 |
|
|
Second Quarter
|
|
|
4.02 |
|
|
|
3.26 |
|
|
Third Quarter
|
|
|
5.73 |
|
|
|
3.56 |
|
|
Fourth Quarter
|
|
|
5.89 |
|
|
|
4.21 |
|
| |
|
|
|
|
|
|
|
|
| Year Ended December 31, 2004 |
|
High | |
|
Low | |
| |
|
| |
|
| |
|
First Quarter
|
|
$ |
5.16 |
|
|
$ |
3.40 |
|
|
Second Quarter
|
|
|
4.45 |
|
|
|
3.20 |
|
|
Third Quarter
|
|
|
3.94 |
|
|
|
2.91 |
|
|
Fourth Quarter
|
|
|
4.50 |
|
|
|
3.36 |
|
| |
|
|
|
|
|
|
|
|
| 2005 |
|
High | |
|
Low | |
| |
|
| |
|
| |
|
First Quarter (through March 23)
|
|
$ |
4.60 |
|
|
$ |
3.65 |
|
Dividend Policies. We have never declared or paid any
cash dividends on our common stock. We currently intend to
retain all available funds and any future earnings for use in
the operation and expansion of our business and do not
anticipate declaring or paying any cash dividends in the
foreseeable future. Any future determination as to the
declaration and payment of dividends will be at the discretion
of our board of directors and will depend on then existing
conditions, including our financial condition, results of
operations, contractual restrictions, capital requirements,
business prospects and other factors that our board of directors
considers relevant. In addition, our credit agreement with Wells
Fargo Foothill, Inc., a wholly-owned subsidiary of Wells
Fargo & Company, which was terminated on
January 3, 2005, prohibited payment of dividends.
Sales of Unregistered Shares. In January 2004, we issued
4,240 unregistered shares of our common stock. These shares were
issued in connection with the exercise of outstanding warrants.
The unregistered shares were issued in reliance upon the
exemption from registration under Section 3 (a) (9) of
the Securities Act of 1933, as amended.
25
|
|
| Item 6. |
Selected Financial Data |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
For the Year Ended December 31, | |
| |
|
| |
| |
|
2004 | |
|
2003 | |
|
2002 | |
|
2001 | |
|
2000 | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| |
|
(In thousands, except per share data) | |
|
Consolidated Statements of Operations Data(a)(b)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Maintenance and services
|
|
$ |
29,543 |
|
|
$ |
24,534 |
|
|
$ |
25,005 |
|
|
$ |
26,309 |
|
|
$ |
24,552 |
|
| |
Software licenses and system sales
|
|
|
12,776 |
|
|
|
9,677 |
|
|
|
13,046 |
|
|
|
9,052 |
|
|
|
10,204 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
42,319 |
|
|
|
34,211 |
|
|
|
38,051 |
|
|
|
35,361 |
|
|
|
34,756 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Maintenance and services
|
|
|
5,890 |
|
|
|
5,751 |
|
|
|
5,407 |
|
|
|
4,904 |
|
|
|
4,860 |
|
| |
Software licenses and system sales, includes amortization of
software costs of $3,178 in 2004, $1,873 in 2003 and $911 in 2002
|
|
|
6,154 |
|
|
|
5,147 |
|
|
|
4,518 |
|
|
|
3,330 |
|
|
|
2,851 |
|
| |
Impairment of capitalized software
|
|
|
3,229 |
|
|
|
490 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative
|
|
|
32,994 |
|
|
|
22,825 |
|
|
|
22,547 |
|
|
|
28,553 |
|
|
|
34,066 |
|
|
Research and development
|
|
|
9,488 |
|
|
|
7,565 |
|
|
|
6,041 |
|
|
|
3,658 |
|
|
|
4,662 |
|
|
Depreciation and amortization
|
|
|
1,968 |
|
|
|
1,331 |
|
|
|
1,439 |
|
|
|
6,717 |
|
|
|
8,157 |
|
|
Settlements, severance and impairment charges and charge
(credit) for loan losses
|
|
|
5,730 |
|
|
|
|
|
|
|
(6,000 |
) |
|
|
9,627 |
|
|
|
6,632 |
|
|
Acquired in-process technology
|
|
|
|
|
|
|
750 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring costs (credits)
|
|
|
(155 |
) |
|
|
|
|
|
|
(501 |
) |
|
|
(425 |
) |
|
|
9,338 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
65,298 |
|
|
|
43,859 |
|
|
|
33,451 |
|
|
|
56,364 |
|
|
|
70,566 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
(22,979 |
) |
|
|
(9,648 |
) |
|
|
4,600 |
|
|
|
(21,003 |
) |
|
|
(35,810 |
) |
|
Interest expense, net
|
|
|
(1,336 |
) |
|
|
(876 |
) |
|
|
(447 |
) |
|
|
(3,170 |
) |
|
|
(2,973 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations, before income
taxes
|
|
|
(24,315 |
) |
|
|
(10,524 |
) |
|
|
4,153 |
|
|
|
(24,173 |
) |
|
|
(38,783 |
) |
|
Provision (benefit) for income taxes
|
|
|
2,200 |
|
|
|
200 |
|
|
|
162 |
|
|
|
|
|
|
|
(9,843 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
|
|
|
(26,515 |
) |
|
|
(10,724 |
) |
|
|
3,991 |
|
|
|
(24,173 |
) |
|
|
(28,940 |
) |
|
Income (loss) from discontinued operations, net of (benefit)
provision for income taxes
|
|
|
14,058 |
|
|
|
18,687 |
|
|
|
20,159 |
|
|
|
(3,647 |
) |
|
|
(49,173 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$ |
(12,457 |
) |
|
$ |
7,963 |
|
|
$ |
24,150 |
|
|
$ |
(27,820 |
) |
|
$ |
(78,113 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) per share — basic
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Continuing operations
|
|
$ |
(0.61 |
) |
|
$ |
(0.25 |
) |
|
$ |
0.10 |
|
|
$ |
(0.65 |
) |
|
$ |
(0.86 |
) |
| |
Discontinued operations
|
|
|
0.32 |
|
|
|
0.43 |
|
|
|
0.48 |
|
|
|
(0.10 |
) |
|
|
(1.47 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
$ |
(0.29 |
) |
|
$ |
0.18 |
|
|
$ |
0.58 |
|
|
$ |
(0.74 |
) |
|
$ |
(2.33 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) per share — diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Continuing operations
|
|
$ |
(0.61 |
) |
|
$ |
(0.25 |
) |
|
$ |
0.08 |
|
|
$ |
(0.65 |
) |
|
$ |
(0.86 |
) |
| |
Discontinued operations
|
|
|
0.32 |
|
|
|
0.43 |
|
|
|
0.41 |
|
|
|
(0.10 |
) |
|
|
(1.47 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
$ |
(0.29 |
) |
|
$ |
0.18 |
|
|
$ |
0.49 |
|
|
$ |
(0.74 |
) |
|
$ |
(2.33 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash provided by operating activities(c)
|
|
$ |
4,735 |
|
|
$ |
2,180 |
|
|
$ |
20,758 |
|
|
$ |
18,230 |
|
|
$ |
12,756 |
|
|
|
| (a) |
On November 25, 2003, we acquired 100% of the outstanding
capital stock of Amicas PACS, Corp., formerly Amicas, Inc., a
developer of Web-based diagnostic image management software
solutions. Our 2003 statement of operations include only
one month of operating results of Amicas PACS and our 2002, 2001
and 2000 statements of operations do not include operating
results of Amicas PACS. |
26
|
|
|
|
(b) |
|
The consolidated statement of operations for the year ended
December 31, 2004 has been prepared and historical
consolidated statements of operations have been reclassified to
present the results of the Medical Division as discontinued
operations. |
| |
|
(c) |
|
Includes operating activities of the Medical Division for all
periods presented. |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
December 31, | |
| |
|
| |
| |
|
2004 | |
|
2003 | |
|
2002 | |
|
2001 | |
|
2000 | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| |
|
(In thousands) | |
|
Consolidated Balance Sheet Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$ |
12,634 |
|
|
$ |
20,128 |
|
|
$ |
39,474 |
|
|
$ |
12,988 |
|
|
$ |
5,969 |
|
|
Working capital (deficit)
|
|
|
19,968 |
|
|
|
9,548 |
|
|
|
27,220 |
|
|
|
(914 |
) |
|
|
(11,144 |
) |
|
Total assets
|
|
|
133,886 |
|
|
|
132,576 |
|
|
|
117,131 |
|
|
|
92,949 |
|
|
|
145,994 |
|
|
Total long-term debt
|
|
|
28,674 |
|
|
|
29,757 |
|
|
|
18,941 |
|
|
|
30,553 |
|
|
|
37,784 |
|
|
Convertible, redeemable preferred stock issuable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,000 |
|
|
Stockholders’ equity
|
|
|
64,655 |
|
|
|
70,662 |
|
|
|
60,433 |
|
|
|
26,060 |
|
|
|
58,450 |
|
|
|
| Item 7. |
Management’s Discussion and Analysis of Financial
Condition and Results of Operations |
Forward-Looking Statements and Risk Factors That May Affect
Future Results
Our management’s discussion and analysis of financial
condition and results of operations contains forward-looking
statements that set forth anticipated results based on
management’s plans and assumptions. We often use words such
as “anticipate,” “estimate,”
“expect,” “project,” “intend,”
“plan,” “believe,” “will” and
similar expressions to identify forward-looking statements. In
particular, the statements regarding the results of our
acquisition of Amicas PACS and the effects on our operations of
the Asset Sale are forward-looking statements. Additionally,
forward-looking statements include those relating to future
actions, prospective products, future performance, financing
needs, liquidity, sales efforts, expenses, interest rates and
the outcome of contingencies, such as legal proceedings, and
financial results.
We cannot guarantee that any forward-looking statement will be
realized. Achievement of future results is subject to risks,
uncertainties and potentially inaccurate assumptions. Should
known or unknown risks or uncertainties materialize, or should
underlying assumptions prove inaccurate, actual results could
differ materially from past results and those anticipated,
estimated or projected by our forward-looking statements.
Overview
AMICAS, Inc. is a leader in radiology and medical image and
information management solutions. The AMICAS Vision
Seriestm
products provide a complete, end-to-end solution for imaging
centers, ambulatory care facilities, and radiology practices.
Acute care and hospital customers are provided a
fully-integrated, HIS/ RIS-independent PACS, featuring advanced
enterprise workflow support and scalable design. Complementing
the Vision Series product family is AMICAS Insight
Servicestm,
a set of client-centered professional and consulting services
that assist our customers with a well-planned transition to a
digital enterprise. We provide our clients with ongoing software
support, implementation, training, and electronic data
interchange, or EDI, services for patient billing and claims
processing.
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, implementation, training and transaction
processing services. Approximately 56% of our total revenues
were of a recurring nature in 2004 and 2003.
On January 3, 2005, we completed the sale of substantially
all of the assets and liabilities of our medical division
together with certain other assets, liabilities, properties and
rights of ours relating to our anesthesiology business, together
the Medical Division, to Cerner Corporation. The Asset Sale was
completed in accordance with the terms and conditions of the
Asset Purchase Agreement between us and Cerner dated as
27
of November 15, 2004. As a result of this transaction, the
December 31, 2004 consolidated financial statements have
been prepared and historical consolidated statements of
operations have been reclassified to present the results of the
Medical Division as discontinued operations. As consideration
for the Asset Sale, we received $100 million in cash,
subject to a post-closing purchase price adjustment to be
determined within 90 days following the closing. We expect
to pay Cerner approximately $1.2 million relating to the
post-closing purchase price adjustment. We also expect to record
a net gain on the sale of $45.6 million (net of income
taxes of $35 million) in the first quarter of 2005.
On January 3, 2005, we repaid the entire outstanding
balance under our credit facility with Wells Fargo Foothill,
Inc. of approximately $23.2 million and the credit facility
was terminated.
On November 25, 2003, we acquired 100% of the outstanding
capital stock of Amicas PACS, Corp., formerly known as Amicas,
Inc., a developer of Web-based diagnostic image management
software solutions, for $31 million in cash, including
direct transaction costs. We financed $15 million of the
purchase price through the use of our credit line. The merger
agreement provided for an additional purchase payment of up to
$25 million based on attainment of specified earnings
targets through 2004. In addition, we assumed incentive plans
for certain management employees of Amicas PACS that provided
for up to $5 million of compensation, tied to the
attainment of the earnings targets for the contingent earn-out
period. On December 9, 2004, the November 25, 2003
merger agreement was amended. The amendment terminated the
earn-out consideration obligations set forth in the merger
agreement and provides that we will pay to former Amicas PACS
stockholders and certain Amicas PACS employees a total of up to
$14.5 million. Former Amicas PACS stockholders received or
will receive a total of $10.0 million, to be paid in the
following manner: $4.3 million was paid three business days
after distribution of the escrow fund pursuant to the escrow
notice dated December 9, 2004; $3.3 million will be
paid on April 2, 2005; and $2.3 million will be paid
on the earlier of (i) December 31, 2005 or
(ii) within two business days after the end of any fiscal
quarter during which our cash and cash equivalents balance
exceeds $30.0 million. Certain Amicas PACS employees
received or will receive a total of up to $4.5 million in
satisfaction of certain obligations under Amicas PACS bonus
plan, paid or to be paid in the following manner: approximately
$2.2 million was paid in December 2004 and in January 2005,
and up to $2.2 million will be paid on December 31,
2005. In general, any payment to an Amicas PACS employee is
contingent on such employee’s continued employment with us.
The additional consideration paid or to be paid to the former
Amicas PACS stockholders under the settlement of the earn-out
provisions was recognized as additional goodwill. In 2004,
approximately $2.4 million was recognized as expense for
amounts paid, or to be paid, under the Amicas PACS bonus plan.
In 2004, we also recorded a note payable of $5.6 million in
connection with the payments due to the former Amicas PACS
stockholders in 2005. The addition of Amicas PACS provided us
with the ability to offer radiology groups and imaging center
customers a comprehensive, integrated information and image
management solution that incorporates the key components of a
complete radiology data management system (e.g., image
management, workflow management and financial management). Our
2003 results of operations include only one month of operating
results of Amicas PACS. For the month of December 2003, Amicas
PACS had total revenues of $.7 million, and a net loss of
$(1.4) million which included a charge of $.8 million
for acquired in-process technology, and depreciation and
amortization expense of $.2 million.
RESULTS OF OPERATIONS
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Year Ended December 31, | |
| |
|
| |
| |
|
2004 | |
|
Change | |
|
2003 | |
|
Change | |
|
2002 | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| |
|
(Dollars in thousands) | |
|
Maintenance and services
|
|
$ |
29,543 |
|
|
|
20.4 |
% |
|
$ |
24,534 |
|
|
|
(1.9 |
)% |
|
$ |
25,005 |
|
|
Percentage of total revenues
|
|
|
69.8 |
% |
|
|
|
|
|
|
71.7 |
% |
|
|
|
|
|
|
65.7 |
% |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Software licenses and system sales
|
|
$ |
12,776 |
|
|
|
32.0 |
% |
|
$ |
9,677 |
|
|
|
(25.8 |
)% |
|
$ |
13,046 |
|
|
Percentage of total revenues
|
|
|
30.2 |
% |
|
|
|
|
|
|
28.3 |
% |
|
|
|
|
|
|
34.3 |
% |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
28
The increase in maintenance and services revenues in 2004 is
primarily attributable to the Amicas PACS acquisition in
November 2003, which represents a $5.9 million increase in
maintenance and services revenues, and a $1.0 million
increase in EDI service revenues. These increases were partially
offset by a decline in implementation and training services
revenues of $1.6 million primarily relating to
HIPAA-compliance services and a decline in maintenance revenues
of $.3 million relating to customers that elected to not
continue their maintenance support contracts. The HIPAA service
revenues relate to the government’s October 2003 compliance
deadline regarding its electronic processing standards for most
healthcare transactions among physicians, payors, patients and
other healthcare industry participants. Accordingly, for the
most part, these HIPAA-related services are no longer required.
The decline in maintenance and services revenues in 2003 is
attributable to the loss of rental revenue of $.8 million
due to the sale of a former headquarters building in August 2002
from which we derived rental income from our tenants, and a
decline in maintenance revenues of $.4 million relating to
customers that elected to not continue their maintenance support
contracts. These decreases were partially offset by an increase
in implementation and training services revenues of
$.7 million. This increase is comprised of HIPAA-compliance
implementation and training services revenues of
$1.4 million partially offset by a decline in other
implementation and training services revenues of
$.7 million relating to product sales that were down 25.8%
in 2003.
Software license and system revenues rose for 2004 primarily due
to the Amicas PACS acquisition in November 2003, which
represents a $4.7 million increase in software license and
system revenues, including $.8 million of term-license
arrangements that were converted to perpetual licenses during
2004. This increase was partially offset by a decline in the
number of license and systems sold (unit volume versus, for
example, price decreases). In 2003, software license and system
revenues declined primarily as a result of a decrease in the
number of license and systems sold.
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Year Ended December 31, | |
| |
|
| |
| |
|
2004 | |
|
Change | |
|
2003 | |
|
Change | |
|
2002 | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| |
|
(Dollars in thousands) | |
|
Maintenance and services
|
|
$ |
5,890 |
|
|
|
2.4 |
% |
|
$ |
5,751 |
|
|
|
6.4 |
% |
|
$ |
5,407 |
|
|
Percentage of maintenance and services revenues
|
|
|
19.9 |
% |
|
|
|
|
|
|
23.4 |
% |
|
|
|
|
|
|
21.6 |
% |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Software licenses and system sales
|
|
$ |
6,154 |
|
|
|
19.6 |
% |
|
$ |
5,147 |
|
|
|
13.9 |
% |
|
$ |
4,518 |
|
|
Percentage of software licenses and system sales
|
|
|
48.2 |
% |
|
|
|
|
|
|
53.2 |
% |
|
|
|
|
|
|
34.6 |
% |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of maintenance and services revenues consists primarily of
the cost of EDI insurance claims processing, outsourced hardware
maintenance and EDI billing and statement printing services, and
postage. The increase in 2004 is primarily attributable to the
Amicas PACS acquisition in November 2003, which represents a
$.4 million increase, partially offset by a decline in
implementation and training costs of $.3 million. The
increase in 2003 principally reflects the increased use of third
parties for implementation and training services.
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 amortization of software product
costs. The increase in 2004 is due to an increase in
amortization of software costs of $1.3 million primarily
relating to acquired software of Amicas PACS and additional
software royalties of $.7 million. These increases were
partially offset by a decline in computer hardware costs of
$1.0 million due to a decrease in computer hardware sales.
The increase in 2003 is largely attributable to an increase in
amortization of software costs of $1.0 million. This
increase was partially offset by a decrease in computer hardware
costs of $.4 million due to a decline in computer hardware
sales.
In 2004, we recorded a charge of $3.2 million relating to
the impairment of capitalized software costs for our RIS
product. The entire balance of the capitalized software costs
related to our RIS product was written-off and therefore there
will be no further amortization of the RIS capitalized software
costs. In 2003, we also
29
recorded an impairment charge of $.5 million relating to a
medical image distribution product that was abandoned in favor
of a comparable solution offered by Amicas PACS.
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Year Ended December 31, | |
| |
|
| |
| |
|
2004 | |
|
Change | |
|
2003 | |
|
Change | |
|
2002 | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| |
|
|
|
(Dollars in thousands) | |
|
|
|
Selling, general and administrative
|
|
$ |
32,994 |
|
|
|
44.6 |
% |
|
$ |
22,825 |
|
|
|
1.2 |
% |
|
$ |
22,547 |
|
|
Percentage of total revenues
|
|
|
78.0 |
% |
|
|
|
|
|
|
66.7 |
% |
|
|
|
|
|
|
59.3 |
% |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
$ |
9,488 |
|
|
|
25.4 |
% |
|
$ |
7,565 |
|
|
|
25.2 |
% |
|
$ |
6,041 |
|
|
Percentage of total revenues
|
|
|
22.4 |
% |
|
|
|
|
|
|
22.1 |
% |
|
|
|
|
|
|
15.9 |
% |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
$ |
1,968 |
|
|
|
47.9 |
% |
|
$ |
1,331 |
|
|
|
(7.5 |
)% |
|
$ |
1,439 |
|
|
Percentage of total revenues
|
|
|
4.7 |
% |
|
|
|
|
|
|
3.9 |
% |
|
|
|
|
|
|
3.8 |
% |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 increase in 2004 is primarily due
to the inclusion of Amicas PACS expenses of $7.2 million,
as well as increases in travel costs of $.8 million, fixed
compensation expense of $.7 million, and to a lesser
extent, marketing. In addition, the amount for 2003 includes a
credit of $.5 million that reflects the favorable
resolution of an outstanding matter involving a federally
subsidized research and development project dating back to 1997
and a gain of $.4 million relating to the sale of our
former headquarters building.
In 2003, the slight increase in selling, general and
administrative expenses was primarily due to an increase in
fixed compensation expense of $1.2 million
($.3 million from Amicas PACS), as well as additional costs
for legal fees of $.8 million, marketing of
$.3 million and $.2 million each for insurance,
professional fees and temporary labor. The increase in fixed
compensation is mainly due to an increase in our employee base.
These increases were mostly offset by decreases in variable
compensation expense of $1.3 million and bad debt expense
of $.5 million and the $.9 million of credits
discussed above.
The increase in research and development expenses in 2004 is
mainly attributable to additional personnel costs relating to
the inclusion of Amicas PACS of $3.0 million. This increase
was partially offset by a decline in third-party software
developer fees of $.9 million. In addition, for 2003 and
2002, we capitalized $.1 million, and $4.3 million (or
1.0% and 41.3% of total research and development expenditures)
of software development fees. There were no capitalized software
development fees in 2004. The amounts capitalized in 2003 and
2002 related to our development of Web-based applications
including our radiology information system, or RIS. As noted
above, we wrote-off the remaining balance of capitalized
software costs for our RIS product in 2004.
The increase in depreciation and amortization expense in 2004
primarily reflects the depreciation and amortization of certain
intangible assets and property and equipment from the November
2003 acquisition of Amicas PACS. The decline in 2003 reflects
the fact that certain assets became fully depreciated in 2002.
Settlements, severance and impairment charges and credit for
loan losses. In 2004, we recognized expense of
$5.7 million for settlements, severance and impairment
charges. These charges consisted of the following:
|
|
|
| |
• |
Settlement of earn-out. In connection with the
termination of the earn-out consideration obligations relating
to the acquisition of Amicas PACS, we recognized
$2.4 million of expense for amounts paid, or to be paid, to
certain Amicas PACS employees under the Amicas PACS bonus plan.
