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EX-4.2 - EX-4.2 - GREENWAY MEDICAL TECHNOLOGIES INC | d28402_ex4-2.htm |
EX-10.6 - EX-10.6 - GREENWAY MEDICAL TECHNOLOGIES INC | d28402_ex10-6.htm |
EX-23.1 - EX-23.1 - GREENWAY MEDICAL TECHNOLOGIES INC | d28402_ex23-1.htm |
EX-10.7 - EX-10.7 - GREENWAY MEDICAL TECHNOLOGIES INC | d28402_ex10-7.htm |
EX-10.5 - EX-10.5 - GREENWAY MEDICAL TECHNOLOGIES INC | d28402_ex10-5.htm |
As filed with the Securities and Exchange Commission on
July 15, 2011
Registration Statement No. 333-
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF
1933
Greenway Medical Technologies,
Inc.
(Exact name of Registrant as specified in its
charter)
Georgia
(before reincorporation) Delaware (after reincorporation) |
7373 |
58-2412516 |
||||||||
(State or
other jurisdiction of incorporation or organization) |
(Primary Standard Industrial Classification Code Number) |
(I.R.S. Employer Identification Number) |
121 Greenway Boulevard
Carrollton, GA 30117
(770) 836-3100
(Address, including zip code, and telephone number, including area code, of Registrants principal executive offices)
Carrollton, GA 30117
(770) 836-3100
(Address, including zip code, and telephone number, including area code, of Registrants principal executive offices)
James A. Cochran
Chief Financial Officer
Greenway Medical Technologies, Inc.
121 Greenway Boulevard
Carrollton, GA 30117
(770) 836-3100
(Name, address, including zip code, and telephone number, including area code, of agent for service)
Chief Financial Officer
Greenway Medical Technologies, Inc.
121 Greenway Boulevard
Carrollton, GA 30117
(770) 836-3100
(Name, address, including zip code, and telephone number, including area code, of agent for service)
Copies to:
Reinaldo
Pascual Paul, Hastings, Janofsky & Walker LLP 600 Peachtree Street, N.E., Suite 2400 Atlanta, GA 30308 (404) 815-2227 Facsimile (404) 685-5227 |
Christian O. Nagler Kirkland & Ellis LLP 601 Lexington Avenue New York, NY 10022 (212) 446-4660 Facsimile (212) 446-4900 |
Approximate date of
commencement of proposed sale to the public: As soon as practicable after the effective date of this registration statement.
If any of the securities being
registered on this form are being offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following
box. [ ]
If this form is filed to register
additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement for the same offering. [ ]
If this form is a post-effective
amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of
the earlier effective registration statement for the same offering. [ ]
If this form is a post-effective
amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of
the earlier effective registration statement for the same offering. [ ]
If delivery of the prospectus is
expected to be made pursuant to Rule 434, check the following box. [ ]
Indicate by check mark whether the
registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of
large accelerated filer, accelerated filer and smaller reporting company in Rule 12b- 2 of the Exchange
Act.
Large accelerated
filer [ ] |
Accelerated filer [ ] |
Non-accelerated filer [X] (Do not check if a smaller reporting company) |
Smaller reporting company [ ] |
CALCULATION OF REGISTRATION FEE(1)
Title of Each Class of Securities to be Registered |
|
Proposed Maximum Aggregate Offering Price(2)(3) |
|
Amount of Registration Fee |
||||||
---|---|---|---|---|---|---|---|---|---|---|
Common Stock, par value $0.0001 per share |
$ | 100,000,000 | $ | 11,610 |
(1) |
In accordance with Rule 457(o) under the Securities Act of 1933, as amended (the Securities Act), the number of shares being registered and the proposed maximum offering price per share are not included in this table. |
(2) |
Estimated solely for the purpose of calculating the amount of the registration fee in accordance with Rule 457(o) under the Securities Act. |
(3) |
Includes shares to be sold upon exercise of the underwriters over-allotment option. |
The Registrant hereby amends this
Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which
specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or
until this Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may
determine.
The information in this preliminary prospectus is not
complete and may be changed. We and the selling stockholders may not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell nor does it seek an offer to buy these
securities in any jurisdiction where the offer or sale is not permitted.
Prospectus (Subject to Completion)
Dated July 15, 2011
Dated July 15, 2011
Shares
Greenway Medical Technologies, Inc.
Common Stock
This is the initial public
offering of shares of common stock of Greenway Medical Technologies, Inc.
Greenway is offering
of the shares to be sold in the offering. The selling stockholders identified in this prospectus are offering an
additional shares. Greenway will not receive any of the proceeds from the sale of the shares being sold by the
selling stockholders.
Prior to this offering, there has
been no public market for our common stock. The initial public offering price of our common stock is expected to be between
$ and $ . Greenway intends to list the common stock on the
under the symbol GWAY.
Per share |
Total |
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Initial
public offering price |
$ | $ | ||||||||
Underwriting
discount |
$ | $ | ||||||||
Proceeds,
before expenses, to Greenway |
$ | $ | ||||||||
Proceeds,
before expenses, to the selling stockholders |
$ | $ |
To the extent that the
underwriters sell more than shares of common stock, the underwriters have the option to purchase up to an
additional shares from at the initial public offering price less the
underwriting discount.
Investing in our common stock
involves risks. See Risk Factors beginning on page 11.
Neither the Securities and
Exchange Commission nor any other regulatory body has approved or disapproved of these securities or passed upon the accuracy or adequacy of this
prospectus. Any representation to the contrary is a criminal offense.
This is a firm commitment
underwritten offering. The underwriters expect to deliver the shares against payment in New York, New York on
, 2011.
J.P. Morgan |
Morgan Stanley |
William
Blair & Company |
Piper
Jaffray |
Raymond James |
,
2011
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F-1 |
Through and
including , 2011 (the 25th day after the date of this prospectus), all dealers
effecting transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition
to a dealers obligation to deliver a prospectus when acting as an underwriter and with respect to an unsold allotment or
subscription.
We and the selling stockholders
have not authorized anyone to provide any information or to make any representations other than those contained in this prospectus or in any free
writing prospectuses we have prepared. Neither we nor the selling stockholders take responsibility for, and can provide no assurance as to the
reliability of, any other information that others may give you. This prospectus is an offer to sell only the shares offered hereby, but only under
circumstances and in jurisdictions where it is lawful to do so. The information contained in this prospectus is current only as of its
date.
Industry and market data used
throughout this prospectus were obtained through our research and surveys and studies conducted by third-parties as well as industry and general
publications. Some data and other information are also based on our good faith estimates, which are derived from our review of internal surveys and
independent sources. Although we believe that these sources are credible, we have not independently verified any of the data from third-party sources
nor have we ascertained any underlying economic assumptions relied upon therein. While we are not aware of any misstatements regarding the industry and
market data presented herein, estimates involve risks and uncertainties and are subject to change based on various factors, including those discussed
under the heading Risk Factors.
Greenway®, PrimeSUITE®,
PrimePATIENT®, and PrimeRCM® are registered trademarks of Greenway Medical Technologies, Inc. We also use the following trademarks in our
business: PrimeENTERPRISETM, PrimeEXCHANGETM, PrimeMOBILETM, PrimeRESEARCHTM, PrimeSPEECHTM,
PrimeIMAGETM and PrimeDATACLOUDTM. Solely for convenience, our trademarks may appear in this prospectus without the ® or
TM symbols, but such references are not intended, to indicate, in any way, that we will not assert, to the fullest extent under applicable
law, our trademark rights.
i
This summary
highlights certain information contained elsewhere in this prospectus. This summary does not contain all of the information you should consider before
investing in our common stock. You should carefully read the entire prospectus, including the section entitled Risk Factors and our
financial statements and related notes, before you decide whether to invest in our common stock. If you invest in our common stock, you are assuming a
high degree of risk. See the section entitled Risk Factors. References to we, our, us,
Company, or Greenway refer to Greenway Medical Technologies, Inc. Unless otherwise indicated, industry data are derived from
publicly available sources, which we have not independently verified.
Overview
We are a leading
provider of integrated information technology solutions and managed business services to ambulatory healthcare providers throughout the United States.
At the core of our suite of solutions and services is PrimeSUITE, our award-winning, fully-integrated electronic healthcare record (EHR),
practice management (PM) and interoperability solution. PrimeSUITE integrates clinical, financial and administrative data in a single
database to enable comprehensive views of the patient record, support efficient workflows throughout each patient encounter, reduce clinical and
administrative errors and allow for the seamless exchange of data between our provider customers and the broader healthcare community. We augment our
solutions by offering managed business services, including clinically-driven revenue cycle management (RCM) and EHR-enabled research
services. By integrating clinical, financial and administrative data and processes, our solutions and services are designed to enable providers to
deliver more advanced care and improve their efficiency and profitability. Over 33,000 providers use our solutions and services to deliver care to and
manage the clinical, financial and administrative information of over 20 million patients.
Our technology
solutions and services are designed to address the needs of providers in all ambulatory settings: independent physician practices, multi-specialty
group practices, hospital-affiliated and hospital-owned clinics and practices, retail clinics, employer clinics, university and academic health
centers, federally-qualified health centers (FQHC), community health centers (CHC), integrated delivery networks
(IDN), accountable care communities (ACC) and accountable care organizations (ACO). Our single database technology
platform, which reflects over 12 years of development, is available in either a cloud-based or premise-based model and is scalable to serve the needs
of ambulatory providers of any size. As providers needs evolve, our platform allows for the efficient development and integration of new
solutions, which we refer to as our innovation platform.
Our integrated
EHR/PM solution is consistently rated among the best in the industry. Since 2004, PrimeSUITE has received 11 Best in KLAS awards in
ambulatory EHR and PM categories. We have achieved a customer retention rate of approximately 95% in a market where, according to KLAS, 35% of
providers who have adopted EHR technologies, are considering replacing their current vendors. We believe this success is a reflection of our historical
and continuing focus on usability at the point of care as our foremost development priority and our commitment to customer service from initial
implementation and training to on-going support.
The ambulatory
EHR market has historically been underpenetrated and installed systems have been underutilized. Adoption of these technologies has been low for several
reasons including providers resistance to making the required investment and concerns that creating and managing electronic records may disrupt
clinical and administrative workflows. Adoption of EHR solutions is accelerating as more providers realize the benefits of using technology solutions,
including the potential return on investment from adoption of solutions such as PrimeSUITE. Government initiatives and legislation have provided
additional financial incentives and implementation support for ambulatory providers to adopt EHR solutions. Finally, macro-trends such as increasing
consumerism, the shift to quality-based reimbursement and the emerging focus on improving the coordination of care, are creating strong incentives for
providers to implement technologies that help them meet the needs of the changing ambulatory healthcare environment.
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We estimate the current market
for our solutions and services to be approximately $33 billion. We believe our potential customer base includes approximately 550,000 physicians at
over 230,000 practices, as well as approximately 3,500 retail and employer based clinics that contain an additional 8,000 providers. Our core EHR/PM
solution, PrimeSUITE, serves an estimated $9 billion market. While 41% of the EHR/PM market is penetrated, only 10% of providers fully utilize their
installed EHR solution. The markets for certain of our other solutions include $14 billion for our RCM services, $3.5 billion for our data exchange
solution, and $2 billion for our speech understanding solution.
We believe we are competitively
positioned to penetrate this market opportunity and to take advantage of emerging trends in ambulatory care including demand for interoperability,
mobility, consumerism and data liquidity.
During our fiscal year ended June
30, 2010, total revenue was $64.6 million, compared to $48.7 million for fiscal 2009. Total revenue was $60.4 million for the nine months ended March
31, 2011 compared to $44.5 million for the nine months ended March 31, 2010. From fiscal year 2006 to fiscal year 2010, our revenue has increased at a
compound annual growth rate of 29.9%.
Industry Overview
Ambulatory providers in the
United States are expected to face increasing patient visits and financial and operating challenges. Factors driving these trends include (i) payer
initiatives to shift patients away from acute care into ambulatory settings; (ii) increasing access to health insurance coverage; (iii) downward
pressure on reimbursement rates; (iv) intensifying regulatory requirements; and (v) increasing complexity of the reimbursement process. In an effort to
align provider incentives with improved quality of care and cost efficiencies, payers are introducing new payment methodologies that tie reimbursement
to providers ability to coordinate care and improve patient outcomes. Technology solutions are a critical component of ambulatory providers
ability to respond and succeed in this environment.
Ambulatory providers have
traditionally used PM systems to manage their financial and administrative functions, but clinical workflows are still largely managed on paper charts.
Use of paper records can restrict the throughput of the provider and prevent the efficient collection and sharing of critical information. This can
cause clinical errors such as adverse drug interactions and result in failure to charge accurately for services rendered and lead to a greater rate of
denied claims. Despite the advantages of EHR solutions, their adoption rates by ambulatory providers have been substantially lower than those of PM
solutions. Adoption of these technologies has been low for several reasons including the cost of acquiring, implementing and supporting the technology
as well as the fear of disrupting clinical and administrative workflows.
We believe several factors are
encouraging adoption of EHR/PM solutions and related technologies and services by ambulatory providers and will serve to drive the growth of our
business.
|
Compelling Return on Investment. We believe providers are becoming increasingly aware of and comfortable with the potential benefits of using integrated EHR/PM solutions, including helping them practice more advanced medicine and deliver higher quality care, while simultaneously improving revenue generation, reducing cost and increasing efficiency. Providers are recognizing the potential of integrated EHR/PM solutions to significantly improve their operations and profitability. |
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Government Initiatives and Incentives. Over the last several years, the government has enacted initiatives to drive the adoption of certified EHR solutions. Most importantly, the recently enacted Health Information Technology for Economic and Clinical Health Act (HITECH Act) provides more than $19 billion of provider incentives through Medicare and Medicaid programs to encourage the adoption of certified EHR solutions. An eligible professional that qualifies for incentives can receive up to an aggregate of $44,000 from Medicare or $63,750 from Medicaid. Additional initiatives include certification programs, such as the Certification Commission for Health Information Technology (CCHIT), and the $650 million in grants allocated to create Regional Extension Centers (RECs), both of which encourage and support ambulatory providers in the implementation of certified EHR solutions. |
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Trends in the Evolving Ambulatory Market. Three major trends impacting ambulatory providers are greater electronification of health data, growing consumerism and initiatives aimed at improving population health. Ambulatory providers now understand that the adoption of integrated EHR/PM and related technology solutions can help them succeed in this evolving and complex market by taking advantage of these key trends. |
We believe many
existing EHR and PM technology vendors do not adequately meet the needs of the ambulatory healthcare market. EHR systems are often difficult to use and
disruptive to provider workflows. Additionally, many EHR/PM systems are not integrated, which creates inefficiencies between the delivery and
documentation of patient care and the administrative and financial processes of the provider. Lack of interoperability with IT systems in other care
settings prevents the exchange of clinical, financial and administrative data with the rest of the healthcare community. Finally, many vendors have
multiple versions of their software installed across their customer bases, which reduces their ability to provide effective service and support to
ambulatory providers. Due in part to these dynamics, 35% of providers recently surveyed by KLAS who have adopted EHR solutions indicated that they are
considering replacing their existing EHR systems.
Our Solutions
The foundation
of our offering is an integrated suite of technology solutions designed for the unique needs and workflows of ambulatory providers with usability at
the point of care as the foremost priority. At the core of our suite of solutions and services is PrimeSUITE, our award-winning, fully-integrated EHR,
PM and interoperability solution. Its intuitive design and built-in clinical decision support capabilities are designed to help providers improve
patient safety, quality of care and efficiency. PrimeSUITE has over 3,200 clinical templates, designed for the needs of over 30 specialties and
subspecialties, that offer data capture layouts that are intuitive to providers and make it easier to enter patient health information at the point of
care. Unlike many of our competitors, our EHR and PM solutions were designed to be fully-integrated and house clinical, financial, and administrative
data within a single database. This allows the EHR and PM systems to operate seamlessly and creates efficiencies between the process of delivering and
documenting care and the process of billing and collecting for services.
Since the
initial release of PrimeSUITE, we have introduced additional solutions to enhance data liquidity, mobility and productivity of providers. PrimeEXCHANGE
facilitates data liquidity by enabling interoperability of clinical and financial data between providers and the broader healthcare community.
PrimePATIENT is our provider portal that allows patients to schedule appointments, complete administrative forms, exchange their personal health record
information with providers and pay their healthcare bills online. PrimePATIENT also enables e-visits, which are web-enabled consultations between
patients and physicians that can supplement or replace traditional in-person office visits, save time for patients and increase revenue for physicians.
PrimeMOBILE allows providers to access PrimeSUITE from their mobile devices when working remotely. Finally, our new PrimeSPEECH solution is a
sophisticated speech understanding software that simplifies data entry into PrimeSUITE, which reduces workflow disruption and saves time and money
providers currently spend on transcription services.
We have also
developed several managed business service offerings that leverage our technology solutions and the integrated PrimeSUITE database. These include
PrimeRCM, our clinically-driven revenue cycle management services, and PrimeRESEARCH, our EHR-enabled research service that allows providers to
participate in clinical research and contribute to population health initiatives.
We believe these
innovative solutions and services differentiate us from our competition and enable us to act as long-term partners in the success of our customers by
providing them the following key benefits:
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Enable the Delivery of Higher-Quality Care and More Advanced Medicine. Our provider customers can deliver higher-quality care and practice more advanced medicine due to PrimeSUITEs clinical decision- support capabilities, clinical alerts and reminders, electronic order entry and tracking and active device controls that integrate data from peripheral medical devices directly into the patients record. Clinical encounter data captured in PrimeSUITE over time creates a comprehensive electronic healthcare record that enables providers to more effectively identify and proactively address emerging trends in a patients health. |
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Deliver Improved Financial Performance. Our solutions enhance provider economics by increasing revenue, improving receivables collection, and reducing administrative costs. Automated reporting of key metrics supports the generation of additional revenue by helping the provider track progress towards qualification for available incentive payments, such as those based on improvement in quality measures or for demonstrating use of e-prescribing and certified EHR technology. Reduced administrative costs are realized through reduction or elimination of transcription, paper chart, administrative staff and other costs. A series of case studies conducted on our behalf indicate that customers can significantly increase cash flow following implementation of PrimeSUITE. |
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Enhance the Workflow of the Provider. PrimeSUITE has been developed to accommodate and support the unique clinical workflows of providers in over 30 specialties and subspecialties and the financial and administrative workflows of their staff. PrimeSUITE and our suite of solutions adapt to a providers workflow, which encourages quick adoption and overcomes their aversion to switch to electronic systems from traditional paper-based records. Clinical information captured during the patient encounter automatically generates recommended evaluation and management (E&M) codes for billing purposes. The integration of clinical, financial and administrative information and its availability to all providers and staff before, during and after patient visits can help providers improve their efficiency. |
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Position Providers for the Future of Healthcare. We believe the future of healthcare will require providers to deliver high-quality care in the most collaborative and cost-effective way possible, while dealing with increasing consumerism among patients and the desire to participate in the improvement of population health. Our integrated and interoperable solutions can help providers collaborate with the broader healthcare community, improve patient experience and satisfaction and increase their participation in clinical trials and population health initiatives. |
Our Strengths
We believe we
have the following key competitive strengths:
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Proven, Long-Term Vision. We have succeeded in developing innovative solutions and services to help providers respond to the key trends in the ambulatory market, which we identified early in our history as electronification, consumerism and improving population health. We continuously monitor themes that will shape the future for providers and develop innovative solutions and services to help them succeed as the market evolves. |
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Differentiated Technology Model. Our technology architecture, based on Microsoft .NET, has proven to be mission-critical, secure and reliable for over 33,000 providers. All of our solutions and services are based on a single, integrated database that contains clinical, financial and administrative data and supports exceptional interoperability, data analytics and reporting. Our model enables rapid innovation, centralized support and deployment of updates, scalability to serve small and large customers and the ability to provide a cloud-based or premise-based model. This integrated, scalable and flexible technology architecture provides a range of benefits to our customers and forms a strong foundation for our business model. |
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Superior Customer Service and Support. We believe that successful adoption of our solutions requires partnering with our customers to empower them to utilize our technology to its maximum capability. Our high-quality customer service has contributed to our approximately 95% customer retention rate in a market where it is estimated that 35% of providers who have adopted EHR technology are considering replacing it. |
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Trusted Brand. We have a trusted and recognized brand with our customers and within our industry. Our PrimeSUITE solution has received 11 Best in KLAS awards since 2004. CCHIT has certified PrimeSUITE as a Complete EHR for 2011/2012 and granted it the highest usability rating of Five Stars. These accolades, combined with our continued involvement in industry initiatives, focus on innovation and high levels of customer service and support, drive increased brand recognition among customers and in our industry. |
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Attractive Business Model. Our broad range of solutions and services and our high customer retention rate provide us with a powerful business model. This model has driven a compound annual growth rate of 29.9% over the past five years, and a growing percentage of recurring revenue that, combined with our backlog of new business sold, provides high revenue visibility. Our integrated EHR/PM solution provides operating leverage by allowing us to focus our research and development solely on innovation as opposed to integration of legacy technologies. Furthermore, our cost structure is also more efficient due to the ease of supporting and upgrading our technology platform. These factors help us drive predictable revenue growth and generate greater operating profit. |
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Experienced Management Team. Our management team has significant experience in our industry and a majority of our executives have worked together for more than 10 years. Our teams vision of the market, which was developed in the late 1990s and is now coming to fruition, has driven the design of our innovative suite of solutions and business services and our differentiated technology model. Our operational teams are organized around key growth areas and we have instilled a culture of innovation and customer service throughout the company. |
Our Strategy
Our objective is to be the most
trusted and effective provider of technology solutions and managed business services for ambulatory providers. Our principal strategies to meet our
objective are:
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Increase our Share of the Expanding Market for Ambulatory Technology Solutions. We plan to capitalize on the large and growing ambulatory technology market opportunity by leveraging our targeted and multi-pronged sales strategy. We intend to grow our business by attracting new customers and displacing existing and incumbent competitive products. |
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Generate Greater Revenue per Customer by Expanding Their Use of Our Suite of Solutions and Services. We will continue to cross-sell our integrated product and service offerings to customers already using PrimeSUITE. As our customers use more of our solutions and services, we become even more critical to their operating infrastructure, further solidifying our partnership with them and generating increased revenue per customer. |
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Develop Innovative Solutions for the Evolving Needs of Ambulatory Provider Market. We continuously monitor and work with our customers to understand the evolving technology needs of the ambulatory provider market. The insights we gather help drive our development of new and innovative solutions and services, including our recently introduced PrimeRESEARCH service and PrimeDATACLOUD solution, a collaborative care portal, that securely and cost effectively empowers population health through the sharing and aggregation of data across providers. We will continue to work closely with customers to develop solutions that position them to succeed as the ambulatory care market evolves. |
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Expand Margins by Leveraging our Operating Platform. We expect operating margins to increase as we continue to grow revenue by substantially leveraging our existing infrastructure and operations. We have made, and will continue to make, investments in our technology infrastructure and processes, which we believe will allow us to profitably grow our business as we add new customers and solutions. |
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Pursue Targeted Acquisitions. We intend to pursue acquisitions on a targeted basis, seeking out complementary and innovative technologies and services that augment and differentiate our current solutions. |
Risks Associated with Our Business
Our business is subject to a
number of risks which you should be aware of before making an investment decision. Those risks are discussed more fully in Risk Factors
beginning on page 11. For example:
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If we are unable to successfully introduce new technology solutions or services or fail to keep pace with advances in technology, our business, financial condition and results of operations will be adversely affected. |
5
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If we fail to implement our growth strategy or manage future growth effectively, our business would be harmed, and our recent growth rates may not be indicative of our future growth rates. |
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If we lose members of our management team or other qualified personnel or if we are unable to attract, hire, integrate and retain other necessary employees, our business would be harmed. |
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Disruptions in service or damage to our third-party providers data centers could adversely affect our business. |
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We operate in a highly competitive industry, and our competitors may be able to compete more efficiently or evolve more rapidly than we do, which could have a material adverse effect on our business, revenue, growth rates and market share. |
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Government programs in the United States initiated to accelerate the adoption and utilization of health information technology and to counter the effects of the current economic situation, may not be effective in changing the behavior of providers or may not be fully implemented or fully funded by the government. |
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We must ensure our EHR systems are certified pursuant to HITECH Act standards, and failure to continue to provide solutions that are certified could put us at a competitive disadvantage. |
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Our technology solutions are required to meet the standards for interoperability, which could require us to incur substantial additional development costs. |
Corporate Information
Simultaneously in connection with
the closing of this offering, we will become a Delaware corporation (the Reincorporation) by way of a merger with and into a newly-formed
wholly-owned Delaware subsidiary, with the Delaware subsidiary remaining as the surviving corporation with the name Greenway Medical Technologies, Inc.
following the merger. We were originally incorporated in Georgia in September 1998. See BusinessCorporate
Information.
Our executive offices are located
at 121 Greenway Boulevard, Carrollton, Georgia 30117 and our telephone number at this location is (770) 836-3100. Our website is
www.greenwaymedical.com. Information included or referred to on, or otherwise accessible through, our website is not intended to form a part of
or be incorporated by reference into this prospectus.
6
Common
stock offered by us |
Shares |
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Common
stock offered by the selling stockholders |
Shares |
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Common
stock to be outstanding after this offering |
Shares |
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Over-allotment option |
Shares |
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Directed Share Program |
The underwriters have reserved for sale to our officers, directors and employees, immediate family members of the foregoing, and other persons
selected by us, up to % of the shares of the common stock offered by this prospectus at the initial public offering price. We will offer these shares
to the extent permitted under applicable regulations in the United States and in various countries. The number of shares available for sale to the
general public in this offering will be reduced to the extent these persons purchase reserved shares. Any reserved shares not purchased will be offered
by the underwriters to the general public on the same terms as the other shares. See the section entitled UnderwritingDirected Share
Program. |
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Use of proceeds |
We
intend to use (a) approximately $ of the net proceeds of this offering to pay the preferred stock liquidation preference to holders of our outstanding
preferred stock concurrently with the conversion of such shares into shares of common stock upon the closing of this offering, and (b) the balance for
working capital and general corporate purposes, which may include financing our growth, developing new products and services, and funding capital
expenditures, acquisitions and investments. We will not receive any proceeds from the sale of shares by the selling stockholders. See the section
entitled Use of Proceeds. |
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Proposed trading symbol |
GWAY |
The number of
shares of our common stock to be outstanding immediately after this offering is based on the number of shares outstanding as of June 30, 2011, after
giving effect to the Reincorporation and the conversion of our preferred stock to common stock, and excludes:
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shares of common stock issuable upon the exercise of warrants outstanding as of 2011 at a weighted average exercise price of $ per share; |
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shares of common stock issuable upon the exercise of stock options outstanding as of , 2011 at a weighted average exercise price of $ per share; and |
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shares of common stock available for future issuance under our equity compensation plans as of , 2011. |
Unless otherwise
noted, the information contained in this prospectus reflects and assumes the following:
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an offering price of $ per share of common stock, which is the mid-point of the range set forth on the cover of this prospectus; |
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the Reincorporation to a Delaware corporation; |
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no exercise by the underwriters of their over-allotment option; |
|
the conversion of all outstanding shares of our preferred stock into shares of common stock which will happen in connection with the completion of this offering; and |
|
our issuance of shares of common stock in this offering. |
7
SUMMARY FINANCIAL DATA
The following tables set forth,
for the periods and at the dates indicated, our summary financial data. We derived the statement of operations data for the years ended June 30, 2008,
2009 and 2010 and the balance sheet data as of June 30, 2009 and 2010 from our audited financial statements, which are included in this
prospectus.
The summary statements of
operations for the nine months ended March 31, 2010 and 2011 and the summary balance sheet data as of March 31, 2011 are derived from our unaudited
financial statements included elsewhere in this prospectus. Our unaudited financial statements have been prepared on the same basis as the audited
financial statements and notes thereto and, in the opinion of our management, include all adjustments (consisting of normal recurring adjustments)
necessary for a fair statement of the information for the unaudited interim periods. Our historical results for prior interim periods are not
necessarily indicative of results to be expected for a full year or for any future period.
The pro forma balance sheet data
as of March 31, 2011 give effect to (1) the automatic conversion of all outstanding shares of convertible preferred stock into shares of common stock
upon the closing of this offering and (2) the mandatory preferred stock preference payment of
$ payable to the holders of outstanding preferred stock upon the completion of
this offering. The pro forma balance sheet data as of March 31, 2011 give effect to (1) the items described in the preceding sentence, (2) our issuance
and sale of shares of common stock in this offering at an assumed initial public offering price of $
per share, the midpoint of the estimated price range shown on the cover of this prospectus, after deducting the estimated underwriting discounts,
commissions and offering expenses payable by us and the application of the net proceeds therefrom as described in Use of
Proceeds.
You should read the following
information together with the more detailed information contained in Selected Financial Data, Managements Discussion and
Analysis of Financial Condition and Results of Operations and our financial statements and the accompanying notes appearing elsewhere in this
prospectus.