We expect to recognize approximately $2 million of expense
in 2005 for additional amounts to be paid under the Amicas PACS
bonus plan. In general, any payment to an Amicas PACS employee
is contingent on such employee’s continued employment with
us. |
30
|
|
|
| |
• |
Severance re: corporate headquarters relocation. We
recorded severance-related costs of $1.3 million, including
executive-related severance costs of $.4 million. In
December 2004, we relocated our corporate headquarters from
Ridgefield, Connecticut to Boston, Massachusetts. On
October 15, 2004, we notified 57 of our employees that, in
connection with the relocation of our corporate headquarters,
their employment would be terminated under a plan of
termination. We expect to complete the transition by
June 30, 2005 and to record an additional $.8 million
for the relocation costs, primarily in the first quarter of 2005. |
| |
| |
• |
Other impairment charge. We recorded an impairment charge
of $1.2 million to write-down our enterprise resource
planning software, or ERP, relating to our decision to cease
using a portion of our ERP. This decision was due to the
downsizing of our business as a result of the Medical Division
sale. |
| |
| |
• |
Settlement of litigation. We recorded costs of
$.8 million relating to the settlement of litigation. In
August 2003, we were served with a summons and complaint as part
of a bankruptcy proceeding relating to a former business
associate of ours. The complaint alleged that in 2001, we
received a preference payment from the business associate and
sought to avoid and recover the $.8 million payment made to
us. We agreed to settle this matter in March 2004 and paid
$.3 million to the former business associate through its
committee of unsecured creditors. Also, in September 2004, a
lawsuit styled DR Systems, Inc. v. VitalWorks Inc. and
Amicas, Inc. was filed in the United States District Court for
the Southern District of California. The complaint alleged that
VitalWorks and Amicas infringed the plaintiff’s patent
through the manufacture, use, importation, sale and/or offer for
sale of automated medical imaging and archival systems. The
plaintiff sought monetary damages, treble damages and a
permanent injunction. On November 3, 2004, we served our
answer. On January 26, 2005, the parties entered into a
Settlement, Release and License agreement, and on
February 4, 2005, a stipulation of dismissal, dismissing
the lawsuit with prejudice, was entered. In connection with this
agreement, we paid the plaintiff $.5 million in 2005. This
amount was accrued at December 31, 2004. |
In 2002, we received final payments from three former officers
totaling $12.1 million satisfying their outstanding loans
from us, including interest. Consequently, we recorded a credit
of $6.0 million, reflecting a complete reversal of the
allowance for loan losses established in March 2001.
Acquired in-process technology. In connection with the
acquisition of Amicas PACS, we acquired and identified in the
purchase price allocation approximately $.8 million of
in-process technology. This intangible asset was subsequently
written-off in the fourth quarter of 2003.
Restructuring credits. In 2004, we recognized credits of
$.2 million reflecting a savings from our original estimate
in connection with the early termination of one office lease and
the sublease of a second office lease for facilities closed as
part of a restructuring plan announced in 2000. In 2002, we
recognized a credit of $.5 million reflecting a savings in
connection with the early termination of an office lease for a
facility closed as part of the 2000 restructuring plan.
|
|
|
Interest Income (Expense) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Year Ended December 31, | |
| |
|
| |
| |
|
2004 | |
|
Change | |
|
2003 | |
|
Change | |
|
2002 | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| |
|
(Dollars in thousands) | |
|
Interest income
|
|
$ |
163 |
|
|
|
(40.3 |
)% |
|
$ |
273 |
|
|
|
(81.6 |
)% |
|
$ |
1,480 |
|
|
Interest expense
|
|
|
(1,499 |
) |
|
|
30.5 |
% |
|
|
(1,149 |
) |
|
|
(40.4 |
)% |
|
|
(1,927 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The decrease in interest income from 2003 to 2004 is primarily
due to reduced average cash balances. The decrease in interest
income from 2002 to 2003 is primarily due to the interest income
recognized in 2002 in connection with the recovery of the notes
receivable from former officers.
Interest expense consists primarily of interest costs incurred
in connection with our outstanding term and real estate mortgage
loans. As of August 2002, the mortgage loans were repaid in
full. In 2004, the increase relates to the $15.0 million we
borrowed in November 2003 in connection with the acquisition of
Amicas
31
PACS. The decrease in interest expense in 2003 is due to a
decline in the average outstanding principal balance and
associated interest rate under our credit facility.
On January 3, 2005, we repaid the entire outstanding
balance under our credit facility of approximately
$23.2 million and our credit facility was terminated.
Additionally, in conjunction with the early pay-off of the
credit facility, we expect to write-off approximately
$.7 million of previously capitalized deferred financing
costs.
For 2004, 2003 and 2002, we recorded income tax provisions of
$2.2 million, $.2 million and $.2 million,
respectively. In addition, in 2004 we recorded a
$3.4 million income tax benefit to additional paid-in
capital in connection with net operating loss carryforwards
attributed to the exercise of employee stock options.
Management had assessed the recoverability of our deferred tax
assets of $63.4 million and as a result of this assessment,
we recorded a valuation allowance of $27.2 million as of
December 31, 2004, to, along with deferred tax liabilities
of $8.0 million, reduce the net deferred tax asset to
$28.2 million. We believe that we will utilize
approximately $28.2 million of our deferred tax asset in
connection with the gain from the Asset Sale in January 2005.
In addition to the tax effect of income from discontinued
operations, the provision for income taxes differed
significantly from the amounts computed by applying the
statutory U.S federal income tax rate to the income (loss) from
continuing operations. In 2004, the difference was caused
primarily by a charge of $5.5 million to reduce the net
deferred tax asset to an amount which management believes is
more likely than not to be realized. In 2003 and 2002, the
difference was caused by the income tax benefit recognized of
$3.5 million and $9.6 million, respectively, from a
decrease in the valuation allowance which was primarily
attributed to the utilization of net operating loss
carryforwards. We expect an income tax provision of
approximately $35 million in 2005 in connection with the
gain from the Medical Division Asset Sale.
|
|
|
Income from Discontinued Operations |
Discontinued operations represent the results of our Medical
Division through December 31, 2004. On January 3, 2005
we completed the sale of our Medical Division to Cerner
Corporation. For 2004, 2003, and 2002 our income from
discontinued operations was $14.1 million,
$18.7 million and $20.2 million, respectively. The
$4.6 million decrease in income from discontinued
operations from 2003 to 2004 is due primarily to a
$6.2 million decrease in total revenues, partially offset
by a decrease in expenses of $1.6 million. The decrease in
revenues is due to declines in maintenance and services revenues
of $4.2 million, primarily due to a decline in
implementation and training services revenues relating to
HIPAA-compliance services, and software licenses and system
sales revenues of $2.0 million due to a decrease in the
number of licenses sold. The decrease in expenses is due
primarily to a decrease in the total cost of revenues of
$2.2 million which reflects the decrease in revenues noted
above, partially offset by $.6 million of professional
services fees relating to the Asset Sale recorded in
discontinued operations in 2004.
Income from discontinued operations decreased by
$1.5 million from 2002 to 2003. Total revenues increased by
$.5 million, with a $3.5 million increase in
maintenance and services revenues mostly offset by a
$3.0 million decrease in software licenses and system sales
revenues. Expenses increased by $2.0 million mainly due to
increases in selling, general and administrative expenses of
$1.0 million and research and development expenses of
$.8 million. For further details regarding the sale of the
Medical Division, see Note C of the accompanying financial
statements.
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 2004, 2003 and 2002, we
generated positive cash flows from operations of
$4.7 million, $2.2 million and $20.8 million,
respectively. The decline from 2002 to 2003 primarily reflects
the decrease in software sales and the increases in research and
development and
32
selling, general and administrative expenses (discussed above),
as well as our payment to NDC (discussed below).
Days sales outstanding (calculated as accounts receivable, net
of allowances less receivables included in deferred revenues,
divided by quarterly revenues multiplied by 90 days) was
42 days for the fourth quarter of 2004, on a continuing
operations basis, up from 39 days for the September 2004
quarter. Assuming that we sell more of our products and services
to hospitals, we would expect this trend to continue.
Investing activities for 2004 resulted in a use of cash of
$7.5 million. This total includes $3.7 million used
for additional consideration paid to settle the earn-out
provisions relating to the acquisition of Amicas PACS,
$2.2 million used primarily for purchases of computer
equipment and software including an enterprise resource
planning, or ERP, system and $1.6 million used for software
development costs.
Cash used in financing activities for 2004 amounted to
$4.7 million, consisting of $6.8 million of principal
payments of our long-term debt and $.2 million of finance
costs, partly offset by $2.3 million of payments received
in connection with the exercise of stock options by certain
employees.
We are committed to pay up to $2.2 million to certain
Amicas PACS employees on December 31, 2005 as additional
earn-out consideration under the amendment to the Amicas PACS
merger agreement. In general, any payment to an Amicas PACS
employee is contingent on such employee’s continued
employment with us. On December 9, 2004, we amended the
November 25, 2003 Amicas PACS merger agreement. The
amendment terminated the earn-out consideration obligations set
forth in the merger agreement and provides that we will pay to
former Amicas PACS stockholders and certain Amicas PACS
employees a total of up to $14.5 million. Former Amicas
PACS stockholders received or will receive a total of
$10.0 million, to be paid in the following manner:
$4.3 million was paid three business days after
distribution of the escrow fund pursuant to the escrow notice
dated December 9, 2004; $3.3 million will be paid on
April 2, 2005; and $2.3 million will be paid on the
earlier of (i) December 31, 2005 or (ii) within
two business days after the end of any fiscal quarter during
which our cash and cash equivalents balance exceeds
$30.0 million. In 2004, we recorded a note payable of
$5.6 million in connection with the payments due to the
former Amicas PACS stockholders in 2005.
In August 2003, we entered into an amended and restated
four-year credit agreement with Wells Fargo. The amended
agreement included our outstanding term loan of
$15.8 million at an interest rate of prime plus .5% (5.75%
at December 31, 2004). Interest was payable monthly in
arrears. Principal was payable quarterly through April 1,
2004, with a balloon payment due in August 2007. If we had
decided to prepay the term loan in full prior to September 2005,
we would have incurred a prepayment fee equal to 1% of the then
outstanding principal balance of the term loan. The prepayment
fee may have been reduced if the loan was prepaid in connection
with a change of control of AMICAS. The outstanding term loans,
which were collateralized by substantially all of our assets and
intellectual property rights, subjected 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, (iii) the required maintenance of a
minimum cash balance, and (iv) the prohibition of dividend
payments to stockholders. The amended agreement also provided
for an acquisition credit line of up to $50 million, less
any amounts outstanding under term loans. Availability of the
acquisition credit line was at the discretion of Wells Fargo. On
November 25, 2003 in connection with the Amicas PACS
acquisition, we borrowed $15.0 million under the credit
line in the form of a term loan at an interest rate of prime
plus .75% (6.0% at December 31, 2004). Principal was
payable in 15 equal quarterly installments, which began on
January 1, 2004, and interest was payable monthly in
arrears. For the year ended December 31, 2004, we failed to
satisfy the annual capital expenditures covenant required by the
amended agreement; however, we received a waiver regarding this
covenant violation from Wells Fargo. On January 3, 2005, we
repaid the entire outstanding balance under our credit facility
of approximately $23.2 million and our credit facility was
terminated.
As consideration for the sale of the Medical Division to Cerner,
we received $100 million in cash, subject to a post-closing
purchase price adjustment to be determined within 90 days
following the closing. We estimate that we may need to pay
Cerner approximately $1.2 million relating to the
post-closing purchase price adjustment. In addition, we paid
approximately $1 million in the first quarter of 2005 for
additional fees
33
and transaction costs relating to the sale. In connection with
the Transition Services Agreement between us and Cerner dated
January 3, 2005, we have committed to pay Cerner
approximately $.2 million per year through April 2007 for
certain EDI services.
The following table summarizes, as of December 31, 2004,
the general timing of future payments under our outstanding loan
agreements, lease agreements that include noncancellable terms,
and other long-term contractual obligations (amounts listed
under operating leases and other commitments include amounts
which were subsequently assigned to Cerner in January 2005):
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Payments Due by Period | |
| |
|
| |
| |
|
Totals | |
|
2005 | |
|
2006 | |
|
2007 | |
|
2008 | |
|
Thereafter | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| |
|
(In thousands) | |
|
Long-term debt(a)
|
|
$ |
28,588 |
|
|
$ |
9,588 |
|
|
$ |
4,000 |
|
|
$ |
15,000 |
|
|
|
|
|
|
|
|
|
|
Operating leases(b)
|
|
|
6,963 |
|
|
|
2,571 |
|
|
|
2,151 |
|
|
|
1,454 |
|
|
$ |
771 |
|
|
$ |
16 |
|
|
Other commitments(c)
|
|
|
36,392 |
|
|
|
9,881 |
|
|
|
8,511 |
|
|
|
7,867 |
|
|
|
7,600 |
|
|
|
2,533 |
|
|
Other long-term liabilities
|
|
|
142 |
|
|
|
|
|
|
|
131 |
|
|
|
11 |
|
|
|
|
|
|
|
|
|
|
Capital leases
|
|
|
86 |
|
|
|
68 |
|
|
|
18 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
$ |
72,171 |
|
|
$ |
22,108 |
|
|
$ |
14,811 |
|
|
$ |
24,332 |
|
|
$ |
8,371 |
|
|
$ |
2,549 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (a) |
On January 3, 2005, we repaid the entire outstanding
balance under our credit facility of approximately
$23.2 million and our credit facility was terminated. As a
result, interest is excluded above. |
|
|
|
|
(b) |
|
In January 2005, in connection with the sale of the Medical
Division to Cerner, our operating lease agreements relating to
the Medical Division were assigned to Cerner. Also, in March
2005, we entered into subleases for additional space at our
Boston, Massachusetts corporate headquarters. As a result, our
future payments due under our outstanding lease agreements
decreased to a total of $4.1 million ($1.3 million due
in 2005, $1.2 million due in 2006, $1.2 million due in
2007 and $.4 million due in 2008). |
| |
|
(c) |
|
Included in other commitments are the following: |
|
|
|
| |
• |
In October 2001, we expanded our August 2000 agreement with
National Data Corporation, or NDC, for outsourcing much of our
patient statement and invoice printing work. We continued, for a
fee, to provide printing services for our physicians under the
subcontracting arrangement with NDC. The amended arrangement,
which extended until April 2009, provided for, among other
things, the attainment of certain quarterly transaction
processing volume levels during the term. In exchange, we
received $7.9 million in cash in 2001 (in connection with
the August 2000 agreement, we had received $8.8 million),
which represent unearned discounts (see accompanying balance
sheets) that were recognized as an offset to cost of maintenance
and services revenues as the minimum volume commitments were
fulfilled. In April 2003, our arrangement with NDC was amended
such that commencing in June 2003, the quarterly minimum volume
commitments were reduced. In turn, we refunded $4.3 million
of unearned discounts. The new quarterly commitment approximated
65% of our then-current aggregate transaction level. In
connection with this arrangement, we were committed to pay a
minimum quarterly fee of $1.9 million to NDC until April
2009. In January 2005, we assigned the agreement with NDC to
Cerner in connection with the Transition Services Agreement. We
are now committed to minimum quarterly volumes and are required
to pay a minimum quarterly fee of $.6 million to Cerner
through March 2006. Thereafter, the minimum quarterly volume
commitments will be reduced by 1.25% per quarter until
April 2009. |
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In April 2003, we entered into an agreement to acquire program
source code, object code, and engineering services from an
independent software development firm. A monthly fee of
approximately $.3 million, or a total of $3 million,
for development services was incurred during the twelve-month
period ended March 2004. Also, during a royalty term ending
January 2006, we were obligated to pay royalty fees of up to
$5 million based on related software license sales, if any.
In May 2004, we amended the agreement with respect to the
development services. We were obligated to pay the development
firm $.6 million during the four-month period ending
August 15, 2004 for such services; |
34
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however, such payment was contingent upon certain development
milestones being achieved. The milestones were achieved and we
paid the amounts due under the May amendment. In August 2004 and
in October 2004, we amended the agreement further with respect
to the development services. We were obligated to pay the
development firm $1.4 million during the period from
August 16, 2004 to May 1, 2005. At the end of such
period, we had the option to terminate the agreement or continue
the development services arrangement by paying a minimum monthly
fee of $.2 million for an additional twelve months. The
terms of the royalty arrangement were amended and extended to
March 2007. We were obligated to pay reduced royalty fees of up
to $3 million based on related software license sales, if
any. If we terminated the development services portion of the
agreement for reasons other than nonperformance, we would still
be liable for amounts due under the royalty terms of the
agreement, if any. In connection with the sale of the Medical
Division on January 3, 2005, the agreement was assigned to
Cerner. We no longer have commitments under this agreement. |
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In May 2002, we entered into a five-year agreement with a
third-party provider of EDI services for patient claims
processing. For the first and second years of the agreement, we
incurred $.5 million and $.6 million, respectively,
for processing services. For the twelve-month period ending May
2005, we were committed to pay $.5 million for processing
services. Thereafter, the annual services fee would have ranged
from $.5 million to $.8 million based on our volume
usage in the last month of the preceding year. In January 2005,
we assigned the agreement to Cerner in connection with the
Transition Services Agreement. For the four-month period ending
April 2005, we are now committed to pay $.1 million to
Cerner for processing services. Thereafter, the annual services
fee will range from $.2 million to $.3 million based
on ours and Cerner’s combined volume usage in the last
month of the preceding year. |
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In connection with our employee savings plans, we have
committed, for the 2005 plan year, to contribute to the plans.
Our matching contribution for 2005 is estimated to be
approximately $.5 million and will be made 75% in cash and
25% in shares of our common stock. |
We anticipate capital expenditures of approximately
$1.5 million for 2005.
To date, the overall impact of inflation on us has not been
material.
We expect to pay approximately $1.8 million in 2005 for
severance-related costs relating to our relocation of our
corporate headquarters office.
From time to time, in the normal course of business, various
claims are made against us. Except for the proceeding 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 AMICAS, Inc.),
et al., was filed in Boone County Superior Court in Indiana
and the case was subsequently transferred to the Northern
District Court of Georgia. The complaint alleged state
securities law violations, breach of contract, and fraud claims
against the defendants. The complaint did not specify the amount
of damages sought by plaintiffs, but sought rescission of a
transaction that the plaintiffs valued at $5 million, as
well as punitive damages and reimbursement for the
plaintiffs’ attorneys’ fees and associated costs and
expenses of the lawsuit. In October 2001, the plaintiffs’
request for a preliminary injunction to preserve their remedy of
rescission was denied and part of their complaint was dismissed.
The plaintiffs’ subsequent appeal of this decision was
denied. Thereafter, plaintiffs retained new counsel and served
an amended complaint that added additional former officers and
directors as defendants, dropped the claim for rescission, and
asserted new state securities law violations. After
disqualification of plaintiffs’ second counsel in May 2003,
plaintiffs retained new counsel and, in July 2003, served a
second amended complaint upon us which added, among other
things, a claim for Georgia RICO violations. In August 2003, we
filed with the Court a partial motion to dismiss the second
amended complaint which motion was granted in part and denied in
part on January 9, 2004. On February 6, 2004, we
served an answer to the second amended complaint. The discovery
process is now complete. On December 20, 2004, the
defendants filed a motion for summary judgment and the
plaintiffs filed a motion for partial summary judgment. These
motions are now fully submitted.
35
While management believes that we have meritorious defenses in
the foregoing pending matter and we intend to pursue our
positions vigorously, litigation is inherently subject to many
uncertainties. Thus, the outcome of this matter is uncertain and
could be adverse to us. Depending on the amount and timing of an
unfavorable resolution of the contingencies, it is possible that
our financial position, future results of operations or cash
flows could be materially affected in a particular reporting
period(s).
In September 2004, a lawsuit styled DR Systems, Inc. v.
VitalWorks Inc. and Amicas, Inc. was filed in the United States
District Court for the Southern District of California. The
complaint alleged that VitalWorks and Amicas infringed the
plaintiff’s patent through the manufacture, use,
importation, sale and/or offer for sale of automated medical
imaging and archival systems. The plaintiff sought monetary
damages, treble damages and a permanent injunction. On
November 3, 2004, we served our answer. On January 26,
2005, the parties entered into a Settlement, Release and License
agreement; and on February 4, 2005, a stipulation of
dismissal, dismissing the lawsuit with prejudice, was entered.
In connection with this agreement, we paid the plaintiff
$.5 million in 2005. This amount was accrued at
December 31, 2004.
On or about July 31, 2003, a Consolidated Class Action
Complaint was filed in the United States District Court for the
District of Connecticut on behalf of purchasers of the common
stock of the Company during the class period of January 24,
2002 to October 23, 2002. The defendants were the Company
and three of our individual officers and directors. Plaintiffs
had asserted claims against the defendants under
Section 10(b) of the Securities Exchange Act of 1934 and
against the individual defendants under Section 20(a) of
the Exchange Act. According to the Consolidated Complaint, the
defendants were alleged to have made materially false and
misleading statements during the Class Period concerning
our products and financial forecasts. In addition, the
Consolidated Complaint alleged that the individual defendants
acted as controlling persons in connection with our alleged
securities law violations. Compensatory damages in an
unspecified amount, pre-judgment and post-judgment interest,
costs and expenses, including reasonable attorneys’ fees
and experts’ fees and other costs, as well as other relief
the Court may deem just and proper were sought. On
November 14, 2003, the defendants filed with the Court a
motion to dismiss the Consolidated Complaint pursuant to Federal
Rules of Civil Procedure 12(b)(6) and (9)(b). In a decision
entered on October 1, 2004, United States District Judge
Janet Bond Arterton dismissed with prejudice the Consolidated
Complaint as to all defendants. No appeal of this decision was
filed and the statutory time period to file an appeal has
expired.
As permitted under Delaware law, we have agreements under which
we indemnify our officers and directors for certain events or
occurrences while the officer or director is or was serving at
our request in such capacity. The term of the indemnification
period is for the officer’s or director’s lifetime.
The maximum potential amount of future payments we could be
required to make under these indemnification agreements is
unlimited; however, with respect to certain events or
occurrences after March 6, 2001, we have a director and
officer insurance policy that limits our exposure and enables us
to recover a portion of any future amounts paid. Given the
insurance coverage in effect, we believe the estimated fair
value of these indemnification agreements is minimal. We have no
liabilities recorded for these agreements as of
December 31, 2004.
We generally include intellectual property indemnification
provisions in our software license agreements. Pursuant to these
provisions, we hold harmless and agree to defend the indemnified
party, generally our business partners and customers, in
connection with certain patent, copyright, trademark and trade
secret infringement claims by third parties with respect to our
products. The term of the indemnification provisions varies and
may be perpetual. In the event an infringement claim against us
or an indemnified party is made, generally we, in our sole
discretion, agree to do one of the following: (i) procure
for the indemnified party the right to continue use of the
software, (ii) provide a modification to the software so
that its use becomes noninfringing; (iii) replace the
software with software which is substantially similar in
functionality and performance; or (iv) refund all or the
residual value of the software license fees paid by the
indemnified party for the infringing software. We believe the
estimated fair value of these intellectual property
indemnification agreements is minimal. We have no liabilities
recorded for these agreements as of December 31, 2004.
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Critical Accounting Policies |
The discussion and analysis of our financial condition and
results of operations are based on our financial statements and
accompanying notes, which we believe have been prepared in
conformity with generally
36
accepted accounting principles. The preparation of these
financial statements requires management to make estimates,
assumptions and judgments that affect the amounts reported in
the financial statements and accompanying notes. On an ongoing
basis, we evaluate our estimates, assumptions and judgments,
including those related to revenue recognition, allowances for
future returns, discounts and bad debts, tangible and intangible
assets, deferred costs, income taxes, restructurings,
commitments, contingencies, claims and litigation. We base our
judgments and estimates on historical experience and on various
other assumptions that we believe are reasonable under the
circumstances. However, our actual results could differ from
those estimates.
We believe the following critical accounting policies affect our
more significant judgments and estimates used in the preparation
of our financial statements.
Revenue Recognition. We recognize software license
revenues and system (computer hardware) sales upon execution of
the sales contract and delivery of the software (off-the-shelf
application software) and/or hardware. In all cases, however,
the fee must be fixed or determinable, collection of any related
receivable must be considered 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
client support and unspecified product updates are recognized
ratably over the term of the maintenance arrangement. Training,
implementation and EDI services revenues are recognized as the
services are performed. Most of our sales and licensing
contracts involve multiple elements, in which case, we allocate
the total value of the customer arrangement to each element
based on the vendor specific objective evidence, or VSOE, of the
respective elements. The residual method is used to determine
revenue recognition with respect to a multiple-element
arrangement when VSOE exists for all of the undelivered elements
(e.g., implementation, training and maintenance services), but
does not exist for one or more of the delivered elements of the
contract (e.g., computer software or hardware). VSOE is
determined based upon the price charged when the same element is
sold separately. If VSOE cannot be established for the
undelivered element(s) of an arrangement, the total value of the
customer arrangement is deferred until the undelivered
element(s) is delivered or until VSOE is established. In our
contracts and arrangements with our customers, we generally do
not include acceptance provisions, which would give the customer
the right to accept or reject the product after we ship it.
However, if an acceptance provision is included, revenue is
recognized upon the customer’s acceptance of the product,
which occurs upon the earlier of receipt of a written customer
acceptance or expiration of the acceptance period. We provide
allowances for estimated future allowances and discounts
(recorded as contra-revenue), as well as bad debts, upon
recognition of revenues.
Recognition of revenues in conformity with generally accepted
accounting principles requires management to make judgments that
affect the timing and amount of reported revenues.
Accounts Receivable. Our accounts receivable are customer
obligations due under normal trade terms carried at their face
value, less allowances for estimated future returns and
discounts, as well as bad debts. We evaluate the carrying amount
of our accounts receivable on an ongoing basis and establish a
valuation allowance based on a number of factors, including
specific customer circumstances, historical rate of write-offs
and the past due status of the accounts. At the end of each
fiscal quarter, the allowance is reviewed and analyzed for
adequacy and is often adjusted based on the findings. The
allowance is increased through a reduction of revenues, an
increase in bad debt expense and/or recovery of amounts
previously written-off. The allowance is reduced by write-offs
of amounts deemed uncollectible and adjustments to revenue
and/or bad debt expense, if any, based on management’s
determination as to the adequacy of the recorded allowance.
Long-lived Assets. We review our long-lived assets, such
as property and equipment, and purchased intangible assets that
are subject to amortization, for impairment whenever events or
changes in circumstances indicate that the carrying amount of an
asset may not be recoverable. Recoverability is measured by a
comparison of the carrying amount of an asset to the estimated
undiscounted future cash flows it is expected to generate. If
the carrying amount of an asset exceeds its estimated future
cash flows, an impairment charge is recognized by the amount by
which the carrying amount of the asset exceeds the fair value of
the asset. Assets to be disposed of would be separately
presented in the balance sheet and reported at the lower of the
carrying amount or fair value less cost to sell, and would no
longer be amortized or depreciated. The assets and
37
liabilities of a disposed group classified as held for sale
would also be presented separately in the appropriate asset and
liability sections of the balance sheet.
Goodwill Assets and Business Combinations. Goodwill
represents the excess of cost over the fair value of net assets
of businesses acquired and accounted for as purchase
transactions. We no longer amortize our goodwill assets. We are
required to test our goodwill for impairment of value on at
least an annual basis. To date, the results of our tests have
not revealed an impairment of value.
Our acquisition of Amicas PACS in 2003 was accounted for as a
purchase transaction and, accordingly, the excess purchase price
over the estimated fair value of the net assets acquired was
recognized as goodwill. Acquired software and other intangible
assets are amortized through operations over their estimated
economic lives.
Software Development Costs. We begin capitalizing
software development costs, exclusively third-party programmer
fees, only after establishing commercial and technical
viability. Annual amortization of these costs represents the
greater of the amount computed using (i) the ratio that
current gross revenues for the product(s) bear to the total
current and anticipated future gross revenues of the product(s),
or (ii) the straight-line method over the remaining
estimated economic life of the product(s); generally, depending
on the nature and success of the product, such deferred costs
are amortized over a three- to five-year period. Amortization
commences when the product is made commercially available. Two
products under development were made commercially available in
2002. No additional products were made commercially available in
2003 or in 2004.
We evaluate the recoverability of capitalized software based on
estimated future gross revenues less the estimated cost of
completing the products and of performing maintenance and
product support. If our gross revenues turn out to be
significantly less than our estimates, the net realizable value
of our capitalized software intended for sale would be impaired.
As discussed above in Results of Operations, we recognized
impairment charges in 2003 and 2004 relating to our capitalized
software costs.
Income Taxes. We provide for taxes based on current
taxable income, and the future tax consequences of temporary
differences between the financial reporting and income tax
carrying values of our assets and liabilities (deferred income
taxes). Quarterly, management assesses the realizable value of
deferred tax assets based on, among other things, estimates of
future taxable income, and adjusts the related valuation
allowance as necessary.
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Recent Accounting Pronouncements |
In December 2004, the Financial Accounting Standards Board, or
FASB, issued Statement of Financial Accounting Standards
No. 123 (revised 2004), “Share-Based Payment”,
Statement No. 123R, which requires companies to measure and
recognize compensation expense for all stock-based payments at
fair value. Statement 123R is effective for all interim
periods beginning after June 15, 2005 and, thus, will be
effective for us beginning with the third quarter of 2005. Early
adoption is encouraged and retroactive application of the
provisions of Statement 123R to the beginning of the fiscal
year that includes the effective date is permitted, but not
required. We are currently evaluating the impact of
Statement 123R on our results of operations. See
Note B of the accompanying financial statements for
information related to the pro forma effects on the reported
income (loss) from continuing operations and earnings (loss) per
share from continuing operations of applying the fair value
recognition provisions of the previous Statement 123,
“Accounting for Stock-Based Compensation,” to
stock-based employee compensation.
In November 2004, the FASB’s Emerging Issues Task Force
reached a consensus on Issue No. 03-13, “Applying the
Conditions in Paragraph 42 of FASB Statement No. 144
in Determining Whether to Report Discontinued Operations”,
EITF 03-13. The guidance should be applied to a component
of an enterprise that is either disposed of or classified as
held for sale in fiscal periods beginning after
December 15, 2004. We have evaluated EITF 03-13 and
determined it will have an effect on our financial statements
with regard to our disclosures relating to discontinued
operations. See Note C of the accompanying financial
statements.
38
In December 2003, the FASB issued Interpretation No. 46, or
FIN 46R, “Consolidation of Variable Interest Entities,
an Interpretation of Accounting Research
Bulletin No. 51”, which addresses how a business
enterprise should evaluate whether it has a controlling interest
in an entity through means other than voting rights and,
accordingly, should consolidate the entity. FIN 46R
replaces FASB Interpretation No. 46, or FIN 46, which
was issued in January 2003. Before concluding that it is
appropriate to apply ARB 51 voting interest consolidation model
to an entity, an enterprise must first determine that the entity
is not a variable interest entity. As of the effective date of
FIN 46R, an enterprise must evaluate its involvement with
all entities or legal structures created before February 1,
2003, to determine whether consolidation requirements of
FIN 46R apply to those entities. There is no grandfathering
of existing entities. Public companies must apply either
FIN 46 or FIN 46R immediately to entities created
after December 15, 2003 and no later than the end of the
first reporting period that ends after March 15, 2004 to
entities considered to be special purpose entities. The adoption
of FIN 46R had no effect on our financial statements.
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| Item 7A. |
Quantitative and Qualitative Disclosures About Market
Risk |
As of December 31, 2004, we had approximately
$23.0 million of outstanding debt relating to our credit
agreement with Wells Fargo Foothill, Inc. The interest rate on
this credit facility was a variable rate based upon the prime
rate. As such, the variable interest rate on the outstanding
debt was subject to fluctuations due to changes in the prime
rate. If the prime rate had hypothetically increased by one
hundred basis points, this would have resulted in an increase in
interest expense of approximately $.2 million. On
January 3, 2005, we repaid the entire outstanding balance
under our credit facility of approximately $23.2 million
and our credit facility was terminated. Additionally, we are not
subject to material foreign currency exchange rate fluctuations,
as most of our sales and expenses are domestic and therefore are
denominated in the U.S. dollar. 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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| Item 8. |
Financial Statements and Supplementary Data |
The financial statements listed on page 48 of this report
are filed as part of this report on the pages indicated.
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| Item 9. |
Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure |
Not applicable.
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| Item 9A. |
Controls and Procedures |
Our management, with the participation of our chief executive
officer and chief financial officer, evaluated the effectiveness
of our disclosure controls and procedures as of
December 31, 2004. The term “disclosure controls and
procedures,” as defined in Rules 13a-15(e) and
15d-15(e) under the Securities Exchange Act of 1934, means
controls and other procedures of a company that are designed to
ensure that information required to be disclosed by the company
in the reports that it files or submits under the Exchange Act
is recorded, processed, summarized and reported, within the time
periods specified in the Securities and Exchange
Commission’s rules and forms. Disclosure controls and
procedures include, without limitation, controls and procedures
designed to ensure that information required to be disclosed by
a company in the reports that it files or submits under the
Exchange Act is accumulated and communicated to the
company’s management, including its principal executive and
principal financial officers, as appropriate to allow timely
decisions regarding required disclosure. Management recognizes
that any controls and procedures, no matter how well designed
and operated, can provide only reasonable assurance of achieving
their objectives and management necessarily applies its judgment
in evaluating the cost-benefit relationship of possible controls
and procedures. In performing this evaluation, our management
identified a deficiency that constituted a material weakness in
our internal controls as described below in
“Management’s Report on Internal Control Over
Financial Reporting.” As described below, to remediate this
deficiency in our internal control over financial reporting, we
have implemented a requirement that we engage an accounting or
tax firm to
39
periodically review our accounting for income taxes prior to
providing such information to our independent auditor.
However, based on the evaluation of our disclosure controls and
procedures as of December 31, 2004 and the identification
of the material weakness, our chief executive officer and chief
financial officer concluded that, as of such date, our
disclosure controls and procedures were not effective.
Our management’s report on our internal control over
financial reporting (as defined in Rules 13a-15(f) and
15d-15(f) under the Exchange Act and the independent registered
public accounting firm’s related audit report are set forth
below.
No change in our internal control over financial reporting
occurred during the fiscal quarter ended December 31, 2004
that has materially affected, or is reasonably likely to
materially affect, our internal control over financial reporting.
40
MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL
REPORTING
To the Stockholders of AMICAS, Inc.
March 28, 2005
The management of the Company is responsible for establishing
and maintaining adequate internal control over financial
reporting. Internal control over financial reporting is defined
in Rule 13a-15(f) or 15d-15(f) promulgated under the
Securities Exchange Act of 1934 as a process designed by, or
under the supervision of, the Company’s principal executive
and principal financial officers and effected by the
Company’s board of directors, management and other
personnel, to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles and includes those
policies and procedures that:
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Pertain to the maintenance of records that in reasonable detail
accurately and fairly reflect the transactions and dispositions
of the assets of the Company; |
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Provide reasonable assurance that transactions are recorded as
necessary to permit preparation of financial statements in
accordance with generally accepted accounting principles, and
that receipts and expenditures of the Company are being made
only in accordance with authorizations of management and
directors of the Company; and |
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Provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use or disposition of the
Company’s assets that could have a material effect on the
financial statements. |
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Projections of any evaluation of effectiveness to future periods
are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.
A material weakness is a significant deficiency (as defined in
PCAOB Auditing Standard No. 2), or combination of
significant deficiencies, that results in there being more than
a remote likelihood that a material misstatement in financial
statements will not be prevented or detected on a timely basis
by employees in the normal course of their work.
The Company’s management assessed the effectiveness of the
Company’s internal control over financial reporting as of
December 31, 2004, which identified the following
deficiency that constituted a material weakness in the
Company’s internal control over financial reporting
relating to its accounting for income taxes and deferred taxes:
In its February 15, 2005 press release, the Company
announced financial information for the quarter and year ended
December 31, 2004. That press release included an error
related to the Company’s income tax provision and deferred
income tax asset for the year ended December 31, 2004. The
calculation of the Company’s income tax provision and
deferred income tax asset was complex and non-routine as a
result of the sale of the Company’s Medical Division in
January 2005. Subsequent to its February 15, 2005 press
release, upon further research and investigation by the Company,
and after review by the Company’s independent auditors in
connection with the year-end audit, the Company discovered the
error. Although the Company had detected the error prior to the
filing of this Annual Report on Form 10-K, the
Company’s management concluded that a material weakness
existed in the Company’s internal control over financial
reporting with respect to accounting for income taxes as of
December 31, 2004.
To remediate this deficiency in its internal control over
financial reporting, the Company has implemented a requirement
that it engage an accounting or tax firm to periodically review
its accounting for income taxes prior to providing such
information to its independent auditor.
In making its assessment, the Company’s management used the
criteria set forth by the Committee of Sponsoring Organizations
of the Treadway Commission (COSO) in Internal
Control-Integrated Framework. Because of the material weakness
described above, management believes that, as of
December 31, 2004, the Company’s internal control over
financial reporting was not effective based on those criteria.
41
The Company’s independent registered public accounting firm
has issued an audit report on our assessment of the
Company’s internal control over financial reporting. This
report appears below.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholders of
AMICAS, Inc.
Boston, Massachusetts
We have audited management’s assessment, included in the
accompanying Management’s Report on Internal Control over
Financial Reporting appearing under Item 9A, that AMICAS,
Inc. did not maintain effective internal control over financial
reporting as of December 31, 2004, because of the effect of
the material weakness identified in management’s
assessment, based on the criteria established in Internal
Control — Integrated Framework issued by the Committee
of Sponsoring Organizations of the Treadway Commission (COSO).
AMICAS, Inc.’s management is responsible for maintaining
effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over
financial reporting. Our responsibility is to express an opinion
on management’s assessment and an opinion on the
effectiveness of the Company’s internal control over
financial reporting based on our audit.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control
over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of
internal control over financial reporting, evaluating
management’s assessment, testing and evaluating the design
and operation effectiveness of internal control, and performing
such other procedures as we considered necessary in the
circumstances. We believe that our audit provides a reasonable
basis for our opinion.
A company’s internal control over financial reporting is a
process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. A company’s
internal control over financial reporting includes those
policies and procedures that (1) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions
are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of
management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the
company’s assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
A material weakness is a control deficiency, or combination of
control deficiencies, that results in more than a remote
likelihood that a material misstatement of the annual or interim
financial statements will not be prevented or detected. The
following material weakness was identified and included in
management’s assessment:
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In its February 15, 2005 press release, the Company
announced financial information for the quarter and year ended
December 31, 2004. That press release included an error
related to the Company’s income tax provision and deferred
income tax asset for the year ended December 31, 2004. The
calculation of the Company’s income tax provision and
deferred income tax asset was complex and non-routine as a
result of the sale of the Company’s Medical Division in
January 2005. Subsequent to its February 15, 2005 press
release, upon further research and investigation by the Company,
and after |
42
|
|
| |
review by us in connection with the year-end audit, the Company
discovered the error. Although the Company had detected the
error prior to the filing of this Annual Report on
Form 10-K, the Company’s management concluded that a
material weakness existed in the Company’s internal control
over financial reporting with respect to accounting for income
taxes as of December 31, 2004. |
This material weakness was considered in determining the nature,
timing, and extent of audit tests applied in our audit of the
2004 consolidated financial statements, and this report does not
affect our report, dated March 17, 2005 on those financial
statements, which expressed an unqualified opinion.
In our opinion, management’s assessment that AMICAS, Inc.
did not maintain effective internal control over financial
reporting as of December 31, 2004, is fairly stated, in all
material respects, is based on the criteria established in
Internal Control — Integrated Framework issued by
COSO. Also, in our opinion, because of the effect of the
material weakness described above on the achievement of the
objectives of the control criteria, AMICAS, Inc. has not
maintained effective internal control over financial reporting
as of December 31, 2004, based on the criteria established
in Internal Control — Integrated Framework issued by
the COSO.
/s/ BDO Seidman, LLP
New York, NY
March 17, 2005
43
|
|
| Item 9B. |
Other Information |
Not applicable.
PART III
Certain information required by Part III of this Annual
Report on Form 10-K is omitted because the Company
will file a definitive proxy statement pursuant to
Regulation 14A with respect to the 2005 Annual Meeting of
Stockholders expected to be held on June 10, 2005 (the
“Proxy Statement”), not later than 120 days after
the end of the fiscal year covered by this Form 10-K, and
certain information to be included therein is incorporated
herein by reference.
|
|
| Item 10. |
Directors and Executive Officers of the Registrant |
Information about our executive officers is contained under the
caption “Employees” in Part I hereof. We have
adopted a Code of Business Conduct and Ethics for our directors,
officers (including our principal executive officer, principal
financial officer, principal accounting officer or controller,
or persons performing similar functions) and employees. Our Code
of Business Conduct and Ethics is available on our website at
www.amicas.com/about/investorrelations.asp. We intend to
disclose any amendments to, or waivers from, our Code of
Business Conduct and Ethics on our website. Stockholders may
request a free copy of the Code of Business Conduct and Ethics
by writing to Investor Relations, AMICAS, Inc., 20 Guest Street,
Suite 200, Boston, Massachusetts 02135-2040.
The remainder of the response to this item is contained in the
Proxy Statement under the caption “Election of
Directors”, and is incorporated herein by reference.
Information relating to delinquent filings of
Forms 3, 4, and 5 of the Company is contained in the
Proxy Statement under the caption “Compliance with
Section 16(a) of the Securities Exchange Act of 1934”,
and is incorporated herein by reference.
|
|
| Item 11. |
Executive Compensation |
The response to this item is contained in the Proxy Statement
under the captions “Compensation of Directors”,
“Executive Compensation and Related Information”,
“Option Grants in Last Fiscal Year”, “Aggregate
Option Exercises in Last Fiscal Year and Year-End Option
Values”, and “Employment Contracts and Change of
Control Arrangements”, and is incorporated herein by
reference.
|
|
| Item 12. |
Security Ownership of Certain Beneficial Owners and
Management and Related Stockholder Matters |
The response to this item is contained in the Proxy Statement in
part under the caption “Stock Ownership of Certain
Beneficial Owners and Management” and in part under the
caption “Equity Compensation Plan Information” and is
incorporated herein by reference.
|
|
| Item 13. |
Certain Relationships and Related Transactions |
The response to this item is contained in the Proxy Statement
under the captions “Certain Transactions” and
“Compensation Committee Interlocks and Insider
Participation” and is incorporated herein by reference.
44
|
|
| Item 14. |
Principal Accountant Fees and Services |
The response to this item is contained in the Proxy Statement
and is incorporated herein by reference.
PART IV
|
|
| Item 15. |
Exhibits and Financial Statement Schedules |
(a)(1) Financial Statements. The financial
statements listed on page 48 of this report are filed as
part of this report on the pages indicated.
(a)(2) Financial Statement Schedules. The applicable
financial statement schedules required under Regulation S-X
have been included beginning on page 79 of this report, as
follows:
| |
|
|
|
|
|
Report of Independent Registered Public Accounting Firm on
Financial Statement Schedule
|
|
|
79 |
|
|
Schedule II — Valuation and Qualifying Accounts
|
|
|
80 |
|
(a)(3) Exhibits. The exhibits required by
Item 601 of Regulation S-K are listed below.
| |
|
|
|
|
|
|
| Exhibit | |
|
|
|
|
| No. | |
|
|
|
Description |
| | |
|
|
|
|
| |
2 |
.1 |
|
— |
|
Agreement and Plan of Distribution, dated as of
February 21, 2001, by and between InfoCure Corporation and
PracticeWorks, Inc. (incorporated by reference to
Exhibit 2.1 to the Registrant’s Current Report on
Form 8-K, filed with the Commission on March 20, 2001). |
| |
| |
2 |
.2 |
|
— |
|
Agreement and Plan of Merger, dated as of November 25,
2003, by and among VitalWorks Inc., PACS Acquisition Corp.,
Amicas, Inc., and the Stockholders’ Representative
(incorporated by reference to Exhibit 2.1 to the
Registrant’s Current Report on Form 8-K, filed with
the Commission on December 10, 2003). |
| |
| |
2 |
.3 |
|
— |
|
First Amendment to Agreement and Plan of Merger dated as of
December 9, 2004 by and among VitalWorks Inc., Amicas,
Inc., and Seth Rudnick, Hamid Tabatabaie and Alexander Spiro
solely in their representative capacity as “Committee
Members” constituting the Stockholders’ Representative
(incorporated by reference to Exhibit 2.1 to the
Registrant’s Current Report on Form 8-K, filed with
the Commission on December 10, 2004). |
| |
| |
3 |
.1 |
|
— |
|
Certificate of Incorporation of InfoCure Corporation with all
amendments (incorporated by reference to Exhibit 3.1 to the
Registrant’s Annual Report on Form 10-K for the year
ended December 31, 1999). |
| |
| |
3 |
.2 |
|
— |
|
Second Amended and Restated Bylaws of InfoCure (incorporated by
reference to Exhibit 3.2 to the Registrant’s Annual
Report on Form 10-K for the year ended December 31,
1999). |
| |
| |
4 |
.1 |
|
— |
|
See Exhibits 3.1 and 3.2 for provisions of the Certificate
of Incorporation, as amended, and Bylaws of InfoCure defining
rights of the holders of common stock of InfoCure. |
| |
| |
*4 |
.2 |
|
— |
|
Specimen Certificate for shares of common stock. |
| |
| |
10 |
.1 |
|
— |
|
InfoCure Corporation 1996 Stock Option Plan (incorporated by
reference to Exhibit 10.1 filed with InfoCure’s
Registration Statement on Form SB-2) (Registration
No. 333-18923). |
| |
| |
10 |
.2 |
|
— |
|
Form of Incentive Stock Option Agreement of InfoCure Corporation
(incorporated by reference to Exhibit 10.2 filed with
InfoCure’s Registration Statement on Form SB-2)
(Registration No. 333-18923). |
| |
| |
10 |
.3 |
|
— |
|
InfoCure Corporation 1997 Directors’ Stock Option Plan
(incorporated by reference to Exhibit 10.48 filed with
InfoCure’s Annual Report on Form 10-KSB on
April 1, 1998). |
| |
| |
10 |
.4 |
|
— |
|
InfoCure Corporation Length-of-Service Nonqualified Stock Option
Plan (incorporated by reference to Exhibit 10.49 filed with
InfoCure’s Annual Report on Form 10-KSB on
April 1, 1998). |
| |
| |
10 |
.5 |
|
— |
|
Amendment to InfoCure Corporation 1996 Stock Option Plan
(incorporated by reference to Exhibit 10.15 to the
Registrant’s Annual Report on Form 10-K for the year
ended December 31, 1999). |
45
| |
|
|
|
|
|
|
| Exhibit | |
|
|
|
|
| No. | |
|
|
|
Description |
| | |
|
|
|
|
| |
| |
10 |
.6 |
|
— |
|
Amendment to InfoCure Corporation Length-of-Service Nonqualified
Stock Option Plan (incorporated by reference to
Exhibit 10.16 to the Registrant’s Annual Report on
Form 10-K for the year ended December 31, 1999). |
| |
| |
10 |
.7 |
|
— |
|
Amendment to InfoCure Corporation Employee Stock Purchase Plan
(incorporated by reference to Exhibit 10.17 to the
Registrant’s Annual Report on Form 10-K for the year
ended December 31, 1999). |
| |
| |
10 |
.8 |
|
— |
|
InfoCure Corporation Employee Stock Purchase Plan (incorporated
by reference to Exhibit 10.50 filed with InfoCure’s
Annual Report on Form 10-KSB on April 1, 1998). |
| |
| |
10 |
.9 |
|
— |
|
Form of Stock Option Grant Certificate and schedule of
recipients of such options (incorporated by reference to
Exhibit 10.22 to the Registrant’s Annual Report on
Form 10-K for the year ended December 31, 1999). |
| |
| |
10 |
.10 |
|
— |
|
Form of Stock Option Grant Certificate and schedule of
recipients of such options (incorporated by reference to
Exhibit 10.23 to the Registrant’s Annual Report on
Form 10-K for the year ended December 31, 1999). |
| |
| |
10 |
.11 |
|
— |
|
Tax Disaffiliation Agreement, dated as of March 5, 2001, by
and between InfoCure Corporation and PracticeWorks, Inc.