For the years ended June 30, |
Nine months ended March 31, |
||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
2008 |
2009 |
2010 |
2010 |
2011 |
|||||||||||||||||||
(in thousands, except per share
data) |
(Unaudited) | ||||||||||||||||||||||
Statements
of operations data |
|||||||||||||||||||||||
Revenue: |
|||||||||||||||||||||||
System sales
|
$ | 24,205 | $ | 28,575 | $ | 36,035 | $ | 24,019 | $ | 31,983 | |||||||||||||
Software
support services |
8,457 | 11,421 | 16,031 | 11,522 | 16,011 | ||||||||||||||||||
Electronic data
interchange and business services |
6,137 | 8,716 | 12,576 | 8,986 | 12,438 | ||||||||||||||||||
Total revenue
|
38,799 | 48,712 | 64,642 | 44,527 | 60,432 | ||||||||||||||||||
Cost of
revenue: |
|||||||||||||||||||||||
System
sales(1) |
10,551 | 12,208 | 14,904 | 10,428 | 14,671 | ||||||||||||||||||
Software
support services(1) |
2,763 | 3,279 | 4,179 | 3,071 | 4,750 | ||||||||||||||||||
Electronic data
interchange and business services(1) |
4,439 | 5,954 | 8,713 | 6,142 | 8,786 | ||||||||||||||||||
Total cost of
revenue |
17,753 | 21,441 | 27,796 | 19,641 | 28,207 | ||||||||||||||||||
Gross profit
|
21,046 | 27,271 | 36,846 | 24,886 | 32,225 | ||||||||||||||||||
Operating
expenses: |
|||||||||||||||||||||||
Sales, general
and administrative(1) |
16,860 | 20,370 | 27,727 | 18,951 | 27,145 | ||||||||||||||||||
Research and
development(1) |
5,356 | 5,767 | 5,991 | 4,338 | 5,628 | ||||||||||||||||||
Total
operating expenses |
22,216 | 26,137 | 33,718 | 23,289 | 32,773 | ||||||||||||||||||
Operating
income (loss) |
(1,170 | ) | 1,134 | 3,128 | 1,597 | (548 | ) | ||||||||||||||||
Interest
(income) expense and other expense, net |
(244 | ) | 153 | 115 | 85 | 19 | |||||||||||||||||
Income
before income taxes |
(926 | ) | 981 | 3,013 | 1,512 | (567 | ) | ||||||||||||||||
Provision
for income taxes |
| 26 | 148 | 36 | 30,944 | ||||||||||||||||||
Net income
(loss) |
(926 | ) | 955 | 2,865 | 1,476 | 30,377 | |||||||||||||||||
Preferred
stock dividends and accretion |
(6,471 | ) | (9,014 | ) | (8,038 | ) | (7,677 | ) | (39,728 | ) | |||||||||||||
Loss
available to common stockholders |
$ | (7,397 | ) | $ | (8,059 | ) | $ | (5,173 | ) | $ | (6,201 | ) | $ | (9,351 | ) |
8
For the years ended June 30, |
Nine months ended March 31, |
||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
2008 |
2009 |
2010 |
2010 |
2011 | |||||||||||||||||||
(in thousands, except per share
data) |
(Unaudited) | ||||||||||||||||||||||
Per share
data: |
|||||||||||||||||||||||
Net loss per
share: |
|||||||||||||||||||||||
Basic and
diluted |
$ | (0.74 | ) | $ | (0.81 | ) | $ | (0.48 | ) | $ | (0.59 | ) | $ | (0.81 | ) | ||||||||
Weighted
average number of common shares outstanding |
|||||||||||||||||||||||
Basic and
diluted |
9,940 | 9,947 | 10,684 | 10,425 | 11,562 | ||||||||||||||||||
|
|||||||||||||||||||||||
Cost of
revenue: |
|||||||||||||||||||||||
System
sales |
78 | 57 | 72 | 65 | 81 | ||||||||||||||||||
Software
support services |
100 | 14 | 23 | 22 | 37 | ||||||||||||||||||
Electronic
data interchange and business services |
6 | 1 | 1 | 1 | 9 | ||||||||||||||||||
Total cost of
revenue |
184 | 72 | 96 | 88 | 127 | ||||||||||||||||||
Operating
expenses: |
|||||||||||||||||||||||
Sales,
general and administrative |
1,196 | 482 | 463 | 453 | 1,059 | ||||||||||||||||||
Research and
development |
168 | 11 | 63 | 60 | 154 | ||||||||||||||||||
Total
operating expenses |
1,364 | 493 | 526 | 513 | 1,213 | ||||||||||||||||||
Total
stock-compensation expense |
1,548 | 565 | 622 | 601 | 1,340 |
As of June 30, |
As of March 31, |
Pro forma as |
|||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
2008 |
2009 |
2010 |
2011 |
adjusted(1) |
|||||||||||||||||||
(Unaudited) | (in thousands) | (Unaudited) | |||||||||||||||||||||
Balance
sheet data |
|||||||||||||||||||||||
Cash, cash
equivalents, and short-term investments |
$ | 8,161 | $ | 9,711 | $ | 19,179 | $ | 18,046 | |||||||||||||||
Working capital
|
8,564 | 9,861 | 16,966 | 16,481 | |||||||||||||||||||
Total assets
|
19,944 | 22,210 | 38,604 | 76,323 | |||||||||||||||||||
Deferred
revenue |
3,233 | 3,717 | 4,320 | 7,882 | |||||||||||||||||||
Long-term
obligations |
2,218 | 1,904 | | 359 | |||||||||||||||||||
Convertible
preferred stock at fair value |
87,360 | 95,818 | 103,855 | 143,583 | |||||||||||||||||||
Accumulated
deficit |
(134,791 | ) | (142,850 | ) | (148,024 | ) | (157,375 | ) | |||||||||||||||
Total
stockholders deficit |
(77,056 | ) | (84,539 | ) | (79,996 | ) | (87,189 | ) |
(1) |
The pro forma as adjusted summary balance sheet data as of March 31, 2011 gives effect to the conversion of all outstanding shares of our convertible preferred stock into an aggregate of 8,842,104 shares of common stock upon the closing of this offering and the payment of aggregate preference due to holders of our convertible preferred stock upon conversion (approximately ) and gives further effect to the sale of shares of our common stock at an initial public offering price of $ per share after deducting underwriting discounts and estimated offering expenses payable by us. |
9
For the years ended June 30, |
Nine months ended March 31, |
||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
2008 |
2009 |
2010 |
2010 |
2011 |
|||||||||||||||||||
(Unaudited) (in thousands) |
|||||||||||||||||||||||
Adjusted
EBITDA(1) |
$ | 700 | $ | 2,029 | $ | 4,144 | $ | 2,497 | $ | 1,375 | |||||||||||||
Net cash
provided by (used in) operating activities |
(2,416 | ) | 2,070 | 6,628 | 3,586 | 4,416 | |||||||||||||||||
Capital
expenditures |
3,128 | 325 | 2,784 | 1,562 | 2,660 |
(1) |
Adjusted EBITDA is an unaudited number and represents net income (loss) before interest (income) expense, net, benefit (provision) for income taxes, depreciation and amortization and stock-based compensation. |
Adjusted EBITDA is not a measure
of liquidity calculated in accordance with U.S. generally accepted accounting principles, or GAAP, and should be viewed as a supplement tonot a
substitute forour results of operations presented on the basis of GAAP. Adjusted EBITDA does not purport to represent cash flow provided by, or
used in, operating activities as defined by GAAP. Our statement of cash flows presents our cash flow activity in accordance with GAAP. Furthermore,
Adjusted EBITDA is not necessarily comparable to similarly-titled measures reported by other companies.
We believe Adjusted EBITDA is
used by and is useful to investors and other users of our financial statements in evaluating our operating performance because it provides them with an
additional tool to compare business performance across companies and across periods. We believe that:
|
EBITDA is widely used by investors to measure a companys operating performance without regard to such items as interest expense, taxes, depreciation and amortization, which can vary substantially from company to company depending upon accounting methods and book value of assets, capital structure and the method by which assets were acquired; and |
|
investors commonly adjust EBITDA information to eliminate the effect of stock-based compensation expenses and other charges, which can vary widely from company to company and impair comparability. |
Our management uses Adjusted
EBITDA:
|
as a measure of operating performance to assist in comparing performance from period to period on a consistent basis; |
|
as a measure for planning and forecasting overall expectations and for evaluating actual results against such expectations; |
|
in communications with the Board of Directors, stockholders, analysts and investors concerning our financial performance; and |
|
historically, as a significant performance measurement included in our bonus plan. |
The table below sets forth a
reconciliation of net income (loss) to Adjusted EBITDA:
For the years ended June 30, |
Nine months ended March 31, |
||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
2008 |
2009 |
2010 |
2010 |
2011 |
|||||||||||||||||||
(Unaudited) (in thousands) |
|||||||||||||||||||||||
Reconciliation of net income (loss) to Adjusted EBITDA |
|||||||||||||||||||||||
Net income
(loss) |
$ | (926 | ) | $ | 955 | $ | 2,865 | $ | 1,476 | $ | 30,377 | ||||||||||||
Stock-based
compensation |
1,548 | 565 | 622 | 601 | 1,340 | ||||||||||||||||||
Depreciation
and amortization |
334 | 406 | 432 | 313 | 635 | ||||||||||||||||||
Interest
(income) expense, net |
(256 | ) | 77 | 77 | 71 | (33 | ) | ||||||||||||||||
Provision for
income taxes |
| 26 | 148 | 36 | (30,944 | ) | |||||||||||||||||
Adjusted
EBITDA |
$ | 700 | $ | 2,029 | $ | 4,144 | $ | 2,497 | $ | 1,375 |
10
Investing in our common stock
involves a high degree of risk. You should consider carefully the risks and uncertainties described below, together with all of the other information
in this prospectus, including our financial statements and related notes, before deciding whether to purchase shares of our common stock. If any of the
following risks is realized, our business, financial condition, results of operations and prospects could be materially and adversely affected. In that
event, the price of our common stock could decline, and you could lose part or all of your investment. Investing in our common stock involves a high
degree of risk. You should consider carefully the risks and uncertainties described below, together with all of the other information in this
prospectus, including our financial statements and related notes, before deciding whether to purchase shares of our common stock. If any of the
following risks is realized, our business, financial condition, results of operations and prospects could be materially and adversely affected. In that
event, the price of our common stock could decline, and you could lose part or all of your investment.
Risks Related to Our Business
If we are unable to successfully introduce new technology solutions or services or fail to keep pace with advances in technology, our
business, financial condition and results of operations will be adversely affected.
Our business depends on our
ability to adapt to evolving technologies and industry standards and introduce new technology solutions and services accordingly. If we cannot adapt to
changing technologies, our technology solutions and services may become obsolete, and our business would suffer. Because the healthcare information
technology market is constantly evolving, our existing technology may become obsolete and fail to meet the requirements of current and potential
customers. Our success will depend, in part, on our ability to continue to enhance our existing technology solutions and services, develop new
technology that addresses the increasingly sophisticated and varied needs of our customers, license leading technologies and respond to technological
advances and emerging industry standards and practices on a timely and cost-effective basis. The development of our proprietary technology entails
significant technical and business risks. We may not be successful in developing, using, marketing, selling, or maintaining new technologies
effectively or adapting our proprietary technology to evolving customer requirements or emerging industry standards, and, as a result, our business and
reputation could suffer. We may not be able to introduce new technology solutions on schedule, or at all, or such solutions may not achieve market
acceptance. Moreover, competitors may develop competitive products that could adversely affect our results of operations. A failure by us to introduce
new products or to introduce these products on schedule could have an adverse effect on our business, financial condition and results of
operations.
If we fail to implement our growth strategy or manage
future growth effectively, our business would be harmed, and our recent growth rates may not be indicative of our future growth
rates.
Our future success depends upon
our ability to grow, and if we are unable to implement our growth strategy or manage our growth effectively, we may incur unexpected expenses and be
unable to meet our customers requirements, all of which would negatively impact our ability to generate revenue as well as results of operations
and financial condition.
To manage future growth, we will
need to hire, train and retain highly skilled and motivated employees. We will also need to continue to improve our internal controls, reporting
systems and procedures. If we do not effectively manage our growth, we may not be able to execute on our business plan, respond to competitive
pressures, take advantage of market opportunities, satisfy customer requirements or maintain high-quality service offerings.
Our systems, procedures, controls
and existing space may not be adequate to support expansion of our operations. Our future operating results will depend on the ability of our
management to manage a business that operates in a constantly changing industry and regulatory environment with increasing government involvement. Our
future results will also depend on the ability of our management team to implement and improve our technical, administrative, financial control and
reporting systems. We may not be able to expand and upgrade our systems and infrastructure to accommodate future growth. Inability to effectively
manage future growth would have a significant negative impact on our business, financial condition, and results of operations and profitability because
we may incur unexpected expenses and be unable to meet our customers needs, expectations and requirements.
11
If we lose members of our management team or other
employees or if we are unable to attract, hire, integrate and retain other necessary employees, our business would be harmed.
The future of our business is
highly dependent on our ability to innovate. Further, our future success depends in part on our ability to attract, hire, integrate and retain the
members of our management team and other qualified personnel, such as members of our innovation team. Our future success also depends on the continued
contributions of our executive officers, each of whom may be difficult to replace. The loss of any of our executive officers or the inability to
continue to attract qualified personnel could have a material adverse effect on our business. We do not have employment agreements with any of our
executive officers. The replacement of any of these executives would involve significant time and expense and may significantly delay or prevent the
achievement of our business objectives. Competition for the caliber and number of employees we require is intense. We may face difficulty identifying
and hiring qualified personnel at compensation levels consistent with our existing compensation and salary structure. In addition, we invest
significant time and expense in training each of our employees, which increases their value to competitors who may seek to recruit them. If we fail to
retain our employees, we could incur significant expenses in hiring, integrating and training their replacements and the quality of our services and
our ability to serve our customers could diminish, resulting in a material adverse effect on our business.
We may not be able to maintain or increase our
profitability.
We may not succeed in maintaining
or increasing our profitability on an annual basis and could incur quarterly or annual losses in future periods. We expect to incur additional
operating expenses associated with our new status as a public company and we intend to continue to increase our operating expenses as we grow our
business. We also expect to continue to make investments in our proprietary technology solutions, sales and marketing, infrastructure, facilities and
other resources as we seek to grow, thereby incurring additional costs. If our revenue does not increase to offset these increases in costs, our
operating results would be negatively affected. You should not consider our historic revenue growth rates as indicative of future growth
rates.
Disruptions in service or damage to our third-party
providers data centers could adversely affect our business.
We rely on third-parties who
provide access to data centers. Our information technologies and systems are vulnerable to damage or interruption from various causes, including (i)
acts of God and other natural disasters, war and acts of terrorism and (ii) power losses, computer systems failures, Internet and telecommunications or
data network failures, operator error, losses of and corruption of data and similar events. We conduct business continuity planning and work with our
third-party providers to protect against fires, floods, other natural disasters and general business interruptions to mitigate the adverse effects of a
disruption, relocation or change in operating environment at the data centers we utilize. The situations we plan for and the amount of insurance
coverage we maintain may not be adequate in any particular case. In addition, the occurrence of any of these events could result in interruptions,
delays or cessations in service to our customers. Any of these events could impair or prohibit our ability to provide our services, reduce the
attractiveness of our services to current or potential customers and adversely impact our financial condition and results of
operations.
In addition, despite the
implementation of security measures, our infrastructure, data centers, or systems that we interface with, including the Internet and related systems,
may be vulnerable to physical break-ins, hackers, improper employee or contractor access, computer viruses, programming errors, denial-of-service
attacks or other attacks by third-parties seeking to disrupt operations or misappropriate information or similar physical or electronic breaches of
security. Any of these can cause system failure, including network, software or hardware failure, which can result in service disruptions. As a result,
we may be required to expend significant capital and other resources to protect against security breaches and hackers or to alleviate problems caused
by such breaches.
We may be liable for use of content we
provide.
We provide content for use by
healthcare providers in treating patients. This content includes databases developed by third-parties. If this content in the third-party databases is
incorrect or incomplete, adverse consequences, including death, may occur and give rise to product liability and other claims against us. A court or
government agency may take the position that our delivery of health information directly, including through
12
licensed practitioners, or delivery of information by a third-party site that a consumer accesses through our websites, exposes us to personal injury liability, or other liability for wrongful delivery or handling of healthcare services or erroneous health information. While we maintain product liability insurance coverage in an amount that we believe is sufficient for our business, this coverage may not be adequate or continue to be available on acceptable terms, if at all. A claim brought against us that is uninsured or under-insured could harm our business, financial condition and results of operations. Even unsuccessful claims could result in substantial costs and diversion of management resources.
We operate in a highly competitive industry, and our
competitors may be able to compete more efficiently or evolve more rapidly than we do, which could have a material adverse effect on our business,
revenue, growth rates and market share.
The market for EHR, PM and other
healthcare information technologies is highly competitive and we expect competition to increase in the future. We face competition from existing and
new entrants. We believe our most significant competitors in EHR and PM are Allscripts, athenahealth, Cerner, eClinicalWorks, Epic, GE, Quality
Systems, and Sage. Our competitors may be able to respond more quickly and effectively than we can to new or changing opportunities, technologies,
standards, regulations or customer needs and requirements. Some of these competitors have longer operating histories, greater brand recognition and
greater financial, marketing and other resources than us. Moreover, we expect that competition will continue to increase as a result of incentives
provided by the HITECH Act, which was enacted in 2009 as part of the American Recovery Reinvestment Act (ARRA) and consolidation in both
the information technology and healthcare industries. Further, if one or more of our competitors or potential competitors were to merge or partner with
another of our competitors, the change in the competitive landscape could adversely affect our ability to compete effectively. We may not be able to
compete successfully with these companies, and these or other competitors may introduce technologies or services that render our technologies or
services obsolete or less marketable. Even if our technology solutions and services are more effective than the offerings of our competitors, current
or potential customers might prefer competitive technologies or services to our technology solutions and services. Increased competition could also
result in pricing pressures, which would negatively impact our margins, growth rate or market share.
If providers do not purchase our technology solutions
and services or delay in choosing our solutions or services, our business, financial condition and results of operations will be adversely
affected.
Our business model depends on our
ability to sell our technology solutions and services. Acceptance of our technology solutions and services may require providers to adopt different
behavior patterns and new methods of conducting business and exchanging information. Providers may not integrate our technology solutions and services
into their workflow and may not accept our solutions and services as a replacement for traditional methods of practicing medicine. Achieving market
acceptance for our solutions and services will continue to require substantial sales and marketing efforts and the expenditure of significant financial
and other resources to create awareness and demand by providers. If providers fail to broadly accept of our technology solutions and services, or if we
fail to position our technology solutions and services as a preferred method for information management and healthcare delivery, our business,
financial condition and results of operations will be adversely affected.
Government programs in the United States initiated to
accelerate the adoption and utilization of health information technology and to counter the effects of the current economic situation, may not be
effective in changing the behavior of providers or may not be fully implemented or fully funded by the government.
While government programs have
been initiated to improve the efficiency and quality of the healthcare sector and also counter the effects of the current economic situation, including
expenditures to stimulate business and accelerate the adoption and utilization of health care technology, these programs may not be fully implemented
or fully funded and there is no guarantee that our customers will receive any of these funds. For example, the passage of the HITECH Act authorizes
more than $19 billion in expenditures, to incentivize adoption of electronic health records. Although we believe that our technology solutions and
services will meet the requirements of the HITECH Act, qualifying our customers for financial incentives, these financial incentives, may not apply to
our technology solutions or services. Also, providers may be slow to adopt EHR systems in response to these government programs,
13
may not select our technology solutions and services, or may decide not implement an EHR system at all. Any delay in the purchase of our EHR technology solutions and services in response to government programs, or the failure of providers to purchase an EHR system, could have an adverse effect on our business, growth rate, financial condition and results of operations. It is also possible that in light of the budget deficit or for other economic or political reasons, Congress may repeal or not fund the HITECH Act as originally planned or otherwise amend it in a manner that have an adverse effect on our business.
We must ensure our EHR systems are certified pursuant
to the HITECH Act standards, and failure to continue to provide solutions that are certified could put us at a competitive
disadvantage.
The HITECH Act provides financial
incentives for healthcare providers that demonstrate meaningful use of EHR and mandates use of health information technology systems that
are certified according to technical standards developed under the supervision of the U.S. Department of Health and Human Services (HHS).
The HITECH Act also imposes certain requirements upon governmental agencies to use, and requires health care providers, health plans, and insurers
contracting with such agencies to use, systems that are certified according to such standards. Such standards and implementation specifications that
are being developed under the HITECH Act includes named standards, architectures, and software schemes for the authentication and security of
individually identifiable health information and the creation of common solutions across disparate entities.
The HITECH Acts
certification requirements affect our business because we have invested and continue to invest in conforming our technology solutions to these
standards. HHS has contracted with Certification Commission for Health Information Technology (CCHIT) to develop certification programs for
electronic health records and health information exchanges. PrimeSUITE 2011 has been certified as a complete EHR by CCHIT, which indicates that our EHR
solutions meet the 2011/2012 criteria to support Stage 1 meaningful use as required by HHS to assist providers in their efforts to meet the
goals and objectives of meaningful use, making such providers and hospitals eligible for funding under the HITECH Act if our EHR is used
appropriately. However, Stage 1 only refers to the first set of meaningful use objectives that must be met to be eligible for incentive
payments. Stage 2 and Stage 3 requirements have yet to be defined. As the standards are developed, we may need to use additional resources to meet the
newly defined requirements, which could lead to delays necessary to modify our technology solutions. We must ensure that our technology solutions are
or will be certified according to applicable HITECH Act technical standards so that our customers have an opportunity to qualify for meaningful
use incentive payments. Failure to comply could jeopardize our relationships with customers who are relying upon us to provide certified
software. Lastly, if for some reason we are not able to comply with these applicable HITECH Act standards within the required timeframe, our products
and services could be less attractive to customers than the offerings of other EHR vendors who have complied.
Our technology solutions are required to meet the
standards for interoperability, which could require us to incur substantial additional development costs.
Our customers and the industry
leaders enacting regulatory requirements are concerned with and often require that our technology solutions and healthcare devices be interoperable
with other third-party healthcare information technology suppliers. Market forces or regulatory authorities could create software interoperability
standards that would apply to our solutions, and if our technology solutions are not consistent with those standards, we could be forced to incur
substantial additional development costs. CCHIT has developed a comprehensive set of criteria for the functionality, interoperability and security of
various software modules in the healthcare information technology industry. CCHIT, however, continues to modify and refine those standards. Achieving
and maintaining CCHIT certification is a competitive imperative that could result in larger than expected software development expenses and
administrative expenses in order to conform to these requirements. These standards and specifications, once finalized, will be subject to
interpretation by the entities designated to certify such technology. We will incur increased development costs in delivering solutions if we need to
change or enhance our technology solutions to be in compliance with these varying and evolving standards, and delays may result in connection
therewith. If our technology solutions are not consistent with these evolving standards, our market position and sales could be impaired and we may
have to invest significantly in changes to our technology solutions. In addition, HHS may
14
require other additional certifications from additional certifying bodies. If we are required to obtain certification from additional bodies, it would be costly and outcomes are unknown.
If our security measures are breached or fail and
unauthorized access is obtained to a customers data, our service may be perceived as insecure, the attractiveness of our services to current or
potential customers may be reduced, and we may incur significant liabilities.
Our services involve the storage
and transmission of customers proprietary information and patient information, including health, financial, payment and other personal or
confidential information. We rely on proprietary and commercially available systems, software, tools and monitoring, as well as other processes, to
provide security for processing, transmission and storage of such information. Because of the sensitivity of this information and due to requirements
under applicable laws and regulations, the effectiveness of such security efforts is very important. If our security measures are breached or fail as a
result of third-party action, employee error, malfeasance or otherwise, someone may be able to obtain unauthorized access to customer or patient data.
Improper activities by third-parties, advances in computer and software capabilities and encryption technology, new tools and discoveries and other
events or developments may facilitate or result in a compromise or breach of our computer systems. Techniques used to obtain unauthorized access or to
sabotage systems change frequently and generally are not recognized until launched against a target, and we may be unable to anticipate these
techniques or fail to implement adequate preventive measures. Our security measures may not be effective in preventing such unauthorized access. If a
breach of our security occurs, we could face damages for contract breach, penalties for violation of applicable laws or regulations, possible lawsuits
by individuals affected by the breach and significant remediation costs and efforts to prevent future occurrences. In addition, whether there is an
actual or a perceived breach of our security, the market perception of the effectiveness of our security measures could be harmed and we could lose
current or potential customers.
Our growth depends, in part, on establishing and
maintaining strategic relationships.
We must continue to maintain our
existing strategic relationships, such as we have with Walgreens and McGraw Hill. We also need to establish additional strategic relationships with
leaders in a number of healthcare and health information technology industry segments. We believe that these relationships contribute towards our
ability to increase exposure to our technology solutions to a larger number of healthcare providers and further enhance the Greenway brand. These
relationships also assist us in developing and deploying new technology solutions and services, and generate sources of additional revenue and cash
flows.
We must carefully manage these
relationships as strategic partners may decide to compete with us in some or all of our markets. In addition, we may not be able to maintain or
establish relationships with potential partners if we conduct business with their competitors. We depend, in part, on our strategic partners
ability to generate increased acceptance and use of our technology and services. Many of these strategic relationships, such as Walgreens and McGraw
Hill, are new and have yet to be fully developed. We may not fully realize the expected benefits of such relationships. Further, if we lose any of
these strategic relationships or fail to establish additional relationships, or if our strategic relationships fail to benefit us as expected, we may
not be able to execute our business plan, and our business, financial condition and results of operations may suffer.
We offer our services in many states and, therefore,
may be subject to state and local taxes that could harm our business or that we may have inadvertently failed to pay.
We may lose sales or incur
significant costs should various tax jurisdictions be successful in imposing taxes on a broader range of services. Imposition of such taxes on our
services could result in substantial unplanned costs, would effectively increase the cost of such services to our customers and may adversely affect
our ability to retain existing customers or to gain new customers in the areas in which such taxes are imposed.
15
Future acquisitions may result in potentially
dilutive issuances of equity securities, the incurrence of indebtedness and increased amortization expense.
Future acquisitions may result in
dilutive issuances of equity securities, the incurrence of debt, the assumption of known and unknown liabilities, the write-off of software development
costs and the amortization of expenses related to intangible assets, all of which could have an adverse effect on our business, financial condition and
results of operations.
We may have difficulty integrating future
acquisitions into our business.
We may from time to time acquire
other companies or their businesses. As a result, we may be exposed to several risks relating to integrating these additional businesses, including
those risks listed below, any of which may adversely affect our business or operating results:
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inability to integrate new operations, products, services and personnel; |
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diversion of resources from our existing business; |
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failure in client communication and branding awareness; |
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inability to generate revenue from new products and services sufficient to offset associated acquisition costs; |
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inability to maintain uniform standards, controls and policies; |
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accounting issues that adversely affect our financial results; |
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impairment of employee and customer relations as a result of any integration of new management personnel; and |
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assumption of liabilities or other obligations associated with an acquired business. |
We may be unable to adequately establish, protect or
enforce our intellectual property.
Our success depends, in part,
upon our ability to establish, protect and enforce our intellectual property and other proprietary rights. If we fail to establish, protect or enforce
our intellectual property rights, we may lose an important advantage in the market in which we compete. We rely on a combination of patent, trademark,
copyright and trade secret law and contractual obligations to protect our key intellectual property rights, all of which provide only limited
protection. Our intellectual property rights may not be sufficient to help us maintain our position in the market and our competitive advantages.
Although we have filed 18 U.S. patent applications, some or all of these patents may not be issued and therefore, may not provide us with the
protection that we seek. We have been issued one U.S. patent, however, any patents issued to us could be challenged, invalidated or circumvented. Legal
standards relating to the validity, enforceability and scope of protection of intellectual property are uncertain. Any patents that may be issued in
the future from pending or future patent applications or our one issued patent may not provide sufficiently broad protection or may not prove to be
enforceable in actions against alleged infringers. Also, any other intellectual property registrations may not be issued for pending or future
applications and may not be enforceable or provide adequate protection of our proprietary rights.
We also rely on trade secrets to
protect our proprietary technology. Trade secrets may not be protectable if not properly kept confidential. We strive to enter into non-disclosure
agreements with our employees, customers, contractors and business partners to limit access to and disclosure of our proprietary information. The steps
we have taken, however, may not be sufficient to prevent unauthorized use of our technology, and adequate remedies may not be available in the event of
unauthorized use or disclosure of our trade secrets and proprietary technology. Moreover, others may reverse engineer or independently develop
technologies that are competitive to ours or infringe our intellectual property.
Accordingly, despite our efforts,
we may be unable to prevent third-parties from using our intellectual property or our technology for their competitive advantage. Any such use could
have a material adverse effect on our business, results of operations and financial condition. Monitoring unauthorized uses of and enforcing our
intellectual
16
property rights can be difficult and costly. Legal intellectual property actions are inherently uncertain and may not be successful, and may require a substantial amount of resources and divert our managements attention.
Claims by others that we infringe their intellectual
property could force us to incur significant costs or revise the way we conduct our business.
Our competitors protect their
proprietary rights by means of patents, trade secrets, copyrights trademarks and other intellectual property. We have not conducted an independent
review of patents and other intellectual property issued to third-parties. Because patent applications in the United States and many other
jurisdictions are kept confidential for 18 months before they are published, we may be unaware of third parties patent applications, some which may
relate to our proprietary technology. We may receive letters from third parties alleging, or inquiring about, possible infringement misappropriate or
violation of their intellectual property rights. Any party asserting that we infringe misappropriate or violate proprietary rights may force us to
defend ourselves, and potentially our customers, against the alleged claim. These claims and any resulting lawsuit, if successful, could subject us to
significant liability for damages and/or invalidation of our proprietary rights or interruption or cessation of our operations. The risk of such claims
and lawsuits will likely increase as we increase in size, the scope of our services and technology platforms increase, our geographic presence and
market share expand and the number of competitors in our market increases. Any such claims or lawsuit could:
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be time-consuming and expensive to defend, whether meritorious or not; |
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require us to stop providing products or services that use the technology that infringes the other partys intellectual property; |
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divert the attention of our technical and managerial resources; |
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require us to enter into royalty or licensing agreements with third-parties, which may not be available on terms that we deem acceptable; |
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prevent us from operating all or a portion of our business or force us to redesign our products, services or technology platforms, which could be difficult and expensive and may make the performance or value of our product or service offerings less attractive; |
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subject us to significant liability for damages or result in significant settlement payments; or |
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require us to indemnify our customers, as certain of our customer contracts require us to indemnify the customer for certain claims of infringement or alleged infringement of third-partys intellectual property rights resulting from customers use of our intellectual property. |
Furthermore, during the course of
litigation, confidential information may be disclosed in the form of documents or testimony in connection with discovery requests, depositions or trial
testimony. Disclosure of our confidential information and our involvement in intellectual property litigation could materially adversely affect our
business. Some of our competitors may be able to sustain the costs of intellectual property litigation more effectively than we can because they have
substantially greater resources. In addition, any litigation could significantly harm our relationships with current and prospective customers. Any of
the foregoing could disrupt our business and have a material adverse effect on our business, operating results and financial
condition.
We may need additional capital to fund our operations
and finance our growth, and we may not be able to secure such capital on terms acceptable to us, or at all.
In order for us to grow and
successfully execute our business plan, we may require additional financing which may not be available or may not be available on acceptable terms. If
such financing is available, it may dilute the existing stockholders ownership interests in the Company. Failure to obtain financing may have a
material adverse effect on our financial position and may cause you to lose your entire investment in the Company. In addition, if we are unable to
secure additional financing on acceptable terms or at all, it will impact our ability to conduct acquisitions.
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We depend upon third-party service providers for certain technologies. If these third-party providers fail to fulfill their contractual
obligations to us, fail to maintain or support those technologies or choose not to sell them to us, our business and operations could be disrupted and
our operating results would be harmed.
We have entered into certain
arrangements with third-party service providers. Technologies provided by these providers support some of our solutions. If these technologies fail or
are of poor quality, our business, reputation and operating results could be harmed. Failure of the service providers to perform satisfactorily could
result in client dissatisfaction, disrupt our operations and adversely affect operating results. With respect to these service providers, we have
significantly less control over the technologies they provide to us than if we maintained and operated them ourselves, which increases our risk. In
some cases, functions necessary to some of our solutions are performed by these third-party technologies. If we need to find an alternative source for
performing these functions, we may have to expend significant money, resources and time to develop the alternative, and if this development is not
accomplished in a timely manner and without significant disruption to our business, we may be unable to fulfill our responsibilities to clients or the
expectations of clients, with the attendant potential for liability claims and a loss of business reputation.
Demand by smaller providers could accelerate
transition to a subscription pricing model which could reduce near-term revenue
The adoption of EHR by the large
untapped market of smaller provider customers and their greater need to minimize capital outlays could accelerate adoption of subscription-based
arrangements as opposed to perpetual licensing arrangements. While an increased amount of subscription arrangements will result in increased recurring
revenue over a longer period of time than we have achieved historically, near-term revenue would be reduced as a result, while costs associated with
these sales would still be expensed currently. If we fail to appropriately price our subscription fees, it could have an adverse effect on our
business.
Regulatory Risks
The healthcare industry is heavily regulated. Our failure to comply with regulatory requirements could create liability for us, result
in adverse publicity and negatively affect our business.