(incorporated by reference to Exhibit 10.1 to the
Registrant’s Current Report on Form 8-K, filed with
the Commission on March 20, 2001). |
| |
| |
10 |
.12 |
|
— |
|
Employee Benefits and Compensation Allocation Agreement, dated
as of March 5, 2001, by and between InfoCure Corporation
and PracticeWorks, Inc. (incorporated by reference to
Exhibit 10.4 to the Registrant’s Current Report on
Form 8-K, filed with the Commission on March 20, 2001). |
| |
| |
10 |
.13 |
|
— |
|
Intellectual Property License Agreement, dated as of
March 5, 2001, by and between InfoCure Corporation and
PracticeWorks Systems, LLC (incorporated by reference to
Exhibit 10.5(a) to the Registrant’s Current Report on
Form 8-K, filed with the Commission on March 20,
2001). |
| |
| |
10 |
.14 |
|
— |
|
Intellectual Property License Agreement, dated as of
March 5, 2001, by and between InfoCure Corporation and
PracticeWorks Systems, LLC (incorporated by reference to
Exhibit 10.5(b) to the Registrant’s Current Report on
Form 8-K, filed with the Commission on March 20,
2001). |
| |
| |
10 |
.15 |
|
— |
|
Assignment of Copyrights, dated as of March 5, 2001, by and
between InfoCure Corporation and PracticeWorks Systems, LLC
(incorporated by reference to Exhibit 10.5(c) to the
Registrant’s Current Report on Form 8-K, filed
with the Commission on March 20, 2001). |
| |
| |
10 |
.16 |
|
— |
|
Assignment of Trademarks, dated as of March 5, 2001, by and
between InfoCure Corporation and PracticeWorks Systems, LLC
(incorporated by reference to Exhibit 10.5(d) to the
Registrant’s Current Report on Form 8-K, filed
with the Commission on March 20, 2001). |
| |
| |
10 |
.17 |
|
— |
|
InfoCure Corporation 2000 Broad-Based Stock Plan (incorporated
by reference to Exhibit 10.1 to the Registrant’s
Quarterly Report on Form 10-Q for the quarter ended
September 30, 2000). |
| |
| |
10 |
.18 |
|
— |
|
Amended and Restated Warrant, originally issued to Crescent
International Ltd. on September 28, 1998, as amended and
restated on March 6, 2001 (incorporated by reference to
Exhibit 10.44 to the Registrant’s Annual Report on
Form 10-K, filed with the Commission on April 2, 2001). |
| |
| |
10 |
.19 |
|
— |
|
SubLease Agreement, dated February 28, 2001, by and between
InfoCure Corporation and Southern Company Services, Inc.
(incorporated by reference to Exhibit 10.2 to the
Registrant’s Quarterly Report on Form 10-Q, filed with
the Commission on May 16, 2001). |
| |
| |
10 |
.20 |
|
— |
|
Lease Agreement, dated March 13, 2001, by and between
InfoCure Corporation and Joseph V. Fisher, LLC (incorporated by
reference to Exhibit 10.3 to the Registrant’s
Quarterly Report on Form 10-Q, filed with the Commission on
May 16, 2001). |
| |
| |
10 |
.21 |
|
— |
|
VitalWorks Inc. 401(k) Profit Sharing Plan (incorporated by
reference to Exhibit 10.1 to the Registrant’s
Quarterly Report on Form 10-Q, filed with the Commission on
August 13, 2002). |
| |
| |
10 |
.22 |
|
— |
|
VitalWorks Inc. 2002 Employee Stock Purchase Plan (incorporated
by reference to Exhibit 10.2 to the Registrant’s
Quarterly Report on Form 10-Q, filed with the
Commission on August 13, 2002). |
| |
| |
10 |
.23 |
|
— |
|
Rights Agreement, dated as of December 5, 2002 (the
“Rights Agreement”), between VitalWorks Inc. and
StockTrans, Inc., as Rights Agent, including as Exhibit B,
the form of Rights Certificate and Election to Exercise
(incorporated by reference to Exhibit 4 to the
Registrant’s Current Report on Form 8-K, filed with
the Commission on December 9, 2002). |
46
| |
|
|
|
|
|
|
| Exhibit | |
|
|
|
|
| No. | |
|
|
|
Description |
| | |
|
|
|
|
| |
| |
10 |
.24 |
|
— |
|
Form of Letter to Stockholders (incorporated by reference to
Exhibit 20 to the Registrant’s Current Report on
Form 8-K, filed with the Commission on December 9,
2002). |
| |
| |
10 |
.25 |
|
— |
|
Form of Certificate of Designations of Series B Preferred
Stock, included in Exhibit C to the Rights Agreement
(incorporated by reference to Exhibit 3 to the
Registrant’s Report on Form 8-A12B, filed with the
Commission on January 3, 2003). |
| |
| |
10 |
.26 |
|
— |
|
Form of Employment Agreement, dated April 26, 2004, by and
between VitalWorks Inc. and our Named Executive Officers
(incorporated by reference to Exhibit 10 to the
Registrant’s Quarterly Report on Form 10-Q, filed with
the Commission on May 10, 2004). |
| |
| |
10 |
.27 |
|
— |
|
Amended Employment Agreement, dated July 26, 2004, by and
between VitalWorks Inc. and Stephen N. Kahane (incorporated by
reference to Exhibit 10.1 to the Registrant’s
Quarterly Report on Form 10-Q, filed with the Commission on
November 9, 2004). |
| |
| |
10 |
.28 |
|
— |
|
Form of Amended Employment Agreement, dated July 26, 2004,
by and between VitalWorks Inc. and Joseph M. Walsh, Michael A.
Manto and Stephen Hicks (incorporated by reference to
Exhibit 10.2 to the Registrant’s Quarterly Report on
Form 10-Q, filed with the Commission on November 9,
2004). |
| |
| |
10 |
.29 |
|
— |
|
Employment Agreement, dated October 1, 2004, by and between
VitalWorks Inc. and Joseph D. Hill (incorporated by reference to
Exhibit 10.3 to the Registrant’s Quarterly Report on
Form 10-Q, filed with the Commission on November 9,
2004). |
| |
| |
10 |
.30 |
|
— |
|
Asset Purchase Agreement, dated as of November 15, 2004, by
and between VitalWorks Inc. and Cerner Corporation (incorporated
by reference to Exhibit 10.1 to the Registrant’s
Current Report on Form 8-K, filed with the Commission on
November 18, 2004). |
| |
| |
10 |
.31 |
|
— |
|
Amicas, Inc. Amended and Restated Employee Bonus Plan dated as
of December 9, 2004 (incorporated by reference to
Exhibit 10.1 to the Registrant’s Current Report on
Form 8-K, filed with the Commission on December 10,
2004). |
| |
| |
*21 |
.1 |
|
— |
|
List of Subsidiaries. |
| |
| |
*23 |
.1 |
|
— |
|
Consent of BDO Seidman, LLP, independent registered public
accounting firm. |
| |
| |
24 |
.1 |
|
— |
|
Powers of Attorney (included on signature page). |
| |
| |
*31 |
.1 |
|
— |
|
Certification of Chief Executive Officer Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002. |
| |
| |
*31 |
.2 |
|
— |
|
Certification of Chief Financial Officer Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002. |
| |
| |
*32 |
.1 |
|
— |
|
Certification of Chief Executive Officer and Chief Financial
Officer Pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002, 18 U.S.C. Section 1350. |
47
AMICAS, INC.
|
|
| Item 8. |
Financial Statements and Supplementary Data |
| |
|
|
|
|
| |
|
Page | |
| |
|
| |
|
Financial Statements:
|
|
|
|
|
|
|
|
|
49 |
|
|
|
|
|
50 |
|
|
|
|
|
51 |
|
|
|
|
|
52 |
|
|
|
|
|
53 |
|
|
|
|
|
54 |
|
48
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Stockholders
AMICAS, Inc.
Boston, Massachusetts
We have audited the accompanying consolidated balance sheets of
AMICAS, Inc., formerly VitalWorks Inc., and Subsidiaries as of
December 31, 2004 and 2003, and the related consolidated
statements of operations, changes in stockholders’ equity
and cash flows for each of the three years in the period ended
December 31, 2004. 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 the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the financial
position of AMICAS, Inc. and Subsidiaries at December 31,
2004 and 2003, and the results of their operations and their
cash flows for each of the three years in the period ended
December 31, 2004 in conformity with accounting principles
generally accepted in the United States of America.
We also have audited, in accordance with standards of the Public
Company Accounting Oversight Board (United States), the
effectiveness of AMICAS, Inc.’s internal control over
financial reporting as of December 31, 2004, based on
criteria established in Internal Control — Integrated
Framework issued by the Committee of Sponsoring Organizations of
the Treadway Commission (COSO) and our report dated
March 17, 2005 expressed an unqualified opinion on
management’s assessment on the effectiveness of internal
control over financial reporting and an adverse opinion on the
effectiveness of internal control over financial reporting
because of the existence of a material weakness.
/s/ BDO Seidman, LLP
New York, New York
March 17, 2005
49
AMICAS, INC.
CONSOLIDATED BALANCE SHEETS
| |
|
|
|
|
|
|
|
|
|
| |
|
December 31, | |
| |
|
| |
| |
|
2004 | |
|
2003 | |
| |
|
| |
|
| |
| |
|
(In thousands, except | |
| |
|
share data) | |
|
ASSETS |
|
Current assets:
|
|
|
|
|
|
|
|
|
| |
Cash and cash equivalents
|
|
$ |
12,634 |
|
|
$ |
20,128 |
|
| |
Accounts receivable, net of allowances of $2,200 and $2,800
|
|
|
11,423 |
|
|
|
16,409 |
|
| |
Computer hardware held for resale
|
|
|
279 |
|
|
|
832 |
|
| |
Deferred income taxes, net
|
|
|
28,200 |
|
|
|
2,203 |
|
| |
Prepaid expenses and other current assets
|
|
|
3,053 |
|
|
|
2,934 |
|
| |
Current assets of discontinued operations
|
|
|
10,551 |
|
|
|
|
|
| |
|
|
|
|
|
|
|
Total current assets
|
|
|
66,140 |
|
|
|
42,506 |
|
|
Property and equipment, less accumulated depreciation and
amortization of $4,182 and $11,642
|
|
|
1,988 |
|
|
|
4,681 |
|
|
Goodwill
|
|
|
27,313 |
|
|
|
34,472 |
|
|
Acquired/developed software, less accumulated amortization of
$2,120 and $1,804
|
|
|
11,580 |
|
|
|
21,469 |
|
|
Other intangible assets, less accumulated amortization of $462
and $36
|
|
|
2,938 |
|
|
|
3,364 |
|
|
Deferred income taxes, net
|
|
|
|
|
|
|
24,547 |
|
|
Other assets
|
|
|
1,447 |
|
|
|
1,537 |
|
|
Non-current assets of discontinued operations
|
|
|
22,480 |
|
|
|
|
|
| |
|
|
|
|
|
|
|
Total assets
|
|
$ |
133,886 |
|
|
$ |
132,576 |
|
| |
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY |
|
Current liabilities:
|
|
|
|
|
|
|
|
|
| |
Accounts payable and accrued expenses
|
|
$ |
8,412 |
|
|
$ |
11,049 |
|
| |
Accrued employee compensation and benefits
|
|
|
3,507 |
|
|
|
2,486 |
|
| |
Accrued restructuring costs
|
|
|
126 |
|
|
|
923 |
|
| |
Deferred revenue, including unearned discounts of $360 and $1,200
|
|
|
10,474 |
|
|
|
11,762 |
|
| |
Current portion of long-term debt
|
|
|
9,657 |
|
|
|
6,738 |
|
| |
Current liabilities of discontinued operations
|
|
|
13,996 |
|
|
|
|
|
| |
|
|
|
|
|
|
|
Total current liabilities
|
|
|
46,172 |
|
|
|
32,958 |
|
|
Long-term debt
|
|
|
19,017 |
|
|
|
23,019 |
|
|
Other liabilities, primarily unearned discounts re: outsourced
printing services
|
|
|
1,229 |
|
|
|
5,937 |
|
|
Non-current liabilities of discontinued operations
|
|
|
2,813 |
|
|
|
|
|
|
Commitments and contingencies — Note J
|
|
|
|
|
|
|
|
|
|
Stockholders’ equity:
|
|
|
|
|
|
|
|
|
| |
Preferred stock $.001 par value; 2,000,000 shares
authorized; none issued
|
|
|
|
|
|
|
|
|
| |
Common stock $.001 par value, 200,000,000 shares
authorized, 46,338,568 and 45,278,816 shares issued
|
|
|
46 |
|
|
|
45 |
|
| |
Additional paid-in capital
|
|
|
211,888 |
|
|
|
205,439 |
|
| |
Accumulated deficit
|
|
|
(140,807 |
) |
|
|
(128,350 |
) |
| |
Treasury stock, at cost, 1,985,502 shares
|
|
|
(6,472 |
) |
|
|
(6,472 |
) |
| |
|
|
|
|
|
|
|
Total stockholders’ equity
|
|
|
64,655 |
|
|
|
70,662 |
|
| |
|
|
|
|
|
|
|
Total liabilities and stockholders’ equity
|
|
$ |
133,886 |
|
|
$ |
132,576 |
|
| |
|
|
|
|
|
|
See accompanying notes.
50
AMICAS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Year Ended December 31, | |
| |
|
| |
| |
|
2004 | |
|
2003 | |
|
2002 | |
| |
|
| |
|
| |
|
| |
| |
|
(In thousands, except per share data) | |
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Maintenance and services
|
|
$ |
29,543 |
|
|
$ |
24,534 |
|
|
$ |
25,005 |
|
| |
Software licenses and system sales
|
|
|
12,776 |
|
|
|
9,677 |
|
|
|
13,046 |
|
| |
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
42,319 |
|
|
|
34,211 |
|
|
|
38,051 |
|
| |
|
|
|
|
|
|
|
|
|
|
Costs and expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Maintenance and services
|
|
|
5,890 |
|
|
|
5,751 |
|
|
|
5,407 |
|
| |
Software licenses and system sales, includes amortization of
software costs of $3,178, $1,873 and $911
|
|
|
6,154 |
|
|
|
5,147 |
|
|
|
4,518 |
|
| |
Impairment of capitalized software
|
|
|
3,229 |
|
|
|
490 |
|
|
|
|
|
|
Selling, general and administrative
|
|
|
32,994 |
|
|
|
22,825 |
|
|
|
22,547 |
|
|
Research and development
|
|
|
9,488 |
|
|
|
7,565 |
|
|
|
6,041 |
|
|
Depreciation and amortization
|
|
|
1,968 |
|
|
|
1,331 |
|
|
|
1,439 |
|
|
Settlements, severance and impairment charges and credit for
loans losses
|
|
|
5,730 |
|
|
|
|
|
|
|
(6,000 |
) |
|
Acquired in-process technology
|
|
|
|
|
|
|
750 |
|
|
|
|
|
|
Restructuring credits
|
|
|
(155 |
) |
|
|
|
|
|
|
(501 |
) |
| |
|
|
|
|
|
|
|
|
|
| |
|
|
65,298 |
|
|
|
43,859 |
|
|
|
33,451 |
|
| |
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
(22,979 |
) |
|
|
(9,648 |
) |
|
|
4,600 |
|
|
Interest income
|
|
|
163 |
|
|
|
273 |
|
|
|
1,480 |
|
|
Interest expense
|
|
|
(1,499 |
) |
|
|
(1,149 |
) |
|
|
(1,927 |
) |
| |
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations, before income
taxes
|
|
|
(24,315 |
) |
|
|
(10,524 |
) |
|
|
4,153 |
|
|
Provision for income taxes
|
|
|
2,200 |
|
|
|
200 |
|
|
|
162 |
|
| |
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
|
|
|
(26,515 |
) |
|
|
(10,724 |
) |
|
|
3,991 |
|
|
Income from discontinued operations
|
|
|
14,058 |
|
|
|
18,687 |
|
|
|
20,159 |
|
| |
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$ |
(12,457 |
) |
|
$ |
7,963 |
|
|
$ |
24,150 |
|
| |
|
|
|
|
|
|
|
|
|
|
Earnings (loss) per share
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Basic:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Continuing operations
|
|
$ |
(0.61 |
) |
|
$ |
(0.25 |
) |
|
$ |
0.10 |
|
| |
|
Discontinued operations
|
|
|
0.32 |
|
|
|
0.43 |
|
|
|
0.48 |
|
| |
|
|
|
|
|
|
|
|
|
| |
|
$ |
(0.29 |
) |
|
$ |
0.18 |
|
|
$ |
0.58 |
|
| |
|
|
|
|
|
|
|
|
|
| |
Diluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Continuing operations
|
|
$ |
(0.61 |
) |
|
$ |
(0.25 |
) |
|
$ |
0.08 |
|
| |
|
Discontinued operations
|
|
|
0.32 |
|
|
|
0.43 |
|
|
|
0.41 |
|
| |
|
|
|
|
|
|
|
|
|
| |
|
$ |
(0.29 |
) |
|
$ |
0.18 |
|
|
$ |
0.49 |
|
| |
|
|
|
|
|
|
|
|
|
|
Weighted average number of shares outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Basic
|
|
|
43,563 |
|
|
|
43,052 |
|
|
|
41,592 |
|
| |
Diluted
|
|
|
43,563 |
|
|
|
43,052 |
|
|
|
48,850 |
|
See accompanying notes.
51
AMICAS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Shares | |
|
|
|
|
|
Notes | |
|
|
|
|
|
|
| |
|
| |
|
|
|
Additional | |
|
Receivable - | |
|
|
|
|
|
|
| |
|
Common | |
|
Treasury | |
|
Common | |
|
Paid-In | |
|
Former | |
|
Accumulated | |
|
Treasury | |
|
|
| |
|
Stock | |
|
Stock | |
|
Stock | |
|
Capital | |
|
Officers | |
|
Deficit | |
|
Stock | |
|
Total | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| |
|
(In thousands, except share data) | |
|
Balance at December 31, 2001
|
|
|
39,001,771 |
|
|
|
(112,500 |
) |
|
$ |
39 |
|
|
$ |
191,585 |
|
|
$ |
(4,632 |
) |
|
$ |
(160,463 |
) |
|
$ |
(469 |
) |
|
$ |
26,060 |
|
|
Issuance of common stock, net of related expense for:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Matching contribution 401(k) plan
|
|
|
222,012 |
|
|
|
|
|
|
|
1 |
|
|
|
1,110 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,111 |
|
| |
Exercise of stock options and warrants
|
|
|
5,382,161 |
|
|
|
|
|
|
|
5 |
|
|
|
10,077 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,082 |
|
|
Repurchases of common stock
|
|
|
|
|
|
|
(1,873,002 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6,003 |
) |
|
|
(6,003 |
) |
|
Dividend of subsidiary, PracticeWorks, adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
401 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
401 |
|
|
Allowance for loan losses (reversed)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6,000 |
) |
|
|
|
|
|
|
|
|
|
|
(6,000 |
) |
|
Loan payments, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,632 |
|
|
|
|
|
|
|
|
|
|
|
10,632 |
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
24,150 |
|
|
|
|
|
|
|
24,150 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2002
|
|
|
44,605,944 |
|
|
|
(1,985,502 |
) |
|
|
45 |
|
|
|
203,173 |
|
|
|
— |
|
|
|
(136,313 |
) |
|
|
(6,472 |
) |
|
|
60,433 |
|
|
Issuance of common stock, net of related expense for:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Matching contribution 401(k) plan
|
|
|
276,933 |
|
|
|
|
|
|
|
|
|
|
|
1,132 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,132 |
|
| |
Exercise of stock options
|
|
|
395,939 |
|
|
|
|
|
|
|
|
|
|
|
1,134 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,134 |
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,963 |
|
|
|
|
|
|
|
7,963 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2003
|
|
|
45,278,816 |
|
|
|
(1,985,502 |
) |
|
|
45 |
|
|
|
205,439 |
|
|
|
— |
|
|
|
(128,350 |
) |
|
|
(6,472 |
) |
|
|
70,662 |
|
|
Issuance of common stock, net of related expense for:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Matching contribution 401(k) plan
|
|
|
64,269 |
|
|
|
|
|
|
|
|
|
|
|
252 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
252 |
|
| |
Exercise of stock options and warrants
|
|
|
995,483 |
|
|
|
|
|
|
|
1 |
|
|
|
2,320 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,321 |
|
|
Tax benefit from change in valuation allowance and other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,877 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,877 |
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(12,457 |
) |
|
|
|
|
|
|
(12,457 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2004
|
|
|
46,338,568 |
|
|
|
(1,985,502 |
) |
|
$ |
46 |
|
|
$ |
211,888 |
|
|
$ |
— |
|
|
$ |
(140,807 |
) |
|
$ |
(6,472 |
) |
|
$ |
64,655 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes.
52
AMICAS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Year Ended December 31, | |
| |
|
| |
| |
|
2004 | |
|
2003 | |
|
2002 | |
| |
|
| |
|
| |
|
| |
| |
|
(In thousands) | |
|
Operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
|
|
$ |
(26,515 |
) |
|
$ |
(10,724 |
) |
|
$ |
3,991 |
|
|
Income from discontinued operations
|
|
|
14,058 |
|
|
|
18,687 |
|
|
|
20,159 |
|
| |
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
(12,457 |
) |
|
|
7,963 |
|
|
|
24,150 |
|
|
Adjustments to reconcile net income (loss) to cash provided by
operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Impairment of capitalized software
|
|
|
3,229 |
|
|
|
490 |
|
|
|
|
|
| |
Other impairment charges
|
|
|
1,351 |
|
|
|
|
|
|
|
|
|
| |
Restructuring and severance charges (credits) and credit
for loan losses
|
|
|
1,093 |
|
|
|
332 |
|
|
|
(6,501 |
) |
| |
Depreciation and amortization
|
|
|
3,047 |
|
|
|
2,460 |
|
|
|
2,572 |
|
| |
Acquired in-process technology
|
|
|
|
|
|
|
750 |
|
|
|
|
|
| |
Provisions for bad debts, returns and discounts
|
|
|
2,424 |
|
|
|
1,973 |
|
|
|
2,815 |
|
| |
Amortization of deferred finance costs, charged to interest
expense
|
|
|
226 |
|
|
|
173 |
|
|
|
277 |
|
| |
Amortization of software costs
|
|
|
3,178 |
|
|
|
1,873 |
|
|
|
911 |
|
| |
Deferred income taxes
|
|
|
1,950 |
|
|
|
|
|
|
|
|
|
| |
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Accounts receivable
|
|
|
(7,356 |
) |
|
|
(2,342 |
) |
|
|
(4,252 |
) |
| |
|
Computer hardware held for resale, prepaid expenses and other
|
|
|
(134 |
) |
|
|
(1,748 |
) |
|
|
(802 |
) |
| |
|
Accounts payable, accrued costs and expenses
|
|
|
3,870 |
|
|
|
(3,726 |
) |
|
|
1,536 |
|
| |
|
Deferred revenue
|
|
|
5,514 |
|
|
|
(417 |
) |
|
|
1,344 |
|
| |
|
Unearned discounts re: outsourced printing services
|
|
|
(1,200 |
) |
|
|
(5,601 |
) |
|
|
(1,292 |
) |
| |
|
|
|
|
|
|
|
|
|
| |
|
Cash provided by operating activities
|
|
|
4,735 |
|
|
|
2,180 |
|
|
|
20,758 |
|
| |
|
|
|
|
|
|
|
|
|
|
Investing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Business acquisition, net of cash acquired
|
|
|
(3,675 |
) |
|
|
(29,143 |
) |
|
|
|
|
| |
Software product development costs
|
|
|
(1,638 |
) |
|
|
(2,017 |
) |
|
|
(4,345 |
) |
| |
Proceeds from sale of office buildings
|
|
|
|
|
|
|
360 |
|
|
|
7,310 |
|
| |
Purchases of property and equipment
|
|
|
(2,227 |
) |
|
|
(1,954 |
) |
|
|
(771 |
) |
| |
Cash received from PracticeWorks, Inc.
|
|
|
|
|
|
|
|
|
|
|
333 |
|
| |
Security deposit
|
|
|
|
|
|
|
(308 |
) |
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
| |
|
Cash (used in) provided by investing activities
|
|
|
(7,540 |
) |
|
|
(33,062 |
) |
|
|
2,527 |
|
| |
|
|
|
|
|
|
|
|
|
|
Financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Long-term debt:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
(Payments)
|
|
|
(6,827 |
) |
|
|
(4,273 |
) |
|
|
(38,597 |
) |
| |
|
Proceeds
|
|
|
|
|
|
|
15,000 |
|
|
|
27,450 |
|
| |
Exercise of stock options and warrants
|
|
|
2,305 |
|
|
|
1,076 |
|
|
|
10,017 |
|
| |
Loan payments from former officers
|
|
|
|
|
|
|
|
|
|
|
10,991 |
|
| |
Repurchases of common stock
|
|
|
|
|
|
|
|
|
|
|
(6,003 |
) |
| |
Deferred finance costs and other
|
|
|
(167 |
) |
|
|
(267 |
) |
|
|
(657 |
) |
| |
|
|
|
|
|
|
|
|
|
| |
|
Cash (used in) provided by financing activities
|
|
|
(4,689 |
) |
|
|
11,536 |
|
|
|
3,201 |
|
| |
|
|
|
|
|
|
|
|
|
|
(Decrease) increase in cash and cash equivalents
|
|
|
(7,494 |
) |
|
|
(19,346 |
) |
|
|
26,486 |
|
|
Cash and cash equivalents at beginning of year
|
|
|
20,128 |
|
|
|
39,474 |
|
|
|
12,988 |
|
| |
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of year
|
|
$ |
12,634 |
|
|
$ |
20,128 |
|
|
$ |
39,474 |
|
| |
|
|
|
|
|
|
|
|
|
See accompanying notes.
53
AMICAS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AMICAS, Inc. (“AMICAS” or the “Company”),
formerly known as VitalWorks Inc., is a leader in radiology and
medical image and information management solutions. The AMICAS
Vision
Seriestm
products provide a complete, end-to-end solution for imaging
centers, ambulatory care facilities, and radiology practices.
Acute care and hospital customers are provided a
fully-integrated, hospital information system
(“HIS”)/radiology information system
(“RIS”)-independent picture archiving communication
system (“PACS”), featuring advanced enterprise
workflow support and scalable design. Complementing the Vision
Series product family is AMICAS Insight
Servicestm,
a set of client-centered professional and consulting services
that assist the Company’s customers with a well-planned
transition to a digital enterprise. The Company provides its
clients with ongoing software support, implementation, training,
and electronic data interchange (“EDI”) services for
patient billing and claims processing.
On January 3, 2005, the Company completed the sale of
substantially all of the assets and liabilities of its medical
division, together with certain other assets, liabilities,
properties and rights of the Company relating to its
anesthesiology business (the “Medical Division”) to
Cerner Corporation (“Cerner”) and certain of
Cerner’s wholly-owned subsidiaries (the “Asset
Sale”). The Asset Sale was completed in accordance with the
terms and conditions of the Asset Purchase Agreement between the
Company and Cerner dated as of November 15, 2004 (the
“Purchase Agreement”).
Effective January 3, 2005, the Company changed its name
from VitalWorks Inc. to AMICAS, Inc.
|
|
| B. |
Summary of Significant Accounting Policies |
|
|
|
Principles of Consolidation |
The consolidated financial statements include the accounts of
the Company and its wholly-owned subsidiary, Amicas PACS, Corp.
(“Amicas PACS”), formerly known as Amicas, Inc., which
was acquired on November 25, 2003. All significant
intercompany accounts and transactions have been eliminated.
|
|
|
Reclassification of Financial Statement Balances |
As a result of the sale of the Medical Division discussed above,
the December 31, 2004 consolidated financial statements
have been prepared and historical consolidated statements of
operations have been reclassified to present the results of the
Medical Division as discontinued operations (see Note C).
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.
Software license revenues and system (computer hardware) sales
are recognized upon execution of the sales contract and delivery
of the software (off-the-shelf application software) and/or
hardware. In all cases, however, the fee must be fixed or
determinable, collection of any related receivable must be
considered probable, and no significant post-contract
obligations of the Company shall be remaining. Otherwise, the
sale is deferred until all of the requirements for revenue
recognition have been satisfied. Maintenance fees for routine
client support and unspecified product updates are recognized
ratably over the term of the maintenance arrangement. Training,
implementation and EDI services revenues are recognized as the
services are performed. Most of the Company’s sales and
licensing contracts involve multiple elements, in which case,
the Company allocates the total value of the customer
arrangement to each element based on the vendor
54
AMICAS, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
specific objective evidence (“VSOE”) of the respective
elements. The residual method is used to determine revenue
recognition with respect to a multiple-element arrangement when
VSOE exists for all of the undelivered elements (e.g.,
implementation, training and/or maintenance services), but does
not exist for one or more of the delivered elements of the
contract (e.g., computer software or hardware). VSOE is
determined based upon the price charged when the same element is
sold separately. If VSOE cannot be established for the
undelivered
element(s) of an arrangement, the total value of the customer
arrangement is deferred until the undelivered element(s) is
delivered or until VSOE is established. In the Company’s
contracts and arrangements with its customers, the Company
generally does not include acceptance provisions, which would
give the customer the right to accept or reject the product
after the Company ships it. However, if an acceptance provision
is included, revenue is recognized upon the customer’s
acceptance of the product, which occurs upon the earlier of
receipt of a written customer acceptance or expiration of the
acceptance period. Allowances for estimated future allowances
and discounts (recorded as contra-revenue), as well as bad
debts, are provided upon recognition of revenues.
Recognition of revenues in conformity with generally accepted
accounting principles requires management to make judgments that
affect the timing and amount of reported revenues.
|
|
|
Cash and Cash Equivalents |
The Company considers highly liquid investment instruments with
varying terms of three months or less to be cash equivalents and
those with varying terms greater than three months but no more
than a year would be considered short-term investments. Cash
equivalents are comprised primarily of investment-grade
commercial paper, time deposits, and U.S. federal, state
and political subdivision obligations.
|
|
|
Accounts Receivable, Revenue Reserve and Allowance for
Doubtful Accounts |
The Company’s accounts receivable are customer obligations
due under normal trade terms carried at their face value, less
allowances for estimated future returns and discounts, as well
as bad debts. The Company evaluates the carrying amount of its
accounts receivable on an ongoing basis and establishes a
valuation allowance based on a number of factors, including
specific customer circumstances, historical rate of write-offs
and the past due status of the accounts. At the end of each
fiscal quarter, the allowance is reviewed and analyzed for
adequacy and is often adjusted based on the findings. The
allowance is increased through a reduction of revenues, an
increase in bad debt expense and/or recovery of amounts
previously written-off. The allowance is reduced by write-offs
of amounts deemed uncollectible and adjustments to revenue
and/or bad debt expense, if any, based on management’s
determination as to the adequacy of the recorded allowance.
All current assets and current liabilities, because of their
short-term nature, are stated at cost or face value, which
approximates market value. The carrying amount of the
Company’s long-term debt, which provided for interest at
floating rates, approximated market value (see Note I).
|
|
|
Computer Hardware Held For Resale |
Computer hardware held for resale includes computer equipment
and related peripherals, which are valued at the lower of cost
or realizable value. Cost is principally determined by either
the first-in first-out or average cost methods.
The Company reviews its long-lived assets, such as property and
equipment, and purchased intangible assets that are subject to
amortization, for impairment whenever events or changes in
circumstances indicate
55
AMICAS, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
that the carrying amount of an asset may not be recoverable.
Recoverability is measured by a comparison of the carrying
amount of an asset to the estimated undiscounted future cash
flows it is expected to generate. If the carrying amount of an
asset exceeds its estimated future cash flows, an impairment
charge is recognized by the amount by which the carrying amount
of the asset exceeds the fair value of the asset. Assets to be
disposed of would be separately presented in the balance sheet
and reported at the lower of the carrying amount or fair value
less cost to sell, and would no longer be amortized or
depreciated. The assets and liabilities of a disposed group
classified as held for sale would also be presented separately
in the appropriate asset and liability sections of the balance
sheet.
|
|
|
Goodwill Assets and Business Combinations |
Goodwill represents the excess of cost over the fair value of
net assets of businesses acquired and accounted for as purchase
transactions. The Company no longer amortizes its goodwill
assets. The Company is required to test its goodwill for
impairment of value on at least an annual basis. To date, the
results of the Company’s tests have not revealed an
impairment of value.
The Company’s acquisition of Amicas PACS in 2003 was
accounted for as a purchase transaction and, accordingly, the
excess purchase price over the estimated fair value of the net
assets acquired was recognized as goodwill. Acquired software
and other intangible assets are amortized through operations
over their estimated economic lives (see Notes D and G).
|
|
|
Software Development Costs |
The Company begins capitalizing software development costs,
exclusively third-party programmer fees, only after establishing
commercial and technical viability. Annual amortization of these
costs represents the greater of the amount computed using
(i) the ratio that current gross revenues for the
product(s) bear to the total current and anticipated future
gross revenues of the product(s), or (ii) the straight-line
method over the remaining estimated economic life of the
product(s); generally, depending on the nature and success of
the product, such deferred costs are amortized over a three- to
five-year period. Amortization commences when the product is
made commercially available. Two products under development were
made commercially available in 2002. No additional products were
made commercially available in 2003 or 2004.
The Company evaluates the recoverability of capitalized software
based on estimated future gross revenues less the estimated cost
of completing the products and of performing maintenance and
product support. If gross revenues turn out to be significantly
less than the Company’s estimates, the net realizable value
of capitalized software intended for sale would be impaired. The
Company recognized impairment charges in 2003 and 2004 relating
to capitalized software costs (see Note G).
Deferred finance costs, which include charges, fees and expenses
directly associated with the Company’s credit facility with
Wells Fargo Foothill, Inc. (“Wells Fargo”) are
recognized as interest expense over the expected life of the
respective loan. Deferred finance costs ($.7 million and
$.7 million, net of accumulated amortization of
$.5 million and $.3 million, as of December 31,
2004 and 2003) are included in other assets in the accompanying
balance sheets.
Property and equipment are stated at cost. Depreciation and
amortization are computed principally using the straight-line
method over the estimated economic or useful lives of the
applicable assets. Leasehold improvements are amortized over the
lesser of the remaining life of the lease or the useful life of
the improvements. The cost of maintenance and repairs is charged
to expense as incurred.
56
AMICAS, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Statement 123, “Accounting for Stock-Based
Compensation,” as amended by Statement 148,
“Accounting for Stock-Based Compensation —
Transition and Disclosure — an amendment of Financial
Accounting Standards Board (“FASB”) Statement
No. 123,” provides alternative methods of transition
for a voluntary change to the fair value based method of
accounting for stock-based employee compensation. In addition,
Statement 148 amends the disclosure requirements of
Statement 123 to require prominent disclosures in both
annual and interim financial statements about the method of
accounting for stock-based employee compensation and the effect
of the method used on reported results.
The Company accounts for employee stock option grants and stock
awards, based on their intrinsic value, in accordance with
Accounting Principles Board Opinion No. 25,
“Accounting for Stock Issued to Employees” and related
interpretations. Under the intrinsic value method, compensation
expense is recognized if the exercise price of the employee
stock option is less than the market price of the underlying
stock on the date of grant or if the number of shares is not
fixed. The weighted-average estimated grant date fair value, as
defined by FASB Statement 123, of options granted in 2004,
2003 and 2002 was $1.83, $2.35 and $2.34, respectively, as
calculated using the Black-Scholes option valuation model. The
Company prices its fixed stock options at fair market value on
the date of grant, and therefore, under Opinion 25, no
compensation expense is recognized for stock options granted.
The following table illustrates the effect on income (loss) from
continuing operations and the related earnings (loss) per share
if the Company had applied the fair value recognition provisions
of Statement 123, as amended, to stock-based employee
compensation (in thousands, except per share data):
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Year Ended December 31, | |
| |
|
| |
| |
|
2004 | |
|
2003 | |
|
2002 | |
| |
|
| |
|
| |
|
| |
|
Income (loss) from continuing operations, as reported
|
|
$ |
(26,515 |
) |
|
$ |
(10,724 |
) |
|
$ |
3,991 |
|
|
Less: total stock-based employee compensation expense determined
under fair value based method for all awards, net of related tax
effects
|
|
|
(1,425 |
) |
|
|
(4,131 |
) |
|
|
(5,104 |
) |
| |
|
|
|
|
|
|
|
|
|
|
Pro forma loss from continuing operations
|
|
$ |
(27,940 |
) |
|
$ |
(14,855 |
) |
|
$ |
(1,113 |
) |
| |
|
|
|
|
|
|
|
|
|
|
Earnings (loss) per share — continuing operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Basic — as reported
|
|
$ |
(0.61 |
) |
|
$ |
(0.25 |
) |
|
$ |
0.10 |
|
| |
|
|
|
|
|
|
|
|
|
| |
Basic — pro forma
|
|
$ |
(0.64 |
) |
|
$ |
(0.35 |
) |
|
$ |
(0.03 |
) |
| |
|
|
|
|
|
|
|
|
|
| |
Diluted — as reported
|
|
$ |
(0.61 |
) |
|
$ |
(0.25 |
) |
|
$ |
0.08 |
|
| |
|
|
|
|
|
|
|
|
|
| |
Diluted — pro forma
|
|
$ |
(0.64 |
) |
|
$ |
(0.35 |
) |
|
$ |
(0.03 |
) |
| |
|
|
|
|
|
|
|
|
|
The fair value of the Company’s employee stock options was
estimated at the date of grant using the Black-Scholes option
valuation model with the following weighted average assumptions:
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Year Ended December 31, | |
| |
|
| |
| |
|
2004 | |
|
2003 | |
|
2002 | |
| |
|
| |
|
| |
|
| |
|
Risk-free interest rate
|
|
|
3.0 |
% |
|
|
2.5 |
% |
|
|
2.6 |
% |
|
Expected dividend yield
|
|
|
0.0 |
|
|
|
0.0 |
|
|
|
0.0 |
|
|
Expected stock price volatility
|
|
|
72.1 |
% |
|
|
76.0 |
% |
|
|
78.7 |
% |
|
Weighted average expected life (in years)
|
|
|
4.8 |
|
|
|
4.0 |
|
|
|
4.0 |
|
The Black-Scholes option valuation model was not developed for
use in valuing employee stock options. Instead, this model was
developed for use in estimating the fair value of traded
options, which have no vesting
57
AMICAS, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
restrictions and are fully transferable, which differ
significantly from the Company’s stock option awards. In
addition, option valuation models require the input of highly
subjective assumptions including the expected stock price
volatility.
The Company provides for taxes based on current taxable income,
and the future tax consequences of temporary differences between
the financial reporting and income tax carrying values of its
assets and liabilities (deferred income taxes). Quarterly,
management assesses the realizable value of deferred tax assets
based on, among other things, estimates of future taxable
income, and adjusts the related valuation allowance as necessary.
|
|
|
Earnings (Loss) Per Share |
The following table sets forth the computation of basic and
diluted earnings (loss) per share (“EPS”) (in
thousands, except per share data):
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Year Ended December 31, | |
| |
|
| |
| |
|
2004 | |
|
2003 | |
|
2002 | |
| |
|
| |
|
| |
|
| |
|
Numerator — income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Continuing operations
|
|
$ |
(26,515 |
) |
|
$ |
(10,724 |
) |
|
$ |
3,991 |
|
| |
Discontinued operations
|
|
|
14,058 |
|
|
|
18,687 |
|
|
|
20,159 |
|
| |
|
|
|
|
|
|
|
|
|
| |
|
$ |
(12,457 |
) |
|
$ |
7,963 |
|
|
$ |
24,150 |
|
| |
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Basic EPS — weighted-average shares
|
|
|
43,563 |
|
|
|
43,052 |
|
|
|
41,592 |
|
| |
Effect of dilutive securities, stock option and warrant rights
|
|
|
|
|
|
|
|
|
|
|
7,258 |
|
| |
|
|
|
|
|
|
|
|
|
| |
Diluted EPS — adjusted weighted-average shares and
assumed conversions
|
|
|
43,563 |
|
|
|
43,052 |
|
|
|
48,850 |
|
| |
|
|
|
|
|
|
|
|
|
|
Basic EPS:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Continuing operations
|
|
$ |
(0.61 |
) |
|
$ |
(0.25 |
) |
|
$ |
0.10 |
|
| |
Discontinued operations
|
|
|
0.32 |
|
|
|
0.43 |
|
|
|
0.48 |
|
| |
|
|
|
|
|
|
|
|
|
| |
|
$ |
(0.29 |
) |
|
$ |
0.18 |
|
|
$ |
0.58 |
|
| |
|
|
|
|
|
|
|
|
|
|
Diluted EPS:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Continuing operations
|
|
$ |
(0.61 |
) |
|
$ |
(0.25 |
) |
|
$ |
0.08 |
|
| |
Discontinued operations
|
|
|
0.32 |
|
|
|
0.43 |
|
|
|
0.41 |
|
| |
|
|
|
|
|
|
|
|
|
| |
|
$ |
(0.29 |
) |
|
$ |
0.18 |
|
|
$ |
0.49 |
|
| |
|
|
|
|
|
|
|
|
|
Because their effect would be antidilutive, stock option and
warrant rights for up to 1.1 million common shares (with
exercise prices ranging from $6.14 to $17.84 per share)
were excluded from the diluted EPS calculation for 2002. For the
same reason, all options and warrants were excluded from the
diluted calculation for the years 2004 and 2003.
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
58
AMICAS, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
owners. For the Company, comprehensive income (loss) is
equivalent to its consolidated net income (loss) for all periods
presented.
|
|
|
Recent Accounting Pronouncements |
In December 2004, the FASB issued Statement of Financial
Accounting Standards No. 123 (revised 2004),
“Share-Based Payment”, Statement No. 123R, which
requires companies to measure and recognize compensation expense
for all stock-based payments at fair value. Statement 123R
is effective for all interim periods beginning after
June 15, 2005 and, thus, will be effective for the Company
beginning with the third quarter of 2005. Early adoption is
encouraged and retroactive application of the provisions of
Statement 123R to the beginning of the fiscal year that
includes the effective date is permitted, but not required. The
Company is currently evaluating the impact of
Statement 123R on its results of operations. See above for
information related to the pro forma effects on the reported
income (loss) from continuing operations and earnings (loss) per
share from continuing operations of applying the fair value
recognition provisions of the previous Statement 123,
“Accounting for Stock-Based Compensation,” to
stock-based employee compensation.
In November 2004, the FASB’s Emerging Issues Task Force
reached a consensus on Issue No. 03-13, “Applying the
Conditions in Paragraph 42 of FASB Statement No. 144
in Determining Whether to Report Discontinued Operations”,
EITF 03-13. The guidance should be applied to a component
of an enterprise that is either disposed of or classified as
held for sale in fiscal periods beginning after
December 15, 2004. The Company has evaluated
EITF 03-13 and determined it will have an effect on its
financial statements with regard to its disclosures relating to
its discontinued operations. See Note C.
In December 2003, the FASB issued Interpretation No. 46, or
FIN 46R, “Consolidation of Variable Interest Entities,
an Interpretation of Accounting Research
Bulletin No. 51”, which addresses how a business
enterprise should evaluate whether it has a controlling interest
in an entity through means other than voting rights and,
accordingly, should consolidate the entity. FIN 46R
replaces FASB Interpretation No. 46, or FIN 46, which
was issued in January 2003. Before concluding that it is
appropriate to apply ARB 51 voting interest consolidation model
to an entity, an enterprise must first determine that the entity
is not a variable interest entity. As of the effective date of
FIN 46R, an enterprise must evaluate its involvement with
all entities or legal structures created before February 1,
2003, to determine whether consolidation requirements of
FIN 46R apply to those entities. There is no grandfathering
of existing entities. Public companies must apply either
FIN 46 or FIN 46R immediately to entities created
after December 15, 2003 and no later than the end of the
first reporting period that ends after March 15, 2004 to
entities considered to be special purpose entities. The adoption
of FIN 46R had no effect on the Company’s financial
statements.
|
|
| C. |
Discontinued Operations |
On November 15, 2004, the Company and Cerner entered into
the Purchase Agreement pursuant to which the Company agreed to
sell and Cerner agreed to acquire and assume substantially all
of the assets and liabilities of the Company’s medical
division together with certain other assets, liabilities,
properties and rights of the Company relating to its
anesthesiology business. The sale of the Company’s Medical
Division will allow the Company to focus completely on its
radiology business. Under the terms of the Purchase Agreement,
(a) Cerner agreed to pay the Company $100 million in
cash, subject to a post-closing purchase-price adjustment based
on the Company’s net working capital as of the closing
date, and (b) Cerner agreed to assume specified liabilities
of the medical division and the anesthesiology business and
certain obligations under assigned contracts and intellectual
property. The closing was consummated during the first quarter
of 2005 (see Note N).
In accordance with Statement of Financial Accounting Standards
No. 144, “Accounting for the Impairment or Disposal of
Long-Lived Assets”, and EITF 03-13, “Applying the
Conditions in Paragraph 42 of FASB Statement No. 144
in Determining Whether to Report Discontinued Operations”,
the December 31,
59
AMICAS, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
2004 consolidated financial statements have been prepared and
historical consolidated statements of operations have been
reclassified to present the results of the Medical Division as
discontinued operations. As noted above, the Company had
formally committed to a plan to sell its Medical Division. The
Company has (i) eliminated the Medical Division’s
financial results from its ongoing operations,
(ii) determined that the Medical Division was a separate
component of its aggregated business as historically its
management reviewed separately the Medical Division’s
financial results and cash flows apart from its continuing
operations, and (iii) determined that it will have no
further continuing involvement in the operations of the Medical
Division after the sale.