The healthcare industry is
heavily regulated and is constantly evolving due to the changing political, legislative, regulatory landscape and other factors. Many healthcare laws
are complex, and their application to specific services and relationships may not be clear. In particular, many existing healthcare laws and
regulations, when enacted, did not anticipate or address the services that we provide. Further, healthcare laws differ from state to state and it is
difficult to ensure our business complies with evolving laws in all states. Our operations may be adversely affected by enforcement initiatives. Our
failure to accurately anticipate the application of these laws and regulations to our business, or any other failure to comply with regulatory
requirements, could create liability for us, result in adverse publicity and negatively affect our business. Federal and state legislatures and
agencies periodically consider proposals to revise aspects of the healthcare industry or to revise or create additional statutory and regulatory
requirements. Such proposals, if implemented, could impact our operations, the use of our services and our ability to market new services, or could
create unexpected liabilities for us. We cannot predict what changes to laws or regulations might be made in the future or how those changes could
affect our business or our operating costs.
If a breach of our measures protecting personal data
covered by HIPAA or the HITECH Act occurs, we may incur significant liabilities.
The Health Insurance Portability
and Accountability Act of 1996, as amended (HIPAA), and the regulations that have been issued under it contain substantial restrictions and
requirements with respect to the use, collection, storage and disclosure of individuals protected health information. Under HIPAA, covered
entities must establish administrative, physical and technical safeguards to protect the confidentiality, integrity and availability of electronic
protected health information maintained or transmitted by them or by others on their behalf. In February 2009, HIPAA was amended by the HITECH Act to
add provisions that impose certain of HIPAA is privacy and security requirements directly upon business associates of covered entities. The HITECH Act
transferred enforcement authority of the security rule from the Centers for Medicaid and Medicare Services (CMS) to the
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Office for Civil Rights of HHS, thereby consolidating authority over the privacy and security rules under a single office within HHS.
The HITECH Act heightened
enforcement of privacy and security rules, indicating that the imposition of penalties will likely be more common in the future and such penalties will
be more severe. For example, the HITECH Act requires that the HHS fully investigate all complaints if a preliminary investigation of the facts
indicates a possible violation due to willful neglect and impose penalties if such neglect is found. Further, where our liability as a
business associate to our clients was previously merely contractual in nature, the HITECH Act now treats the breach of duty under a business associate
agreement to carry the same liability as if the covered entity engaged in the breach. In other words, as a business associate, we are now directly
responsible for complying with HIPAA. While we strive to adhere to strict policies and procedures, we may find ourselves subject to increased liability
as a possible liable party and we may incur increased costs as we implement the various obligations between clients through these
agreements.
Finally, regulations also require
business associates to notify covered entities, who in turn must notify affected individuals and government authorities of data security breaches
involving unsecured protected health information. Our customers are covered entities and we are a business associate of our customers under HIPAA and
the HITECH Act as a result of our contractual obligations to perform certain functions on behalf of and provide certain services to those customers. We
have performed an assessment of the potential risks and vulnerabilities to the confidentiality, integrity and availability of electronic health
information. In response to this risk analysis, we implemented and maintain physical, technical and administrative safeguards intended to protect all
personal data and have processes in place to assist us in complying with applicable laws and regulations regarding the protection of this data and
properly responding to any security incidents. If we knowingly breach the HITECH Acts requirements, we could be exposed to criminal liability. A
breach of our safeguards and processes could expose us to civil penalties (up to $1.5 million for identical incidences) and the possibility of civil
litigation.
If we or our customers fail to comply with federal
and state laws governing submission of false or fraudulent claims to government healthcare programs and financial relationships among healthcare
providers, we or our customers may be subject to civil and criminal penalties or loss of eligibility to participate in government healthcare
programs.
As a participant in the
healthcare industry, our operations and relationships, and those of our customers, are regulated by a number of federal, state and local governmental
entities. The impact of these regulations can adversely affect us even though we may not be directly regulated by specific healthcare laws and
regulations. We must ensure that our technology solutions can be used by our customers in a manner that complies with those laws and regulations.
Inability of our customers to do so could affect the marketability of our technology solutions or our compliance with our customer contracts, or even
expose us to direct liability under the theory that we had assisted our customers in a violation of healthcare laws or regulations. A number of federal
and state laws, including anti-kickback restrictions and laws prohibiting the submission of false or fraudulent claims, apply to healthcare providers
and others that make, offer, seek or receive referrals or payments for technology solutions or services that may be paid for through any federal or
state healthcare program and, in some instances, any private program. These laws are complex and their application to our specific services and
relationships may not be clear and may be applied to our business in ways that we do not anticipate. Federal and state regulatory and law enforcement
authorities have recently increased enforcement activities with respect to Medicare and Medicaid fraud and abuse regulations and other healthcare
reimbursement laws and rules. From time to time, participants in the healthcare industry receive inquiries or subpoenas to produce documents in
connection with government investigations. We could be required to expend significant time and resources to comply with these requests, and the
attention of our management team could be diverted by these efforts. The occurrence of any of these events could give our customers the right to
terminate our contracts with us and result in significant harm to our business and financial condition.
These laws and regulations may
change rapidly, and it is frequently unclear how they apply to our business. Any failure of our technology solutions or services to comply with these
laws and regulations could result in substantial civil or criminal liability and could, among other things, adversely affect demand for our services,
invalidate all or portions of some of our contracts with our customers, require us to change or terminate some portions of our business, require us to
refund portions of our revenue, cause us to be disqualified from serving
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customers doing business with government payers, and give our customers the right to terminate our contracts with them, any one of which could have an adverse effect on our business.
Risks Related to this Offering and Ownership of Shares of Our
Common Stock
Our securities have no prior market and our stock price may decline after the offering.
Prior to this offering, there has
been no public market for shares of our common stock. An active public trading market for our common stock may not develop or, if it develops, may not
be maintained after this offering. For example,
imposes certain securities trading requirements, including minimum trading price, minimum number of stockholders and minimum market capitalization. We
and the representatives of the underwriters negotiated to determine the initial public offering price. The initial public offering price may be higher
than the trading price of our common stock following this offering. As a result, you could lose all or part of your investment.
The trading price of our common stock is likely to be
volatile.
The trading price of our common
stock is likely to be highly volatile and could be subject to wide fluctuations in response to various factors. In addition to the risks described in
this section, factors that may cause the market price of our common stock to fluctuate include:
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fluctuations in our quarterly financial results or the quarterly financial results of companies perceived to be similar to us; |
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changes in estimates of our financial results or recommendations by securities analysts; |
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investors general perception of us; and |
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changes in general economic, industry and market conditions. |
In addition, if the stock market
in general experiences a loss of investor confidence, the trading price of our common stock could decline for reasons unrelated to our business,
financial condition or results of operations.
Some companies that have had
volatile market prices for their securities have had securities class actions filed against them. If a suit were filed against us, regardless of its
merits or outcome, it would likely result in substantial costs and divert managements attention and resources. This could have a material adverse
effect on our business, operating results and financial condition.
We will incur increased costs and demands upon our
management and other personnel as a result of complying with the laws and regulations affecting public companies, which could harm our operating
results.
We have never operated as a
public company. As a public company, we will be required to ensure that we have the ability to prepare financial statements that comply with SEC
reporting requirements on a timely basis. We will also be subject to other reporting and corporate governance requirements, including
listing standards and certain provisions of the Sarbanes-Oxley Act of 2002
(the Sarbanes-Oxley Act) and the regulations promulgated thereunder, which impose significant compliance obligations upon us. Specifically,
we will be required to:
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prepare and distribute periodic reports and other stockholder communications in compliance with our obligations under the federal securities laws and applicable stock exchange rules; |
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create or expand the roles and duties of our Board of Directors and committees of the board; |
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institute compliance and internal audit functions that are more comprehensive; |
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evaluate and maintain our system of internal control over financial reporting, and report on managements assessment thereof, in compliance with the requirements of Section 404 of the Sarbanes-Oxley Act and the related rules and regulations of the SEC and the Public Company Accounting Oversight Board; |
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involve and retain outside legal counsel and accountants in connection with the activities listed above; |
20
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enhance our investor relations function; and |
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maintain internal policies, including those relating to disclosure controls and procedures. |
As a public company, we will be
required to commit significant resources and management time and attention to the above-listed requirements, which will cause us to incur significant
costs and which may place a strain on our systems and resources. As a result, our managements attention might be diverted from other business
concerns. In addition, we might not be successful in implementing these requirements. The cost of preparing and filing annual and quarterly reports,
proxy statements and other information with the SEC and furnishing audited reports to stockholders will cause our expenses to be higher than they would
be if we remained a privately-held company.
In addition, the Sarbanes-Oxley
Act requires that we maintain effective disclosure controls and procedures and internal control over financial reporting. To maintain and improve the
effectiveness of our disclosure controls and procedures, significant resources and management oversight will be required. We will be implementing
additional procedures and processes for the purpose of addressing the standards and requirements applicable to public companies. We expect to incur
significant additional annual expenses related to these activities and, among other things, additional directors and officers liability
insurance, director fees, reporting requirements, transfer agent fees, hiring additional accounting, legal and administrative personnel, increased
auditing and legal fees and similar expenses. We may not be able to conclude on an ongoing basis that we have effective internal control over financial
reporting in accordance with Section 404 of the Sarbanes-Oxley Act or our independent registered public accounting firm may not issue a favorable
assessment. If either we are unable to conclude that we have effective internal control over financial reporting or our independent registered public
accounting firm are unable to provide us with an unqualified report, investors could lose confidence in our reported financial information, which could
have a negative effect on the trading price of our stock.
Future sales of shares by existing stockholders could
cause our stock price to decline.
If our existing stockholders
sell, or indicate an intention to sell, substantial amounts of our common stock in the public market after the contractual lock-up agreements described
below expire and other restrictions on resale lapse, the trading price of our common stock could decline below the initial public offering price. Based
on shares outstanding as of , upon the closing of this offering, we will have
outstanding shares of common stock. Of these shares, shares of common stock
will be eligible for sale in the public market and shares of common stock will be subject to a 180-day contractual
lock-up with the underwriters. , acting as representatives of the underwriters,
may permit our officers, directors, employees and current stockholders who are subject to the contractual lock-up to sell shares prior to the
expiration of the lock-up agreements. Upon expiration of the contractual lock-up agreements with the underwriters, and based on shares outstanding as
of , an additional shares will be eligible
for sale in the public market.
You will experience an immediate and substantial
dilution of the net tangible book value of the common shares you purchase in this offering.
The initial public offering price
per share of our common stock is substantially higher than our net tangible book value per common share immediately after this offering. For this
purpose, the net tangible book value per share represents the total amount of the Companys tangible assets, less the total amount of liabilities,
divided by the total number of shares outstanding, and dilution is determined by subtracting the net tangible book value per share after the offering
from the initial public offering price per share. As a result, you may pay a price per share that substantially exceeds the book value of our assets
after subtracting our liabilities. Investors who purchase common stock in this offering will be diluted by $ per share after giving effect
to the sale of shares of common stock in this offering at an assumed initial public offering price of $ per share. If we grant options in
the future to our employees, and those options are exercised or other issuances of common stock are made, there will be further
dilution.
21
Your ability to influence corporate matters may be
limited because a small number of stockholders beneficially own a substantial amount of our common stock and will continue to have substantial control
over us after the offering.
Upon completion of this offering,
our officers, directors and principal stockholders (greater than 5% stockholders) collectively will beneficially own approximately %
of our issued and outstanding common stock. As a result, these stockholders will be able to exert significant influence over all matters requiring
stockholder approval, including the election of directors and approval of significant corporate transactions, such as a merger or other sale of our
Company or its assets, and may have interests that are different from yours and may vote in a way with which you disagree and which may be adverse to
your interests. In addition, this concentration of ownership may have the effect of preventing, discouraging or deferring a change of control, which
could depress the market price of our common stock.
Transactions engaged in by our principal
stockholders, our officers or directors involving our common stock may have an adverse effect on the price of our stock.
As described above, our officers,
directors and principal stockholders (greater than 5% stockholders) collectively will control approximately % of our issued and
outstanding common stock upon completion of this offering. Subsequent sales of our shares by these stockholders could have the effect of lowering our
stock price. The perceived risk associated with the possible sale of a large number of shares by these stockholders, or the adoption of significant
short positions by hedge funds or other significant investors, could cause some of our stockholders to sell their stock, thus causing the price of our
stock to decline. In addition, actual or anticipated downward pressure on our stock price due to actual or anticipated sales of stock by our directors
or officers could cause other institutions or individuals to engage in short sales of our common stock, which may further cause the price of our stock
to decline.
From time to time our directors
and executive officers may sell shares of our common stock on the open market. These sales will be publicly disclosed in filings made with the SEC. In
the future, our directors and executive officers may sell a significant number of shares for a variety of reasons unrelated to the performance of our
business. Our stockholders may perceive these sales as a reflection on managements view of the business and result in some stockholders selling
their shares of our common stock. These sales could cause the price of our stock to drop.
Provisions in our Delaware certificate of
incorporation, which will be in effect upon the completion of this offering, and Delaware law may discourage a takeover
attempt.
Provisions contained in our
Delaware certificate of incorporation, which will be in effect upon the completion of this offering, and Delaware law impose various procedural and
other requirements, which could make it more difficult for a third-party to acquire us or for stockholders to effect certain corporate actions. For
example, our certificate of incorporation will authorize our Board of Directors to determine the rights, preferences, privileges and restrictions of
unissued series of preferred stock, without any vote or action by our stockholders. Therefore, the Board of Directors can authorize and issue shares of
preferred stock with voting or conversion rights that could adversely affect the voting or other rights of holders of our common stock. In addition, as
of the closing of this offering, our certificate of incorporation and bylaws will provide for a staggered, or classified Board of Directors consisting
of three classes of directors, each serving staggered three-year terms. These rights may have the effect of delaying or deterring a change of control
of our Company. These provisions could limit the price that certain investors may be willing to pay in the future for shares of our common
stock.
We will have broad discretion in using the proceeds
of this offering, and we may not effectively expend the proceeds.
We intend to use approximately
$ of the net proceeds of this
offering to pay the preferred stock liquidation preference to holders of our outstanding preferred stock concurrently with the conversion of such
shares into shares of common stock upon the closing of this offering, and the balance for working capital and general corporate purposes, which may
include financing our growth, developing new technology solutions and services, and funding capital expenditures, acquisitions and investments. We will
not receive any proceeds from the sale of
22
shares by the selling stockholders. We will have significant flexibility and broad discretion in applying the net proceeds of this offering and we may not apply the proceeds of this offering effectively. Our management might not be able to yield a significant return, if any, on any investment of these net proceeds. You will not have the opportunity to influence our decisions on how to use our net proceeds from this offering.
Your percentage ownership in us may be diluted by
future issuances of capital stock or securities or instruments that are convertible into our capital stock, which could reduce your influence over
matters on which stockholders vote.
Our Board of
Directors has the authority, without action or vote of our stockholders, to issue all or any part of our authorized but unissued shares of common
stock, including shares that may be issued to satisfy our obligations under our equity incentive plans, shares of our authorized but unissued preferred
stock and securities and instruments that are convertible into our common stock. Issuances of common stock or voting preferred stock would reduce your
influence over matters on which our stockholders vote and, in the case of issuances of preferred stock, likely would result in your interest in us
being subject to the prior rights of holders of that preferred stock.
Further, we may
need to raise additional funds in the future to finance our operations and/or acquire complimentary businesses. If we obtain capital in future
offerings on a per-share basis that is less than the initial public offering price per share, the value of the price per share of your common stock
will likely be reduced. In addition, if we issue additional equity securities in a future offering and you do not participate in such offering, there
will effectively be dilution in your percentage ownership interest in the Company.
Under the Companys 2011
Stock Plan and the Companys previous stock incentive plans, the Company granted, and in the future intends to grant, awards of stock options to
purchase common stock and other awards to our officers, directors, employees and consultants. As of
, we have granted stock options (excluding canceled stock options) with respect
to shares of common stock (of which, options to purchase shares have been
exercised as of ).
We will in the future grant stock
options and other awards to certain current or future officers, directors, employees and consultants of the Company under additional plans or
individual agreements. The grant and exercise of these awards, as applicable, will have the effect of diluting your ownership interests in the Company.
We may also issue additional equity securities in connection with other types of transactions, including shares issued as part of the purchase price
for acquisitions of assets or other companies from time to time in connection with strategic partnerships or joint ventures, or as incentives to
management or other providers of resources to the Company. Such additional issuances are likely to have the same dilutive effect.
We currently have no plans to pay dividends on our
common stock, so you may not receive funds without selling your common stock.
We currently do not pay dividends
on our common stock and we do not anticipate paying any dividends on our common stock in the foreseeable future. Any declaration and payment of future
dividends to holders of our common stock may be limited by restrictive covenants of our debt agreements, and will be at the sole discretion of our
Board of Directors and will depend on many factors, including our financial condition, results of operations, earnings, capital requirements, business
expansion opportunities, level of indebtedness, statutory and contractual restrictions applying to the payment of dividends and other considerations
that our Board of Directors deems relevant.
Further, we may not have
sufficient surplus to be able to legally pay any dividends in the future. The absence of sufficient surplus may result from extraordinary cash
expenses, actual expenses exceeding contemplated costs, funding of capital expenditures, or increases in reserves.
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This prospectus contains
forward-looking statements that involve risks and uncertainties. Forward-looking statements convey our current expectations or forecasts of future
events. All statements contained in this prospectus other than statements of historical fact, including statements regarding our future results of
operations and financial position, business strategy and plans, use of the net proceeds of this offering, and our objectives for future operations, are
forward-looking. You can identify forward-looking statements by terminology such as project, believe, anticipate,
plan, expect, estimate, intend, should, would, could,
will, can, continue, or may, or the negative of these terms or other similar expressions that convey
uncertainty of future events or outcomes. The following uncertainties and factors, among others (including the factors described in the section
entitled Risk Factors in this prospectus), could affect our future performance and cause actual results to differ materially from those
expressed or implied by forward-looking statements:
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our ability to adapt to evolving technology and industry standards; |
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our ability to implement our growth strategy; |
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our ability to retain management and other qualified personnel; |
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failure to prevent disruptions in service or damage to our third-party providers data centers; |
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failure to avoid liability for the use of content we provide; |
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regulation of the healthcare information technology industry; |
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our ability to ensure our solutions meet industry and government standards; |
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failure to maintain adequate security measures for our customers confidential information and personal identifiable information and patients protected health information; |
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our ability to obtain new provider clients; |
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failure of the HITECH Act and other incentive programs to be fully implemented or funded by the government; |
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our ability to implement our strategic relationships as currently intended; |
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failure to establish, protect or enforce our intellectual property; and |
|
restrictions in our credit facility and future indebtedness. |
There are a number of important
factors that could cause actual results to differ materially from the results anticipated by these forward-looking statements. These important factors
include those that we discuss in this prospectus under the caption Risk Factors. You should read these factors and the other cautionary
statements made in this prospectus as being applicable to all related forward-looking statements wherever they appear in this prospectus. If one or
more of these factors materialize, or if any underlying assumptions prove incorrect, our actual results, performance or achievements may vary
materially from any future results, performance or achievements expressed or implied by these forward-looking statements. Moreover, we operate in a
very competitive and rapidly changing environment. New risks emerge from time to time. It is not possible for our management to predict all risks, nor
can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to
differ materially from those contained in any forward-looking statements we may make. We undertake no obligation to update any forward-looking
statements, whether as a result of new information, future events or otherwise, except as required by law.
This prospectus also contains
statistical data and estimates, including those relating to market size and growth rates of the markets in which we participate, that we obtained from
industry publications and generated with internal analysis and estimates. These publications include forward-looking statements made by the authors of
such reports. These forward-looking statements are subject to a number of risks, uncertainties, and assumptions. Actual results could differ materially
and adversely from those anticipated or implied in the forward-looking statements. Some data and information are also based on our good faith
estimates, which are derived from our review of internal surveys as well as the independent sources listed above. Although we believe these sources are
reliable, we have not independently verified the information and cannot assure you of its accuracy or completeness.
24
We estimate that our net proceeds
from the sale of the shares of common stock by us will be approximately $ million, assuming an initial public offering price of
$ per share, the mid-point of the range set forth on the cover page of this prospectus, after deducting the estimated underwriting
discounts and commissions and estimated offering expenses payable by us. If the underwriters exercise their over-allotment option in full, the net
proceeds to us will be approximately $ million. We will not receive any of the proceeds from the sale of shares by the selling
stockholders.
Assuming no change in the number
of shares offered by us as set forth on the cover page of this prospectus, a $1.00 increase (decrease) in the assumed initial public offering price of
$ per share would increase (decrease) the net proceeds to us from this offering by $ million, after deducting the estimated
underwriting discounts and commissions and estimated offering expenses payable by us.
We intend to use the net proceeds
of this offering to (a) pay approximately $ consisting of a preferred stock
liquidation preference to holders of our outstanding preferred stock concurrently with the conversion of such shares into shares of common stock upon
the closing of this offering, and (b) for working capital and general corporate purposes, which may include financing our growth, developing new
technology solutions and services, and funding capital expenditures, acquisitions and investments. We will not receive any proceeds from the sale of
shares by the selling stockholders. Pursuant to our Georgia articles of incorporation, which governs the terms of our outstanding Series A and Series B
Preferred Stock, upon the consummation of this offering, all outstanding shares of Series A and Series B Preferred Stock will be converted into shares
of common stock. In addition, each Series A Preferred stockholder will receive a payment of $6 per share and each Series B Preferred stockholder will
receive $4.75 per share. Accordingly, simultaneously along with the closing of this offering, the holders of our Series A and Series B Preferred Stock
will receive cash payments totaling approximately $ as
well as a total of number of common shares pursuant to the conversion. Upon the closing of this offering, we will
no longer have any preferred stock outstanding.
Pending the foregoing uses, we
intend to invest the net proceeds in high-quality, investment grade U.S. government-backed obligations. The actual use of the proceeds may vary
significantly and will depend on a number of factors, including our future revenue and cash generated by operations and other factors described in the
section entitled Risk Factors appearing elsewhere in this prospectus. Accordingly, our management will have broad discretion in applying
the net proceeds of this offering.
25
Since our incorporation, we have
not declared or paid any dividends on our common stock. We currently intend to retain all of our future earnings, if any, to finance the growth and
development of our business and do not anticipate paying cash dividends for the foreseeable future. Our existing credit facility prohibits us from
paying cash dividends, and any future financing agreements may prohibit us from paying any type of dividends.
26
The following table sets forth
our cash and cash equivalents and capitalization as of March 31, 2011, as follows:
|
on an actual basis; and |
|
on a pro forma as adjusted basis to reflect (1) the conversion of all outstanding shares of our Series A and Series B Preferred Stock into common stock simultaneously with the closing of this offering, as well as a liquidation preference payment to our preferred stockholders of approximately $ , and (2) our issuance and sale of shares of common stock in this offering at an assumed initial public offering price of $ per share, which is the midpoint of the price range listed on the cover page of this prospectus, after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us and the application of the net proceeds therefrom as described in Use of Proceeds. |
The pro forma as adjusted
information set forth in the table below is illustrative only and will adjust based on the actual initial public offering price and other terms of the
offering determined at pricing.
You should read this information
in conjunction with Use of Proceeds, our consolidated financial statements and the related notes appearing at the end of this prospectus
and the Managements Discussion and Analysis of Financial Condition and Results of Operations section and other financial information
contained in this prospectus.
A $1.00 increase (decrease) in
the assumed initial public offering price of $ per share, which is the midpoint of the range listed on the cover page of this prospectus,
would increase (decrease) the pro forma as adjusted amount of each of cash and cash equivalents, additional paid-in capital, total stockholders
equity and total capitalization by approximately $ million, assuming that the number of shares offered
by us, as set forth on the cover page of this prospectus, remains the same and after deducting estimated underwriting discounts and commissions and
estimated offering expenses payable by us.
Actual | Pro forma as adjusted |
|||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
(In thousands, except share and per share
amounts) |
||||||||||||||
Cash and cash
equivalents and short-term investments |
$ | 18,046 | ||||||||||||
Convertible
redeemable preferred stock, at fair value: |
||||||||||||||
Series A
$0.01 par value, 3,458,333 shares authorized, issued and outstanding actual |
3,333,333 | 68,366 | ||||||||||||
issued and
outstanding pro forma as adjusted |
||||||||||||||
Series B
$0.01 par value, 4,631,579 shares authorized, issued and outstanding actual |
4,631,579 | 75,217 | ||||||||||||
issued and
outstanding pro forma as adjusted |
||||||||||||||
Stockholders deficit |
||||||||||||||
Common stock,
$1.00 par value, 25,000,000 shares, authorized, issued and outstanding actual |
11,606,520 | 11,428 | ||||||||||||
issued and
outstanding pro forma as adjusted |
||||||||||||||
Additional
paid-in capital actual |
58,758 | |||||||||||||
Additional
paid-in capital pro forma as adjusted |
||||||||||||||
Accumulated
deficit |
(157,375 | ) | ||||||||||||
Total
stockholders deficit |
(87,189 | ) | ||||||||||||
Total
capitalization |
$ | 56,394 |
The table above does not
include:
|
shares of common stock issuable upon the exercise of warrants outstanding as of , 2011 at a weighted average exercise price of $ per share; |
|
shares of common stock issuable upon the exercise of stock options outstanding as of , 2011 at a weighted average exercise price of $ per share; and |
|
shares of common stock available for future issuance under our equity compensation plans as of , 2011. |
27
If you invest in our common stock
in this offering, your ownership interest will be immediately diluted to the extent of the difference between the initial public offering price per
share and the net tangible book value per share of our common stock after this offering. Dilution results from the fact that the initial public
offering price per share of common stock is substantially in excess of the net tangible book value per share of our common stock attributable to
existing stockholders for our presently outstanding shares of common stock. We calculate net tangible book value per share of our common stock by
dividing the net tangible book value (total consolidated tangible assets less total consolidated liabilities) by the number of outstanding shares of
our common stock, including shares of common stock issuable upon conversion of our preferred stock simultaneously with the completion of this offering.
Our net tangible book value (deficit) as of June 30, 2011 was $ million, or $ per share of our common stock, based on shares of
our common stock outstanding immediately prior to the closing of this offering. Net tangible book value represents the amount of total tangible assets
less total liabilities. Dilution is determined by subtracting net tangible book value per share of our common stock from the assumed initial public
offering price per share of our common stock.
After giving effect to the sale
of shares of our common stock in this offering assuming an initial public offering price of $ per
share, less the underwriting discounts, commissions and estimated offering expenses payable by us, and without taking into account any other changes in
such net tangible book value after June 30, 2011, our pro forma as adjusted net tangible book value as of June 30, 2011 would have been
or per share. This represents an immediate increase in net tangible book value of $ per share of our
common stock to the existing stockholders and an immediate dilution in net tangible book value of $ per share of our common stock, or
% of the estimated offering price of $ , to investors purchasing shares of our common stock in this offering. The
following illustrates such dilution per share of our common stock:
Assumed
initial public offering price per share |
$ | |||||||||
Pro forma net
tangible book value at June 30, 2011 |
||||||||||
Increase in
pro forma net tangible book value per share attributable to new investors |
||||||||||
Pro forma as
adjusted net tangible book value per share after offering dilution per share to new investors |
||||||||||
Dilution per
share to new investors |
A $1.00 increase (decrease) in
the assumed initial public offering price of $ per share, which is the midpoint of the range listed on the cover page of this prospectus,
would increase (decrease) the pro forma as adjusted net tangible book value per share after this offering by approximately $ , and dilution
in pro forma net tangible book value per share to new investors by approximately $ , assuming that the number of shares offered by us, as
set forth on the cover page of this prospectus, remains the same and after deducting estimated underwriting discounts and commissions and estimated
offering expenses payable by us. If the underwriters exercise in full their over-allotment option, the pro forma as adjusted net tangible book value
after the offering would be $ per share, the increase in pro forma net tangible book value to existing stockholders would be $
per shares and the dilution to new investors would be $ per share, in each case assuming an initial public offering price of $
per share, which is the midpoint of the range listed on the cover page of this prospectus.
The following table summarizes,
as of June 30, 2011, the differences between the number of shares purchased from us, the total consideration paid to us in cash and the average price
per share that existing stockholders and new investors paid. The calculation below is based on an assumed initial public offering price of
$ per share, which is the midpoint of the range listed on the cover page of this prospectus, before deducting the estimated underwriting
discounts and commissions and estimated offering expenses payable by us.
28
Shares purchased |
Total consideration |
|||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Number |
Percent |
Amount |
Percent |
Average per share |
||||||||||||||||||
Existing
stockholders |
% | % | ||||||||||||||||||||
New investors
|
% | % | ||||||||||||||||||||
Total
|
100 | % | % |
A $1.00 increase or decrease in
the assumed initial public offering price of $ per share would increase or decrease, as applicable, total consideration paid by investors
in this offering and total consideration paid by all stockholders by $ million, assuming the number of shares offered by us, as set forth
on the cover page of this prospectus, remains the same.
The discussion and tables above
assume no exercise of the underwriters over-allotment option. If the underwriters over-allotment option is exercised in
full:
|
the number of shares of common stock held by existing stockholders will represent % of the total number of shares of common stock to be outstanding after this offering; the number of shares of common stock held by investors participating in this offering will represent % of the total number of shares of common stock to be outstanding after this offering; and |
|
our adjusted pro forma net tangible book value at June 30, 2011 will be $ million, or $ per share of common stock, representing an immediate increase in pro forma net tangible book value of $ per share of common stock to our existing stockholders and an immediate dilution of $ per share to investors purchasing shares in this offering. |
The foregoing tables and
calculations are based on the number of shares of our common stock outstanding as of June 30, 2011 after giving effect to the automatic conversion of
all outstanding shares of our preferred stock simultaneously with the closing of this offering and, excludes:
|
shares of common stock issuable upon the exercise of warrants outstanding as of , 2011 at a weighted average exercise price of $ per share. |
|
shares of common stock issuable upon the exercise of stock options outstanding as of , 2011 at a weighted average exercise price of $ per share. |
|
shares of common stock available for future issuance under our equity compensation plans as of , 2011. |
To the extent any of these
outstanding options or warrants are exercised, there will be further dilution to new investors. To the extent all of such outstanding options and
warrants had been exercised as of June 30, 2011, the pro forma as adjusted net tangible book value (deficit) per share after this offering would be
$ and total dilution per share to new investors would be $ .
For a description of our equity
incentive plan, see Executive CompensationCompensation Discussion and Analysis.
29
The following tables set forth,
for the periods and at the dates indicated, our financial data. We derived the statement of operations data for the years ended June 30, 2008, 2009 and
2010 and the balance sheet data as of June 30, 2009 and 2010 from our audited financial statements, which are included in this prospectus. We derived
the statement of operations data for the years ended June 30, 2006 and 2007 and the balance sheet data as of June 30, 2006, 2007 and 2008 from our
audited financial statements, that were subsequently revised to conform to Regulation S-X and, as such, are now unaudited.
The summary statements of
operations for the nine months ended March 31, 2010 and 2011 and the summary balance sheet data as of March 31, 2011 are derived from our unaudited
financial statements included elsewhere in this prospectus. Our unaudited financial statements have been prepared on the same basis as the audited
financial statements and notes thereto and, in the opinion of our management, include all adjustments (consisting of normal recurring adjustments)
necessary for a fair statement of the information for the unaudited interim periods. Our historical results for prior interim periods are not
necessarily indicative of results to be expected for a full year or for any future period.
You should read the following
information together with the more detailed information contained in Managements Discussion and Analysis of Financial Condition and Results
of Operations and our consolidated financial statements and the accompanying notes appearing elsewhere in this prospectus.