The assets and liabilities of the Medical Division as of
December 31, 2004 are as follows:
| |
|
|
|
|
|
|
Assets of discontinued operations:
|
|
|
|
|
| |
Accounts receivable, net
|
|
$ |
9,918 |
|
| |
Other current assets
|
|
|
633 |
|
| |
|
|
|
| |
Total current assets of discontinued operations
|
|
|
10,551 |
|
| |
|
|
|
| |
Goodwill
|
|
|
15,901 |
|
| |
Developed software
|
|
|
5,270 |
|
| |
Other non-current assets of discontinued operations
|
|
|
1,309 |
|
| |
|
|
|
| |
Total non-current assets of discontinued operations
|
|
|
22,480 |
|
| |
|
|
|
|
Total assets of discontinued operations
|
|
$ |
33,031 |
|
| |
|
|
|
|
Liabilities of discontinued operations:
|
|
|
|
|
| |
Accounts payable, accrued expenses and other current liabilities
|
|
$ |
7,733 |
|
| |
Deferred revenue
|
|
|
6,263 |
|
| |
|
|
|
| |
Total current liabilities of discontinued operations
|
|
|
13,996 |
|
| |
Total non-current liabilities of discontinued operations
|
|
|
2,813 |
|
| |
|
|
|
|
Total liabilities of discontinued operations
|
|
$ |
16,809 |
|
| |
|
|
|
Condensed results of operations relating to the Medical Division
for the years ended December 31, 2004, 2003 and 2002 are as
follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Year Ended December 31, | |
| |
|
| |
| |
|
2004 | |
|
2003 | |
|
2002 | |
| |
|
| |
|
| |
|
| |
|
Revenues
|
|
$ |
71,093 |
|
|
$ |
77,308 |
|
|
$ |
76,760 |
|
|
Gross profit
|
|
|
52,360 |
|
|
|
56,337 |
|
|
|
55,966 |
|
|
Operating income
|
|
|
14,060 |
|
|
|
18,693 |
|
|
|
20,170 |
|
|
Income from discontinued operations
|
|
|
14,058 |
|
|
|
18,687 |
|
|
|
20,159 |
|
On November 25, 2003, the Company acquired 100% of the
outstanding capital stock of Amicas PACS, a developer of
Web-based diagnostic image management software solutions, for
$31 million in cash, including direct transaction costs.
Commonly referred to in the marketplace as PACS (picture
archiving and communication systems), these software solutions
allow radiologists and other physicians to examine, store, and
distribute digitized medical images. The Company financed
$15 million of the purchase price through the use of its
credit line. The merger agreement provided for an additional
purchase payment of up to $25 million based on attainment
of specified earnings targets through 2004. In addition, the
Company assumed incentive plans for certain management employees
of Amicas PACS that provided for up to $5 million of
compensation, tied to the attainment of the earnings targets for
the contingent earn-out period. On December 9, 2004, the
November 25, 2003 merger agreement was amended. The
amendment terminated the earn-out consideration obligations set
forth in the merger agreement and provides that the Company will
pay to former Amicas PACS stockholders and certain Amicas PACS
employees a total of up to $14.5 million. Former Amicas
60
AMICAS, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
PACS stockholders received or will receive a total of
$10.0 million, to be paid in the following manner:
$4.3 million was paid three business days after
distribution of the escrow fund pursuant to the escrow notice
dated December 9, 2004; $3.3 million will be paid on
April 2, 2005; and $2.3 million will be paid on the
earlier of (i) December 31, 2005 or (ii) within
two business days after the end of any fiscal quarter during
which the Company’s cash and cash equivalents balance
exceeds $30.0 million. Certain Amicas PACS employees
received or will receive a total of up to $4.5 million in
satisfaction of certain obligations under Amicas PACS bonus
plan, paid or to be paid in the following manner: approximately
$2.2 million was paid in December 2004 and in January 2005,
and up to $2.2 million will be paid on December 31,
2005. In general, any payment to an Amicas PACS employee is
contingent on such employee’s continued employment with the
Company. The additional consideration paid or to be paid to the
former Amicas PACS stockholders under the settlement of the
earn-out provisions was recognized as additional goodwill. In
2004, approximately $2.4 million was recognized as expense
for amounts paid, or to be paid, under the Amicas PACS bonus
plan. In 2004, the Company also recorded a note payable of
$5.6 million in connection with the payments due to the
former Amicas PACS stockholders in 2005 (see Note I).
The Company examined a number of other image software businesses
before deciding to acquire Amicas PACS. The terms of the merger
agreement were determined on the basis of arm’s-length
negotiations and, based on, among other things, the opinion of
an independent financial advisor, the purchase price was deemed
to be fair from a financial point of view. Prior to the
execution of the merger agreement, neither the Company nor any
of its affiliates, nor any director or officer of the Company or
any associate of any such director or officer, had any material
relationship with Amicas PACS.
The Company has continued to use the tangible and intangible
assets of Amicas PACS substantially in the same manner in which
they were used by Amicas PACS immediately prior to the merger.
The addition of Amicas PACS provided the Company with the
ability to offer radiology groups and imaging center customers a
comprehensive, integrated information and image management
solution, that incorporates the key components of a complete
radiology data management system (e.g., image management,
workflow management and financial management).
The acquisition was accounted for as a purchase transaction and,
accordingly, the original purchase price has been allocated to
the assets and liabilities of Amicas PACS based on their
estimated fair values. Independent valuation specialists
conducted an appraisal of a significant portion of the assets,
including purchased software, in-process technology, trademarks
and noncompete agreements. Management made an estimate of the
fair value of the remaining assets and liabilities. The
estimated fair values included in the accompanying balance
sheets reflected management’s estimates, which were subject
to change, along with the valuation specialists’ appraisal
as follows (in thousands):
| |
|
|
|
|
|
|
Current assets
|
|
$ |
3,908 |
|
|
Property and equipment
|
|
|
468 |
|
|
Goodwill
|
|
|
14,149 |
(a) |
|
Acquired software
|
|
|
13,700 |
(b) |
|
Other intangible assets
|
|
|
3,400 |
(b) |
|
Acquired in-process technology
|
|
|
750 |
(c) |
|
Other assets
|
|
|
54 |
|
| |
|
|
|
| |
Total assets acquired
|
|
|
36,429 |
|
|
Current liabilities
|
|
|
(5,467 |
) |
| |
|
|
|
| |
|
$ |
30,962 |
|
| |
|
|
|
|
|
| (a) |
The amount allocated to goodwill is not deductible for tax
purposes. In the event that management determines that the value
of goodwill has become impaired, the Company would then
recognize a charge for the amount of the impairment. |
61
AMICAS, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
|
|
|
|
(b) |
|
Amortizable identified intangible assets are as follows: |
| |
|
|
|
|
|
|
|
|
| |
|
|
|
Estimated | |
| |
|
Estimated | |
|
Economic | |
| |
|
Fair Value | |
|
Life | |
| |
|
| |
|
| |
| |
|
(In thousands) | |
|
(Years) | |
|
Acquired software
|
|
$ |
13,700 |
|
|
|
7 |
|
|
Trademarks
|
|
|
1,900 |
|
|
|
15 |
|
|
Noncompete agreements
|
|
|
1,500 |
|
|
|
5 |
|
| |
|
|
|
|
|
|
| |
|
$ |
17,100 |
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
| (c) |
In-process technology was charged to expense upon acquisition
because technological feasibility had not been established and
no alternative future uses existed. |
As discussed above, in 2004 the Company recorded additional
goodwill of $9.3 million relating to the additional
consideration paid or to be paid to the former Amicas PACS
stockholders under the settlement of the earn-out provisions. In
addition, in 2004 the Company reduced its goodwill by
$.5 million primarily to reflect an adjustment of the
estimated fair value of the acquired deferred revenues of Amicas
PACS.
The accompanying statements of operations for 2003 include only
one month of operating results of Amicas PACS. For the month of
December 2003, Amicas PACS had total revenues of
$.7 million, and a net loss of $(1.4) million which
included the charge of $.8 million for acquired in-process
technology, and depreciation and amortization expense of
$.2 million.
The unaudited financial information in the table below
summarizes the combined results of operations of the Company and
Amicas PACS, on a pro forma basis, as though the companies had
been combined as of January 1, 2002. Due to their
nonrecurring nature, the acquired in-process technology charge
and Amicas PACS acquisition-related costs have been excluded
from the information presented below. This pro forma data is
presented for informational purposes only and is not intended to
represent or be indicative of the results of operations that
would have been reported had the acquisition taken place on
January 1, 2002, and should not be taken as representative
of the future results of operations of the Company.
| |
|
|
|
|
|
|
|
|
|
| |
|
Year Ended | |
| |
|
December 31, | |
| |
|
| |
| |
|
2003 | |
|
2002 | |
| |
|
| |
|
| |
| |
|
(In thousands, except | |
| |
|
per share data) | |
|
Combined revenues
|
|
$ |
38,070 |
|
|
$ |
40,321 |
|
|
Loss from continuing operations
|
|
$ |
(22,241 |
) |
|
$ |
(7,746 |
) |
|
Income from discontinued operations
|
|
|
18,687 |
|
|
|
20,159 |
|
| |
|
|
|
|
|
|
|
Net income (loss)
|
|
$ |
(3,554 |
) |
|
$ |
12,413 |
|
| |
|
|
|
|
|
|
|
Earnings (loss) per share — basic and diluted
|
|
|
|
|
|
|
|
|
| |
Continuing operations
|
|
$ |
(0.52 |
) |
|
$ |
(0.19 |
) |
| |
Discontinued operations
|
|
|
0.43 |
|
|
|
0.48 |
|
| |
|
|
|
|
|
|
| |
|
$ |
(0.08 |
) |
|
$ |
0.30 |
|
| |
|
|
|
|
|
|
62
AMICAS, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
|
|
| E. |
Restructuring Costs (Credits) and Settlements, Severance and
Impairment Charges and Credit for Loan Losses |
|
|
|
Restructuring Costs (Credits) |
The 2003 Plan. In the fourth quarter of 2003, the Company
committed to restructuring its medical businesses through a plan
of employee reductions. The Company’s work force was
reduced by approximately 45 employees.
The 2000 Plan. In August 2000, the Company 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 offices that were closed are
subject to operating leases that expire at various dates through
2005.
A description of the nature and amount of restructuring costs
(credits) and other charges incurred with respect to the
2003 and 2000 Plans is as follows (in thousands):
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Balance at | |
|
|
|
|
|
Balance at | |
|
|
|
|
|
Balance at | |
|
|
|
|
|
Balance at | |
| |
|
December 31, | |
|
Adjustments | |
|
Cash | |
|
December 31, | |
|
Adjustments | |
|
Cash | |
|
December 31, | |
|
Adjustments | |
|
Cash | |
|
December 31, | |
| |
|
2001 | |
|
to Accrual | |
|
Payments | |
|
2002 | |
|
to Accrual | |
|
Payments | |
|
2003 | |
|
to Accrual | |
|
Payments | |
|
2004 | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
Facility closure and consolidation
|
|
$ |
2,786 |
|
|
$ |
(501 |
) |
|
$ |
(1,178 |
) |
|
$ |
1,107 |
|
|
$ |
(89 |
) |
|
$ |
(432 |
) |
|
$ |
586 |
|
|
$ |
(155 |
) |
|
$ |
(305 |
) |
|
$ |
126 |
(c) |
|
Employee severance and other termination benefits
|
|
|
114 |
|
|
|
|
|
|
|
(114 |
) |
|
|
— |
|
|
|
421 |
|
|
|
(84 |
) |
|
|
337 |
|
|
|
|
|
|
|
(337 |
) |
|
|
— |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2003 and 2000 Plans Total
|
|
$ |
2,900 |
|
|
$ |
(501 |
)(a) |
|
$ |
(1,292 |
) |
|
$ |
1,107 |
|
|
$ |
332 |
|
|
$ |
(516 |
) |
|
$ |
923 |
|
|
$ |
(155 |
)(b) |
|
$ |
(642 |
) |
|
$ |
126 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (a) |
savings in connection with the early termination of an office
lease for a facility closed as part of the 2000 Plan |
|
|
|
|
(b) |
|
savings in connection with the early termination of one office
lease and the sublease of a second office lease for facilities
closed as part of the 2000 Plan |
| |
|
(c) |
|
primarily amounts accrued for outstanding lease commitments
relating to the 2000 Plan |
|
|
|
Settlements, Severance and Impairment Charges and Credit
for Loan Losses |
In 2004, the Company recognized settlements, severance and
impairment charges of $5.7 million which include the
following:
|
|
|
| |
• |
As discussed in Note D, in connection with the termination
of the earn-out consideration obligations relating to the
acquisition of Amicas PACS, the Company recognized
$2.4 million of expense for amounts paid, or to be paid, to
certain Amicas PACS employees under the Amicas PACS bonus plan. |
| |
| |
• |
The Company recorded $1.3 million of severance-related
costs including executive-related severance costs of
$.4 million. In December 2004, the Company relocated its
corporate headquarters from Ridgefield, Connecticut to Boston,
Massachusetts. On October 15, 2004, the Company notified 57
of its employees that, in connection with the relocation of the
Company’s corporate headquarters, their employment would be
terminated under a plan of termination. |
| |
| |
• |
The Company recorded an impairment charge of $1.2 million
to write-down its enterprise resource planning software
(“ERP”) relating to the Company’s decision to
cease using a portion of its ERP. This decision was due to the
downsizing of the Company as a result of the Medical Division
sale. |
63
AMICAS, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
|
|
|
| |
• |
The Company recorded costs of $.8 million relating to the
settlement of litigation. In August 2003, the Company was served
with a summons and complaint as part of a bankruptcy proceeding
relating to a former business associate. The complaint alleged
that in 2001, the Company received a preference payment from the
business associate and sought to avoid and recover the
$.8 million payment made to AMICAS. The matter was settled
in March 2004 and the Company paid $.3 million to the
former business associate through its committee of unsecured
creditors. Also, in September 2004, a lawsuit styled DR Systems,
Inc. v. VitalWorks Inc. and Amicas, Inc. was filed in the
United States District Court for the Southern District of
California. The complaint alleged that VitalWorks and Amicas
infringed the plaintiff’s patent through the manufacture,
use, importation, sale and/or offer for sale of automated
medical imaging and archival systems. The plaintiff sought
monetary damages, treble damages and a permanent injunction. On
November 3, 2004, the Company served its answer. On
January 26, 2005, the parties entered into a Settlement,
Release and License agreement, and on February 4, 2005, a
stipulation of dismissal, dismissing the lawsuit with prejudice,
was entered. In connection with this agreement, the Company paid
the plaintiff $.5 million in 2005. This amount was accrued
at December 31, 2004. |
In 2002, the Company received final payments from three former
officers totaling $12.1 million 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.
|
|
| F. |
Property and Equipment |
Major classes of property and equipment consist of the following:
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Depreciation/ | |
|
December 31, | |
| |
|
Amortization | |
|
| |
| |
|
Period | |
|
2004 | |
|
2003 | |
| |
|
| |
|
| |
|
| |
| |
|
(Years) | |
|
|
| |
|
|
|
(In thousands) | |
|
Equipment, primarily computers, and software
|
|
|
3-5 |
|
|
$ |
3,333 |
|
|
$ |
12,884 |
|
|
Equipment under capital lease obligations
|
|
|
3-5 |
|
|
|
2,608 |
|
|
|
2,904 |
|
|
Furniture and other
|
|
|
3-7 |
|
|
|
229 |
|
|
|
535 |
|
| |
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
6,170 |
|
|
|
16,323 |
|
|
Less accumulated depreciation and amortization
|
|
|
|
|
|
|
4,182 |
|
|
|
11,642 |
|
| |
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
$ |
1,988 |
|
|
$ |
4,681 |
|
| |
|
|
|
|
|
|
|
|
|
Depreciation and amortization expense of these assets totaled
$1.5 million, $1.3 million and $1.4 million for
2004, 2003 and 2002, respectively.
In August 2002, the Company completed the sale of a former
headquarters building in Atlanta for proceeds of
$6.3 million, after closing costs. A portion of the
proceeds from the sale was used to repay a $5.5 million
mortgage loan on the building. Approximately $.4 million of
the proceeds had been held in escrow to partially guarantee to
the new owner the monetary performance of PracticeWorks, Inc., a
tenant of the building, through December 2003 under their lease
agreement. The Company spun-off PracticeWorks in March 2001. In
connection with the sale, the Company entered into a market rate
lease with the new owner of the building through December 2003
for approximately 3,900 square feet of office space, or
less than 5% of the building. The amount held in escrow was
returned to the Company and recognized as a gain from the sale
of the building (included in selling, general and administrative
expenses).
In January 2002, the Company completed the sale of its other
office building in Atlanta for $1.4 million, after closing
costs.
64
AMICAS, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
|
|
| G. |
Goodwill, Acquired/ Developed Software and Other Intangible
Assets |
Major classes of intangible assets, primarily derived from
business acquisitions including, in 2003, the Amicas PACS
acquisition, consist of the following:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
December 31, | |
| |
|
|
|
| |
| |
|
|
|
2004 | |
|
2003 | |
| |
|
|
|
| |
|
| |
| |
|
Estimated | |
|
Gross | |
|
|
|
Net | |
|
Gross | |
|
|
|
Net | |
| |
|
Economic | |
|
Carrying | |
|
Accumulated | |
|
Carrying | |
|
Carrying | |
|
Accumulated | |
|
Carrying | |
| |
|
Life | |
|
Amount | |
|
Amortization | |
|
Value | |
|
Amount | |
|
Amortization | |
|
Value | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| |
|
(Years) | |
|
|
| |
|
|
|
(In thousands) | |
|
Goodwill ($23.0 million and $14.2 million re Amicas
PACS)
|
|
|
|
|
|
$ |
27,313 |
|
|
|
— |
|
|
$ |
27,313 |
|
|
$ |
34,472 |
|
|
|
— |
|
|
$ |
34,472 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquired software
|
|
|
7 |
|
|
$ |
13,700 |
|
|
$ |
(2,120 |
) |
|
$ |
11,580 |
|
|
$ |
13,700 |
|
|
$ |
(163 |
) |
|
$ |
13,537 |
|
|
Software product development
|
|
|
3-5 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
9,573 |
|
|
|
(1,641 |
) |
|
|
7,932 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
$ |
13,700 |
|
|
$ |
(2,120 |
) |
|
$ |
11,580 |
|
|
$ |
23,273 |
|
|
$ |
(1,804 |
) |
|
$ |
21,469 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trademarks
|
|
|
15 |
|
|
$ |
1,900 |
|
|
$ |
(137 |
) |
|
$ |
1,763 |
|
|
$ |
1,900 |
|
|
$ |
(11 |
) |
|
$ |
1,889 |
|
|
Noncompete agreements
|
|
|
5 |
|
|
|
1,500 |
|
|
|
(325 |
) |
|
|
1,175 |
|
|
|
1,500 |
|
|
|
(25 |
) |
|
|
1,475 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
$ |
3,400 |
|
|
$ |
(462 |
) |
|
$ |
2,938 |
|
|
$ |
3,400 |
|
|
$ |
(36 |
) |
|
$ |
3,364 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The additional consideration paid or to be paid to the former
Amicas PACS stockholders under the settlement of the earn-out
provisions, as discussed in Note D, was recognized as
additional goodwill.
Amortization expense of the identifiable intangible assets
totaled $3.6 million, $1.9 million and
$.9 million for 2004, 2003 and 2002, respectively.
Amortization of acquired software and software product
development is recognized in the accompanying statements of
operations as a cost of software licenses and system sales.
Amortization of trademarks and noncompete agreements is included
in depreciation and amortization expense.
In 2004, the Company recorded a charge of $3.2 million
relating to the impairment of previously capitalized software
costs for the Company’s radiology information system
product (“RIS product”). The Company determined that
recoverability of these capitalized software costs was impaired
by comparing the carrying value of the asset with the RIS
product estimated undiscounted future cash flows over the
estimated life of the RIS product. The Company concluded that
the carrying amount of the asset was greater than its estimated
undiscounted future cash flows. The Company therefore recorded
an impairment charge to write-off the remaining carrying value,
which represented the fair value of the RIS product.
In 2003, the Company also recorded an impairment charge of
$.5 million relating to a medical image distribution
product that was abandoned in favor of a comparable solution
offered by Amicas PACS.
The future estimated amortization expense of the identifiable
intangible assets is as follows (in thousands):
| |
|
|
|
|
|
2005
|
|
$ |
2,384 |
|
|
2006
|
|
|
2,384 |
|
|
2007
|
|
|
2,384 |
|
|
2008
|
|
|
2,359 |
|
|
2009
|
|
|
2,084 |
|
|
Thereafter
|
|
|
2,923 |
|
| |
|
|
|
| |
|
$ |
14,518 |
|
| |
|
|
|
65
AMICAS, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
|
|
| H. |
Accounts Payable and Accrued Expenses |
Accounts payable and accrued expenses consist of the following:
| |
|
|
|
|
|
|
|
|
| |
|
December 31, | |
| |
|
| |
| |
|
2004 | |
|
2003 | |
| |
|
| |
|
| |
| |
|
(In thousands) | |
|
Trade accounts payable
|
|
$ |
1,425 |
|
|
$ |
2,524 |
|
|
Cost of providing EDI services
|
|
|
691 |
|
|
|
2,025 |
|
|
Other accrued expenses
|
|
|
6,296 |
|
|
|
6,500 |
|
| |
|
|
|
|
|
|
| |
|
$ |
8,412 |
|
|
$ |
11,049 |
|
| |
|
|
|
|
|
|
Long-term debt consists of the following:
| |
|
|
|
|
|
|
|
|
|
| |
|
December 31, | |
| |
|
| |
| |
|
2004 | |
|
2003 | |
| |
|
| |
|
| |
| |
|
(In thousands) | |
|
Wells Fargo Foothill, Inc.
|
|
|
|
|
|
|
|
|
| |
Acquisition line advance
|
|
$ |
11,000 |
|
|
$ |
15,000 |
|
| |
Term loan
|
|
|
12,000 |
|
|
|
14,500 |
|
|
Note payable re earn-out settlement
|
|
|
5,588 |
|
|
|
|
|
|
Capital leases (see Note J)
|
|
|
86 |
|
|
|
257 |
|
| |
|
|
|
|
|
|
| |
|
|
28,674 |
|
|
|
29,757 |
|
|
Less current portion
|
|
|
9,657 |
|
|
|
6,738 |
|
| |
|
|
|
|
|
|
| |
|
$ |
19,017 |
|
|
$ |
23,019 |
|
| |
|
|
|
|
|
|
In August 2003, the Company entered into an amended and restated
four-year credit agreement with Wells Fargo. The amended
agreement included the Company’s outstanding term loan of
$15.8 million at an interest rate of prime plus .5% (5.75%
at December 31, 2004). Interest was payable monthly in
arrears. Principal was payable quarterly through April 1,
2004, with a balloon payment due in August 2007. If the Company
had decided to prepay the term loan in full prior to September
2005, it would have incurred a prepayment fee equal to 1% of the
then outstanding principal balance of the term loan. The
prepayment fee may have been reduced if the loan was prepaid in
connection with a change of control of the Company. The
outstanding term loans, which were collateralized by
substantially all of the Company’s assets and intellectual
property rights, subjected the Company 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,
(iii) the required maintenance of a minimum cash balance,
and (iv) the prohibition of dividend payments to
stockholders. The amended agreement also provided for an
acquisition credit line of up to $50 million, less any
amounts outstanding under term loans. Availability of the
acquisition credit line was at the discretion of Wells Fargo. On
November 25, 2003 in connection with the Amicas PACS
acquisition, the Company borrowed $15.0 million under the
credit line in the form of a term loan at an interest rate of
prime plus .75% (6.0% at December 31, 2004). Principal was
payable in 15 equal quarterly installments, which began on
January 1, 2004, and interest was payable monthly in
arrears. For the year ended December 31, 2004, the Company
failed to satisfy the annual capital expenditures covenant
required by the amended agreement; however, the Company received
a waiver regarding this covenant violation from Wells Fargo.