For the years ended June 30, |
Nine months ended March 31, |
||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
2006 |
2007 |
2008 |
2009 |
2010 |
2010 |
2011 |
|||||||||||||||||||||||||
(in thousands, except per share data) |
(unaudited) | (unaudited) | |||||||||||||||||||||||||||||
Statements
of operations data |
|||||||||||||||||||||||||||||||
Revenue: |
|||||||||||||||||||||||||||||||
System sales
|
$ | 17,513 | $ | 24,107 | $ | 24,205 | $ | 28,575 | $ | 36,035 | $ | 24,019 | $ | 31,983 | |||||||||||||||||
Software
support services |
3,980 | 6,081 | 8,457 | 11,421 | 16,031 | 11,522 | 16,011 | ||||||||||||||||||||||||
Electronic data
interchange and business services |
2,350 | 4,094 | 6,137 | 8,716 | 12,576 | 8,986 | 12,438 | ||||||||||||||||||||||||
Total revenue
|
23,843 | 34,282 | 38,799 | 48,712 | 64,642 | 44,527 | 60,432 | ||||||||||||||||||||||||
Cost of
revenue: |
|||||||||||||||||||||||||||||||
System
sales(1) |
9,998 | 11,445 | 10,551 | 12,208 | 14,904 | 10,428 | 14,671 | ||||||||||||||||||||||||
Software
support services(1) |
2,746 | 2,302 | 2,763 | 3,279 | 4,179 | 3,071 | 4,750 | ||||||||||||||||||||||||
Electronic data
interchange and business services(1) |
1,708 | 2,877 | 4,439 | 5,954 | 8,713 | 6,142 | 8,786 | ||||||||||||||||||||||||
Total cost of
revenue |
14,452 | 16,624 | 17,753 | 21,441 | 27,796 | 19,641 | 28,207 | ||||||||||||||||||||||||
Gross profit
|
9,391 | 17,658 | 21,046 | 27,271 | 36,846 | 24,886 | 32,225 | ||||||||||||||||||||||||
Operating
expenses: |
|||||||||||||||||||||||||||||||
Sales, general
and administrative(1) |
10,731 | 12,954 | 16,860 | 20,370 | 27,727 | 18,951 | 27,145 | ||||||||||||||||||||||||
Research and
development(1) |
5,350 | 4,867 | 5,356 | 5,767 | 5,991 | 4,338 | 5,628 | ||||||||||||||||||||||||
Total
operating expenses |
16,081 | 17,821 | 22,216 | 26,137 | 33,718 | 23,289 | 32,773 | ||||||||||||||||||||||||
Operating
income (loss) |
(6,690 | ) | (163 | ) | (1,170 | ) | 1,134 | 3,128 | 1,597 | (548 | ) | ||||||||||||||||||||
Interest
(income) expense and other expense, net |
1,596 | 467 | (244 | ) | 153 | 115 | 85 | 19 | |||||||||||||||||||||||
Income
before income taxes |
(8,286 | ) | (630 | ) | (926 | ) | 981 | 3,013 | 1,512 | (567 | ) | ||||||||||||||||||||
Provision
for income taxes |
| | | 26 | 148 | 36 | (30,944 | ) | |||||||||||||||||||||||
Net income
(loss) |
(8,286 | ) | (630 | ) | (926 | ) | 955 | 2,865 | 1,476 | 30,377 | |||||||||||||||||||||
Preferred
stock dividends and accretion |
(5,481 | ) | (25,217 | ) | (6,471 | ) | (9,014 | ) | (8,038 | ) | (7,677 | ) | (39,728 | ) | |||||||||||||||||
Loss
available to common stockholders |
$ | (13,767 | ) | $ | (25,847 | ) | $ | (7,397 | ) | $ | (8,059 | ) | $ | (5,173 | ) | $ | (6,201 | ) | $ | (9,351 | ) |
30
For the years ended June 30, |
Nine months ended March 31, |
||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
2006 |
2007 |
2008 |
2009 |
2010 |
2010 |
2011 | |||||||||||||||||||||||||
(in thousands, except per share data) |
(unaudited) | (unaudited) | |||||||||||||||||||||||||||||
Per share
data: |
|||||||||||||||||||||||||||||||
Net loss per
share: |
|||||||||||||||||||||||||||||||
Basic and
diluted |
$ | (1.39 | ) | $ | (2.60 | ) | $ | (0.74 | ) | $ | (0.81 | ) | $ | (0.48 | ) | $ | (0.59 | ) | $ | (0.81 | ) | ||||||||||
Weighted
average number of common shares outstanding |
|||||||||||||||||||||||||||||||
Basic and
diluted |
9,934 | 9,937 | 9,940 | 9,947 | 10,684 | 10,425 | 11,562 | ||||||||||||||||||||||||
|
|||||||||||||||||||||||||||||||
Cost of
revenue: |
|||||||||||||||||||||||||||||||
System
sales |
| 27 | 78 | 57 | 72 | 65 | 81 | ||||||||||||||||||||||||
Software
support services |
5 | 12 | 100 | 14 | 23 | 22 | 37 | ||||||||||||||||||||||||
Electronic
data interchange and business services |
18 | 1 | 6 | 1 | 1 | 1 | 9 | ||||||||||||||||||||||||
Total cost of
revenue |
23 | 40 | 184 | 72 | 96 | 88 | 127 | ||||||||||||||||||||||||
Operating
expenses: |
|||||||||||||||||||||||||||||||
Sales,
general and administrative |
1 | 210 | 1,196 | 482 | 463 | 453 | 1,059 | ||||||||||||||||||||||||
Research and
development |
390 | 52 | 168 | 11 | 63 | 60 | 154 | ||||||||||||||||||||||||
Total
operating expenses |
391 | 262 | 1,364 | 493 | 526 | 513 | 1,213 | ||||||||||||||||||||||||
Total
stock-compensation expense |
414 | 302 | 1,548 | 565 | 622 | 601 | 1,340 |
As of June 30, |
As of March 31, |
Pro forma as |
|||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
2006 |
2007 |
2008 |
2009 |
2010 |
2011 |
adjusted(1) |
|||||||||||||||||||||||||
(in thousands) |
(unaudited) | (unaudited) | |||||||||||||||||||||||||||||
Balance
sheet data |
|||||||||||||||||||||||||||||||
Cash, cash
equivalents, and short-term investments |
$ | 3,972 | $ | 11,376 | $ | 8,161 | $ | 9,711 | $ | 19,179 | $ | 18,046 | |||||||||||||||||||
Working capital
|
(5,912 | ) | 8,613 | 8,564 | 9,861 | 16,966 | 16,481 | ||||||||||||||||||||||||
Total assets
|
7,905 | 17,058 | 19,944 | 22,210 | 38,604 | 76,323 | |||||||||||||||||||||||||
Deferred
revenue |
6,417 | 4,770 | 3,233 | 3,717 | 4,320 | 7,882 | |||||||||||||||||||||||||
Long-term
obligations |
6,399 | 98 | 2,218 | 1,904 | | 359 | |||||||||||||||||||||||||
Convertible
preferred stock at fair value |
37,980 | 81,151 | 87,360 | 95,818 | 103,855 | 143,583 | |||||||||||||||||||||||||
Accumulated
deficit |
(101,547 | ) | (127,394 | ) | (134,791 | ) | (142,850 | ) | (148,024 | ) | (157,375 | ) | |||||||||||||||||||
Total
shareholders deficit |
(49,598 | ) | (71,208 | ) | (77,056 | ) | (84,539 | ) | (79,996 | ) | (87,189 | ) |
(1) |
The pro forma as adjusted summary balance sheet data as of March 31, 2011 gives effect to the conversion of all outstanding shares of our convertible preferred stock an aggregate of 8,842,104 shares of common stock upon the closing of this offering and the payment of aggregate preference due to holders of our convertible preferred stock upon conversion (approximately $42.0 million) and gives further effect to the sale of shares of our common stock at an initial public offering price of $ per share after deducting underwriting discounts and estimated offering expenses payable by us. |
For the years ended June 30, |
Nine months ended March 31, |
||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
2006 |
2007 |
2008 |
2009 |
2010 |
2010 |
2011 |
|||||||||||||||||||||||||
(in thousands) |
(unaudited) | (unaudited) | |||||||||||||||||||||||||||||
Adjusted
EBITDA(1) |
$ | (5,855 | ) | $ | 199 | $ | 700 | $ | 2,029 | $ | 4,144 | $ | 2,497 | $ | 1,375 | ||||||||||||||||
Net cash
provided by (used in) operating activities |
(7,393 | ) | (2,493 | ) | (2,416 | ) | 2,070 | 6,628 | 3,586 | 4,416 | |||||||||||||||||||||
Capital
expenditures |
33 | 307 | 3,128 | 325 | 2,784 | 1,562 | 2,660 |
(1) |
Adjusted EBITDA, a non-GAAP measure, is an unaudited number and represents net income (loss) before interest (income) expense, net, (benefit) provision, for income taxes, depreciation and amortization and stock-based compensation. See discussion of Adjusted EBITDA in Managements Discussion and Analysis of Financial Conditions and Results of Operations. |
31
The following discussion and
analysis of our financial condition and results of operations should be read together with Selected Consolidated Financial Data, and our
consolidated financial statements and the related notes and the other financial information appearing elsewhere in this prospectus. This discussion
contains forward-looking statements that involve risks and uncertainties, such as statements of our plans, objectives, expectations and intentions. Our
actual results could differ materially from those anticipated in the forward-looking statements as a result of various factors, including those
discussed below and elsewhere in this prospectus, particularly under Risk Factors and Special Note Regarding Forward-Looking
Statements. All forward-looking statements in this document are based on information available to us as of the date hereof, and we assume no
obligation to update any such forward-looking statements.
Business overview
We are a leading provider of
integrated information technology solutions and managed business services to ambulatory healthcare providers throughout the United States. At the core
of our suite of solutions and services is PrimeSUITE, our award-winning, fully-integrated electronic healthcare record (EHR), practice
management (PM) and interoperability solution. PrimeSUITE integrates clinical, financial and administrative data in a single database to
enable comprehensive views of patient records and efficient workflow throughout each patient encounter, reduce clinical and administrative errors, and
allow for the seamless exchange of data between our customers and the broader healthcare community. We augment our solutions by offering managed
business services such as clinically-driven revenue cycle and EHR-enabled research services. By integrating clinical, financial and administrative data
processes, our solutions and services are designed to allow providers to deliver advanced care and improve their efficiency and profitability. Over
33,000 providers (which we define as physicians and their affiliated nurses, nurse practioners, physician assistants, and other clinical staff) use our
solutions to deliver care to and capture the clinical, financial and administrative information of over 20 million patients.
Our technology solutions and
services are designed to address the needs of providers in all ambulatory settings: independent physician practices, group practices,
hospital-affiliated and hospital-owned clinics and practices, retail clinics, employer clinics, university and academic centers, federally-qualified
health centers (FQHC), community health centers (CHC), accountable care communities (ACC) and accountable care
organizations (ACO), and integrated delivery networks (IDN). Our single database technology platform, which reflects over 12
years of development, is scalable to serve the needs of ambulatory providers of any size. As providers needs evolve, our platform allows for the
efficient development and integration of new solutions, which we refer to as our innovation platform. Our solutions are available on either a
cloud-based or premise-based model.
The ambulatory EHR market has
historically been underpenetrated and installed systems have been underutilized. Adoption of these technologies has been low for several reasons
including providers resistance to making the required investment as well as concerns that electronic records would disrupt clinical and
administrative workflows. Adoption of EHR solutions is accelerating as more providers realize the possible return on investment from adoption of
solutions such as PrimeSUITE. Government initiatives and legislation have provided financial incentives and implementation support for ambulatory
providers to adopt EHR solutions.
In order for us to continue to
deliver on this commitment to our providers we are committed to investing in our innovation platform and managed business services to address the
trends and challenges we believe will affect our providers now and in the future. We will invest in the development of new products and enhancements to
existing products that we believe present opportunities for substantial efficiencies to ourselves and our providers businesses. In responding to
the acceleration of EHR adoption, government regulations such as the HITECH Act and ARRA, and other market trends such as increasing consumerism, the
shift to quality-based reimbursement and the focus on improving the coordination of care among providers, we face also the following opportunities,
challenges and risks, which could impact our business:
|
Maintaining Adequate Capacity to Satisfy Potential Increased Demand. We have taken steps to position ourselves to take advantage of expected increased demand by increasing our direct sales force, enhancing our relationships with strategic alliance partners with established sales forces and increasing our systems |
32
installation capacity by utilizing third-party training and implementation specialists certified in PrimeSUITE deployment. While we believe these steps are sufficient to satisfy expected demand, additional investments and steps may be required. |
|
Ensuring Continued Certification of Our Solutions. In order to qualify for government incentives for EHR adoption, our solutions must continue to meet various and changing requirements for product certification and must enable our providers to achieve meaningful use as defined by existing and new regulations. We will continue to invest significant resources to ensure compliance of our solutions and to train and consult with our providers to enable them to navigate meaningful use regulations. Our ability to achieve certification under applicable standards from time to time and the length and cost of related solutions development and enhancement could materially impact our ability to take advantage of increased demand and require larger research and development investments than anticipated. |
|
Ensuring Our Ability to Address Emerging Demand Trends. Trends toward community-based purchasing decisions where individuals, hospitals, health systems and IDNs subsidize the purchase of EHR solutions for their affiliated physicians in order to expand connectivity within their provider community, and government-funded providers and initiatives, such as RECs, to encourage and support the implementation of EHR, could result in longer sales cycles and installation periods. This may also increase the need for additional training and implementation specialists because of the size and complexity of those sales. As a result, while we expect these trends to result in increased demand for our solutions and managed business services, they may require additional investment by us and may have unintended or unexpected consequences that could impact our business. |
|
Demand by Smaller Providers Could Accelerate Transition to Subscription Pricing Model. The adoption of EHR by the large untapped market of smaller provider customers and their greater need to minimize capital outlays could accelerate adoption of subscription-based arrangements as opposed to perpetual licensing arrangements. While additional subscription arrangements will result in increased recurring revenue over a longer period of time than we have achieved historically, near-term revenue would be reduced as a result while costs associated with these sales would still be expensed currently. |
Sources of Revenue and Expenses
Revenue
We derive our revenue primarily
from sales of our PrimeSUITE platform of proprietary solutions, related hardware and professional services to providers in ambulatory settings.
Currently, a sizable percentage of our solution sales are made as perpetual licenses to our customers; however, our software is currently available in
a cloud-based or a premise-based model.
We classify our revenue as: (1)
Systems Sales, (2) Software Support Services, and (3) Electronic Data Interchange and Business Services. System Sales are comprised of license revenue,
primarily PrimeSUITE, related hardware, and implementation and training services. Software Support Services includes solutions we offer on a
transaction or per user basis, such as PrimeSUITE, support services, PrimeEXCHANGE services for connectivity to third-parties and third-party database
charges. Electronic Data Interchange and Business Services includes third-party charges for patient claims, statements and eligibility, and clinically
driven RCM and EHR-enabled research services.
As our installed customer base
continues to grow, we anticipate that Software Support Services and Electronic Data Interchange and Business Services, which are recurring in nature,
will expand as a percentage of our total revenue. There is moderate seasonality to our annual revenue. Typically, the smallest percentage of sales
occur in the first fiscal quarter due primarily to provider purchasing patterns. See Results of Operations for more
information.
33
Cost of Revenue
Cost of revenue for System Sales
consists primarily of compensation (including stock-based compensation) and benefits of our billable professionals and fees to third-party specialists
for deployment, implementation and training, third-party hardware and software costs and travel costs. Cost of revenue for Software Support Services
consists primarily of compensation (including stock-based compensation) and benefits of support specialists, and fees to third-parties for database and
remote hosting services. Cost of revenue for Electronic Data Interchange consists primarily of fees to third-parties for processing claims, statements
and eligibility requests; cost of revenue for Business Services consists primarily of compensation (including stock-based compensation) and benefits of
personnel who deliver our revenue cycle management services and various third-party costs associated with our EHR-enabled clinical research services.
As higher-margin recurring revenue increases as a percentage of total revenue, we believe overall gross margin will also increase over
time.
Sales, General and Administrative
Expenses
Sales, general and administrative
(SG&A) expenses consist primarily of compensation (including stock-based compensation) and benefits, commissions, travel, professional
fees, advertising and other administrative and general expenses, including depreciation and amortization of equipment and leasehold improvements, for
the Companys sales and marketing functions; executive offices, administration, human resources, corporate information technology support, legal,
finance and accounting, and other corporate services. We intend to invest in our infrastructure as appropriate to expand our market share and
accommodate our growing customer base. We expect to incur additional expenses associated with being a public company, including increased legal and
accounting costs, investor relations costs and compliance costs in connection with Section 404 of the Sarbanes-Oxley Act. As a result, we expect
SG&A expenses to increase as we grow, but remain relatively constant as a percentage of revenue and ultimately decline as we achieve leverage from
our infrastructure investments.
Research and Development
Expenses
Research and development expenses
consist primarily of compensation (including stock-based compensation) and benefits, third-party contractor costs and other facility and administrative
costs, including depreciation of equipment directly related to development of new products and upgrading and enhancing existing products. In accordance
with GAAP, research and development costs related to new application development and enhancements to existing products are expensed until technological
feasibility is established. Once technological feasibility is established such costs are capitalized until the product or enhancement is ready for
market, at which point capitalization ceases. We capitalize research and development costs under these criteria including the compensation-related
costs of personnel and related third-party contractors working directly on specific projects. We intend to invest in our innovation platform to
maintain cutting-edge technology for the benefit of our customers as well as to meet evolving requirements of the market, including certifications and
standards.
Provision for Income Taxes
In preparing our financial
statements, we estimate income taxes in each of the jurisdictions in which we operate. This process involves estimating actual current tax exposure
together with assessing temporary differences resulting from differing treatment of items for tax and financial reporting purposes. These differences
result in deferred income tax assets and liabilities.
34
Statement of Operations Data
The following tables set forth
our statements of operations data based on the amounts and percentage relationship of the items listed to net revenue for each period presented (in
thousands):
For the years ended June 30, |
Nine months ended March 31, |
||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
2008 |
2009 |
2010 |
2010 |
2011 |
|||||||||||||||||||
(Unaudited) | |||||||||||||||||||||||
Revenue: |
|||||||||||||||||||||||
System Sales
|
$ | 24,205 | $ | 28,575 | $ | 36,035 | $ | 24,019 | $ | 31,983 | |||||||||||||
Software
Support Services |
8,457 | 11,421 | 16,031 | 11,522 | 16,011 | ||||||||||||||||||
Electronic
Data Interchange and Business Services |
6,137 | 8,716 | 12,576 | 8,986 | 12,438 | ||||||||||||||||||
Total
Revenue |
38,799 | 48,712 | 64,642 | 44,527 | 60,432 | ||||||||||||||||||
Cost of
Revenue: |
|||||||||||||||||||||||
System
Sales(1) |
10,551 | 12,208 | 14,904 | 10,428 | 14,671 | ||||||||||||||||||
Software
Support Services(1) |
2,763 | 3,279 | 4,179 | 3,071 | 4,750 | ||||||||||||||||||
Electronic
Data Interchange and Business Services |
4,439 | 5,953 | 8,713 | 6,142 | 8,786 | ||||||||||||||||||
Total Cost
of Revenue |
17,754 | 21,440 | 27,796 | 19,641 | 28,207 | ||||||||||||||||||
Gross
Profit |
21,046 | 27,271 | 36,846 | 24,886 | 32,225 | ||||||||||||||||||
Operating
Expenses: |
|||||||||||||||||||||||
Sales,
General and Administrative(1) |
16,860 | 20,370 | 27,727 | 18,951 | 27,145 | ||||||||||||||||||
Research and
Development(1) |
5,356 | 5,767 | 5,991 | 4,338 | 5,628 | ||||||||||||||||||
Total
Operating Expenses |
22,216 | 26,137 | 33,718 | 23,289 | 32,773 | ||||||||||||||||||
Operating
Income (Loss) |
(1,170 | ) | 1,134 | 3,128 | 1,597 | (548 | ) | ||||||||||||||||
Interest
(Income) |
(292 | ) | (53 | ) | (37 | ) | (24 | ) | (53 | ) | |||||||||||||
Interest
Expense |
36 | 130 | 114 | 95 | 20 | ||||||||||||||||||
Other Expense
|
12 | 76 | 38 | 14 | 52 | ||||||||||||||||||
Income
(Loss) Before Income Taxes |
(926 | ) | 981 | 3,013 | 1,512 | (567 | ) | ||||||||||||||||
Provision
(Benefit) for Income Taxes |
| 26 | 148 | 36 | (30,944 | ) | |||||||||||||||||
Net Income
(Loss) |
$ | (926 | ) | $ | 955 | $ | 2,865 | $ | 1,476 | $ | 30,377 | ||||||||||||
Other
Financial Data: |
|||||||||||||||||||||||
Adjusted
EBITDA(2) |
$ | 700 | $ | 2,029 | $ | 4,144 | $ | 2,497 | $ | 1,375 | |||||||||||||
|
|||||||||||||||||||||||
Cost of
Revenue: |
|||||||||||||||||||||||
System Sales
|
$ | 78 | $ | 57 | $ | 72 | $ | 65 | $ | 81 | |||||||||||||
Software
Support Services |
100 | 14 | 23 | 22 | 37 | ||||||||||||||||||
Electronic
Data Interchange and Business Services |
6 | 1 | 1 | 1 | 9 | ||||||||||||||||||
Total Cost
of Revenue |
$ | 184 | $ | 72 | $ | 96 | $ | 88 | $ | 127 | |||||||||||||
Operating
Expenses: |
|||||||||||||||||||||||
Sales,
General and Administrative |
1,196 | 482 | 463 | 453 | 1,059 | ||||||||||||||||||
Research and
Development |
168 | 11 | 63 | 60 | 154 | ||||||||||||||||||
Total
Operating Expenses |
$ | 1,364 | $ | 493 | $ | 526 | $ | 513 | $ | 1,213 | |||||||||||||
Total
Stock-Based Compensation |
$ | 1,548 | $ | 565 | $ | 622 | $ | 601 | $ | 1,340 |
(2) |
Adjusted EBITDA is a non-GAAP measure that is described and reconciled to net income (loss) in the next section and is not a substitute for the GAAP equivalent. |
35
Adjusted EBITDA
Adjusted EBITDA is not a measure
of liquidity calculated in accordance with GAAP, and should be viewed as a supplement to not a substitute for our results of operations
presented on the basis of GAAP. Adjusted EBITDA does not purport to represent cash flow provided by, or used in, operating activities as defined by
GAAP. Our statement of cash flows presents our cash flow activity in accordance with GAAP. Furthermore, Adjusted EBITDA is not necessarily comparable
to similarly-titled measures reported by other companies. Non-GAAP information should not be construed as an alternative to GAAP information, as the
items excluded from the non-GAAP measures often have a material impact on our financial results. Management uses, and investors should use, non-GAAP
measures in conjunction with our GAAP results.
In connection with the ongoing
operation of our business, our management regularly reviews Adjusted EBITDA to assess our performance. We define Adjusted EBITDA as earnings before net
interest (income) expense, taxes, depreciation, amortization, and stock-based compensation expenses. We believe that Adjusted EBITDA is an important
measure of our operating performance because it allows management, lenders, investors and analysts to evaluate and assess our core operating results
from period-to-period after removing the impact of changes to our capitalization structure, acquisition related costs, income tax status, and other
items of a non-operational nature that affect comparability.
We believe that various forms of
the Adjusted EBITDA metric are often used by analysts, investors and other interested parties to evaluate companies such as ours for the reasons
discussed above. Additionally, Adjusted EBITDA is used to measure certain financial covenants in our credit facility. Adjusted EBITDA is also used for
planning purposes and in presentations to our Board of Directors as well as in our incentive compensation programs.
The following table presents a
reconciliation of Adjusted EBITDA to net income (loss), the most comparable GAAP measure, for each of the periods indicated (in
thousands):
For the years ended June 30, |
Nine months ended March 31, |
||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
2008 |
2009 |
2010 |
2010 |
2011 |
|||||||||||||||||||
Reconciliation of Net Income (Loss) to Adjusted EBITDA |
|||||||||||||||||||||||
Net Income
(Loss) |
$ | (926 | ) | $ | 955 | $ | 2,865 | $ | 1,476 | $ | 30,377 | ||||||||||||
Stock-Based
Compensation |
1,548 | 565 | 622 | 601 | 1,340 | ||||||||||||||||||
Depreciation
and Amortization |
334 | 406 | 432 | 313 | 635 | ||||||||||||||||||
Interest
(Income) Expense, Net |
(256 | ) | 77 | 77 | 71 | (33 | ) | ||||||||||||||||
Provision for
Income Taxes |
| 26 | 148 | 36 | (30,944 | ) | |||||||||||||||||
Adjusted
EBITDA |
$ | 700 | $ | 2,029 | $ | 4,144 | $ | 2,497 | $ | 1,375 |
Comparison of Nine Months Ended March 31, 2011 to March 31,
2010
Revenue. Total revenue was
$60.4 million for the nine months ended March 31, 2011 compared to $44.5 million for the nine months ended March 31, 2010, an increase of $15.9 million
or 36%. System sales grew by 33% and accounted for $8.0 million, or 50% of total revenue growth during the period. Software support services and
electronic data interchange and business services combined grew 39% during the period, accounting for the remaining 50% of growth in total revenue.
System sales are one-time in nature and the substantial growth is attributable to our increased share in a growing market. Software support services,
electronic data interchange and business services are recurring and growth in this revenue is largely attributable to our growing customer base. Our
ability to sell additional products and services to our existing customer base also benefitted revenue growth in 2011 compared to the prior
period.
Cost of Revenue. Total
cost of revenue was $28.2 million for the nine months ended March 31, 2011 compared to $19.6 million for the nine months ended March 31, 2010 an
increase of $8.6 million or 44%. On an overall basis, gross profit margins declined 260 basis points in the 2011 period as compared to 2010. This
decline is attributable to: (1) a significant increase in deployment and training services necessitated the use of third-party specialists at net lower
margins; (2) increased headcount and other direct costs for our software services related to meeting
36
customers needs for meaningful use and to expand our capacity to deliver our software as a service, including transition costs for moving to a new hosting partner; and (3) increased competitiveness in the marketplace leading to greater discounting. A significant portion of the impact on gross margins is related to expenses incurred in assisting customers in meeting Stage 1 meaningful use standards. We do not expect a recurrence to the same extent for meaningful use standards for Stages 2 and 3.
Sales, General and
Administrative. Total SG&A expenses were $27.1 million for the nine months ended March 31, 2011 compared to $18.9 million for the nine months
ended March 31, 2010, an increase of $8.2 million or 43%. Growth in SG&A is largely a result of the required infrastructure to support the overall
growth in the business. We increased headcount in our direct sales force and the significant growth in sales activity led to a substantial increase in
commissions, incentive compensation and related expenditures such as travel. We also increased our investments in marketing and advertising, which
combined with headcount growth in the sales force, positions us to capture increased market share in what we believe will be an expanding market over
the next several years. We believe that these investments can be leveraged to maintain our sales growth in future years without a corresponding
increase in cost.
Research and Development
Expenses. Research and development expenses were $5.6 million for the nine months ended March 31, 2011 compared to $4.3 million for the nine months
ended March 31, 2010, an increase of $1.3 million or 30%. Our innovation platform requires increased investment in research and development which
continues to evolve to meet the needs of our customers, our market and industry regulators. In addition to research and development to support our
innovation platform, we develop new products and enhanced functionality for existing products. These application development costs are capitalized once
technological feasibility is attained and capitalization ceases once the technology is available for market. We capitalized $3.3 million and $0.9
million for software development for the nine months ended March 31, 2011 and 2010, respectively.
Interest and Other
Expenses. Interest and other expense, net of interest income, was $19,000 for the nine months ended March 31, 2011 as compared to $85,000 for the
nine months ended March 31, 2010. The change in net interest is related to availability of surplus cash to pay off existing indebtedness and invest. At
March 31, 2011 the Company had $0 outstanding on its credit facility.
Income Taxes. The Company
has available net operating losses and credits for research and development to offset taxable income and tax expense. These and other temporary
differences have resulted in net deferred tax assets which have previously been fully reserved with a valuation allowance. As of March 31, 2011, the
Company assessed the positive and negative evidence regarding its ability to realize its deferred tax assets and concluded that it is now more likely
than not that these assets will be fully realized over the next several years. The Companys historic operations have generated taxable income
over the past 12 quarters utilizing a portion of its net operating loss carryforwards. On the basis of its near-term prospects, the Company anticipates
utilizing another significant additional portion of these carryforwards for the year ending June 30, 2011. On the basis of our prospects for the next
several years, we believe it is more likely than not that as of March 31, 2011, we will fully realize our deferred tax assets. Accordingly, the Company
recorded a tax benefit of $31.0 million at March 31, 2011 to recognize the value of its net deferred tax assets. Tax expense for the nine months ended
March 31, 2010 comprises estimated federal Alternative Minimum Tax and estimated provision for taxes to various states and jurisdictions in which the
Company transacts business. Effective tax rate is not meaningful.
Comparison of Year Ended June 30, 2010 to June 30,
2009
Revenue. Total revenue was
$64.6 million for the year ended June 30, 2010 compared to $48.7 million for the year ended June 30, 2009, an increase of $15.9 million or 33%. System
sales grew by 26% and accounted for $7.5 million, or 47% of total revenue growth during the year. Software support services and electronic data
interchange and business services combined grew 42% during the year, accounting for 53% of the growth in total revenue. System sales are one-time in
nature and the substantial growth is attributable to increased order flow from customers, in part spurred by the federal incentives to implement EHR
systems. Software support services, electronic data interchange and business services are recurring and the growth in this revenue is attributable
primarily to our larger customer base. Our ability to sell additional products and services to our existing customer base also benefitted revenue
growth in 2010 compared to the prior year.
37
Cost of Revenue. Total
cost of revenue was $27.8 million for the year ended June 30, 2010 compared to $21.4 million for the year ended June 30, 2009, an increase of $6.4
million or 30%. On an overall basis, gross profit margins increased 100 basis points in 2010 as compared to 2009. Gross margins improved slightly
across all revenue categories, benefitting from the overall revenue growth.
Sales, General and
Administrative. Total SG&A expenses were $27.7 million for the year ended June 30, 2010 compared to $20.4 million for the year ended June 30,
2009, an increase of $7.3 million or 36%. Growth in SG&A is largely a result of the required infrastructure to support the 33% overall growth in
the business. Additionally, we invested in our growth initiatives by increasing headcount in our direct sales force and increasing our investments in
marketing and advertising. We also added key leadership to fill various roles in support of new initiatives.
Research and Development
Expenses. Research and development expenses were $6.0 million for the year ended June 30, 2010 compared to $5.8 million for the year ended June 30,
2009, an increase of $224,000 or 4%. Our innovation platform requires increased investment in research and development which continues to evolve to
meet the needs of our customers, our market and industry regulators. Our commitment to maintaining cutting-edge technology requires continuing
significant investment in research and development. Research and development expenses remained relatively constant during the period. However, for the
year ended June 30, 2010 we also invested $1.2 million in development of new products and enhanced functionality for existing products. These
application development costs are capitalized once technological feasibility is attained and capitalization ceases once the technology is available for
market.