66
AMICAS, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
On December 9, 2004, the November 25, 2003 Amicas PACS
merger agreement was amended. The amendment terminated the
earn-out consideration obligations set forth in the merger
agreement and provides that the Company will pay to Amicas PACS
stockholders a total of up to $10.0 million to be paid in
the following manner: $4.3 million was paid three business
days after distribution of the escrow fund pursuant to the
escrow notice dated December 9, 2004; $3.3 million
will be paid on April 2, 2005; and $2.3 million will
be paid on the earlier of (i) December 31, 2005 or
(ii) within two business days after the end of any fiscal
quarter during which the Company’s cash and cash
equivalents balance exceeds $30.0 million. In 2004, the
Company recorded a note payable of $5.6 million in
connection with the payments due to the Amicas PACS stockholders
in 2005.
As of December 31, 2004, maturities of long-term debt are
as follows: $9.6 million in 2005, $4.0 million in 2006
and $15.0 million in 2007. However, as discussed in
Note N, all amounts due under the credit facility were
repaid subsequent to December 31, 2004 and the credit
facility was terminated.
|
|
| J. |
Commitments and Contingencies |
The Company leases office and research facilities, and certain
computer and other equipment under various operating and capital
lease agreements. The leases expire at various dates through
2009.
Future minimum lease payments under all operating and capital
leases with noncancellable terms in excess of one year are as
follows:
| |
|
|
|
|
|
|
|
|
| Year |
|
Capital | |
|
Operating(a) | |
| |
|
| |
|
| |
| |
|
(In thousands) | |
|
2005
|
|
$ |
68 |
|
|
$ |
2,571 |
|
|
2006
|
|
|
18 |
|
|
|
2,151 |
|
|
2007
|
|
|
|
|
|
|
1,454 |
|
|
2008
|
|
|
|
|
|
|
771 |
|
|
2009
|
|
|
|
|
|
|
16 |
|
|
Thereafter
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
| |
|
|
86 |
|
|
|
6,963 |
|
|
Less amounts included in accrued restructuring costs
|
|
|
|
|
|
|
91 |
|
| |
|
|
|
|
|
|
| |
|
|
86 |
|
|
$ |
6,872 |
|
| |
|
|
|
|
|
|
|
Less current portion
|
|
|
68 |
|
|
|
|
|
| |
|
|
|
|
|
|
|
Long-term obligations under capital leases
|
|
$ |
18 |
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
| (a) |
Subsequent to December 31, 2004, certain operating leases
were assigned to Cerner in connection with the sale of the
Medical Division. Also, subsequent to December 31, 2004,
the Company entered into subleases for additional office space
at its Boston, Massachusetts corporate headquarters. See
Note N. |
In addition, certain of the office leases provide for contingent
payments based on building operating expenses. Rental expenses
for years 2004, 2003 and 2002 under all lease agreements totaled
$1.3 million, $.9 million and $.9 million,
respectively.
In May 2002, the Company entered into a five-year agreement with
a third-party provider of EDI services for patient claims
processing. For the first and second years of the agreement, the
Company incurred $.5 million and $.6 million,
respectively, for processing services. For the twelve-month
period ending May 2005, the Company was committed to pay
$.5 million for processing services. Thereafter, the annual
services
67
AMICAS, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
fee will range from $.5 million to $.8 million based
on the Company’s volume usage in the last month of the
preceding year.
In April 2003, the Company entered into an agreement to acquire
program source code, object code, and engineering services from
an independent software development firm. A monthly fee of
approximately $.3 million, or a total of $3 million,
for development services was incurred during the twelve-month
period ended March 2004. Also, during a royalty term ending
January 2006, the Company was obligated to pay royalty fees of
up to $5 million based on related software license sales,
if any. In May 2004, the Company amended the agreement with
respect to the development services. The Company was obligated
to pay the development firm $.6 million during the
four-month period ending August 15, 2004 for such services;
however, such payment was contingent upon certain development
milestones being achieved. The milestones were achieved and the
Company paid the amounts due under the May amendment. In August
2004 and in October 2004, the Company amended the agreement
further with respect to the development services. The Company
was obligated to pay the development firm $1.4 million
during the period from August 16, 2004 to May 1, 2005.
At the end of such period, the Company has the option to
terminate the agreement or continue the development services
arrangement by paying a minimum monthly fee of $.2 million
for an additional twelve months. The terms of the royalty
arrangement were amended and now extend to March 2007. The
Company is now obligated to pay reduced royalty fees of up to
$3 million based on related software license sales, if any.
If the Company terminates the development services portion of
the agreement for reasons other than nonperformance, it will
still be liable for amounts due under the royalty terms of the
agreement, if any.
In October 2001, the Company expanded its August 2000 agreement
with National Data Corporation (“NDC”) for outsourcing
much of its patient statement and invoice printing work. The
Company continued, for a fee, to provide printing services for
its physicians under the subcontracting arrangement with NDC.
The amended arrangement, which extended until April 2009,
provided for, among other things, the attainment of certain
quarterly transaction processing volume levels during the term.
In exchange, the Company received $7.9 million in cash in
2001 (in connection with the August 2000 agreement, the Company
had received $8.8 million), which represent unearned
discounts (see accompanying balance sheets) that were recognized
as an offset to cost of maintenance and services revenues as the
minimum volume commitments were fulfilled. In April 2003, the
arrangement with NDC was amended such that commencing in June
2003, the quarterly minimum volume commitments were reduced. In
turn, the Company refunded $4.3 million of unearned
discounts. The new quarterly commitment approximated 65% of the
Company’s current aggregate transaction level. In
connection with this arrangement, the Company was committed to
pay a minimum quarterly fee of $1.9 million to NDC until
April 2009.
Subsequent to December 31, 2004, the agreements described
above were assigned to Cerner in connection with the sale of the
Medical Division. See Note N for further discussion.
In connection with the Company’s employee savings plans,
the Company has committed, for the 2005 plan year, to contribute
to the plans. The matching contribution for 2005 is estimated to
be approximately $.5 million and will be made 75% in cash
and 25% in shares of the Company’s common stock.
The Company is committed to pay up to $2.2 million to
certain Amicas PACS employees on December 31, 2005 as
additional earn-out consideration under the amendment to the
Amicas PACS merger agreement as discussed in Note D. In
general, any payment to an Amicas PACS employee is contingent on
such employee’s continued employment with the Company.
From time to time, in the normal course of business, various
claims are made against the Company. Except for the proceeding
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 AMICAS, Inc.),
et al., was filed in Boone County Superior Court in Indiana
and the case was subsequently
68
AMICAS, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
transferred to the Northern District Court of Georgia. The
complaint alleged state securities law violations, breach of
contract, and fraud claims against the defendants. The complaint
did not specify the amount of damages sought by plaintiffs, but
sought rescission of a transaction that the plaintiffs valued at
$5 million, as well as punitive damages and reimbursement
for the plaintiffs’ attorneys’ fees and associated
costs and expenses of the lawsuit. In October 2001, the
plaintiffs’ request for a preliminary injunction to
preserve their remedy of rescission was denied and part of their
complaint was dismissed. The plaintiffs’ subsequent appeal
of this decision was denied. Thereafter, plaintiffs retained new
counsel and served an amended complaint that added additional
former officers and directors as defendants, dropped the claim
for rescission, and asserted new state securities law
violations. After disqualification of plaintiffs’ second
counsel in May 2003, plaintiffs retained new counsel and, in
July 2003, served a second amended complaint upon the Company
which added, among other things, a claim for Georgia RICO
violations. In August 2003, the Company filed with the Court a
partial motion to dismiss the second amended complaint which
motion was granted in part and denied in part on January 9,
2004. On February 6, 2004, the Company served an answer to
the second amended complaint. The discovery process is now
complete. On December 20, 2004, the defendants filed a
motion for summary judgment and the plaintiffs filed a motion
for partial summary judgment. These motions are now fully
submitted.
While management believes that the Company has meritorious
defenses in the foregoing pending matter and the Company intends
to pursue its positions vigorously, litigation is inherently
subject to many uncertainties. Thus, the outcome of this matter
is uncertain and could be adverse to the Company. Depending on
the amount and timing of an unfavorable resolution of the
contingencies, it is possible that the Company’s financial
position, future results of operations or cash flows could be
materially affected in a particular reporting period(s).
In September 2004, a lawsuit styled DR Systems, Inc. v.
VitalWorks Inc. and Amicas, Inc. was filed in the United States
District Court for the Southern District of California. The
complaint alleged that VitalWorks and Amicas infringed the
plaintiff’s patent through the manufacture, use,
importation, sale and/or offer for sale of automated medical
imaging and archival systems. The plaintiff sought monetary
damages, treble damages and a permanent injunction. On
November 3, 2004, the Company served its answer. On
January 26, 2005, the parties entered into a Settlement,
Release and License agreement, and on February 4, 2005, a
stipulation of dismissal, dismissing the lawsuit with prejudice,
was entered. In connection with this agreement, the Company paid
the plaintiff $.5 million in 2005. This amount was accrued
at December 31, 2004.
On or about July 31, 2003, a Consolidated Class Action
Complaint was filed in the United States District Court for the
District of Connecticut on behalf of purchasers of the common
stock of the Company during the class period of January 24,
2002 to October 23, 2002. The defendants were the Company
and three of the Company’s individual officers and
directors. Plaintiffs had asserted claims against the defendants
under Section 10(b) of the Securities Exchange Act of 1934
and against the individual defendants under Section 20(a)
of the Exchange Act. According to the Consolidated Complaint,
the defendants were alleged to have made materially false and
misleading statements during the Class Period concerning
the Company’s products and financial forecasts. In
addition, the Consolidated Complaint alleged that the individual
defendants acted as controlling persons in connection with the
Company’s alleged securities law violations. Compensatory
damages in an unspecified amount, pre-judgment and post-judgment
interest, costs and expenses, including reasonable
attorneys’ fees and experts’ fees and other costs, as
well as other relief the Court may deem just and proper were
sought. On November 14, 2003, the defendants filed with the
Court a motion to dismiss the Consolidated Complaint pursuant to
Federal Rules of Civil Procedure 12(b)(6) and (9)(b). In a
decision entered on October 1, 2004, United States District
Judge Janet Bond Arterton dismissed with prejudice the
Consolidated Complaint as to all defendants. No appeal of this
decision was filed and the statutory time period to file an
appeal has expired.
69
AMICAS, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
In August 2003, the Company was served with a summons and
complaint as part of a bankruptcy proceeding relating to a
former business associate of the Company. The complaint alleged
that in 2001, the Company received a preference payment from the
business associate and sought to avoid and recover the
$.8 million payment made to the Company. The Company agreed
to settle this matter in March 2004, and paid $.3 million
to the former business associate through its committee of
unsecured creditors.
As permitted under Delaware law, the Company has agreements
under which it indemnifies its officers and directors for
certain events or occurrences while the officer or director is
or was serving at the Company’s request in such capacity.
The term of the indemnification period is for the officer’s
or director’s lifetime. The maximum potential amount of
future payments the Company could be required to make under
these indemnification agreements is unlimited; however, with
respect to certain events or occurrences after March 6,
2001, the Company has a director and officer insurance policy
that limits its exposure and enables it to recover a portion of
any future amounts paid. Given the insurance coverage in effect,
the Company believes the estimated fair value of these
indemnification agreements is minimal. The Company has no
liabilities recorded for these agreements as of
December 31, 2004.
The Company generally includes intellectual property
indemnification provisions in its software license agreements.
Pursuant to these provisions, the Company holds harmless and
agrees to defend the indemnified party, generally its business
partners and customers, in connection with certain patent,
copyright, trademark and trade secret infringement claims by
third parties with respect to the Company’s products. The
term of the indemnification provisions varies and may be
perpetual. In the event an infringement claim against the
Company or an indemnified party is made, generally the Company,
in its sole discretion, agrees to do one of the following:
(i) procure for the indemnified party the right to continue
use of the software, (ii) provide a modification to the
software so that its use becomes noninfringing;
(iii) replace the software with software which is
substantially similar in functionality and performance; or
(iv) refund all or the residual value of the software
license fees paid by the indemnified party for the infringing
software. The Company believes the estimated fair value of these
intellectual property indemnification agreements is minimal. The
Company has no liabilities recorded for these agreements as of
December 31, 2004.
In December 2002, the Company adopted a stockholder rights plan
(the “Rights Plan”) and declared a dividend of one
right (the “Right”) on each share of the
Company’s common stock. The dividend was paid on
December 27, 2002, to stockholders of record on
December 27, 2002. The Rights Plan was approved and
recommended to the Company’s board of directors (the
“Board”) by a special committee of the Board
consisting of three outside members of the Board. The Rights
Plan is designed to enable all Company stockholders to realize
the full value of their investment and to provide for fair and
equal treatment of all Company stockholders if there is an
unsolicited attempt to acquire control of the Company. The
adoption of the Rights Plan is intended as a means to guard
against abusive takeover tactics and is not in response to any
specific effort to acquire control of the Company.
Initially, the Rights will trade with the common stock of the
Company and will not be exercisable. The Rights will separate
from the common stock and become exercisable upon the occurrence
of events typical of stockholder rights plans. In general, such
separation will occur when any person or group, without the
Board’s approval, acquires or makes an offer to acquire 15%
or more of the Company’s common stock. Thereafter, separate
right certificates will be distributed and each Right will
entitle its holder to purchase one one-thousandth of a share of
the Company’s Series B Junior Preferred Stock (the
“Preferred Stock”) for an exercise price of $20.00
(the “Exercise Price”). Each one one-thousandth of a
share of Preferred Stock has economic and voting terms
equivalent to those of one share of the Company’s common
stock.
70
AMICAS, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Subject to the specific terms of the Rights Plan, in the event
that any person or group, without the Board’s approval,
actually acquires 15% or more of the Company’s common
stock, then each holder of a Right (other than such person or
group) shall thereafter have the right to receive upon exercise
of such Right and payment of the Exercise Price, shares of
Preferred Stock having a value equal to twice the Exercise
Price. Also, if the Company is involved in a merger or sells
more than 50% of its assets or earning power, each Right, unless
previously redeemed by the Board, will entitle its holder (other
than the acquiring person or group) to purchase shares of common
stock of the acquiring company having a market value of twice
the Exercise Price.
The Rights Plan is not intended to prevent a takeover of the
Company at a full and fair price. However, the Rights Plan may
cause substantial dilution to a person or group that, without
prior Board approval, acquires 15% or more of the Company’s
common stock, or unless the Rights are first redeemed by the
Board. The Rights may be redeemed by the Board for
$0.005 per Right and will otherwise expire on
December 5, 2012.
The Rights Plan contains an independent directors review
provision whereby a committee of independent members of the
Board will review the Rights Plan at least every three years
and, if a majority of the members of the independent committee
deems it appropriate, may recommend to the Board the continued
maintenance, modification or termination of the Rights Plan.
The Rights Plan does not weaken the Company’s financial
strength or interfere with its business plans. The issuance of
the Rights has no dilutive effect, will not affect reported
earnings per share, is not taxable to the Company or its
stockholders and will not change the way the Company’s
shares are traded.
The Company maintains an employee savings plan that qualifies as
a cash or deferred salary arrangement under Section 401(k)
of the Internal Revenue Code. The Company may make matching
and/or profit-sharing contributions to the plan at its sole
discretion. Effective January 1, 2003, the Company amended
the plan. In 2004, 2003 and 2002, the Company authorized
matching contributions of $.8 million, $.8 million and
$1.1 million, respectively, to the plan, representing
two-thirds of each participant’s contribution, not to
exceed 4% of pre-tax compensation in 2004 and 2003, and up to 6%
of pre-tax compensation in 2002. The matching contribution for
the 2004 plan year was made quarterly, 75% in cash and 25% in
shares of the Company’s common stock. The matching
contribution for the 2003 plan year was made quarterly, half in
cash and half in shares of the Company’s common stock.
Except for a cash contribution of $.3 million made in 2003
with respect to the 2002 plan year, the contribution for the
2002 plan year was made in shares of the Company’s common
stock in 2003. The matching contribution for 2005 will be made
quarterly, 75% in cash and 25% in shares of the Company’s
common stock. Employees become fully vested with respect to
Company contributions after three years of service.
Participating employees may now defer up to 50% of their pre-tax
compensation, but not more than $14,000 per calendar year.
The Company also maintains an employee savings plan that
qualifies as a cash or deferred salary arrangement under
Section 401(k) for its Amicas PACS employees. The plan
covers substantially all Amicas PACS employees who meet minimum
age and service requirements and allows participants to defer a
portion of their annual compensation on a pre-tax basis, but not
more that $14,000 per calendar year. The Company may make
matching contributions to the plan at its sole discretion. There
were no matching contributions made for 2004 or 2003. The
matching contribution for 2005 will be made quarterly, 75% in
cash and 25% in shares of the Company’s common stock.
Employees become fully vested with respect to Company
contributions after three years of service.
71
AMICAS, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
|
|
|
Employee Stock Purchase Plan |
The Company’s 2002 Employee Stock Purchase Plan (the
“ESPP”), as approved by the Company’s
shareholders in June 2002, permits eligible employees to
purchase the Company’s common stock at a discounted price
through periodic payroll deductions of up to 15% of their cash
compensation. Generally, each offering period will have a
maximum duration of six months and shares of common stock will
be purchased for each participant at the conclusion of each
offering period. The price at which the common stock is
purchased under the ESPP is equal to 85% of the lower of
(i) the closing price of the common stock on the first
business day of the offering period, or (ii) the closing
price on the last business day of the offering period. Under the
ESPP, .3 million shares of common stock of the Company have
been reserved and were available for issuance at
December 31, 2004. In 2004, 2003 and 2002, a total of
143,715, 95,241, and 56,404 shares, respectively, were
issued under the Company’s employee stock purchase plan.
The Company has stock option plans that provide for the grant of
incentive and nonqualified options to purchase the
Company’s common stock to selected officers, other key
employees, directors and consultants. These plans include the
VitalWorks Inc. 2000 Broad Based Stock Plan, the VitalWorks Inc.
1996 Stock Option Plan, the VitalWorks Inc. Length-of-Service
Nonqualified Stock Option Plan and the VitalWorks Inc. Directors
Stock Option Plan. The Company has also assumed the stock
options of six medical software businesses that merged with the
Company in 1999. Such options were converted at the applicable
rates used to issue the Company’s common stock in the
mergers. The shares reserved under the Company’s stock
option plans were adjusted in connection with the distribution
of the common stock of its PracticeWorks, Inc. subsidiary on
March 5, 2001, using a conversion ratio of 2.11667, in
accordance with the terms of the respective plans.
The VitalWorks Inc. 2000 Broad Based Stock Plan (the “2000
Plan”) has 21.2 million shares of common stock of the
Company reserved for nonqualified option grants, stock
appreciation right grants, or stock grants to directors and
employees. The option price for each share of stock subject to
an option or stock appreciation right may not be less than the
fair market value of a share of stock on the date the option or
right is granted. Options or rights granted under this plan
generally vest over a three- to six-year period and expire ten
years from the date of grant. At December 31, 2004, there
were 9.9 million shares available for grant under the 2000
Plan.
Under the VitalWorks Inc. 1996 Stock Option Plan (the “1996
Plan”), 12.7 million shares of common stock of the
Company have been reserved for option grants to directors,
officers, other key employees, and consultants. Employees of the
Company may be granted incentive stock options
(“ISOs”) within the dollar limitations prescribed
under Section 422(d) of the Internal Revenue Code. The
exercise price of ISOs shall not be less than the fair market
value of the common stock as of the option grant date (110% of
such value for 10% stockholders). Nonqualified stock options may
be granted to directors and consultants. Options generally vest
ratably over a three to four-year period and expire ten years
from the date of grant. At December 31, 2004, there were
4.7 million shares available for grant under the 1996 Plan.
Under the VitalWorks Inc. Length-of-Service Nonqualified Stock
Option Plan (the “LOSSO Plan”), 2.1 million
shares of common stock of the Company have been reserved for
issuance to employees of the Company. Employees are granted
nonqualified stock options based on years of service with the
Company. The exercise price of options issued pursuant to this
plan shall be no less than the fair market value of the common
stock as of the grant date. Options granted under the LOSSO Plan
vest four years and expire ten years from the date of grant.
Effective July 1, 2002, the Company discontinued granting
options under the LOSSO Plan.
Under the VitalWorks Inc. Directors Stock Option Plan (the
“Director Plan”), .4 million shares of common
stock of the Company have been reserved for issuance as
nonqualified stock options to non-employee
72
AMICAS, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
directors of the Company. Upon appointment to the board of
directors, a director receives an option grant of
10,000 shares and an additional option grant of
2,500 shares on each anniversary date. A director may also
receive additional option grants from time to time. One half of
the options granted pursuant to this plan vest after one year of
service following the grant date and the other half vests after
two years of service following the grant date. At
December 31, 2004, there were .3 million shares
available for grant under the Director Plan.
A summary of stock option activity and related information for
the years ended December 31 is as follows (shares in
thousands):
| |
|
|
|
|
|
|
|
|
|
| |
|
|
|
Weighted | |
| |
|
|
|
Average | |
| |
|
Options | |
|
Exercise Price | |
| |
|
| |
|
| |
|
Outstanding at December 31, 2001
|
|
|
14,838 |
|
|
$ |
2.49 |
|
| |
Granted
|
|
|
324 |
|
|
|
3.97 |
|
| |
Exercised
|
|
|
(5,153 |
) |
|
|
1.91 |
|
| |
Forfeited
|
|
|
(481 |
) |
|
|
3.95 |
|
| |
|
|
|
|
|
|
|
Outstanding at December 31, 2002
|
|
|
9,528 |
|
|
|
2.79 |
|
| |
Granted
|
|
|
83 |
|
|
|
4.22 |
|
| |
Exercised
|
|
|
(314 |
) |
|
|
2.62 |
|
| |
Forfeited
|
|
|
(165 |
) |
|
|
4.41 |
|
| |
|
|
|
|
|
|
|
Outstanding at December 31, 2003
|
|
|
9,132 |
|
|
|
2.77 |
|
| |
Granted
|
|
|
2,999 |
|
|
|
3.57 |
|
| |
Exercised
|
|
|
(851 |
) |
|
|
2.22 |
|
| |
Forfeited
|
|
|
(391 |
) |
|
|
4.18 |
|
| |
|
|
|
|
|
|
|
Outstanding at December 31, 2004
|
|
|
10,889 |
|
|
$ |
2.98 |
|
| |
|
|
|
|
|
|
|
Options exercisable at December 31, 2002
|
|
|
5,503 |
|
|
$ |
2.61 |
|
|
Options exercisable at December 31, 2003
|
|
|
8,026 |
|
|
$ |
2.75 |
|
|
Options exercisable at December 31, 2004
|
|
|
7,882 |
|
|
$ |
2.75 |
|
The following table summarizes information about the
Company’s outstanding stock options at December 31,
2004 (shares in thousands):
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Options Outstanding | |
|
|
| |
|
| |
|
Options Exercisable | |
| |
|
|
|
Weighted | |
|
|
|
| |
| |
|
|
|
Average | |
|
Weighted | |
|
|
|
Weighted | |
| |
|
|
|
Remaining | |
|
Average | |
|
|
|
Average | |
| |
|
Number | |
|
Contractual | |
|
Exercise | |
|
Number | |
|
Exercise | |
| Range of Exercise Prices |
|
Outstanding | |
|
Life | |
|
Price | |
|
Exercisable | |
|
Price | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| |
|
|
|
(Years) | |
|
|
|
|
|
|
|
$0.79 - 2.50
|
|
|
6,423 |
|
|
|
5.1 |
|
|
$ |
2.05 |
|
|
|
6,382 |
|
|
$ |
2.05 |
|
|
2.51 - 5.00
|
|
|
3,559 |
|
|
|
7.9 |
|
|
|
3.50 |
|
|
|
657 |
|
|
|
3.26 |
|
|
5.01 - 7.50
|
|
|
604 |
|
|
|
4.5 |
|
|
|
6.74 |
|
|
|
554 |
|
|
|
6.85 |
|
|
7.51 - 17.50
|
|
|
303 |
|
|
|
1.7 |
|
|
|
9.15 |
|
|
|
289 |
|
|
|
9.20 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$0.79 - 17.50
|
|
|
10,889 |
|
|
|
5.9 |
|
|
$ |
2.98 |
|
|
|
7,882 |
|
|
$ |
2.75 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
73
AMICAS, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
The following table summarizes information about the
Company’s outstanding and exercisable warrants at
December 31, 2004 (shares in thousands):
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
Weighted | |
|
|
| |
|
|
|
Average | |
|
Weighted | |
| |
|
|
|
Remaining | |
|
Average | |
| |
|
Number of | |
|
Contractual | |
|
Exercise | |
| Range of Exercise Prices |
|
Warrants | |
|
Life | |
|
Price | |
| |
|
| |
|
| |
|
| |
| |
|
|
|
(Years) | |
|
|
|
$0.75 - 5.00
|
|
|
352 |
|
|
|
3.1 |
|
|
$ |
4.55 |
|
|
5.01 - 17.90
|
|
|
203 |
|
|
|
1.2 |
|
|
|
7.05 |
|
| |
|
|
|
|
|
|
|
|
|
|
$0.75 - 17.90
|
|
|
555 |
|
|
|
2.4 |
|
|
$ |
5.47 |
|
| |
|
|
|
|
|
|
|
|
|
There was no significant impact on the Company’s financial
statements related to warrants in 2004, 2003 and 2002.
The Company’s provision for income taxes of
$2.2 million, $.2 million and $.2 million for
2004, 2003 and 2002, respectively, consists primarily of an
increase in the net valuation allowance for deferred tax assets
for 2004 and current state income taxes for 2003 and 2002 and
relates to continuing operations. In addition, in 2004 the
Company recorded a $3.4 million income tax benefit to
additional paid-in capital in connection with net operating loss
carryforwards attributed to the exercise of employee stock
options.
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and
liabilities for financial reporting purposes and their tax
bases. Significant components of deferred income tax assets and
liabilities are as follows:
| |
|
|
|
|
|
|
|
|
|
|
| |
|
December 31, | |
| |
|
| |
| |
|
2004 | |
|
2003 | |
| |
|
| |
|
| |
| |
|
(In thousands) | |
|
Deferred income tax assets:
|
|
|
|
|
|
|
|
|
| |
Allowance for doubtful accounts
|
|
$ |
1,326 |
|
|
$ |
2,022 |
|
| |
Goodwill amortization
|
|
|
6,218 |
|
|
|
7,589 |
|
| |
Accrued expenses
|
|
|
1,449 |
|
|
|
1,565 |
|
| |
Unearned discounts re: outsourced printing services
|
|
|
1,989 |
|
|
|
2,488 |
|
| |
Net operating loss and credit carryforwards
|
|
|
51,751 |
|
|
|
47,617 |
|
| |
Change in Amicas PACS tax accounting method
|
|
|
709 |
|
|
|
2,426 |
|
| |
|
|
|
|
|
|
| |
|
|
63,442 |
|
|
|
63,707 |
|
| |
|
Less valuation allowance
|
|
|
27,226 |
|
|
|
26,958 |
|
| |
|
|
|
|
|
|
| |
|
$ |
36,216 |
|
|
$ |
36,749 |
|
| |
|
|
|
|
|
|
|
Deferred income tax liabilities:
|
|
|
|
|
|
|
|
|
| |
Acquired/developed software
|
|
$ |
6,571 |
|
|
$ |
8,480 |
|
| |
Other intangible assets
|
|
|
1,146 |
|
|
|
1,329 |
|
| |
Property and equipment
|
|
|
299 |
|
|
|
190 |
|
| |
|
|
|
|
|
|
| |
|
|
8,016 |
|
|
|
9,999 |
|
| |
|
|
|
|
|
|
|
Net deferred income tax asset
|
|
$ |
28,200 |
|
|
$ |
26,750 |
|
| |
|
|
|
|
|
|
74
AMICAS, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
In addition to the tax effect of income from discontinued
operations, the provision for income taxes differed
significantly from the amounts computed by applying the
statutory U.S federal income tax rate to the income (loss) from
continuing operations. In 2004, the difference was caused
primarily by a charge of $5.5 million to reduce the net
deferred tax asset to an amount which management believes is
more likely than not to be realized. In 2003 and 2002, the
difference was caused by the income tax benefit recognized of
$3.5 million and $9.6 million, respectively, from a
decrease in the valuation allowance which was primarily
attributed to the utilization of net operating loss
carryforwards.
As of December 31, 2004, the Company has net operating loss
and tax credit carryforwards of approximately $126 million
and $2.6 million, respectively, which expire at various
dates through 2024. Included in the $126 million is
approximately $18 million, the benefit of which if
realized, would be recorded as a credit to additional paid-in
capital, and approximately $36 million resulting from
preacquisition tax attributes of subsidiaries, utilization of
which is subject to substantial limitations attributable to the
change in ownership provisions of the Internal Revenue Code and
similar state authority. Included in the $36 million is
approximately $22 million of net operating losses acquired
in connection with the Amicas PACS acquisition, the benefit of
which if realized, would be recorded as a credit to goodwill.
Management has assessed the recoverability of the Company’s
deferred tax assets of $63.4 million and as a result of
this assessment, recorded a valuation allowance of
$27.2 million as of December 31, 2004 to, along with
deferred tax liabilities of $8.0 million, reduce the net
deferred tax asset to $28.2 million. Management believes
that the Company will utilize approximately $28.2 million
of its deferred tax asset in connection with the gain from the
Asset Sale in January 2005.
|
|
| M. |
Supplemental Disclosure of Cash Flow and Noncash
Activities |
Cash payments for interest amounted to $1.3 million,
$.9 million and $2.2 million for 2004, 2003, and 2002,
respectively. The Company made cash payments for income taxes of
$42,000, $.3 million and $21,000 in 2004, 2003 and 2002,
respectively.
In 2004, 2003, and 2002, the Company authorized contributions of
$.2 million (plus $.6 million in cash),
$.4 million (plus $.4 million in cash) and
$.8 million (plus $.3 million in cash), respectively,
to the employee savings plan, which were made in shares of the
Company’s common stock quarterly in 2004 and 2003, and in
the following year for 2002.
On December 9, 2004, the November 25, 2003 Amicas PACS
merger agreement was amended. The amendment terminated the
earn-out consideration obligations set forth in the merger
agreement and provides that the Company will pay to former
Amicas PACS stockholders a total of up to $10.0 million to
be paid in the following manner: $4.3 million was paid
three business days after distribution of the escrow fund
pursuant to the escrow notice dated December 9, 2004;
$3.3 million will be paid on April 2, 2005; and
$2.3 million will be paid on the earlier of
(i) December 31, 2005 or (ii) within two business
days after the end of any fiscal quarter during which the
Company’s cash and cash equivalents balance exceeds
$30.0 million. In 2004, the Company recorded a note payable
of $5.6 million in connection with the payments due to the
former Amicas PACS stockholders in 2005.
Effective January 3, 2005, the Company changed its name
from VitalWorks Inc. to AMICAS, Inc.
On January 3, 2005, the Company completed the sale of its
Medical Division to Cerner. The Asset Sale was completed in
accordance with the terms and conditions of the Purchase
Agreement. As consideration for the Asset Sale, the Company
received $100 million in cash, subject to a post-closing
purchase price adjustment to be determined within 90 days
following the closing. The Company estimates that it may need to
pay Cerner approximately $1.2 million relating to the
post-closing purchase price adjustment. The Company
75
AMICAS, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
also expects to record a net gain on the sale of
$45.6 million (net of income taxes of $35 million) in
the first quarter of 2005 (unaudited). The net gain has been
reduced by $.6 million relating to the modification of
stock options granted to certain employees of the Medical
Division. In addition, the Company paid approximately
$1 million in the first quarter of 2005 for additional fees
and transaction costs relating to the Asset Sale.
On January 3, 2005, the Company entered into a Transition
Services Agreement with Cerner (the “Transition Services
Agreement”) in connection with the sale of the Medical
Division. Pursuant to the Transition Services Agreement, in
exchange for specified fees, the Company will provide to Cerner
services including accounting, tax, information technology,
customer support and use of facilities, and Cerner will provide
services to the Company such as EDI services including patient
billing and claims processing, and use of facilities. Certain of
the Company-provided services extend through December 31,
2005 and other Cerner-provided services extend through
March 31, 2009.
In January 2005, the Company assigned its agreement with a
third-party provider of EDI services for patient claims
processing to Cerner in connection with the Transition Services
Agreement. For the four-month period ending April 2005, the
Company is now committed to pay $.1 million to Cerner for
processing services. Thereafter, the annual services fee will
range from $.2 million to $.3 million based on the
Company’s and Cerner’s combined volume usage in the
last month of the preceding year.
In January 2005, the Company assigned its agreement to acquire
program source code, object code, and engineering services from
an independent software development firm to Cerner in connection
with the sale of the Medical Division. As a result, the Company
no longer has commitments under this agreement.
In January 2005, the Company assigned its agreement with NDC to
Cerner in connection with the Transition Services Agreement. The
Company is now committed to minimum quarterly volumes and is
required to pay a minimum quarterly fee of $.6 million to
Cerner through March 2006. Thereafter, the minimum quarterly
volume commitments will be reduced by 1.25% per quarter
until April 2009.
In January 2005 in connection with the Transition Services
Agreement, the Company has committed to pay Cerner approximately
$.2 million per year through April 2007 for certain EDI
services.
On January 3, 2005, the Company repaid the entire
outstanding balance under its credit facility with Wells Fargo
of approximately $23.2 million and the credit facility was
terminated.
On March 8, 2005, the Company entered into an Amended and
Restated Sublease (the “First Sublease”) to lease
additional office space at its Boston, Massachusetts corporate
headquarters. The term of the First Sublease ends on
July 31, 2006, unless extended through December 31,
2007 upon six months written notice by the Company. Until
May 31, 2005, the base rent will be $28,539 per month.
From June 1, 2005 through July 31, 2006, the base rent
will be $30,577 per month, and should the Company extend
the term, the base rent will increase to $33,975 per month
through December 31, 2007. On March 4, 2005, the
Company entered into an Agreement of Sublease (the “Second
Sublease”), effective as of February 15, 2005, to
lease additional office space at the same location. The term of
the Second Sublease expires on January 11, 2008, and until
June 30, 2006, the base rent will be $12,485 per
month. Pursuant to the terms of the Second Sublease, beginning
on July 1, 2006, the Company will lease additional space
and the base rent will increase to $55,377 per month. The
base rent is subject to certain adjustments.
In January 2005, in connection with the sale of the Medical
Division to Cerner, the Company’s operating lease
agreements relating to the Medical Division were assigned to
Cerner. As a result, the Company’s future payments due
under our outstanding lease agreements, including the March 2005
leases described above, decreased to a total of
$4.1 million ($1.3 million due in 2005,
$1.2 million due in 2006, $1.2 million due in 2007 and
$.4 million due in 2008).
The Company expects to complete its corporate headquarters
office relocation by June 30, 2005 and to record an
additional $.8 million for the relocation costs, primarily
in the first quarter of 2005. These costs
76
AMICAS, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
consist of (i) $.6 million of severance-related costs,
all of which are expected to result in future cash expenditures
and (ii) $.2 million of stock compensation expense as
a result of modifying stock options granted to certain employees
in connection with the relocation.
|
|
| O. |
Quarterly Results of Operations (Unaudited) |
The following is a tabulation of the unaudited quarterly results
of operations for the two years ended December 31, 2004:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Three Months Ended | |
|
|
| |
|
| |
|
Year Ended | |
| |
|
March 31 | |
|
June 30 | |
|
September 30 | |
|
December 31 | |
|
December 31 | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| |
|
(In thousands, except per share data) | |
|
2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Total revenues
|
|
$ |
9,465 |
|
|
$ |
9,992 |
|
|
$ |
10,750 |
|
|
$ |
12,112 |
(a) |
|
$ |
42,319 |
|
| |
Gross profit
|
|
|
6,442 |
|
|
|
7,283 |
|
|
|
7,728 |
|
|
|
5,593 |
(b) |
|
|
27,046 |
|
| |
Loss from continuing operations
|
|
|
(5,475 |
) |
|
|
(3,861 |
) |
|
|
(3,930 |
) |
|
|
(13,249 |
)(c) |
|
|
(26,515 |
) |
| |
Income from discontinued operations
|
|
|
3,291 |
|
|
|
3,870 |
|
|
|
3,559 |
|
|
|
3,338 |
|
|
|
14,058 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Net income (loss)
|
|
$ |
(2,184 |
) |
|
$ |
9 |
|
|
$ |
(371 |
) |
|
$ |
(9,911 |
)(c) |
|
$ |
(12,457 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Weighted average number of shares outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Basic and diluted
|
|
|
43,371 |
|
|
|
43,438 |
|
|
|
43,552 |
|
|
|
43,887 |
|
|
|
43,563 |
|
| |
Earnings (loss) per share — basic and diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Continuing operations
|
|
$ |
(0.13 |
) |
|
$ |
(0.09 |
) |
|
$ |
(0.09 |
) |
|
$ |
(0.30 |
) |
|
$ |
(0.61 |
) |
| |
|
Discontinued operations
|
|
|
0.08 |
|
|
|
0.09 |
|
|
|
0.08 |
|
|
|
0.08 |
|
|
|
0.32 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
$ |
(0.05 |
) |
|
$ |
0.00 |
|
|
$ |
(0.01 |
) |
|
$ |
(0.23 |
) |
|
$ |
(0.29 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2003(e)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Total revenues
|
|
$ |
9,150 |
|
|
$ |
8,614 |
|
|
$ |
8,399 |
|
|
$ |
8,048 |
|
|
$ |
34,211 |
|
| |
Gross profit
|
|
|
5,779 |
|
|
|
5,888 |
|
|
|
6,112 |
|
|
|
5,044 |
(b) |
|
|
22,823 |
|
| |
Loss from continuing operations
|
|
|
(1,820 |
) |
|
|
(1,304 |
) |
|
|
(2,303 |
) |
|
|
(5,297 |
) |
|
|
(10,724 |
) |
| |
Income from discontinued operations
|
|
|
4,538 |
|
|
|
5,540 |
|
|
|
5,334 |
|
|
|
3,275 |
|
|
|
18,687 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Net income (loss)
|
|
$ |
2,718 |
|
|
$ |
4,236 |
|
|
$ |
3,031 |
|
|
$ |
(2,022 |
)(d) |
|
$ |
7,963 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Weighted average number of shares outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Basic and diluted
|
|
|
42,716 |
|
|
|
42,998 |
|
|
|
43,203 |
|
|
|
43,283 |
|
|
|
43,052 |
|
| |
Earnings (loss) per share — basic and diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Continuing operations
|
|
$ |
(0.04 |
) |
|
$ |
(0.03 |
) |
|
$ |
(0.05 |
) |
|
$ |
(0.12 |
) |
|
$ |
(0.25 |
) |
| |
|
Discontinued operations
|
|
|
0.11 |
|
|
|
0.13 |
|
|
|
0.12 |
|
|
|
0.08 |
|
|
|
0.43 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
$ |
0.06 |
|
|
$ |
0.10 |
|
|
$ |
0.07 |
|
|
$ |
(0.05 |
) |
|
$ |
0.18 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (a) |
Includes $0.8 million of term-license arrangements that
were converted to perpetual licenses during the quarter ended
December 31, 2004. |
|
|
|
|
(b) |
|
In the quarters ended December 31, 2004 and 2003, the
Company recognized charges of $3.2 million and
$0.5 million, respectively, relating to the impairment of
capitalized software costs. |
77
AMICAS, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
|
|
|
|
(c) |
|
In the quarter, the Company recognized additional settlement,
severance and impairment charges and incurred other costs of
$5.0 million consisting of $1.2 million for asset
impairment, $2.4 million for additional earn-out
consideration due under the provisions of the Amicas PACS merger
agreement, $0.9 million for executive office relocation
severance-related costs and $0.5 million for a legal
settlement. The Company also recorded a provision for income
taxes of $2.0 million which consisted primarily of an
increase in the net valuation allowance for deferred tax assets. |
| |
|
(d) |
|
In the quarter, the Company incurred a charge of
$0.8 million for acquired in-process technology and
$0.3 million of restructuring costs. |
| |
|
(e) |
|
Reclassified to present the results of the Medical Division as
discontinued operations (see Note C). |
78
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
ON FINANCIAL STATEMENT SCHEDULE
Board of Directors and Stockholders
AMICAS, Inc.
The audits referred to in our report dated March 17, 2005
relating to the consolidated financial statements of AMICAS,
Inc., and Subsidiaries, which is contained in Item 8 of
this Form 10-K, included the audits of the schedule listed
under Item 15(a)(2). This financial statement schedule is
the responsibility of the Company’s management. Our
responsibility is to express an opinion on this financial
statement schedule based on our audits.
In our opinion, such schedule presents fairly, in all material
respects, the information set forth therein.
/s/ BDO Seidman, LLP
New York, New York
March 17, 2005
79
|
|
| Item 15(a)(2). |
Financial Statement Schedule |
AMICAS, INC.
SCHEDULE II — VALUATION AND QUALIFYING
ACCOUNTS
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
Additions | |
|
|
|
|
| |
|
|
|
| |
|
|
|
|
| |
|
Balance at | |
|
Charged to | |
|
Charged | |
|
|
|
Balance at | |
| |
|
Beginning | |
|
Costs and | |
|
to Other | |
|
|
|
End of | |
| Description |
|
of Period | |
|
Expenses | |
|
Accounts | |
|
Deductions | |
|
Period | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| |
|
(In thousands) | |
|
Allowance for Doubtful Accounts, Returns and Discounts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Year ended December 31, 2004
|
|
$ |
2,800 |
|
|
|
350 |
|
|
|
1,811 |
(a) |
|
|
(2,761 |
)(b) |
|
$ |
2,200 |
|
| |
Year ended December 31, 2003
|
|
|
1,900 |
|
|
|
145 |
|
|
|
1,828 |
(a) |
|
|
(1,273 |
)(b) |
|
|
2,800 |
(f) |
| |
Year ended December 31, 2002
|
|
|
1,800 |
|
|
|
1,371 |
|
|
|
1,444 |
(a) |
|
|
(2,715 |
)(b) |
|
|
1,900 |
|
|
Deferred Tax Asset Valuation Allowance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Year ended December 31, 2004
|
|
$ |
26,958 |
|
|
|
6,113 |
(i) |
|
|
511 |
(j) |
|
|
(6,356 |
)(k) |
|
$ |
27,226 |
|
| |
Year ended December 31, 2003
|
|
|
25,271 |
|
|
|
|
|
|
|
6,141 |
(g) |
|
|
(4,454 |
)(h) |
|
|
26,958 |
|
| |
Year ended December 31, 2002
|
|
|
23,001 |
|
|
|
|
|
|
|
11,956 |
(c) |
|
|
(9,686 |
)(d) |
|
|
25,271 |
|
|
Allowance for Notes Receivables From Former Officers
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Year ended December 31, 2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Year ended December 31, 2003
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Year ended December 31, 2002
|
|
$ |
6,000 |
|
|
|
|
|
|
|
|
|
|
$ |
(6,000 |
)(e) |
|
|
|
|
|
|
|
|
(b) |
|
Write-offs, returns and discounts, net of recoveries and, in
2004, reclassification of the Medical Division allowance of
$1,200 to current assets of discontinued operations |
| |
|
(c) |
|
Net operating loss carryforwards relating to the exercise of
employee stock options of $9,942 along with adjustments to
beginning of year gross deferred tax assets and liabilities of
$1,097 for a change in rate and $917 for correction in amounts
previously reported |
| |
|
(d) |
|
Recognition of deferred tax assets of $9,614, and other
adjustments of $72 |
| |
|
(e) |
|
Credit due to change in accounting estimate |
| |
|
(f) |
|
Includes $200 from a business acquisition |
| |
|
(g) |
|
Includes $6,042 from a business acquisition and other
adjustments of $99 |
| |
|
(h) |
|
Recognition of deferred tax assets of $3,517 and correction of
beginning of year gross deferred tax assets of $937 |
| |
|
(i) |
|
Change in judgment regarding future realization of beginning of
year tax assets |
| |
|
(j) |
|
Net operating loss carryforwards relating to the exercise of
employee stock options |
| |
|
(k) |
|
Recognition of deferred tax assets of $605, correction of
beginning of year gross deferred tax assets of $1,831, change in
expected effective tax rate of $341, recognition of deferred tax
assets relating to the exercise of employee stock options of
$3,380, and other adjustments of $199 |
All financial statement schedules not listed are omitted because
they are inapplicable or the requested information is shown in
the financial statements of the registrant or in the
accompanying notes.
80
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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 on this 29th day of March, 2005.
|
|
| |
|
| |
Joseph D. Hill |
| |
Senior Vice President and Chief Financial Officer |
|
|
|
| |
By: |
/s/ Stephen N. Kahane M.D., M.S. |
|
|
| |
|
| |
Stephen N. Kahane M.D., M.S. |
| |
President and Chief Executive Officer |
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Stephen N.
Kahane, M.D., M.S. and Joseph D. Hill, and each of them,
his true and lawful attorneys-in-fact and agents, with full
power of substitution and resubstitution for him and in his
name, place and stead, in any and all capacities, to sign any
and all amendments to this Annual Report on Form 10-K, and
all documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and
perform each and every act and thing requisite and necessary to
be done in and about the premises, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents or any of
them, or his or their substitute or substitutes, may lawfully do
or cause to be done by virtue hereof. Pursuant to the
requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the
Registrant in the capacities and on the dates indicated.
| |
|
|
|
|
|
|
| Signature |
|
Title |
|
Date |
| |
|
|
|
|
| |
/s/ STEPHEN N. KAHANE
M.D., M.S.
Stephen
N. Kahane M.D., M.S. |
|
President, Chief Executive Officer and Director (Principal
Executive Officer) |
|
March 29, 2005 |
| |
/s/ JOSEPH D. HILL
Joseph
D. Hill |
|
Senior Vice President and Chief Financial Officer (Principal
Financial and Accounting Officer) |
|
March 29, 2005 |
| |
Joseph
M. Walsh |
|
Chairman of the Board of Directors |
|
|
| |
/s/ KENNETH R. ADAMS
Kenneth
R. Adams |
|
Director |
|
March 25, 2005 |
| |
/s/ STEPHEN J. DENELSKY
Stephen
J. DeNelsky |
|
Director |
|
March 28, 2005 |
81
| |
|
|
|
|
|
|
| Signature |
|
Title |
|
Date |
| |
|
|
|
|
| |
Michael
A. Manto |
|
Director |
|
|
| |
/s/ DAVID B. SHEPHERD
David
B. Shepherd |
|
Director |
|
March 29, 2005 |
| |
/s/ LISA W. ZAPPALA
Lisa
W. Zappala |
|
Director |
|
March 28, 2005 |
82