Interest and Other
Expenses. Interest and other expense, net of interest income, was $115,000 for the year ended June 30, 2010 as compared to $153,000 for the year
ended June 30, 2009. The change in net interest is due principally to the lower level of indebtedness in 2010 compared to 2009. At June 30, 2010 the
Company repaid its existing indebtedness and was in negotiations for a new credit facility which was closed in 2011.
Income Taxes. The Company
has available net operating losses to offset taxable income. Tax expense for the years ended June 30, 2010 and 2009 comprises estimated federal
Alternative Minimum Tax and estimated provision for taxes to various states and jurisdictions in which the Company transacts business. Effective tax
rate is not meaningful.
Comparison of Year Ended June 30, 2009 to June 30,
2008
Revenue. Total revenue was
$48.7 million for the year ended June 30, 2009 compared to $38.8 million for the year ended June 30, 2008, an increase of $9.9 million or 26%. System
sales grew by 18% and accounted for $4.4 million, or 44% of total revenue growth during the period. Software support services and electronic data
interchange and business services combined grew by 38% during the period, accounting for the remaining 56% of growth in total revenue. System sales are
one-time in nature and the substantial growth is attributable to our increased share in a growing market. Growth in this period essentially pre-dates
the potential impact of the stimulus legislation and was driven by our investments in increasing our direct sales force and success in demonstrating to
providers the ROI of our PrimeSUITE solution. Software support services, electronic data interchange and business services are recurring and growth in
this revenue is attributable in large measure to our growing customer base. Our ability to sell additional products and services to our existing
customer base also benefitted revenue growth in 2009 compared to the prior period.
Cost of Revenue. Total
cost of revenue was $21.4 million for the year ended June 30, 2009 compared to $17.8 million for the year ended June 30, 2008, an increase of $3.6
million or 20%. On an overall basis, gross profit margins increased 190 basis points in 2009 as compared to 2008. Gross margins improved slightly
across all revenue categories, benefitting from the overall growth in the scale of the business.
Sales, General and
Administrative. Total SG&A expenses were $20.4 million for the year ended June 30, 2009 compared to $16.9 million for the year ended June 30,
2008, an increase of $3.5 million or 21%. Growth in SG&A is largely a result of building the required infrastructure to support the 26% overall
revenue growth, including increasing headcount in our direct sales force, increasing investments in marketing and advertising, and ramping our
administrative infrastructure.
38
Research and Development
Expenses. Research and development expenses were $5.8 million for the year ended June 30, 2009 compared to $5.4 million for the year ended June 30,
2008, an increase of $411,000 or 8%. Our innovation platform requires increased investment in research and development which continues to evolve to
meet the needs of our customers, our market and industry regulators. Our commitment to keeping our innovation platform on the cutting edge requires
continuing significant investment in research and development. Growth in research and development expenses for 2009 related primarily to increases in
headcount to accomplish these goals. Application development in this timeframe consisted primarily of enhancements to existing applications for which
the capitalizable costs were immaterial.
Interest and Other
Expenses. Interest and other expense, net of interest income, was $153,000 net expense for the year ended June 30, 2009 as compared to $244,000 net
income for the year ended June 30, 2008. The change in net interest is due principally to the combination of a greater level of resources in 2008
available for investment coupled with higher borrowing costs in 2009.
Income Taxes. The Company
has available net operating losses to offset taxable income. Given the history of losses prior to 2009, a full valuation has been provided on the tax
assets resulting from these NOLs and other net temporary differences. No tax provision was required for 2008 and tax expense for the year ended June
30, 2009 comprises estimated provision for taxes to various states and jurisdictions in which the Company transacts business. Effective tax rate is not
meaningful.
Liquidity and Capital Resources
Our principal capital
requirements are to fund operations. Since 2006, we have funded our capital needs from operating cash flow augmented by proceeds from exercise of
warrants in connection with the completion of the tender offer made by our institutional investors in late 2009 which is described in the accompanying
financial statements. We also repaid outstanding indebtedness and have obtained a new credit facility with more favorable terms upon which we have not
drawn as the date hereof.
We are not a capital intensive
business. We believe that our current cash, short-term investments and funds available under our credit facility combined with the proceeds of this
offering will be sufficient to meet our working capital needs for the next 12 months and for a reasonable period thereafter.
Cash Flow Summary
Cash and cash equivalents were
$19.2 million at June 30, 2010, as compared with $9.7 million at June 30, 2009, and $8.2 million at June 30, 2008. Cash and cash equivalents were $7.5
million at March 31, 2011 as compared to $19.2 million at June 30, 2010. As of March 31, 2011, we also had $10.5 million in short-term investments
classified as available for sale.
Operating Activities
Cash provided by operating
activities was $4.4 million for the nine months ended March 31, 2011, comprised primarily of a $548,000 operating loss offset by net stock compensation
expense of $1.3 million, depreciation and amortization of $634,000 and provision for bad debts of $538,000. Additionally net working capital changes
contributed $2.5 million to cash from operations attributable principally to increases in deferred revenue.
Cash provided by operating
activities was $3.6 million for the nine months ended March 31, 2010, which was attributable primarily to net income of $1.5 million plus net stock
compensation expense of $601,000, depreciation and amortization of $313,000 and provision for bad debts of $270,000; net changes in working capital
contributed $925,000.
Cash provided by operating
activities was $6.6 million in 2010, which was primarily attributable to net income of $2.9 million plus net stock compensation expense of $623,000,
depreciation and amortization of $432,000 and provision for bad debts of $620,000. Net changes in working capital contributed $2.0 million to cash from
operating activities; reduced prepaids accounted for $181,000, and increases in deferred revenue added $602,000, and increases in receivables and
payables netted to a $1,100,000 contribution.
39
Cash provided by operating
activities was $2.1 million in 2009, primarily attributable to net income of $955,000 plus net stock compensation expense of $566,000, depreciation and
amortization of $406,000 and provision for bad debts of $530,000. Net increases in working capital required $387,000 of operating cash
flows.
Investing Activities
For the nine months ended March
31, 2011, we began investing surplus cash resources and had net purchases of short-term investments of $10.5 million. Our policy is to invest only in
fixed income instruments denominated and payable in U.S. dollars, including obligations of the U.S. government and its agencies, money market
instruments, commercial paper, certificates of deposit, bankers acceptances, corporate bonds of U.S. companies, municipal securities and asset
backed securities. We do not invest in auction rate securities, futures contracts, or hedging instruments. Securities of a single issuer valued at cost
at the time of purchase should not exceed 10% of the market value of the portfolio but securities issued by the U.S. Treasury and U.S. government
agencies are specifically exempted from these restrictions. The final maturity of each security within the portfolio should not exceed 24 months. For
the nine months ended March 31, 2011, we also purchased $2.6 million of property and equipment, including acquisition and renovation of a new building,
and invested $3.3 million for capitalized software development of our innovation platform.
Net cash used in investing
activities for the nine months ended March 31, 2010 was $2.5 million including $1.6 million for purchases of property and equipment and $916,000 for
capitalized software development.
Net cash used in investing
activities for 2010 was $4.0 million consisting of purchases of property and equipment of $2.8 million, primarily the acquisition and renovation of a
new building placed in service in first quarter of 2011, and $1.2 million for capitalized software development.
Net cash used in investing
activities for 2009 was $325,000 for purchases of property and equipment.
Financing Activities
For the nine months ended March
31, 2011, net cash provided by financing activities was $406,000 consisting of $418,000 proceeds from exercise of stock options and $12,000 in payments
on capital leases.
For the nine months ended March
31, 2010, net cash provided by financing activities was $8.7 million including $9.0 million net proceeds from exercise of stock options and warrants,
and $266,000 in payments on debt and capital leases.
For the year ended June 30, 2010,
net cash from financing activities was $6.8 million comprised of $9.1 million net proceeds from exercise of stock options and warrants, and $2.3
million in payments on debt and capital leases.
For the year ended June 30, 2009,
net cash used in financing activities was $195,000 consisting of payments, net of borrowings on debt arrangements of $164,000, payments on capital
leases of $41,000 and proceeds from exercise of stock options of $10,000.
Contractual Obligations and Commitments
Our contractual cash payment
commitments as of March 31, 2011 are set forth below (in thousands):
Payments due by period |
|||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Total |
April 1, 2011 June 30, 3011 |
2012 |
2013 |
2014 |
2015 |
Thereafter |
|||||||||||||||||||||||||
Operating
leases |
$1,993 |
$145 |
$583 |
$622 |
$369 |
$265 |
$9 |
We are also committed to payments
on an obligation incurred in connection with acquisition of technology. At March 31, 2011, the total commitment was $359,000 and the payments are based
on the sales of the product set into which the technology has been incorporated. We anticipate the amount will be liquidated within two years. The
terms of the purchase agreement contemplate a potential reduction in the amount to be paid dependent on the results of a liquidity event for the
Company if and when such an event should occur.
40
Off-Balance Sheet Arrangements
We engage in no activities,
obligations or exposure with off-balance sheet arrangements.
Critical Accounting Policies and
Estimates
Our managements discussion
and analysis of financial condition and results of operations is based upon our financial statements and notes to our financial statements, which were
prepared in accordance with GAAP. The preparation of the financial statements requires us to make estimates and assumptions that affect the amounts
reported in the financial statements and accompanying notes. We evaluate our estimates on an ongoing basis, including those related to revenue
recognition, stock-based compensation, capitalization of software development costs and the provision for income taxes. We base our estimates and
judgments on our historical experience, knowledge of factors affecting our business and our belief as to what could occur in the future considering
available information and assumptions that are believed to be reasonable under the circumstances.
The accounting estimates we use
in the preparation of our financial statements will change as new events occur, more experience is acquired, additional information is obtained and our
operating environment changes. Changes in estimates are made when circumstances warrant. Such changes in estimates and refinements in estimation
methodologies are reflected in our reported results of operations and, if material, the effects of changes in estimates are disclosed in the notes to
our financial statements. By their nature, these estimates and judgments are subject to an inherent degree of uncertainty and actual results could
differ materially from the amounts reported based on these estimates.
Revenue Recognition
The Company generates revenue
from the following sources:
|
The sale of information systems, which includes software, hardware and peripherals, deployment and training |
|
The provision of system support services, which includes software application support and hardware maintenance |
|
The provision of outsourcing services, which includes the processing of medical claims, electronic patient statements and managed business services including clinically-driven revenue cycle management and our newly-developed EHR-enabled clinical research |
The Company recognizes revenue in
accordance with GAAP, principally ASC 985-605, Software Revenue Recognition, and ASC 605-25, Revenue Recognition, Multiple-Element
Arrangements, both amended effective for our year beginning July 1, 2010. Our adoption of this revised guidance did not have a material impact on
our financial statements.
The Company enters into
contractual obligations to sell hardware, perpetual software licenses, deployment and training services, support services, outsourcing services and
managed business services. Revenue recognized in accordance with ASC 605-25, as amended, requires elements of multiple-element arrangements be assigned
relative values using (in order of preference) vendor specific objective evidence (VSOE), third-party evidence (TPE) or the
best estimate of selling price (BESP).The tangible elements sold under our agreements are accounted for under this revised standard. The
software elements will continue to be accounted for under ASC 985-605, as amended, also based on relative values using the same criteria. Software and
hardware revenue is recognized upon shipment if persuasive evidence of an agreement exists, collection of the resulting receivable is probable, and the
amount of fees to be paid is fixed or determinable. Services revenue is recognized as performed or ratably over the term of the arrangement as
applicable.
The Company also generates
revenue from providing its software products as a service under software subscription agreements. These agreements include the right to use the
software and receive unspecified future product enhancements and upgrades when and if available for a specified term, usually 36 to 60 months. Support
services are not sold separately in such arrangements. Revenue from all of the deliverables related to subscription
41
agreements, including training and support services is recognized ratably over the life of the agreement. Any amounts invoiced or cash received in advance is recorded as deferred revenue.
Fair Value Considerations For Equity
Through March 31, 2011, our
equity instruments consist of common stock and Convertible Preferred Stock Series A and B, which are reflected in our financial statements as temporary
equity. We consider fair value of these instruments for purposes of recording share-based compensation expense and consideration of any adjustments to
fair value of convertible preferred stock for each reporting period. Our consideration of value at or around each measurement date considers a number
of factors, including:
|
company performance, our growth rate and financial condition |
|
the value of companies that we consider peers based on a number of factors including, but not limited to, similarity to us with respect to industry, business model, stage of growth, financial risk or other factors; |
|
changes in the Company and our prospects since the last time the Board of Directors approved option grants and/or made a determination of fair value; |
|
amounts recently paid by investors for our common stock in arms-length transactions; |
|
the rights, preferences and privileges of our convertible preferred stock relative to those of our common stock; |
|
the likelihood of achieving a liquidity event, such as an initial public offering or sale of all or a portion of the company; |
|
future financial projections; and |
|
valuations completed near the time of the grant. |
From 2007 through June 30, 2010,
we prepared valuations of our equity on at least an annual basis in a manner consistent with the method outlined in the AICPA Practice Guide, Valuation
of Privately-Held-Company Equity Securities Issued as Compensation. We had an interim valuation prepared as of December 31, 2009 to evaluate the impact
of a tender offer transaction completed at time. These valuations used an option-pricing model for valuation of our equity based on income and
market-comparable approaches to enterprise value of the Company. The market-comparable approach estimates the fair market value of a company by
applying market multiples of publicly-traded firms in the same or similar lines of business to the results and projected results of the company being
valued. When choosing the market-comparable companies to be used for the market-comparable approach, we focused on companies operating within the
healthcare information technology space. The comparable companies remained largely unchanged during the valuation process. The income approach involves
applying an appropriate risk-adjusted discount rate to projected debt free cash flows, based on forecasted revenue and costs. Allocation of value to
our equity instruments has historically utilized an option-pricing model. In March 2011, we prepared an additional valuation using the probability
weighted expected return model to reflect the change in our circumstances progressing toward a potential liquidity event.
We prepared financial forecasts
for each valuation report date used in the computation of the enterprise value for both the market-comparable approach and the income approach. The
financial forecasts were based on assumed revenue growth rates that took into account our past experience and contemporaneous future expectations. The
risks associated with achieving these forecasts were assessed in selecting the appropriate cost of capital, which was 18% in 2007, 15% in 2008 and
2009, 13% in 2010 and 12% for the most recent valuation completed as of March 2011.
As an additional indicator of
fair value, we considered the pricing of significant sales of our common stock for transactions occurring near the respective valuation dates. Early in
our history from 1999 to 2004 shares were sold to accredited investors at prices ranging from $3 to $6. In May 2004, we sold 3.3 million shares of
convertible, redeemable preferred shares to accredited investors for aggregate proceeds of $20 million and in October 2006, we sold 4.6 million shares
of preferred shares to accredited investors for an aggregate price of $22 million. During the year ended December 31, 2009, our private equity
investors completed a tender offer to purchase up to
42
$25 million of common stock from existing stockholders for $8.50 per share. As previously noted, we had an interim valuation prepared to reflect the impact of this event.
While these transactions were not
consummated in a liquid market, we do believe that the transactions provide an additional indicator of fair value based on the volume and number of
buyers. These transaction prices have indicated, as additional support to our valuation analyses, that we have not historically determined fair market
values below the indications of value for transactions in our common stock.
Share-Based
Compensation
Estimated fair value of stock
option grants is determined using the Black-Scholes options pricing model. The Black-Scholes option-pricing model was developed for use in estimating
the fair value of traded options that have no vesting restrictions and are fully transferable, characteristics not present in these employee stock
options. Additionally, option valuation models require the input of highly subjective assumptions including the expected volatility of the stock price.
Because the Companys employee stock options have characteristics significantly different from those of traded options and because changes in the
subjective input assumptions can materially affect the fair value estimates, in managements opinion, the existing models may not provide a
reliable single measure of the fair value of its share-based awards.
The following table summarizes
stock-based compensation charges for the years ended June 30, 2008, 2009 and 2010 and for the nine months ended March 31, 2010 and 2011 (in
thousands):
For the years ended June 30, |
Nine months ended March 31, |
||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
2008 |
2009 |
2010 |
2010 |
2011 |
|||||||||||||||||||
(Unaudited) | |||||||||||||||||||||||
Employee
stock-based compensation expense |
$ | 1,251 | $ | 550 | $ | 616 | $ | 595 | $ | 1,333 | |||||||||||||
Stock-based
compensation associated with outstanding repriced options |
297 | 15 | 6 | 6 | 7 | ||||||||||||||||||
Total
stock-based compensation |
$ | 1,548 | $ | 565 | $ | 622 | $ | 601 | $ | 1,340 |
For options granted on or after
July 1, 2006, stock-based compensation is measured at grant date based on the fair value of the award and is expensed on a straight-line basis over the
requisite service period. For options granted prior to July 1, 2006, we continue to recognize compensation expense on the remaining unvested awards
under the intrinsic value method unless such grants are materially modified.
We considered the fair value of
our common stock and the exercise price of the grant as variables in the Black-Scholes option pricing model to determine employee stock-based
compensation. This model requires the input of assumptions on each grant date, some of which are highly subjective, including the expected term of the
option, expected stock price volatility and expected forfeitures.
We determined the expected term
of our options based upon historical exercises, post-vesting cancellations and the contractual term of the option. We concluded that it was not
practicable to calculate the volatility of our share price due to the fact that our securities are not publicly-traded and therefore there is no
readily determinable market value for our stock. Therefore, we based expected volatility on the historical volatility of a publicly-traded peer entity
for the same expected term of our options. We intend to continue to consistently apply this process using the same or similar entities until a
sufficient amount of historical information regarding the volatility of our own share price becomes available, or unless circumstances change such that
the identified entity is no longer similar to us. In this latter case, more suitable entities whose share prices are publicly available would be
utilized in the calculation. We based the risk-free rate for the expected term of the option on the U.S. Treasury Constant Maturity Rate as of the
grant date. We determined the forfeiture rate based upon our historical experience with pre-vesting option cancellations. If we had made different
assumptions and estimates than those described above, the amount of our recognized and to be recognized stock-based compensation expense, net income
(loss) and net income (loss) per share amounts could have been materially different.
43
We believe that we have used
reasonable methodologies, approaches and assumptions consistent with the AICPA Practice Guide, Valuation of Privately-Held-Company Equity Securities
Issued as Compensation, to determine the fair value of our common stock. We have reviewed key factors and events between each date below and have
determined that the combination of the factors and events described above reflect a true measurement of the fair value of our common stock over an
extended period of time and believe that the fair value of our common stock is appropriately reflected in the chart below.
Date of grant |
Options granted |
Exercise price |
Fair value per share |
|||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
September 1,
2009 |
3,000 | $5.19 |
$5.19 |
|||||||||||
September 15,
2009 |
77,330 | $5.19 |
$5.19 |
|||||||||||
September 18,
2009 |
3,000 | $5.19 |
$5.19 |
|||||||||||
November 4,
2009 |
376,169 | $5.19 |
$5.19 |
|||||||||||
November 18,
2009 |
6,000 | $5.19 |
$5.19 |
|||||||||||
December 1,
2009 |
1,500 | $5.19 |
$5.19 |
|||||||||||
December 6,
2009 |
12,500 | $5.19 |
$5.19 |
|||||||||||
April 27,
2010 |
19,500 | $6.92 |
$6.92 |
|||||||||||
June 30, 2010
|
104,453 | $6.92 |
$6.92 |
|||||||||||
July 21, 2010
|
9,250 | $6.92 |
$6.92 |
|||||||||||
September 14,
2010 |
9,000 | $6.92 |
$6.92 |
|||||||||||
October 18,
2010 |
167,626 | $6.92 |
$6.92 |
|||||||||||
November 12,
2010 |
22,500 | $7.09 |
$7.09 |
|||||||||||
February 1,
2011 |
520,931 | $7.09 |
$7.09 |
|||||||||||
March 15,
2011 |
3,000 | $7.09 |
$7.09 |
Valuation of Deferred Tax Assets
Our deferred tax assets are
comprised primarily of net operating loss carryforwards (NOLs) and research and development credits. At June 30, 2010, we had NOLs of
approximately $69.5 million which will begin to expire in 2020. At June 30, 2010, we had research tax credit carryforwards of $2.4 million which begin
expiring in 2023.At June 30, 2010, we had federal alternative minimum tax (AMT), credit carryforwards of $77,000. The federal AMT credit
carryforwards do not expire. A valuation allowance of $31 million had been recorded at June 30, 2010.
During the third
quarter of 2011, we determined that it would be more likely than not that the cumulative net operating loss and other deferred tax benefits would be
recoverable by us, creating a $31 million income tax benefit due to the deferred tax asset recorded on our balance sheet as of March 31, 2011. The
determination of when to adjust the valuation allowance requires significant judgment on the part of management based on our historical experience,
knowledge of current business factors and our belief of what could occur in the future. Although realization is not assured, we have concluded that it
is more likely than not that the deferred tax assets as of March 31, 2011 for which a valuation allowance was determined to be unnecessary will be
realized in the ordinary course of operations based on the available positive and negative evidence, primarily our history of cumulative profitability
for the past 12 quarters coupled with recent projected earnings. The amount of the deferred tax assets considered realizable, however, could be reduced
in the near term if actual future earnings are lower than estimated, or if there are differences in the timing or amount of future reversals of
existing taxable or deductible temporary differences.
Quantitative and Qualitative Disclosures about Market
Risk
The primary objective of our
investment activities is to preserve principal while at the same time maximizing yields without significantly increasing risk. To achieve this
objective, we invest in money market funds and high quality debt securities. Our investments in debt securities are subject to interest rate risk. To
minimize the exposure due to an adverse shift in interest rates, we invest in short-term securities and maintain an average portfolio duration of
approximately one year.
Our operations consist of
research and development and sales activities in the United States. As a result, our financial results are not affected by factors such as changes in
foreign currency exchange rates or economic conditions in foreign markets.
44
Overview
We are a leading provider of
integrated information technology solutions and managed business services to ambulatory healthcare providers throughout the United States. At the core
of our suite of solutions and services is PrimeSUITE, our award-winning, fully-integrated EHR, PM and interoperability solution. PrimeSUITE integrates
clinical, financial and administrative data in a single database to enable comprehensive views of the patient record, support efficient workflows
throughout each patient encounter, reduce clinical and administrative errors and allow for the seamless exchange of data between our provider customers
and the broader healthcare community. We augment our solutions by offering managed business services, including clinically-driven RCM and EHR-enabled
research services. By integrating clinical, financial and administrative data and processes, our solutions and services are designed to enable
providers to deliver more advanced care and improve their efficiency and profitability. Over 33,000 providers, which we define as physicians and their
affiliated nurses, nurse practioners, physician assistants, and other clinical staff, use our solutions and services to deliver care to and manage the
clinical, financial and administrative information of over 20 million patients.
Our technology solutions and
services are designed to address the needs of providers in all ambulatory settings: independent physician practices, multi-specialty group practices,
hospital-affiliated and hospital-owned clinics and practices, retail clinics, employer clinics, university and academic health centers, FQHC, CHC, IDN,
ACC and ACO. Our single database technology platform, which reflects over 12 years of development, is available in either a cloud-based or
premise-based model and is scalable to serve the needs of ambulatory providers of any size. As providers needs evolve, our platform allows for
the efficient development and integration of new solutions, which we refer to as our innovation platform.
The ambulatory EHR market has
historically been underpenetrated and installed systems have been underutilized. Adoption of these technologies has been low for several reasons
including providers resistance to making the required investment and concerns that creating and managing electronic records may disrupt clinical
and administrative workflows. Adoption of EHR solutions is accelerating as more providers realize the benefits of using technology solutions, including
the possible return on investment from adoption of solutions such as PrimeSUITE. Government initiatives and legislation have provided additional
financial incentives and implementation support for ambulatory providers to adopt EHR solutions. Finally, macro-trends such as increasing consumerism,
the shift to quality-based reimbursement and the emerging focus on improving the coordination of care, are creating strong incentives for providers to
implement technologies that help them meet the needs of the changing ambulatory healthcare environment.
We believe we are competitively
positioned to penetrate this market opportunity and to take advantage of emerging trends in ambulatory care including demand for interoperability,
mobility, consumerism and data liquidity. Our integrated EHR/PM solution is consistently rated among the best in the industry. Since 2004, PrimeSUITE
has received 11 Best in KLAS awards (an independent body that measures healthcare technology vendor performance) in ambulatory EHR and PM
categories.
We have achieved a customer
retention rate of approximately 95% in a market where, according to KLAS, 35% of providers who have adopted EHR technologies are considering replacing
their current vendors. We believe this success is a reflection of our historical and continuing focus on usability at the point of care as our foremost
development priority and our commitment and dedication to customer service from initial implementation and training to on-going
support.
During our fiscal year ended June
30, 2010, total revenue was $64.6 million, compared to $48.7 million for fiscal 2009. Total revenue was $60.4 million for the nine months ended March
31, 2011 compared to $44.5 million for the nine months ended March 31, 2010. From fiscal year 2006 to fiscal year 2010, our revenue has increased at a
compound annual growth rate of 29.9%.
45
Industry Overview
Healthcare in the United States
has historically been provided through two different settings, acute care, which is primarily hospitals, and ambulatory or outpatient care, which
includes physician offices, retail clinics and outpatient surgery centers. There is an increasing focus on delivering high-quality care in the most
cost-effective and convenient setting, which is causing a shift in care delivery from acute care to ambulatory providers. This shift is increasing the
volume and changing the types of care delivered in the ambulatory setting. This pattern is expected to continue as a result of demographic trends and
expanded health insurance coverage provided for by healthcare reform.
In addition to increased
ambulatory care volume, providers face financial and operating challenges related to pressure on reimbursement rates and intensifying documentation,
administration and regulatory requirements. Over the past several years, reimbursement has not grown at the same rate as the underlying cost of
delivering care. Furthermore, the increasing complexity of the reimbursement process, such as the transition to the HIPAA ASC X12 5010 claims coding
standard, as well as the proliferation of consumer-oriented health plan designs have led to added administrative burdens for providers. In an effort to
align provider incentives with improved quality of care and cost efficiencies, payers are introducing new payment methodologies that tie reimbursement
to providers ability to coordinate care and improve patient outcomes.
The significant burdens created
by this changing environment have made the adoption of innovative software solutions critical to providers, as legacy systems may not adequately
support their needs. Ambulatory providers have traditionally used PM systems to manage their financial and administrative functions, but clinical
workflows are still largely managed on paper charts. Use of paper records can restrict the throughput of the provider and prevent the efficient
collection and sharing of critical information. This can cause clinical errors such as adverse drug interactions and result in failure to charge
accurately for services rendered and lead to a greater rate of denied claims. The ability to enter and store digitized clinical data in EHRs has become
more important in recent years in order to address emerging industry trends including coordination of care and pay-for-performance, and quality
reporting initiatives. Additionally, we believe the implementation of integrated EHR/PM solutions can provide compelling return on investment to
providers by enhancing clinical and administrative workflow, improving the quality of care, reducing administrative staff, and repurposing large paper
record rooms for revenue-generating activities.
Despite the advantages of EHR
solutions, their adoption rates by ambulatory providers have been substantially lower than those of PM solutions. According to the U.S. Centers for
Disease Control and Prevention in 2008, only 41% of providers had implemented EHR technology. It is estimated that a much smaller percentage of
providers that have EHR systems fully utilize the technology in daily practice. Adoption of these technologies has been low for several reasons
including the cost of acquiring, implementing and supporting the technology as well as the fear of disrupting clinical and administrative workflows.
Importantly, since adoption of EHR technology has not historically been subsidized or required by payers, there has been little financial incentive for
providers to adopt it.
Market Opportunity
The market for our solutions and
services consists of providers of ambulatory healthcare including independent physician practices, multi-specialty group practices, hospital-affiliated
and hospital-owned clinics and practices, retail clinics, employer clinics, university and academic health centers, FQHCs, CHCs, IDNs, ACCs, and
ACOs.
We estimate the current market
for our solutions and services to be approximately $33 billion. We believe our potential customer base includes approximately 550,000 physicians at
over 230,000 practices as well as approximately 3,500 retail and employer based clinics that contain an additional 8,000 providers. Our core EHR/PM
solution, PrimeSUITE, services an estimated $9 billion market. While 41% of the EHR/PM market is penetrated, only 10% of providers fully utilize their
installed EHR solution. The markets for certain of our other solutions include $14 billion for our RCM services, $3.5 billion for our data exchange
solution, and $2 billion for our speech understanding solution.
46
We believe several factors are
encouraging adoption of EHR/PM solutions and related technologies and services by ambulatory providers and will serve to drive the growth of our
business.
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Compelling Return on Investment. We believe providers are becoming increasingly aware of and comfortable with the potential benefits of using integrated EHR/PM solutions including helping them practice more advanced medicine and deliver higher-quality care, while simultaneously improving revenue generation and operating and cost efficiency. These systems can help providers practice more advanced medicine and enhance the quality of the care they deliver, while increasing their efficiency and profitability. Through the adoption and proper use of these solutions, providers can increase revenue and reduce costs. Providers are recognizing the potential of EHR/PM solutions to significantly improve their operations and profitability. |
|
Government Initiatives and Incentives. Over the last several years, the government has enacted initiatives to drive the adoption of certified EHR solutions. Most importantly, the recently enacted HITECH Act, part of the American Recovery and Reinvestment Act certified (ARRA), specifically targeted healthcare by provides more than $19 billion of provider incentives through Medicare and Medicaid programs to encourage the adoption of certified EHR solutions. An eligible professional that qualifies for incentives can receive up to an aggregate of $44,000 from Medicare or $63,750 from Medicaid. In conjunction with the HITECH Act, $650 million in grants were allocated to create Regional Extension Centers (RECs) to encourage and support ambulatory providers in the implementation of certified EHR solutions. |
|
Trends in the Evolving Ambulatory Market. Three major trends impacting ambulatory providers are greater electronification of health data, growing consumerism and initiatives aimed at improving population health. Electronic capture and exchange of health information is becoming the standard within the ambulatory market, which has led to higher interest in and need for interoperable technology solutions that promote data liquidity. Furthermore, as patients are increasingly responsible for paying for the care they receive, they are becoming more engaged in decisions about which providers to use. Similar to consumers in other industries, they weigh factors such as cost, quality, convenience and overall experience when selecting where to receive their care. Finally, providers want to deliver the most advanced care possible and participate in the improvement of population health. This may include acting as investigators in clinical trials or contributing to health surveillance initiatives. Ambulatory providers now understand that the adoption of integrated EHR/PM and related technology solutions can help them succeed in this evolving and complex market by taking advantage of these key trends. |
We believe many existing EHR and
PM technology vendors do not adequately meet the needs of the ambulatory healthcare market. EHR systems are often difficult to use and disruptive to
provider workflows. Additionally, many EHR/PM systems are not integrated, which creates inefficiencies between the delivery and documentation of
patient care and the administrative and financial processes of the provider. Lack of interoperability with IT systems in other care settings prevents
the exchange of clinical, financial and administrative data with the rest of the healthcare community. Finally, many vendors have multiple versions of
their software installed across their customer bases, which reduces their ability to provide effective service and support to ambulatory providers. Due
in part to these dynamics, 35% of providers recently surveyed by KLAS who have adopted EHR solutions
indicated that they are considering replacing their existing EHR systems.
Our Solutions
The foundation of our offering is
an integrated suite of technology solutions designed for the unique needs and workflows of ambulatory providers with usability at the point of care as
the foremost priority. At the core of our suite of solutions and services is PrimeSUITE, our award-winning, fully-integrated EHR, PM and
interoperability solution. Its intuitive design and built-in clinical decision support capabilities are designed to help providers improve patient
safety, quality of care and efficiency. PrimeSUITE has over 3,200 clinical templates, designed for the needs of over 30 specialties and subspecialties,
that offer data capture layouts that are intuitive to providers and make it easier to enter patient health information at the point of care. We believe
PrimeSUITEs ease of use has led to more than 90% of our provider customers making full use of PrimeSUITEs functionality, which we believe
is substantially higher than the estimated industry average of 10%. PrimeSUITEs functionality
47
is designed to address the core, day-to-day operations of providers that include documenting clinical information about patients, conditions and treatments, managing revenue collection and finances and conducting necessary administrative tasks. Unlike many of our competitors, our EHR and PM solutions were designed to be fully integrated and house clinical, financial, and administrative data within a single database. This allows the EHR and PM systems to operate seamlessly and creates efficiencies between the process of delivering and documenting care and the process of billing and collecting for services.
Since the initial release of
PrimeSUITE, we have introduced additional solutions to enhance data liquidity, mobility and productivity of providers. PrimeEXCHANGE facilitates data
liquidity by enabling interoperability of clinical and financial data between providers and the broader healthcare community. PrimePATIENT is our
provider portal that allows patients to schedule appointments, complete administrative forms, exchange their personal health record information with
providers and pay their healthcare bills online. PrimePATIENT also enables e-visits, which are web-enabled consultations between patients and
physicians that can supplement or replace traditional in-person office visits, save time for patients and increase revenue for physicians. PrimeMOBILE
allows providers to access PrimeSUITE from their mobile devices when working remotely. Finally, our new PrimeSPEECH solution is a sophisticated speech
understanding software that simplifies data entry into PrimeSUITE, which reduces workflow disruption and saves time and money providers currently spend
on transcription services.
We have also developed several
managed business service offerings that leverage our technology solutions and the integrated PrimeSUITE database. These include PrimeRCM, our
clinically-driven revenue cycle management services, and PrimeRESEARCH, our EHR-enabled research service that allows providers to participate in
clinical research and contribute to population health initiatives. We believe these innovative solutions and services differentiate us from our
competition and enable us to act as long-term partners in the success of our customers by providing them the following key benefits:
|
Enable the Delivery of Higher-Quality Care and More Advanced Medicine. Our provider customers can deliver higher-quality care and practice more advanced medicine due to PrimeSUITEs clinical decision- support capabilities, clinical alerts and reminders, electronic order entry and tracking and active device controls that integrate data from peripheral medical devices directly into the patients record. PrimeSUITEs clinical decision support capabilities assist providers in patient evaluation and diagnosis, evidence-based treatment, error reductions and proper data capture. Our clinical alerts and reminders ensure care is delivered to patients in a timely manner by notifying providers if a patient is overdue for an exam or test and identifying potential drug contraindications based on the patients medical history. Our electronic order entry application increases the speed and accuracy of ordering, tracking and viewing results of prescriptions and lab tests. Active device controls capture and integrate data from peripheral medical devices, directly into the patients record. Clinical encounter data captured in PrimeSUITE over time creates a comprehensive electronic healthcare record that enables providers to more effectively identify and proactively address emerging trends in a patients health. |
|
Deliver Improved Financial Performance. Our solutions enhance provider economics by increasing revenue, improving receivables collection, and reducing administrative costs. They enable increased revenue capture at the point of care, whether in the office or working remotely on a mobile device, and the ability to see more patients due to more efficient workflows. Automated reporting of key metrics supports the generation of additional revenue by helping the provider track progress towards qualification for available incentive payments, such as those based on improvement in quality measures or for demonstrating use of e-prescribing and certified EHR technology. Reduced administrative costs are realized through reduction or elimination of transcription, paper chart, administrative staff and other costs. Additionally, space currently used to store paper records can be repurposed for revenue-generating activities, including additional exam and procedure rooms, which enhances revenue and profitability. |
A series of case studies, conducted on our behalf, studied the return on investment a select group of customers can realize following the implementation of PrimeSUITE. These studies indicate that customers can significantly increase cash flow following implementation of PrimeSUITE. |
48
|
Enhance the Workflow of the Provider. PrimeSUITE has been developed to accommodate and support the unique clinical workflows of providers in over 30 specialties and subspecialties and the financial and administrative workflows of their staff. PrimeSUITE and our suite of solutions adapt to a providers workflow, which encourages quick adoption and overcomes their aversion to switch to electronic systems from traditional paper-based records. |
The PrimeSUITE database is designed to capture and display the relevant data to each provider or staff member during each step of the patient encounter. PrimeSUITE is designed to allow a patients clinical and administrative record to follow the patient from registration to the examination room to check-out and to be accessed and updated by multiple staff members simultaneously during the patients visit. Administrative staff use PrimeSUITE to schedule appointments and enter patient information at check-in. Alternatively, patients can use PrimePATIENT, our provider portal solution, to schedule appointments and enter their information online. All demographic, financial and clinical information identified during initial registration, check-in and triage are aggregated and presented to the provider at the point of care. A set of easy-to-use and highly customizable clinical templates capture the providers interaction with the patient. This information can be captured through a desktop or tablet when in the office or via a mobile device using PrimeMOBILE when working outside the office. PrimeSUITE enables providers to order prescriptions and lab tests electronically as well as track and view results, thus increasing the speed, quality and accuracy of the care delivered. Clinical information captured during the patient encounter automatically generates recommended E&M codes for billing purposes. The integration of clinical, financial and administrative information and its availability to all providers and staff before, during and after patient visits can help providers improve their efficiency. |
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Position Providers for the Future of Healthcare. We believe the future of healthcare will require providers to deliver high-quality care in the most collaborative and cost-effective way possible, while dealing with increasing consumerism among patients and the desire to participate in the improvement of population health. We believe that in order to succeed in the future, providers will need an integrated EHR/PM platform that allows them to connect, communicate and collaborate electronically with patients, other providers and the broader healthcare community. We believe providers will also need the ability to satisfy increasing consumer demands and to be contributors to the improvement of population health. In addition, the emergence of pay-for-performance and value-based reimbursement models will require that providers not only enhance the quality of care and patient experience but also be able to quantify and report on various measures and adapt quickly to changes in the healthcare market. |
Our vision of the future of
healthcare is what has guided the development and success of our scalable and flexible PrimeSUITE platform for the last 12 years. Our technology
enables the seamless creation and addition of new innovations and functionality designed to respond to emerging trends, therefore enhancing the value
of our solutions to our customers. Since the initial introduction of PrimeSUITE we have developed and integrated into PrimeSUITE new solutions to
address new trends and advances in technology, including the need for data liquidity and interoperability, patient portal, speech understanding and
mobile technology. We have also developed managed business services that leverage the power of our technology solutions to provide clinically-driven
revenue cycle services and allow providers to participate in clinical research and contribute to population health initiatives. We believe these
innovative solutions and services differentiate us from our competition and enable us to act as long-term partners in the success of our
customers.
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The following diagram visually
represents our suite of technology solutions and managed business services centered around our core PrimeSUITE technology.
Our Strengths
We believe we have the following
key competitive strengths:
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Proven, Long-Term Vision. We partner with ambulatory providers to enable them to meet the changing needs of the ambulatory market, which we identified early in our history to be electronification, consumerism and improving population health. We have succeeded in developing innovative solutions and services to help providers respond to the key trends in the ambulatory market, which we identified early in our history as electronification, consumerism and improving population health. Our solutions rely on core EHR and PM capabilities, are interoperable and enable easy aggregation and sharing of patient information, enhance physician-patient relationships by providing online self-service options for patients and allowing providers to participate in improving population health through clinical research, health surveillance and disease registries. We continuously monitor themes that will shape the future for providers and develop innovative solutions and services to help them succeed as the market evolves. |
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Differentiated Technology Model. Our integrated, scalable and flexible technology provides a range of benefits to our customers while also providing us a strong foundation for a sustainable business model. Our Microsoft .NET based architecture has proven to be mission-critical, secure and reliable for over 33,000 |
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providers. All of our solutions and services are based on a single, integrated database that contains clinical, financial and administrative data and supports exceptional interoperability, data analytics and reporting. We have and will continue to develop a technology model that supports rapid innovation. Using our Greenway Service Manager architecture, our centralized support team can easily update customers to new versions of our solutions and provide monitoring services remotely. Our technology architecture scales to support ambulatory providers ranging from single provider businesses to large enterprises. Our technology allows the customers the flexibility to choose the deployment option they prefer, including a cloud-based and premise-based model. Furthermore, our cloud-based internal technologies enable us to focus on innovative product and service development while outsourcing non-core activities, such as server hosting, server maintenance, application security and or other IT services. We believe this technology model differentiates us from our competitors and enables our innovative product and service development, our strong customer service and our efficient and centralized customer support model. |
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Superior Customer Service and Support. We believe that successful adoption of our solutions requires partnering with our customers to empower them to utilize our technology to its maximum capability. As such, customer service and support are one of our core priorities. Our commitment to our customers success starts during the sales process and continues throughout our relationship, including initial implementation, training, ongoing education and support, as well as continuous development of new functionalities business services and technology upgrades. In addition to traditional training, we offer on-demand, web-based training options, webinars covering cutting-edge industry topics, such as how customers can meet meaningful use incentive criteria, and our annual user conference where customers meet one another, exchange ideas and learn how other customers have used our products and services to improve their businesses. We consider customer input critical to the development of new functionalities and a core part of customer service and support. Unlike our competitors, we deliver a single version of our technology platform to all of our customers, which enables us to deliver differentiated customer support. We also offer phone, email and web-based technical and business support twenty four hours a day and seven days a week, as well as remote monitoring and upgrade deployment services. We continuously improve our support processes, which leads to faster response and issue resolution times. Our high-quality customer service has contributed to our approximately 95% customer retention rate in a market where it is estimated that 35% of providers who have adopted EHR technology are considering replacing it. |
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Trusted Brand. We have a trusted and recognized brand with our customers and within our industry. As ambulatory providers compare available EHR solutions across multiple vendors, our recognized brand and reputation for differentiated technology, solutions and services position us for success. Our PrimeSUITE solution has received 11 Best in KLAS awards since 2004. CCHIT has certified PrimeSUITE as a Complete EHR for 2011/2012 and granted it the highest usability rating of Five Stars. Furthermore, PrimeSUITE has been selected as a solution of choice or option by a substantial majority of RECs with established operations. We believe that word-of-mouth referrals are a significant source of bookings, showing that our customers trust our solutions and services and are willing to recommend us to colleagues. These accolades, combined with our continued involvement in industry initiatives, focus on innovation and high levels of customer service and support, drive increased brand recognition among customers and in our industry. |
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Attractive Business Model. Our broad range of solutions and services and our high customer retention rate provide us with a powerful business model. This model has driven a compound annual growth rate of 29.9% over the past five years due to our continued ability to sell our core PrimeSUITE solution to new customers and then build upon its success by providing complementary technology solutions and business services. Our high customer retention leads to a growing percentage of recurring revenue from support services, business services such as revenue cycle management and subscription revenue. Recurring revenue represented 45% of revenue in 2010 and has grown at a compounded annual rate of 41.9% over the past five years. The combination of this recurring revenue with our backlog of new business sold provides high revenue visibility. Our integrated EHR/PM solution provides operating leverage by allowing us to focus our research and development solely on innovation as opposed to integration of legacy technologies. Furthermore, our cost |
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structure is also more efficient due to the ease of supporting and upgrading our technology platform. These factors help us drive predictable revenue growth and generate greater operating profit. |
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Experienced Management Team. Our management team has significant experience in our industry and a majority of our executives have worked together for more than 10 years. In the late 1990s, our team worked with ambulatory providers to develop a vision of the future of the healthcare market, including electronification, increasing consumerism and improved population health. Our teams vision is now coming to fruition and has driven the design of our innovative suite of solutions and business services and our differentiated technology model. Our operational teams are organized around the key growth areas and we have instilled a culture of innovation and customer service throughout the Company. Furthermore, our management has been and remains heavily involved in the industry organizations that set policy and standards for healthcare information technology. These leadership efforts have built our reputation for consistent focus on developing solutions to meet both the current and future needs of providers in an evolving healthcare system. |
Our Strategy
Our objective is to be the most
trusted and effective provider of technology solutions and managed business services for ambulatory providers. Our principal strategies to meet our
objective are:
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Increase our Share of the Expanding Market for Ambulatory Technology Solutions. We plan to capitalize on the large and growing ambulatory technology market opportunity by leveraging our targeted and multi-pronged sales strategy. We utilize a combination of direct, indirect and web sales teams in addition to strategic partners to attract new customers and drive penetration of PrimeSUITE. We believe our solutions address the most important clinical, financial and administrative needs of our large and growing customer base, and we are experiencing increasing demand for our solutions. Furthermore, as the ambulatory care market expands, we are offering our solutions to a wider range of customers, including FQHCs and employer and retail health clinics. Our market is underpenetrated and many customers are not satisfied with their current solutions. This dissatisfaction creates substantial opportunity to grow our business by attracting new customers and displacing existing and incumbent competitive products. |
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Generate Greater Revenue per Customer by Expanding Their Use of Our Suite of Solutions and Services. We will continue to cross-sell our integrated product and service offerings to customers already using PrimeSUITE. As our customers successfully implement and utilize PrimeSUITE to improve efficiency and profitability of their practices, they increasingly adopt our complementary technologies and managed business services. These technologies include PrimeEXCHANGE, PrimePATIENT, PrimeENTERPRISE, PrimeDATACLOUD, PrimeMOBILE, PrimeSPEECH and PrimeIMAGE, and managed business services include PrimeRCM and PrimeRESEARCH. These solutions fully integrate with PrimeSUITE to provide additional technology capabilities, further positioning our customers at the forefront of technology innovation. As our customers use more of our solutions and services, we become even more critical to their operating infrastructure, further solidifying our partnership with them and generating increased revenue per customer. |
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Develop Innovative Solutions for the Evolving Needs of Ambulatory Provider Market. We continuously monitor and work with our customers to understand the evolving technology needs of the ambulatory provider market. The insights we gather help drive our development of new and innovative solutions and services. Two recent and notable examples are our PrimeRESEARCH and PrimeDATACLOUD solutions. PrimeRESEARCH helps physicians identify opportunities to participate as investigators in clinical research studies which simultaneously increase revenue and provide access to cutting edge therapies for their patients. PrimeDATACLOUD is a collaborative care portal that securely and cost-effectively empowers population health through the sharing and aggregation of clinical, financial and administrative data across electronic health record systems in different provider settings. In both cases, these products are used in conjunction with PrimeSUITE and are highly complementary to one another. We will continue to work closely with customers to develop solutions that position them to succeed as the ambulatory care market evolves. |
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Expand Margins by Leveraging our Operating Platform. We expect operating margins to increase as we continue to grow revenue by substantially leveraging our existing infrastructure and operations. Our focused technology and business model enables us to efficiently deploy capital and resources in key areas such as sales and marketing and research and development. We have made, and will continue to make, investments in our technology infrastructure and processes, which we believe will allow us to profitably grow our business as we add new customers and solutions. |
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Pursue Targeted Acquisitions. We intend to pursue acquisitions on a targeted basis, seeking out complementary and innovative technologies and services that augment and differentiate our current solutions. |
Our Products and Services
Our technology solutions and
services are fully integrated into PrimeSUITE to address the needs of providers in all ambulatory settings: independent physicians, group practices,
hospital-affiliated and hospital-owned clinics and practices, retail clinics, employer clinics, university and academic health centers, FQHCs, CHCs,
ACCs, ACOs, and IDNs to better serve patients and communities, more efficiently manage their practice and increase profitability.
PrimeSUITE. At the
core of our solution is PrimeSUITE, which is a single integrated application with electronic health record, practice management and interoperability
functionality. PrimeSUITE is comprised of EHR functionality including a patient chart, e-prescribing, clinical decision support, orders management, as
well as practice management functionality with accounts receivable, registration, scheduling and reporting. Our fully integrated set of innovative
ambulatory care technology solutions which build upon PrimeSUITE include the following:
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PrimeEXCHANGE. Greenways interoperability engine facilitates secure data exchange between physician practices and the entire healthcare and stakeholder community. Supported transactions include patient demographics, patient insurance, charges, lab results, microbiology reports, prescriptions, clinical summaries, transcriptions and radiology reports. |
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PrimePATIENT. Greenways secure patient web portal enhances the patient-provider relationship through self-service clinical, financial and administrative online options in place of office visits or phone calls, leading to improved office efficiencies and healthier, more satisfied patients. Capabilities include appointment requests, on-line bill payment, on-line registration, prescription refills, secure messaging with care providers, clinical summary access and patient health record integration. |
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PrimeENTERPRISE. A web-based application used by organizations such as management service organizations, billing services and ambulatory surgery centers, that need autonomy and separation among practices, while managing operations from a centralized location. Other groups, such as independent physician associations, may also use PrimeENTERPRISE to provide services, such as enterprise fee schedule updates, practice analysis, security configuration, master-file maintenance, broadcast reporting, clinical data sharing, and auditing. |
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PrimeDATACLOUD. A collaborative care portal that empowers the aggregation of clinical, financial and administrative data across both related and disparate entities and electronic health record systems. This secure aggregation of data allows communities to manage population health, access longitudinal health records and report on quality outcomes. |
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PrimeMOBILE. Provides the information providers need most at their convenience. Providers can access schedule and patient data or capture charges using an iPhone®, iPad®, AndroidTM or MS Mobile phone. |
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PrimeSPEECH. Provides embedded speech understanding and generating discrete data in real time replacing traditional voice recognition and transcription services while improving accuracy and efficiency. |
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PrimeIMAGE. Provides digital imagery and data capture within the patients chart. Compatible with ultrasound, endoscopies, laparoscopy, CT, MRI, NM, microscopy and surgical imagery to further streamline diagnostics and care coordination. |
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We also provide certain ancillary
services such as an electronic data interchange (EDI) which includes electronic claims processing, statement processing, eligibility
verification, and database access fees. These services are delivered through our technology solutions and through various
third-parties.
We augment our innovative
technology solutions with the following managed business services for ambulatory providers:
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PrimeRESEARCH. An EHR-enabled service that allows our customers to deliver the most advanced medicine possible and provides our customers with access to a vast network of clinical trials (Phase II, III, IV, post-market and observation), registries, pharmaceutical research, remote monitoring services, benchmarking services, EDC integration, and clinical trial management software. |
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PrimeRCM. A clinically-driven revenue cycle service that includes accounts receivable management, patient and insurance follow up, and financial performance benchmarking. PrimeRCM is driven to provide expertise and service to navigate our customers through the emerging changes in reimbursement models, quality care initiatives, and accountable care. |
In addition to our technology
solutions and managed business services, we provide certain professional services to our customers. Our client services team consists of well-trained
and qualified members experienced in RN, LVN, practice management, certified coding, consulting, HIPAA compliance, project management and PMI
certification. These individuals work together along with dedicated members of our customers organizations to ensure the success of the
implementation of their PrimeSUITE solution infrastructure.
Our comprehensive technology
solutions, managed business services and professional services support improved patient care and efficiency for ambulatory providers. We believe our
capabilities represent a unique offering for the ambulatory market.
Our Customers
Our customers include independent
physician practices, multi-specialty group practices, hospital-affiliated and hospital-owned clinics and practices, retail clinics, employer clinics,
university and academic health centers, FQHCs, CHCs, IDNs, ACCs, and ACOs.
We derive our revenue primarily
from sales of our PrimeSUITE software, related hardware and professional services to providers in ambulatory settings. While a sizable number of our
software sales are made as perpetual licenses to our customers, our software is easily deployable as a subscription service and many of our
applications are currently marketed in that manner. We also derive substantial revenue from our software related services platform, which we believe is
more robust than typical software maintenance, and significant revenue from transaction processing services. These robust offerings yield a customer
retention rate of approximately 95%. We have no significant customer concentration and no individual customer accounts for more than five percent of
our revenue.
Sales and Marketing
We employ experienced and
well-trained sales executives with extensive industry expertise. We primarily sell to our customers through our direct sales force. As of June 30,
2011, we employed approximately 120 sales and marketing employees. Given the experience of our sales team and the constant sharing of market data,
competitive intelligence and other relevant information from around the industry, we believe our sales force provides us with a significant competitive
advantage. Our sales force promotes and sells our services to new customers and expands the services we provide to our existing customer base. Our
marketing efforts focus on creating a strong brand identity for Greenway through industry leadership, trade shows, web strategies, print media, social
media and development of industry-related seminars.
To assist in our commitment to
provide exemplary healthcare information technology services to our customers we work closely with several companies in our industry. Together, we
deliver the solutions and integrate the tools our customers need to ensure data travels seamlessly throughout their healthcare community. These
strategic alliances include relationships with industry leading companies such as Tech Data, CDW, Hewlett-Packard,
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Microsoft, Dell, and Take Care Health Systems. In addition, we have recently finalized the terms of a new relationship with Walgreens, pursuant to which Walgreens will utilize our EHR technology in its stores. We believe our relationship with Walgreens presents a tremendous opportunity to expand into a market we have not traditionally served, and to partner with one of the leading companies in the industry. We also have developed a relationship with McGraw-Hill Higher Education forming McGraw Hills Integrated Electronic Health Records: An Online Course and Worktext for Greenway Medical Technologies PrimeSUITE. This product is a comprehensive learning resource offered through McGraw Hills Connect Plus. Users will utilize PrimeSUITE in conjunction with patient data and the corresponding workbook to gain a better understanding of health information management, practice management, and EHRs. The alliance with McGraw-Hill and academic institutions throughout the nation are part of Greenways effort to aid in the creation of a national healthcare information technology workforce.
We pride ourselves on consistent
industry leadership. Since our inception, our executives have filled leadership roles within industry trade groups and have supported public policy
initiatives affecting the advancement and innovations of healthcare information technology. Highlights of these numerous executive positions include
those within the national HIMSS Electronic Health Record Association (EHR Association), Health Information Management Systems Society
(HIMSS), the CCHIT, Clinical Data Interchange Standards Consortium (CDISC), National Quality Forum (NQF) and the
Integrating the Healthcare Enterprise (IHE-USA) Board of Directors. Additionally, since 2005, members of our leadership team have formally
testified before Congress and the administration on numerous occasions and advised several presidential campaigns on healthcare information technology
initiatives. This work has contributed to the advancement of critical industry initiatives such as the guidelines for EHR meaningful use
and accountable care organizations.
Customer Support
Our Customer Support offering is
the center piece of our value proposition which enables us to deliver differentiated support through our highly scalable platform. We strive to
optimize our customers experience through our people and our innovative services, which we believe leads to a successful long-term partnership.
We employ physicians and other certified healthcare and technology professionals are involved in the design, development, deployment and support of all
of our services. This partnership of clinical and technical professionals and our innovative Greenway Service Manager technology enables us to offer
industry leading service in a timely and efficient manner. Our customer support team currently has 63 employees who support our customers through
phone, email, and web-based interactions 24 hours a day, seven days a week.
Technology and Development
Our innovation platform utilizes
the latest mobile, web and cloud computing technologies, including Microsoft .NET, Microsoft Azure, Force.com and Apple iOS. This platform ensures data
flows seamlessly from mobile and remote environments to the integrated EHR/PM and to various health information exchanges. This innovation integrates
all clinical, financial and administrative data to promote information sharing and ensure quick user adoption through simple, intuitive and tools that
optimize daily processes.
Greenway has developed solutions
using sophisticated tools and technology platform. This approach permits remote access, reduces support costs and ensures cross-platform,
multi-location and organizational compatibility.
Throughout our history, we have
invested to stay at the forefront of technological trends and changes. We have made the transition to a cloud platform which we believe will provide
the access, security and scalability needed for the future of ambulatory healthcare delivery and positions our Company and our customers well for the
future.
Competition
The ambulatory EHR market is
fragmented, with no single entrant having more than a 13% market share, according to the CapSite 2010 report. Our primary competitors in EHR and PM
include Allscripts, athenahealth, Cerner, eClinicalWorks, Epic, GE, Quality Systems, and Sage. Companies compete on factors including price, delivery
of new technology, service, quality of implementation and training, on-time implementation, quality of support provided, product response time, ease of
use, enhanced workflow, whether the product works as promoted, and whether the product supports integration goals.
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We believe we differentiate
ourselves relative to our competitors through innovation and customer service. Given the referral-based nature of the healthcare industry, our long
term commitment to our customers has enabled us to build a strong reputation around integrity and trust.
Intellectual Property
Our success and ability to
compete in our industry depend in part on our ability to establish, protect and enforce our intellectual property rights. We rely on a combination of
patent, copyright, trademark, trade secret and other related laws and confidentiality policies and contractual provisions to protect, maintain and
enforce our proprietary technology and intellectual property rights. We are the owner of 11 registered United States trademarks/servicemarks. We also
have 4 pending United States trademarks. Our intellectual property portfolio includes various unregistered copyrights, intellectual property-related
licenses, and Internet domain names. We currently own one issued United States patent and we have 18 filed patent applications in various stages of
approval.
Government Regulation
As a participant in the
healthcare industry, our operations and relationships with our customers and other medical professionals are subject to a variety of government
regulations. These laws and regulations are broad in scope and they are subject to evolving interpretations, which could require us to incur
substantial costs associated with compliance and to alter one or more of our practices. We devote significant efforts to establish and maintain
compliance with all regulatory requirements that we believe are applicable to our business and the services we offer. Specifically, but without
limitation, the following laws and regulations may affect our operations and contractual relationships:
The HITECH Act
As discussed above, the HITECH
Act provides funds to incentive providers to adopt EHR systems, which are to be allocated mostly between 2011 and 2015 to aid the development of an
information technology (IT) infrastructure for healthcare and to assist providers and other entities in adopting and using healthcare
information technology. CMS establishes and oversees the criteria that healthcare providers must meet to receive HITECH Act stimulus funding, while the
Office of the National Coordinator for Health Information Technology (ONC) establishes and oversees the functionality that EHR systems must
meet.
In order for our customers to
qualify for funding under the HITECH Act, our technology must meet various requirements for product certification under the regulations, and must
enable our customers to achieve meaningful use, as such term is defined under CMS regulations. CMS regulations provide for a phased
approach to implementation of the meaningful use standards. CMS has defined Stage 1 which focuses on electronically capturing health
information in a coded format, implementing decision support, sharing information with patients, testing the ability to change information, and
initiating the reporting of clinical quality measurement to CMS. Stage 2 criteria, to take effect in 2013, or if a proposed delay is made effective, in
2014, would require more robust exchange of information and other high value use of EHRs. Stage 3 criteria, to take effect in 2015, would require
physicians to demonstrate the use of EHR technology in ways that are reserved for future rulemaking based upon the experiences with Stage 1. Also, an
interim final rule has been implemented by the ONC, to adopt an initial set of standards, implementation specifications, and certification criteria to
enhance the use of health information technology and support its meaningful use. For providers to receive meaningful use
incentive funds, EHRs must be certified per regulations put forth by the ONC. Currently, ONC recognizes a variety of Authorized Testing and
Certification Bodies (ATCBs) eligible to test for and designate that EHRs are certified for meaningful use quality reporting.
These ONC-ATCBs are the only organizations which can designate that an EHR is certified for meaningful use incentive capture.
Greenways PrimeSUITE 2011 is an ONC-ATCB Complete EHR and is 2011/2012 compliant as certified by CCHIT, an ONC-ATCB. As such, PrimeSUITE supports
the Stage 1 meaningful use measures required to qualify eligible professionals and hospitals for funding under the ARRA.
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Privacy and Security Laws
HIPAA. The Health
Insurance Portability and Accountability Act of 1996, as amended (including by the HITECH Act), including the regulations issued and effective
thereunder, which we collectively refer to as HIPAA, contains substantial restrictions and requirements with respect to the use and disclosure of
individuals protected health information. HIPAA applies to covered entities, such as certain healthcare providers and health plans, as well as
business associates that perform functions on behalf of or provide services to covered entities.
As a result of our dealings with
clients and others in the medical industry which may be considered covered entities under or otherwise subject to the requirements of HIPAA, we are, in
some circumstances, considered a business associate under HIPAA. As a business associate, we are subject to the HIPAA requirements relating to the
privacy and security of protected health information. Among other things, HIPAA requires business associates to (i) maintain physical and technical and
administrative safeguards to prevent protected health information from misuse, (ii) report security incidents and other inappropriate uses or
disclosures of the information, including to individuals and governmental authorities, and (iii) assist covered entities from which we obtain health
information with certain of their duties under HIPAA. We have policies and safeguards in place intended to protect health information as required by
HIPAA and have processes in place to assist us in complying with applicable laws and regulations regarding the protection of this data and responding
to any security incidents.
On July 14, 2010, the Department
of Health and Human Services published a set of proposed regulations designed to modify and add provisions to HIPAA to reflect the requirements of the
HITECH Act. If finalized, these proposed HITECH Act regulations could expand the applicability of HIPAA to our business. For example, the proposed
HITECH Act regulations would, among other things:
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Expand the circumstances we could be considered a business associate subject to HIPAA (for example, regional health information organizations and health information exchanges that process or transmit data on behalf of covered entities are business associates if they require routine access to protected health information); |
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Require us to comply directly with many of HIPAAs privacy requirements for which currently we are only obligated to comply contractually via our agreements with covered entities and other business associates; and |
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Require us to implement additional provisions in our agreements with our subcontractors. |
We are monitoring these proposed
changes to HIPAA with the goal of effecting compliance when and if any new regulations go into effect. Further, certain HITECH Act requirements are
already in effect such as (1) the imposition of new civil and criminal penalties for violating privacy and security requirements on business associates
that were only once imposed on covered entities and (2) breach notification procedures.
Other Laws. In addition to
HIPAA, most states have enacted confidentiality laws that protect against the unauthorized disclosure of confidential health information, and many
states have adopted or are considering further legislation in this area, including privacy safeguards, security standards and data security breach
notification requirements. Such state laws, if more stringent than HIPAA requirements, are not preempted by the federal requirements, and we must
comply with them even though they may be subject to different interpretations by various courts and other governmental authorities. In addition,
numerous other state and federal laws govern the collection, dissemination, use, accesses to, confidentiality and retention of health
information.
False or Fraudulent Claim
Laws
There are numerous federal and
state laws that forbid submission of false information or the failure to disclose information in connection with the submission and payment of
physician claims for reimbursement. In some cases, these laws also forbid abuse of existing systems for such submission and payment, for example, by
systematic over treatment or duplicate billing of the same services to collect increased or duplicate payments.
In particular, the federal False
Claims Act, or the FCA, prohibits a person from knowingly presenting or causing to be presented a false or fraudulent claim for payment or approval by
an officer, employee or agent of the United States. In addition, the FCA prohibits a person from knowingly making, using, or causing to be made or used
a
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false record or statement material to such a claim. The FCAs reverse false claim provision also creates liability for persons who knowingly and improperly conceal the retention of an overpayment of government money. Violations of the FCA may result in treble damages, significant monetary penalties, and other collateral consequences including, potentially, exclusion from participation in federally funded healthcare programs. The scope and implications of the recent amendments to the FCA pursuant to the Fraud Enforcement and Recovery Act of 2009, or FERA, have yet to be fully determined or adjudicated and as a result it is difficult to predict how future enforcement initiatives may impact our business. Pursuant to the healthcare reform legislation enacted in March 2010, a claim that includes items or services resulting from a violation of the federal anti-kickback law constitutes a false or fraudulent claim for purposes of the FCA. The scope and implications of the FERA amendments have yet to be fully determined or adjudicated and as a result it is difficult to predict how future enforcement initiatives may impact our business.
In addition, under the Civil
Monetary Penalty Act of 1981, the HHS Office of Inspector General has the authority to impose administrative penalties and assessments against any
person, including an organization or other entity, who, among other things, knowingly presents, or causes to be presented, to a state or federal
government employee or agent certain false or otherwise improper claims.
Anti-Kickback Laws
There are numerous federal and
state laws that govern patient referrals, physician financial relationships, and inducements to healthcare providers and patients. The federal
healthcare anti-kickback law prohibits any person or entity from offering, paying, soliciting or receiving anything of value, directly or indirectly,
for the referral of patients covered by Medicare, Medicaid and other federal healthcare programs or the leasing, purchasing, ordering or arranging for
or recommending the lease, purchase or order of any item, good, facility or service covered by these programs. Courts have interpreted the law to
provide that a financial arrangement may violate this law if any one of the purposes of an arrangement is to encourage patient referrals or other
federal healthcare program business, regardless of whether there are other legitimate purposes for the arrangement. There are several limited
exclusions known as safe harbors that may protect some arrangements from enforcement penalties. Penalties for federal anti-kickback violations can be
severe, and include imprisonment, criminal fines, civil money penalties with triple damages and exclusion from participation in federal healthcare
programs. Many states have similar anti-kickback laws, some of which are not limited to items or services for which payment is made by a federal
healthcare program.
Stark Law and Similar State
Laws
The Ethics in Patient Referrals
Act, also known as the Stark Law, prohibits certain types of referral arrangements between physicians and healthcare entities. Physicians are
prohibited from referring patients for certain designated health services reimbursed under federally funded programs to entities with which they or
their immediate family members have a financial relationship or an ownership interest, unless such referrals fall within a specific exception.
Violations of the statute can result in civil monetary penalties and/or exclusion from the Medicare and Medicaid programs. Furthermore, reimbursement
claims for care rendered under forbidden referrals may be deemed false or fraudulent, resulting in liability under other fraud and abuse laws. Laws in
many states (which can vary widely) similarly forbid billing based on referrals between individuals and/or entities that have various financial,
ownership, or other business relationships.
Healthcare Reform Law
The PPACA and related measures
call for increased scrutiny of, and may impose requirements on, physicians and insurance companies, and their third-party contractors. While we do not
directly provide healthcare to patients, these reforms may indirectly affect our business. The PPACA expands false claim laws, amends key provisions of
other anti-fraud and abuse statutes, provides the government with new enforcement tools and funding for enforcement, and enhances both criminal and
administrative penalties for noncompliance.
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Electronic Prescribing
States have differing
prescription format and signature requirements, and many existing laws and regulations, when enacted, did not anticipate the methods of e-commerce now
being developed. However, federal and state laws now allow the use of electronic prescriptions. On November 7, 2005, HHS published its final
E-Prescribing and the Prescription Drug Program regulations, referred to herein as the E-Prescribing Regulations. These regulations are required by the
Medicare Prescription Drug Improvement and Modernization Act of 2003 (MMA) and became effective beginning on January 1, 2006. The
E-Prescribing Regulations consist of detailed standards and requirements, in addition to the HIPAA standards discussed previously, for prescription and
other information transmitted electronically in connection with a drug benefit covered by the MMAs Prescription Drug Benefit. These standards
cover not only transactions between prescribers and dispensers for prescriptions but also electronic eligibility and benefits inquiries and drug
formulary and benefit coverage information. The standards apply to prescription drug plans participating in the MMAs Prescription Drug Benefit.
Aspects of our services are affected by such regulation, as our clients need to comply with these requirements.
Anti-Tampering Laws
For certain prescriptions that
cannot or may not be transmitted electronically from physician to pharmacy, both federal and state laws require that the written forms used exhibit
anti-tampering features. For example, the U.S. Troop Readiness, Veterans Care, Katrina Recovery, and Iraq Accountability Appropriations Act of
2007 has since April 2008 required that most prescriptions covered by Medicaid must demonstrate security features that prevent copying, erasing, or
counterfeiting of the written form. Because our clients will, on occasion, need to use printed forms, we must take these laws into consideration for
purposes of the prescription functions of our solutions.
United States Food and Drug
Administration
The U.S. Food and Drug
Administration (FDA) has promulgated a draft policy for the regulation of software products as medical devices and a proposed rule for
reclassification of medical device data systems under the federal Food, Drug and Cosmetic Act, as amended (FDCA). The FDA has taken the
position that health information technology software is a medical device under the FDCA, and we anticipate the FDAs increased attempt to become
involved in regulation of our industry. If our software functionality is considered a medical device under the FDCA, we could be subject to the FDA
requirements discussed below.
Medical devices are subject to
extensive regulation by the FDA under the FDCA. Under the FDCA, medical devices include any instrument, apparatus, machine, contrivance, or other
similar or related article that is intended for use in the diagnosis of disease or other conditions or in the cure, mitigation, treatment, or
prevention of disease. FDA regulations govern, among other things, product development, testing, manufacture, packaging, labeling, storage, clearance
or approval, advertising and promotion, sales and distribution, and import and export. FDA requirements with respect to devices that are determined to
pose lesser risk to the public include:
|
establishment registration and device listing with the FDA; |
|
the Quality System Regulation (QSR), which requires manufacturers, including third-party or contract manufacturers, to follow stringent design, testing, control, documentation, and other quality assurance procedures during all aspects of manufacturing; |
|
labeling regulations and FDA prohibitions against the advertising and promotion of products for uncleared, unapproved off-label uses and other requirements related to advertising and promotional activities; |
|
medical device reporting regulations, which require that manufacturers report to the FDA if their device may have caused or contributed to a death or serious injury or malfunctioned in a way that would likely cause or contribute to a death or serious injury if the malfunction were to recur; |
|
corrections and removal reporting regulations, which require that manufacturers report to the FDA any field corrections and product recalls or removals if undertaken to reduce a risk to health posed by the device or to remedy a violation of the FDCA that may present a risk to health; and |
59
|
post-market surveillance regulations, which apply when necessary to protect the public health or to provide additional safety and effectiveness data for the device. |
Non-compliance with applicable
FDA requirements can result in, among other things, public warning letters, fines, injunctions, civil penalties, recall or seizure of products, total
or partial suspension of production, failure of the FDA to grant marketing approvals, withdrawal of marketing approvals, a recommendation by the FDA to
disallow us from entering into government contracts, and criminal prosecutions. The FDA also has the authority to request repair, replacement, or
refund of the cost of any device.
Corporate Practice of Medicine Laws, Fee-Splitting
Laws, and Anti-Assignment Laws
In many states, there are laws
that prohibit non-licensed practitioners from practicing medicine, prevent corporations from being licensed as practitioners, and prohibit licensed
medical practitioners from practicing medicine in partnership with non-physicians, such as business corporations. In some states, these prohibitions
take the form of laws or regulations forbidding the splitting of physician fees with non-physicians or others. In some cases, these laws have been
interpreted to prevent business service providers from charging their physician clients on the basis of a percentage of collections or charges. There
are also federal and state laws that forbid or limit assignment of claims for reimbursement from government-funded programs. Some of these laws limit
the manner in which business service companies may handle payments for such claims and prevent such companies from charging their physician clients on
the basis of a percentage of collections or charges. The Medicare and Medicaid programs impose specific requirements on billing agents who receive
payments on behalf of medical care providers.
Employees
We currently have approximately
500 full-time employees with approximately 350 of those based at our Carrollton, Georgia headquarters. We also utilize approximately 130 independent
contractors. None of our employees are represented by a union or party to collective bargaining agreements. We believe our relationship with our
employees is positive, which is a key component of our operating strategy.
Facilities
We lease our corporate
headquarters of approximately 15,000 square feet, located at 121 Greenway Boulevard, Carrollton, Georgia 30117. We also lease several other properties,
located in and around Carrollton for other business operations, such as research and development, client services, and network operations. In addition,
we intend to build a new corporate headquarters, approximately 60,000 square feet, on several commercial lots we own that are located adjacent to our
current corporate headquarters.
Legal Proceedings
From time to time, we are
involved in various legal proceedings arising from the normal course of business activities. We are not presently a party to any material
litigation.
Corporate Information
We were incorporated in Georgia
in September 1998. Simultaneously in connection with the closing of this offering, we will become a Delaware corporation by way of a merger with and
into a newly-formed wholly-owned Delaware subsidiary, with the Delaware subsidiary remaining as the surviving corporation with the name Greenway
Medical Technologies, Inc. following the merger.
We have offices located at 121
Greenway Boulevard, Carrollton, Georgia 30117 and our telephone number at this location is (770) 836-3100. Our website address is
www.greenwaymedical.com. The information contained in, or that can be accessed through, our website is not part of this
prospectus.
60
Our Executive Officers and Directors
The following table and
descriptions set forth certain information concerning our executive officers and directors as of June 30, 2011:
Name |
Age |
Position |
||||||||
---|---|---|---|---|---|---|---|---|---|---|
W. Thomas Green,
Jr. |
67 |
Chairman of the Board |
||||||||
Wyche T.
Tee Green, III |
39 |
President, Chief Executive Officer and Director |
||||||||
Gregory H.
Schulenburg |
45 |
Executive Vice President and Chief Operating Officer |
||||||||
James A.
Al Cochran |
63 |
Chief
Financial Officer |
||||||||
William G.
Esslinger, Jr. |
40 |
Vice
President, General Counsel and Secretary |
||||||||
Noah Walley
|
48 |
Director |
||||||||
Thomas T.
Richards |
70 |
Director |
||||||||
Walter Turek
|
58 |
Director |
||||||||
D. Neal Morrison
|
49 |
Director |
W. Thomas Green, Jr. is
the founder of the Company and has served as its Chairman since the Companys inception in 1998. From 1998 until 2010, he also served as our Chief
Executive Officer. From 2006 to 2010, Mr. Green was a director of the First National Bank of Georgia and WGNB Corporation in Carrollton, Georgia. Mr.
Green is the father of Wyche T. Tee Green, III, the Companys current President and Chief Executive Officer. Mr. Green is the past
Chairman of the Tanner Medical Foundation. Mr. Green also formerly served as a board member and executive committee member of the State University of
West Georgia Foundation. Mr. Green received a bachelors degree in business administration from the University of Georgia.
We believe Mr. Greens
qualifications to serve on our Board of Directors include, as the Companys founder, his intricate knowledge of the Company and his visionary
direction.
Wyche T. Tee
Green, III has served as the Companys President since 2000, as Chief Executive Officer since 2010, and has been a Director of the Company
since 1999. Mr. Green is responsible for leading the Companys strategic direction while managing day-to-day operations. Mr. Green first joined
the Company in September 1999 as Vice-President of Sales and Marketing, working in that capacity one year before being promoted to President. From 2003
until May 2011, Mr. Green was a member of the board of directors of First Georgia Banking Company. Mr. Green is the son of W. Thomas Green Jr. and,
through marriage, a first cousin of William G. Esslinger, Jr., the Companys Vice President, General Counsel and Secretary. Mr. Green also serves
on the Auburn University Research Council Board. Mr. Green received a bachelors degree in business administration management from Auburn
University.
We believe Mr. Greens
qualifications to serve on our Board of Directors include his exemplary leadership skills, his knowledge of the Company and our industry, and his
ability to bring managements perspective to the Board.
Gregory H. Schulenburg has
been our Executive Vice President and Chief Operating Officer since May 2004. Mr. Schulenburg oversees and manages the day-to-day operations of the
Company. From joining the Company in March 1999 until May 2004, he served as Vice President of Research and Development, managing software development
for the Company. Mr. Schulenburg received a bachelors degree in economics from the University of Georgia.
James A. Al
Cochran joined the Company as Chief Financial Officer in November 2009 and oversees the Companys financial reporting, accounting and internal
control, and strategic planning. From February 2009 to October 2009, Mr. Cochran was pursuing personal interests. From October 2007 until its sale in
January 2009, Mr. Cochran served as Senior Vice President, Corporate Strategy and Investor Relations of TurboChef Technologies, Inc.
(TurboChef), a manufacturer of speed-cook commercial and residential ovens. In October 2003 Mr. Cochran joined TurboChef as Senior Vice
President and Chief Financial Officer and served in that capacity until October 2007. In 2004 TurboChef issued restatements for fiscal years 2002 and
2003 to defer previously recognized revenue and for the first two quarters of 2004 to reflect the effect of the 2002 and 2003 restatements. In 2007,
TurboChef
61
restated its 2004 and 2005 financial statements, 2002 to 2003 selected financial data, and interim 2005 and 2006 financials to record non-cash stock-based compensation expense related to equity awards granted from 1994 through 2006. After an informal inquiry into the stock-based compensation matter, the staff of the SEC did not recommend any enforcement action. From its formation in August 2000 until its acquisition by the Eastman Kodak Company in October 2003, Mr. Cochran served as Chief Financial Officer of PracticeWorks, Inc., then a publicly-traded software company specializing in dental practice management. Mr. Cochran is a Certified Public Accountant and was a partner of the accounting firm BDO Seidman, LLP for five years. Mr. Cochran received a B.B.A. in Accounting and an M.B.A. in Corporate Finance from Georgia State University.
William G. Esslinger, Jr.
has been our General Counsel (or Chief Legal Officer) since April 2000, our Vice President since July 2000, and Secretary since June 2004. Mr.
Esslinger oversees all ongoing activities related to policies and procedures covering the privacy of and access to patient health information in
compliance with federal and state laws, including HIPAA. By marriage, Mr. Esslinger is a first cousin of Wyche T. Green, III. Mr. Esslinger is a member
of the State Bar of Georgia. Mr. Esslinger is also a member of the American Corporate Counsel Association, and a member of the International
Association of Privacy Professionals. Prior to joining Greenway, Mr. Esslinger was in the private practice of law. Mr. Esslinger earned his
bachelors degree in finance from the State University of West Georgia and his juris doctorate from the Georgia State University College of
Law.
Noah Walley has been a
Director of the Company since May 2004. Since April 2003, Mr. Walley has served as Head of North American Technology Investing of Investor Growth
Capital, Inc., a venture capital firm. Prior to his tenure at Investor Growth Capital, Mr. Walley served as a General Partner with Morgan Stanley
Venture Partners and, prior to joining Morgan Stanley, he worked for the venture capital firms of Bachow & Associates and Desai Capital Management,
as well as the management consulting firm McKinsey & Company. Mr. Walley began his investment banking career in London for Chase Manhattan Bank and
NM Rothschild & Sons, Ltd. Mr. Walley also serves on the board of directors of Tangoe, Inc., a provider of communications lifecycle management
software and services to a wide range of enterprises. Mr. Walley holds a J.D. degree from Stanford Law School and as well as M.A. and B.A. degrees from
Oxford University.
We believe that Mr. Walleys
qualifications include his experience serving on numerous boards of directors and his experience as a venture capital investor and management
consultant which allows him to be a key contributor to our Board of Directors, particularly with respect to addressing our equity financing needs and
mergers and acquisitions.
Thomas T. Richards has
been a Director of the Company since its formation in 1998. Mr. Richards has also been president and owner of Richards Mortgage Servicing, Inc., a
financial service company that owns and services single family mortgages, since 1996. From 1984 until 2010, Mr. Richards was a director of First
National Bank of Georgia and WGNB Corporation. Mr. Richards is a board member of Tanner Medical Foundation. Mr. Richards is a graduate of the Georgia
Institute of Technology and Harvard Business School.
We believe Mr. Richards
qualifications to serve on our Board of Directors include his financial expertise and his longstanding knowledge of the Company.
Walter Turek has been a
Director of the Company since January 2005. Prior to his retirement in June 2009, Mr. Turek was senior vice president of sales and marketing for
Paychex, Inc. (Paychex), a national provider of payroll and human resource services. Mr. Turek was named to this position in 2002 and
oversaw the companys sales force of approximately 3,000 people. In addition, Mr. Turek oversaw the companys international efforts. In
addition, prior to his retirement in June 2009, Mr. Turek served as president of Stromberg, a provider of time and attendance solutions, and president
of Rapid Payroll, Inc., a California-based payroll software company. Both companies are wholly-owned subsidiaries of Paychex. Mr. Turek serves on the
board of directors of BlueTie.com, Mykonos Software and Adventive, all of which are private companies. Mr. Turek holds an associates degree in
business from Monroe Community College.
We believe Mr. Tureks
qualifications to serve on our Board of Directors include his extensive experience as a senior executive officer of a publicly-traded company and his
expertise in sales and marketing.
D. Neal Morrison has been
a Director of the Company since October 2006. Since 1996, Mr. Morrison has been a Partner of Pamlico Capital (formerly Wachovia Capital Partners and
previously First Union Capital Partners),
62
a private equity firm focused on investments primarily in growth-oriented healthcare, business and technology services and communications companies. Mr. Morrison focuses on making investments in the healthcare industry. Prior to joining First Union Capital Partners, Mr. Morrison served as a director of First Unions Healthcare Finance Group since 1987. Mr. Morrison was a director of US Radiosurgery LLC from 2003 to 2011, a director of American Renal Holdings, Inc. from 2004 to 2010, a director of A4 Health Systems, Inc. from 1999 to 2005, a director of excelleRx, Inc. from 2003 to 2005 and a director of Acist Medical Systems, Inc. from 2000 to 2001. Mr. Morrison received his undergraduate degree from the University of North Carolina at Chapel Hill in 1984 and his graduate degree from the Babcock Graduate School of Management at Wake Forest University in 1987.
We believe Mr. Morrisons
qualifications to serve on our Board of Directors include his knowledge of the healthcare industry and his experience financing, investing in and
advising growth-oriented companies across all sectors of the healthcare industry, including companies in the healthcare information technology
sector.
Our Board of Directors
Currently, there are six members
of our Board of Directors. Pursuant to the Companys existing articles of incorporation and the terms of a second amended and restated voting
agreement dated October 30, 2006 (the Voting Agreement) by and among the Company and certain specified holders of the Companys Common
Stock, Series A Preferred Stock, and Series B Preferred Stock, the following directors were elected at the Companys annual stockholders meeting
held on October 18, 2010: (a) W. Thomas Green, Jr., and Wyche T. Green, III as nominees of the holders of Common Stock (b) Noah Walley, as a nominee of
the holders of Series A Preferred Stock; (c) Neal Morrison as nominee of the holders of Series B Preferred Stock; and (d) Keith Aspinall, Thomas
Richards, and Walter Turek as at-large nominees. Mr. Aspinall resigned as a director of the Company effective May 3, 2011. The Companys currently
existing articles of incorporation will no longer be in effect upon the closing of this offering and the effectiveness of the Reincorporation. The
Voting Agreement will terminate by its terms upon the closing of this offering. Our directors hold office until their successors have been elected and
qualified or until the earlier of their resignation or removal. W. Thomas Green, Jr., our Chairman of the Board is the father of Wyche T. Green, III,
our President and Chief Executive Officer.
As of the closing of this
offering, our certificate of incorporation and bylaws will provide for a staggered, or classified, Board of Directors consisting of three classes of
directors, each serving staggered three-year terms, as follows:
|
the Class I directors will be , and their terms will expire at the annual meeting of stockholders to be held in 2012; |
|
the Class II directors will be , and their terms will expire at the annual meeting of stockholders to be held in 2013; and |
|
the Class III directors will be , and their terms will expire at the annual meeting of stockholders to be held in 2014. |
Upon expiration of the term of a
class of directors, directors for that class will be elected for three-year terms at the annual meeting of stockholders in the year in which that term
expires. Each directors term continues until the election and qualification of his successor, or his earlier death, resignation or removal. Any
increase or decrease in the number of directors will be distributed among the three classes so that, as nearly as possible, each class will consist of
one-third of the directors. This classification of our Board of Directors may have the effect of delaying or preventing changes in control of our
Company.
Director Independence
Upon completion of this offering,
our Board of Directors will consist of members, a majority of whom will be
independent under rules. Pursuant to the corporate governance listing
standards of , a director employed by us cannot be deemed to be an
independent director, and each other director will qualify as independent only if our Board of Directors affirmatively
determines that he has no material relationship with us, either directly or as a partner, stockholder or officer of an organization that has a
relationship with us. Ownership of a significant amount of our stock, by itself, does not constitute a material relationship.
63
Our Board of Directors has
affirmatively determined that each of is independent in
accordance with rules.
Board Committees
Our Board of Directors has
established an Audit committee, a Compensation Committee, and a Nominations and Governance Committee. Our Board of Directors may also establish such
other committees as it deems appropriate, in accordance with applicable law and regulations and our certificate of incorporation and bylaws, which will
be in effect upon the completion of this offering.
Audit Committee
Upon the closing of this
offering, our audit committee will consist of , of
which are independent as defined under the
federal securities laws and rules. Our Board of Directors has determined
that each of the members who will serve on the audit committee upon the closing of this offering satisfy the requirements for financial literacy under
the current requirements. Our Board of Directors has determined that
is an audit committee financial expert, as
that term is defined by the SEC. The primary function of the audit committee is to assist the Board of Directors in monitoring (1) the integrity of our
financial statements, (2) the qualifications, performance and independence of the independent registered public accounting firm, (3) the performance of
the internal auditors, and (4) our compliance with regulatory and legal requirements. The audit committee has direct responsibility for the
appointment, compensation, retention and oversight of the work of our independent registered public accounting firm, Grant Thornton LLP. In addition,
approval of the audit committee is required prior to our entering into any related-party transaction. It is also responsible for
whistle-blowing procedures and certain other compliance matters. The audit committee will adopt a new charter which will be posted on the
Investor Relations section of our website upon or prior to the effectiveness of the registration statement of which this prospectus forms a
part.
Compensation Committee
Upon the closing of this
offering, our compensation committee will consist of , of which
are independent as defined under the federal securities laws and
rules. In addition,
are outside directors as defined under
Section 162(m) of the Internal Revenue Code. Among other things, the Compensation Committee is required to review, and make recommendations to our
Board of Directors regarding, the compensation and benefits of our executive officers. The Compensation Committee also administers the issuance of
stock options and other awards under our equity incentive plans and will establish and review policies relating to the compensation and benefits of our
employees and consultants. The compensation committee will adopt a new charter which will be posted on the Investor Relations section of our website
upon or prior to the effectiveness of the registration statement of which this prospectus forms a part.
Nominations and Governance
Committee
Upon the closing of this
offering, our Nominations and Governance Committee will consist of, of
which are independent as defined under the federal
securities laws and rules. The Nominations and Governance Committee is
responsible for, among other things, developing and recommending to our Board of Directors our corporate governance guidelines, identifying individuals
qualified to become board members, overseeing the evaluation of the performance of the Board of Directors, selecting the director nominees for the next
annual meeting of stockholders, and selecting director candidates to fill any vacancies on our Board of Directors. The Nominations and Governance
Committee will adopt a new charter which will be posted on the Investor Relations section of our website upon or prior to the effectiveness of the
registration statement of which this prospectus forms a part.
64
Compensation Committee Interlocks and Insider
Participation
No member of our Compensation
Committee has ever been an officer or employee of ours. None of our executive officers serves, or has served during the past fiscal year, as a member
of the Board of Directors or compensation committee of any other company that has one or more executive officers serving as a member of our Board of
Directors or Compensation Committee.
The members of our compensation
committee do not have any interlocking relationships as defined under SEC regulations.
Director Qualifications
The Nominations and Governance
committee is responsible for identifying qualified individuals to become members of the Board of Directors. We select individuals as director nominees
with the goal of creating a balance of knowledge, experience and interest on the Board of Directors. Candidates are evaluated for their character,
judgment, business experience and acumen. We believe that, at a minimum, a director candidate must possess personal and professional integrity, sound
judgment and forthrightness. A director candidate must also have sufficient time and energy to devote to the affairs of the Company and be free from
conflicts of interest with the Company. The following criteria are also considered when reviewing a director candidate:
|
The extent of the director candidates educational, business, non-profit or professional acumen and experience; |
|
Whether the director candidate assists in achieving a mix of Board members that represents a diversity of background, perspective and experience; |
|
Whether the director candidate meets the independence requirements of listing standards; and |
|
Whether the director candidate possesses the ability to work as part of a team in an environment of trust. |
Specific weights are not assigned
to any particular criteria and no particular criterion is necessarily applicable to all prospective director candidates.
Board Leadership Structure
The Board of Directors determines
what leadership structure it deems appropriate from time-to-time based on factors such as the experience of the Companys Board members and
executive officers, the current business environment of the Company and other relevant factors. After considering these factors, the Board has
determined that the appropriate leadership structure for the Company at this time is a Board of Directors led by a Chairman of the Board (W. Thomas
Green, Jr.) and a President and Chief Executive Officer (Wyche T. Green, III) who also serves on the Companys Board. We believe that this
structure provides strength to the Company by giving the Chief Executive Officer a respected voice on our Board, while at the same time giving
leadership of the Board to another individual who, together with the other directors, provides active oversight of management and its implementation of
our strategic plans.
Boards Role in Risk Oversight
The Board of Directors is
actively involved in oversight of risks that could affect our Company. This oversight is conducted primarily through committees of the Board of
Directors, as disclosed in the descriptions of each of the Board committees, but the full Board has retained responsibility for general oversight of
risks. The Board of Directors satisfies this responsibility through full reports by each committee chair regarding the committees considerations
and actions, as well as through regular reports directly from officers responsible for oversight of particular risks within the
Company.
Risk Monitoring
Our compensation committee is
responsible for assuring that our compensation structures for our executive officers and other employees do not encourage excessive or otherwise
undesirable risk-taking.
65
Code of Conduct and Ethics
Prior to the closing of this
offering, our Board of Directors intends to adopt a new written code of business conduct and ethics that will apply to our directors, officers and
employees, including our chief executive officer and senior financial officers. Following this offering, a copy of the code of business conduct and
ethics will be posted on the Investor Relations section of our website. We intend to disclose future amendments to our code of conduct and ethics, or
certain waivers of such provisions, at the same location on our website identified above and also in public filings.
Director Compensation
During the fiscal year ended June
30, 2011, none our non-employee directors received any cash fees for their services on the Board of Directors, but were entitled to reimbursement of
all reasonable out-of-pocket expenses incurred in connection with their attendance at Board of Directors and Board committee meetings. However, our
non-employee directors each received an award of 10,000 stock options on October 18, 2010. The compensation for W. Thomas Green, Jr. and Wyche T.
Green, III is discussed below under Executive Compensation. We are in the process of reviewing ongoing compensation arrangements for our
non-employee directors to be effective following the closing of this offering.
Name and principal position |
Fees earned or paid |
Stock awards |
Option awards(1)(2) $ |
Non-equity incentive plan compensation |
Change in pension value and NQDC earnings |
All other compensation |
Total $ |
|||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Noah Walley
|
| | 26,600 | | | | 26,600 | |||||||||||||||||||||||
Thomas T.
Richards |
| | 26,600 | | | | 26,600 | |||||||||||||||||||||||
Walter Turek
|
| | 26,600 | | | | 26,600 | |||||||||||||||||||||||
D. Neal Morrison
|
| | 26,600 | | | | 26,600 | |||||||||||||||||||||||
Keith
Aspinall(3) |
| | 26,600 | | | | 26,600 |
(1) |
The amount represents the aggregate grant date fair value of option awards granted in the fiscal year valued in accordance with FASB ASC Topic 718. This amount does not represent our accounting expense for these awards during the year and does not correspond to the actual cash value recognized by the director when received. |
(2) |
On October 18, 2010, Messrs. Walley, Richards, Turek, Morrison, and Aspinall received options to purchase 10,000 shares of common stock at an exercise price of $6.92. These options were 25% vested upon the date of the grant, and the remainder vested in equal monthly installments through June 30, 2011, subject to attendance at Board meetings. The aggregate number of option awards outstanding as of June 30, 2011 for each director was as follows: Mr. Walley, 10,000, Mr. Richards, 21,265, Mr. Turek, 100,000, and Mr. Morrison, 10,000. |
(3) |
Mr. Aspinall resigned as a director of the Company effective May 3, 2011. Mr. Aspinalls outstanding unvested options were forfeited upon his resignation. |
66
Compensation Discussion and Analysis
This section discusses the
principles underlying our executive compensation policies and decisions and the most important factors relevant to an analysis of these policies and
decisions. It provides qualitative information regarding the manner and context in which compensation is awarded to and earned by our named executive
officers (NEOs), and is intended to place in perspective the data presented in the tables and narrative that follow. Based on applicable
securities laws, the following were our NEOs for the 2011fiscal year. For the biographical information of our NEOs, see Management and Board of
Directors.
|
Wyche T. Green, III, President and Chief Executive Officer |
|
James A. Cochran, Chief Financial Officer |
|
W. Thomas Green, Jr., Chairman of the Board |
|
Gregory H. Schulenburg, Executive Vice President and Chief Operating Officer |
|
William G. Esslinger, Jr., Vice President, General Counsel and Secretary |
Our Compensation Committee, which
currently consists of Mr. Walley (Chair), Mr. Morrison, and Mr. Turek, is responsible for the administration and oversight of our executive
compensation program, and administers and oversees all elements of our executive compensation program, including the function and design of our cash
bonus incentive plan and equity incentive programs. In connection with our transition to a public company, the Compensation Committee intends to
evaluate the need for revisions to our executive compensation program to ensure our program is appropriate for a public company and is competitive with
the companies with whom we compete for executive talent. As part of this process, the Compensation Committee will, among other things, consider the
competitiveness of the elements of the compensation packages we offer to our executives, as well as their total compensation packages. While neither an
independent compensation consultant nor peer group comparisons have been used to date in determining executive compensation, the Compensation Committee
has retained an independent compensation consultant to assist it in this process for the 2012 fiscal year.
Overview
As a private company, hiring and
retaining quality employees is a vital component to our innovative approach to the industry and ensures we are able to maintain our desire for growth.
We seek to provide a compensation package for executives reasonably sufficient to attract and hold talented, experienced, innovative, and
entrepreneurial-minded individuals for our key management positions. We balance offering compensation consistent with the executive marketplace and
common sense affordability for a company of our size, revenue, market position and growth opportunities. Management strives to hire and maintain an
executive workforce with individuals having the abilities and capacities to manage today as well as carry us through significant growth tomorrow and
beyond. We also want to align the interests of our employees with the interests of our stockholders, so we follow a compensation strategy that includes
a meaningful equity component for future value. Accordingly, our philosophy is to provide reasonably competitive salaries and potential cash bonuses
with growth potential through equity incentives. While executive compensation structures and changes are typically initiated by senior management, our
Compensation Committee, as delegated by our Board of Directors, reviews and approves salary, bonus and equity incentive for our NEOs proposals prior to
implementation.
As with many private companies,
our Compensation Committee, as delegated by our Board of Directors, generally analyzes compensation levels in the context of the experiences and
individual knowledge of each Board member. This approach has called for our Board members to use their reasonable business judgment in determining
compensation levels that would allow us to compete in hiring and retaining the best possible talent, without strict reliance on third-party survey
data, which such data is not generally available in the private company context. We view base salary as a component of compensation designed to reflect
the executives relative level of responsibilities and value to the organization and as a reflection of market competition for individuals with
similar skill sets and experience. We are not tied to a specific ratio of amounts among the three main components of executive
67
compensation, but believe base salary presents the threshold level necessary to compensate and retain qualified individuals before any consideration of the other components of compensation. Bonuses are also considered as no less important to encouraging and rewarding extraordinary performance and results. Finally, we believe an equity component of compensation provides a dual benefit of providing additional incentive opportunities to our executives as well as aligning the interests of executives with those of other stockholders.
Role of Management
Upon the completion of this
offering, we expect our Compensation Committee will consist entirely of independent directors. Historically, our management team has made compensation
recommendations to the Compensation Committee and the Board of Directors. In addition, our President and Chief Executive Officer has been, and will
continue to be, involved in the determination of compensation for our other executive officers because of his daily involvement with our executive
teams efforts. However, he will not participate in discussions of the Compensation Committee where his own compensation is approved. Members of
our human resources, finance and legal departments attend Compensation Committee meetings and provide background on materials presented to the
Compensation Committee.
Base Salary
In recommending cash compensation
levels for executives, senior management considers the qualifications of the executive, the current needs and expected future needs of the Company, the
competitive opportunities for individuals with similar executive skill sets and experience and the expected budget. The Compensation Committee
considers the salary recommendations of senior management in determining whether to adjust the salary component of overall compensation in light of the
overall compensation package and how the balance of the components for an individual matches the Companys overall compensation philosophy. Based
on such analysis, and due to the transition of Wyche T. Green, III to the position of Chief Executive Officer, the Compensation Committee decided to
increase his base salary from $270,000 for the 2010 fiscal year to $325,373 for the 2011 fiscal year. The Compensation Committee also increased, for
the 2011 fiscal year, the base salary of Mr. Cochran from $225,160 to $247,676, the base salary of Mr. Schulenburg from $194,220 to $223,353, and the
base salary of Mr. Esslinger, from $144,000 to $173,254.
Annual Cash Incentives
The Compensation Committee
oversees an annual incentive bonus plan for which a cash bonus is paid to certain employees and officers, including the named executive officers. The
2011 Incentive Bonus Plan is designed to provide a financially attractive and equitable component to each named executive officers total
compensation package, and to reward the participants for significantly contributing to the attainment of the Companys corporate objectives and to
enhance the Companys presence in the marketplace. Each year, the 2011 Incentive Bonus Plan is approved by the Compensation Committee and adopted
by the Board of Directors. The 2011 Incentive Bonus Plan contains three primary components: (i) Company sales bookings which constitutes 45% of the
overall bonus consideration, (ii) Company revenue which constitutes 25% of the overall bonus consideration, and (iii) Company EBITDA which constitutes
30% of the overall bonus consideration. Together with senior management, at the beginning of the 2011 fiscal year, the Compensation Committee developed
projected levels of the Companys sales bookings, revenue, and EBITDA. Each participants target bonus amount is equal to 50% of his or her
base salary, except for Mr. Esslinger, whose target bonus is 30% of his base salary. As a threshold matter, no bonuses are paid unless the Company
achieves a minimum level of EBITDA (such EBITDA minimum to be calculated after taking into account all bonuses to be paid under the current years
plan) as set by the Compensation Committee. Assuming such minimum EBITDA level is achieved, upon achievement of at least 90% of the sales bookings
target, 45% of the named executive officers bonus would be awarded based upon the Companys percentage achievement of the sales bookings
target. In addition, assuming the minimum EBITDA level is achieved, upon the Companys achievement of at least 90% of the revenue target, 25% of
the named executive officers bonus would be awarded based upon the Companys percentage achievement of the revenue target. Finally, assuming
the Company achieves actual revenue of at least 90% of the revenue target, upon at least 85% achievement of the EBITDA target, 30% of the named
executive officers bonus would be awarded depending on the Companys percentage achievement
68
of the EBITDA target. The maximum bonus payable to a named executive officer under the 2011 Incentive Bonus Plan is 200% of the target bonus, except for Mr. Esslinger whose maximum bonus amount is at the discretion of the Compensation Committee. As of the date of this filing, the final 2011 fiscal-year bonuses had not been determined by the Compensation Committee.
Equity Incentives
We view equity incentives as a
means for aligning one aspect of executive compensation with stockholders interests. In addition, vesting of equity incentives over a continued
period of employment can assist in our efforts to retain qualified executive personnel. The amount of an equity award given to an executive officer
normally is proposed by senior management to the Compensation Committee for its consideration and approval. While equity incentives are viewed as
longer term, forward-looking forms of compensation, the recommendation by senior management to award equity incentives, other than in connection with
the hiring of a new executive, generally is based on past performance of the executive, on the needs of the Company to retain that executive and the
expected contribution from that executive to the Companys success going forward. Stock option awards in the 2011 fiscal year were made under and
pursuant to the terms and conditions of the Companys 2004 Stock Plan. See Equity Incentive Plans below. During the 2011 fiscal
year, we granted stock options to the following named executive officers in the amount set forth next to such officers name:
Name |
Total number of options granted(1) |
|||||
---|---|---|---|---|---|---|
Wyche T.
Green, III |
140,000 | |||||
W. Thomas
Green, Jr. |
16,875 | |||||
Gregory H.
Schulenburg |
92,508 | |||||
William G.
Esslinger, Jr. |
23,200 |
(1) |
The total number of options granted in fiscal year 2011 to Mr. Schulenberg and Mr. Esslinger include a certain amount of options granted to replace options that expired during the fiscal year. |
Perquisites
Other payments or benefits in the
form of perquisites are not a significant component of executive compensation.
Employment Agreements
We have no employment agreements
with any of our executive officers.
Impact of Accounting and Tax
Considerations
We maintain awareness of the
accounting and tax implications of Sections 162(m) and 409A of the Internal Revenue Code. Section 162(m) limits the Companys deduction of certain
non-performance based compensation paid to executive officers in excess of $1 million per year.
Base salary and bonuses are
expensed by the Company when the services are rendered (base bonuses are expensed ratably and incentive bonuses are expensed when attainment of
financial or operational goals is determinable).
Equity Incentive Plans
2011 Stock Plan
On
, we
adopted, and on
, we
received stockholder approval of, the Greenway Medical Technologies, Inc. 2011 Stock Plan, which we refer to herein as the Plan. Following our initial
public offering we expect that equity awards will occur only under the Plan. No future awards will occur under our current incentive share plan,
Greenway Medical Technologies, Inc. 2004 Stock Plan, or the Greenway Medical Technologies
69
1999 Option Plan, approved by the stockholders of the Company on February 16, 2000, which has expired but still has options outstanding.
Stockholder approval of the Plan
will primarily enable us to satisfy listing requirements, and to make awards
that qualify as performance-based compensation that is exempt from the deduction limitation set forth under Section 162(m) of the Internal Revenue Code
of 1986, as amended, referred to herein as the Code. Section 162(m) which generally limits the corporate income tax deduction to $1,000,000 annually
for the non performance-based compensation paid to each of the Chief Executive Officer and the three other highest paid executive officers of the
Company (other than the Chief Financial Officer).
We do not anticipate that any
awards under the Plan will occur before we complete our initial public offering. Although the amount and nature of future awards have not yet been
determined, the Plan authorizes discretionary awards in the form of stock options, stock appreciation rights, or SARs, restricted shares or units, or
RSUs, unrestricted shares, deferred share units, performance awards, and dividend equivalent rights. Our Board of Directors believes that the Plan will
be an important factor in attracting, retaining and motivating employees, consultants, and directors of the Company and its affiliates, collectively
referred to herein as eligible persons. Our Board of Directors believes that we need the flexibility, acting primarily through our compensation
committee, both to have an ongoing reserve of common stock available for future equity-based awards, and to make future awards in a variety of
forms.
Pursuant to the Plan, we may
issue up to shares of our common stock. The
total number of shares available for issuance under the Plan may be adjusted for future stock splits, stock dividends, recapitalizations, and other
similar transactions. The shares of our common stock that are subject to any award that expires, or is forfeited, cancelled, settled, or becomes
unexercisable without the issuance of shares, will again be available for subsequent awards. In addition, future awards may occur with respect to
shares of our common stock that we refrain from otherwise delivering pursuant to an award as payment of either the exercise price of an award or
applicable withholding and employment taxes. We generally receive no cash consideration for the granting of awards under the Plan. However, if a stock
option were to be exercised, we would receive the exercise price for the shares being purchased, unless the exercise occurs pursuant to a cashless
alternative that we approve. Any shares of common stock reacquired by us on the open market with cash proceeds received from the payment of the
exercise price would be available for issuance under the Plan, but the increase in shares available may not exceed the amount of such proceeds received
divided by the fair market value of a share of our common stock on the date the option was exercised.
Administration of the Plan will
be carried out by our Compensation Committee; provided that our Board may act in lieu of the Compensation Committee at any time. Either our
Compensation Committee or our Board of Directors may delegate its authority under the Plan to one or more officers but it may not delegate its
authority with respect to making awards to individuals subject to Section 16 of the Exchange Act. As used in this summary, the term administrator means
the compensation committee or the Board of Directors or its delegate, if any. With respect to decisions involving an award intended to satisfy the
requirements of section 162(m) of the Internal Revenue Code, the administrator is to consist solely of two or more directors who are outside
directors for purposes of that Code section, and with respect to awards to individuals subject to Section 16 of the Exchange Act, the
administrator is to consist solely of two or more directors who are non-employee directors within the meaning of Rule 16b-3 of the Exchange
Act. The Plan provides that we and our affiliates will indemnify members of the administrative committee and their delegates against any claims,
liabilities, or costs arising from the good faith performance of their duties under the Plan. The Plan will release these individuals from liability
for good faith actions associated with the Plans administration.
Subject to the terms of the Plan,
the administrator has express authority to determine the eligible persons who will receive awards, the number of shares of our common stock to be
covered by each award, and the terms and conditions of awards. The administrator has broad discretion to prescribe, amend, and rescind rules relating
to the Plan and its administration, to interpret and construe the Plan and the terms of all award agreements, and to take all actions necessary or
advisable to administer the Plan. Within the limits of the Plan, the administrator may accelerate the vesting of any awards, allow the exercise of
unvested awards, and may modify, replace, cancel, or renew any awards. In addition, the administrator may buy-out, or replace, any award, including
(but subject to
70
applicable stockholder approval requirements as set forth in the Plan) a stock option or SAR having an exercise price that is above the current fair market value of the underlying shares.
The administrator may grant
options that are intended to qualify as incentive stock options, which we refer to as ISOs, only to employees, if any, and may grant all other awards
to eligible persons. Stock options granted under the Plan will provide award recipients, or participants, with the right to purchase shares of our
common stock at a predetermined exercise price. The administrator may grant stock options that are intended to qualify as ISOs or that are not intended
to so qualify, which we refer to as Non-ISOs. The Plan also provides that ISO treatment may not be available for stock options that become first
exercisable in any calendar year to the extent the value of the shares that are the subject of the stock option exceed $100,000, based upon the fair
market value of the shares of our common stock on the option grant date.
A SAR generally permits a
participant who receives it to receive, upon exercise, cash and/or shares of our common stock equal in value to the excess of the fair market value, on
the date of exercise, of the shares of our common stock with respect to which the SAR is being exercised, over the exercise price of the SAR for such
shares. The administrator may grant SARs in tandem with options, or independently of them. SARs that are independent of options may limit the value
payable on its exercise to a percentage.
The exercise price of ISOs,
Non-ISOs, and SARs may not be less than 100% of the fair market value on the grant date of the shares of our common stock subject to the award,
although the exercise price of ISOs may not be less than 110% of the fair market value on the grant date of the underlying shares of our common stock
subject to the award for participants who own more than ten percent of our shares of common stock on the grant date. To the extent vested and
exercisable in accordance with the agreement granting them, a stock option or SAR may be exercised in whole or in part, and from time to time during
its term, subject to earlier termination relating to a holders termination of employment or service. With respect to stock options, unless
otherwise provided in an award agreement, payment of the exercise price may be made in any of the following forms, or combination of them: cash or
check in U.S. dollars, certain shares of our common stock, a net exercise or cashless exercise under a program the administrator
approves.
The term over which participants
may exercise stock options and SARs may not exceed ten years from the date of grant; five years in the case of ISOs granted to employees who, at the
time of grant, own more than 10% of our outstanding shares of common stock. Under the Plan, no participant may receive stock options and SARs that
relate to more than % of the maximum number of shares of our common stock that are authorized for
awards under the Plan as of its effective date.
Under the Plan, the administrator
may grant restricted stock that is forfeitable until certain vesting requirements are met, may grant RSUs that represent the right to receive shares of
our common stock after certain vesting requirements are met or cash under certain circumstances, and may grant unrestricted stock as to which the
participants interest is immediately vested. For restricted awards, the Plan provides the administrator with discretion to determine the terms
and conditions under which a participants interests in such awards become vested.
The Plan also authorizes awards
of deferred share units in order to permit certain directors, officers, consultants, or select members of management to defer their receipt of
compensation payable in cash or shares of our common stock, including shares that would otherwise be issued upon the vesting of restricted stock and
RSUs. Deferred share units represent a future right to receive shares of our common stock.
The Plan authorizes the
administrator to grant performance-based awards in the form of performance units that the administrator may, or may not, designate as performance
compensation awards that are intended to be exempt from Internal Revenue Code Section 162(m) limitations. In either case, performance units will
vest and/or become payable based upon the achievement, within the specified period of time, of performance objectives applicable to the individual, us,
or any affiliate. Performance units will be payable in shares of common stock, cash, or some combination of the two, subject to an individual
participant limit of $ (determined at the time of payout) and
% of the maximum number of shares of our common stock that are authorized for awards under the
Plan. The administrator will decide the length of performance periods, but the periods may not be less than one fiscal year.
With respect to performance
compensation awards, the Plan requires that the administrator specify in writing the performance period to which the award relates, and an objective
formula by which to measure whether and the extent to which the award is earned on the basis of the level of performance achieved with respect to one
or
71
more performance measures. Once established for a performance period, the performance measures and performance formula applicable to the award may not be amended or modified in a manner that would cause the compensation payable under the award to fail to constitute performance-based compensation under Internal Revenue Code Section 162(m). Under the Plan, the possible performance measures for performance compensation awards may include one or more of the following, applied in total or on a per share basis:
|
basic, diluted, or adjusted earnings per share; |
|
sales or revenue; |
|
earnings before interest, taxes, and other adjustments (in total or on a per share basis); |
|
basic or adjusted net income; |
|
returns on equity, assets, capital, revenue or similar measure; |
|
economic value added; |
|
working capital; |
|
total stockholder return; and |
|
product development, product market share, research, licensing, litigation, human resources, information services, mergers, acquisitions, sales of assets of affiliates or business units. |
Each performance measure will be,
to the extent applicable, determined in accordance with generally accepted accounting principles as consistently applied by us, or such other standard
applied by the administrator and, if so determined by the administrator, and in the case of a performance compensation award, to the extent permitted
under Internal Revenue Code Section 162(m), adjusted to omit the effects of extraordinary items, gain or loss on the disposal of a business segment,
unusual or infrequently occurring events and transactions and cumulative effects of changes in accounting principles. Performance measures may vary
from performance period to performance period, and from participant to participant, and may be established on a stand-alone basis, in tandem or in the
alternative.
As a condition to the issuance of
shares of our common stock pursuant to awards, the Plan requires satisfaction of any applicable federal, state, local, or foreign withholding tax
obligations that may arise in connection with the award or the issuance of shares of our common stock.
Finally, the Plan authorizes the
awarding of dividend equivalent rights to any eligible person. These rights may be independent of other awards, or attached to awards (other than stock
options and SARs), and in all cases represent the participants right to collect any dividends that we declare and pay to our stockholders during
the term of the dividend equivalent right. Unless an award agreement provides otherwise, dividend equivalent rights will be paid out (i) on the date
dividends are paid to our stockholders if the award occurs on a stand-alone basis, and (ii) on the vesting or later settlement (or other designated
date) of another award if the dividend equivalent right is granted as part of it.
Awards may not be sold, pledged,
assigned, hypothecated, transferred, or disposed of other than by will or the laws of descent and distribution, except to the extent the administrator
permits lifetime transfers to charitable institutions, certain family members, or related trusts, or as otherwise approved by the
administrator.
The administrator will equitably
adjust the number of shares covered by each outstanding award, and the number of shares that have been authorized for issuance under the Plan, but as
to which no awards have yet been granted or that have been returned to the Plan upon cancellation, forfeiture, or expiration of an award, as well as
the price per share covered by each such outstanding award, to reflect any increase or decrease in the number of issued shares resulting from a stock
split, reverse stock split, stock dividend, combination, recapitalization or reclassification of the shares of our common stock, or any other increase
or decrease in the number of issued shares effected without receipt of consideration by us. In the event of any such transaction or event, the
administrator may (and shall if the company is not the surviving entity or the shares are no longer outstanding) provide in substitution for any or all
outstanding options under the Plan such alternative consideration, including securities of any surviving entity, as it may in good faith determine to
be equitable under the circumstances and may require in connection
72
therewith the surrender of all options so replaced. In any case, such substitution of securities will not require the consent of any person who is granted options pursuant to the Plan.
In addition, in the event or in
anticipation of a change in control, as defined in the Plan, the administrator may at any time in its sole and absolute discretion and authority,
without obtaining the approval or consent of our stockholders or any participant with respect to his or her outstanding awards, except to the extent an
award provides otherwise, take one or more of the following actions: (a) accelerate the vesting of awards for any period so that awards shall vest
(and, to the extent applicable, become exercisable) as to the shares of our common stock that otherwise would have been unvested and provide for our
repurchase rights with respect to shares of our common stock issued pursuant to an award shall lapse as to the shares of our common stock subject to
any repurchase right; (b) arrange or otherwise provide for payment of cash or other consideration to participants in exchange for the satisfaction and
cancellation of outstanding awards and, if the consideration payable to us or our stockholders in connection with the change in control is all cash,
vested options and SARs that have a per share exercise provide greater than fair market value per share immediately prior to the consummation of the
change in control may be cancelled for zero consideration; or (c) terminate all or some awards upon the consummation of the transaction, provided that
the committee shall provide for vesting of such awards in full as of a date immediately prior to consummation of the change in control. To the extent
that an award is not exercised prior to consummation of a transaction in which the Award is not being assumed or substituted, such award shall
terminate upon such consummation.
Notwithstanding the above, an
award may provide that in the event a participant holding an award assumed or substituted by the successor corporation in a change in control is
involuntarily terminated, as defined in the Plan, by the successor corporation in connection with, or within 12 months following consummation of, the
change in control, then any assumed or substituted award held by the terminated participant at the time of termination shall accelerate and become
fully vested, and exercisable in full in the case of options and SARs, and any repurchase right applicable to any shares of our common stock shall
lapse in full. The acceleration of vesting and lapse of repurchase rights provided for in the previous sentence shall occur immediately prior to the
effective date of the participants termination. Finally, if we dissolve or liquidate, all awards will immediately terminate, subject to the
ability of our Board of Directors to exercise any discretion that the Board of Directors may exercise in the case of a change in
control.
Our Board of Directors may from
time to time, amend, alter, suspend, discontinue, or terminate the Plan; provided that no amendment, suspension, or termination of the Plan shall
materially and adversely affect awards already granted unless it relates to an adjustment pursuant to certain transactions that change our
capitalization or it is otherwise mutually agreed between the participant and the administrator. An amendment will not become effective without the
approval of our stockholders if it increases the number of shares of common stock that may be issued under the Plan (other than changes to reflect
certain corporate transactions and changes in capitalization as described above). Notwithstanding the foregoing, the administrator may amend the Plan
to eliminate provisions which are no longer necessary as a result of changes in tax or securities laws or regulations, or in the interpretation
thereof.
1999 Option Plan and 2004 Stock Plan
Certain of our employees and
directors hold awards that were made and continue to be outstanding under the Greenway Medical Technologies 1999 Option Plan (the 1999
Plan) which was originally adopted by our Board of Directors on January 12, 2000, and the Greenway Medical Technologies, Inc. 2004 Stock Plan
which was adopted by our Board of Directors on June 15, 2004 (the 2004 Plan, together the Prior Plans). The term of the 1999
Plan has expired but certain employees still hold outstanding awards under the 1999 Plan. All awards granted under the 1999 Plan are fully vested. The
2004 Plan will continue in effect until terminated by our Board of Directors in accordance with its terms; provided, however, that no awards will occur
after our initial public offering because the Plan will be the sole source for future equity-based awards.
The 2004 Plan authorizes grants
for 2,427,326 shares of our common stock, and as of June 30, 2011, awards with respect to 114,157 shares have been exercised and 35,886 shares were
available for future grant. On July 14, 2011, the Board of Directors approved an amendment to the 2004 Plan to increase the number of authorized
grants
73
to 2,727,326 shares of our common stock. This amendment is subject to stockholder approval. Awards granted under the 2004 Plan generally consist of stock options which vest 25% after the first year, and the remainder vest in equal monthly installments over a period of 36 months. Terminations of employment for any reason generally result in the forfeiture of all unvested shares.
In the event of a reorganization
or change of control event, as such terms are defined in the 2004 Plan, the plan administrator shall have the discretion to provide for any or all of
the following: (a) cause any or all outstanding options to become vested and immediately exercisable, in whole or in part; (b) cause any restricted
stock or restricted stock units to become non-forfeitable, in whole or in part; (c) cancel any option in exchange for a substitute option (d) cancel
any restricted stock or restricted stock units in exchange for restricted stock or restricted stock units in respect of the capital stock of any
successor corporation; (e) redeem any restricted stock for cash and/or substitute consideration; (f) cancel any restricted stock unit in exchange for
cash and/or other substitute consideration; or (g) cancel any option in exchange for cash and/or other substitute consideration.
Our Board of Directors
administers the Prior Plans. Such administration involves broad discretion to interpret the Prior Plans and to make all determinations that are
necessary or advisable for their administration. Our Board of Directors may amend or terminate the 2004 Plan, subject to any applicable stockholder
approval requirements. Outstanding awards under either Prior Plan may also be amended, but such amendments require the consent of any award holder who
is adversely affected by the amendment.
Risk Assessment of Compensation Programs
We do not believe that our
compensation programs create risks that are reasonably likely to have a material adverse effect on our company. We believe that the combination of
different types of compensation as well as the overall amount of compensation, together with our internal controls and oversight by the Compensation
Committee and Board of Directors, mitigates potential risks.
74
Summary Compensation Table
The following table sets forth
summary information concerning certain compensation awarded to, paid to, or earned by, our NEOs for all services rendered to us for fiscal year ended
June 30, 2011.
Name and principal position |
Year |
Salary ($) |
Non-equity incentive plan compensation ($) |
Option awards ($)(2)(3) |
All other compensation ($) |
Total ($)(4) |
||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Wyche T.
Green, III, President and Chief Executive Officer |
2011 | 325,373 | (1) | 392,400 | | 717,773 | ||||||||||||||||||||
James A.
Cochran, Chief Financial Officer |
2011 | 247,676 | (1) | | | 247,676 | ||||||||||||||||||||
W. Thomas
Green, Jr., Chairman |
2011 | 288,000 | (1) | 44,888 | | 332,888 | ||||||||||||||||||||
Gregory H.
Schulenburg, Executive Vice President and Chief Operating Officer |
2011 | 223,353 | (1) | 249,248 | | 472,601 | ||||||||||||||||||||
William G.
Esslinger, Jr., Vice President, General Counsel and Secretary |
2011 | 173,254 | (1) | 43,874 | | 217,128 |
(1) |
The amount of the named executive officers bonuses under the Companys 2011 Incentive Bonus Plan cannot be determined as of the time of this filing. The Board of Directors expects to award bonuses pursuant to the Plan after a complete evaluation of the Companys 2011 fiscal year financial performance. The Company intends to include such information in an amendment to this filing, or, if such bonuses are not awarded until after effectiveness of this registration statement, by filing a Current Report on Form 8-K. Please see Compensation Discussion & Analysis- Annual Cash Incentives for more information about the Companys 2011 Incentive Bonus Plan. |
(2) |
The amount represents the aggregate grant date fair value of option awards granted in the fiscal year valued in accordance with FASB ASC Topic 718. This amount does not represent our accounting expense for these awards during the year and does not correspond to the actual cash value recognized by the director when received. |
(3) |
On October 18, 2010, the following option awards were made that vest over four years, with 25% vesting in August 2011 and the remainder vesting over three years thereafter in monthly installments: Wyche T. Green, III received options for 15,000 shares; W. Thomas Green, Jr. received options for 16,875 shares; Gregory H. Schulenburg received options for 6,250 shares; and William G. Esslinger, Jr. received options for 2,500 shares. On February 1, 2011, the following option awards were granted that vest over four years, with 25% vesting in February 2012 and the remainder vesting over three years thereafter in monthly installments: Wyche T. Green, III received options for 125,000 shares; Gregory H. Schulenburg received options for 231 shares, 3,000 shares, and 26,426 shares in separate awards; and William G. Esslinger, Jr. receive options for 10,000 shares and 1,067 shares in separate awards. On February 1, 2011, the following option awards were granted that vested fully on the grant date: Gregory H. Schulenburg received options for 851 shares, 25,000 shares, 25,000 shares, and 2,000 shares in separate awards; and William G. Esslinger, Jr. received options for 133 shares and 2,000 shares in separate awards. On June 28, 2011, the following option awards were made that vest over four years, with 25% vesting in June 2012 and the remainder vesting over three years thereafter in monthly installments: Gregory H. Schulenburg received options for 3,750 shares; and William G. Esslinger, Jr. received options for 7,500 shares. The total number of options granted in fiscal year 2011 to Mr. Schulenberg and Mr. Esslinger include a certain amount of options granted to replace options that expired during the fiscal year. |
(4) |
The total amounts listed do not include bonus payments expected to be made to the named executive officers under the Companys 2011 Incentive Bonus Plan. Please see footnote (1) above for more information. |
75
Grants of Plan-Based Awards in Fiscal Year
2011
The following table sets forth
information regarding grants of awards made to our NEOs during the fiscal year ended June 30, 2011.
Estimated future payouts under non-equity incentive plan awards |
||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Name and principal position |
Grant date |
Threshold ($) |
Target ($) |
Maximum ($) |
All other option awards: number of securities underlying options (#) |
Exercise or base price of option awards ($/Sh) |
Grant date fair value of stock and option awards ($) |
|||||||||||||||||||||||
Wyche T. Green,
III, President and Chief Executive Officer |
91,000 | 162,500 | 325,373 | |||||||||||||||||||||||||||
10/18/10 | 15,000 | (1) | 6.92 | 39,900 | ||||||||||||||||||||||||||
2/1/11 | 125,000 | (2) | 7.09 | 352,500 | ||||||||||||||||||||||||||
James A.
Cochran, Chief Financial Officer |
69,349 | 123,838 | 247,676 | |||||||||||||||||||||||||||
W. Thomas Green,
Jr., Chairman |
80,640 | 144,000 | 288,000 | |||||||||||||||||||||||||||
10/18/10 | 16,875 | (1) | 6.92 | 44,888 | ||||||||||||||||||||||||||
Gregory H.
Schulenburg, Executive Vice President and Chief Operating Officer |
62,539 | 111,677 | 223,353 | |||||||||||||||||||||||||||
10/18/10 | 6,250 | (1) | 6.92 | 16,625 | ||||||||||||||||||||||||||
2/1/11 | 851 | (3) | 7.09 | 2,400 | ||||||||||||||||||||||||||
2/1/11 | 25,000 | (3) | 7.09 | 70,500 | ||||||||||||||||||||||||||
2/1/11 | 25,000 | (3) | 7.09 | 70,500 | ||||||||||||||||||||||||||
2/1/11 | 2,000 | (3) | 7.09 | 5,640 | ||||||||||||||||||||||||||
2/1/11 | 231 | (2) | 7.09 | 651 | ||||||||||||||||||||||||||
2/1/11 | 3,000 | (2) | 7.09 | 8,460 | ||||||||||||||||||||||||||
2/1/11 | 26,426 | (2) | 7.09 | 74,521 | ||||||||||||||||||||||||||
6/28/11 | 3,750 | (4) | 11.58 | 10,163 | ||||||||||||||||||||||||||
William G.
Esslinger, Jr., Vice President, General Counsel and Secretary |
40,541 | 51,976 | (5) |
|||||||||||||||||||||||||||
10/18/10 | 2,500 | (1) | 6.92 | 6,650 | ||||||||||||||||||||||||||
2/1/11 | 133 | (3) | 7.09 | 375 | ||||||||||||||||||||||||||
2/1/11 | 2,000 | (3) | 7.09 | 5,640 | ||||||||||||||||||||||||||
2/1/11 | 10,000 | (2) | 7.09 | 28,200 | ||||||||||||||||||||||||||
2/1/11 | 1,067 | (2) | 7.09 | 3,009 | ||||||||||||||||||||||||||
6/28/11 | 7,500 | (4) | 11.58 | 20,325 |
(1) |
The option vests over four years, with 25% vesting in August 2011 and the remainder vesting over three years thereafter in monthly installments. |
(2) |
The option vests over four years, with 25% vesting in February 2012 and the remainder vesting over three years thereafter in monthly installments. |
(3) |
The option vested fully on the grant date. |
(4) |
The option vests over four years, with 25% vesting in June 2012 and the remainder vesting over three years thereafter in monthly installments. |
(5) |
Mr. Esslingers maximum bonus under the 2011 Incentive Bonus Plan is at the discretion of the Compensation Committee. |
76
Outstanding Equity Awards at Fiscal Year
End
The following table sets forth
information regarding outstanding equity awards for our NEOs as of June 30, 2011. None of our NEOs exercised any stock options during fiscal year
2011.
Option awards |
|||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Name |
Number of securities underlying unexercised options exercisable |
Number of securities underlying unexercised options unexercisable |
Option exercise price ($) |
Option expiration date |
|||||||||||||||
Wyche T. Green,
III, President and Chief Executive Officer |
34,044 | | 4.75 | 8/1/2012 | |||||||||||||||
20,000 | | 4.75 | 2/16/2015 | ||||||||||||||||
54,700 | | 4.75 | 8/18/2015 | ||||||||||||||||
75,701 | | 4.75 | 10/18/2017 | ||||||||||||||||
4,184 | | 4.75 | 9/18/2018 | ||||||||||||||||
500 | | 5.19 | 9/15/2019 | ||||||||||||||||
11,875 | 18,125 | (1) | 5.19 | 11/4/2019 | |||||||||||||||
| 15,000 | (2) | 6.92 | 10/18/2020 | |||||||||||||||
| 125,000 | (3) | 7.09 | 2/1/2021 | |||||||||||||||
James A.
Cochran, Chief Financial Officer |
54,890 | 83,779 | (1) | 5.19 | 11/4/2019 | ||||||||||||||
W. Thomas Green,
Jr., Chairman |
144,851 | | 4.75 | 8/1/2012 | |||||||||||||||
58,912 | | 4.75 | 8/18/2015 | ||||||||||||||||
70,505 | | 4.75 | 10/18/2017 | ||||||||||||||||
7,766 | | 4.75 | 9/18/2018 | ||||||||||||||||
500 | | 5.19 | 9/15/2019 | ||||||||||||||||
13,359 | 20,391 | (1) | 5.19 | 11/4/2019 | |||||||||||||||
| 16,875 | (2) | 6.92 | 10/18/2020 | |||||||||||||||
Gregory H.
Schulenburg, Executive Vice President and Chief Operating Officer |
943 | | 4.75 | 7/1/2011 | |||||||||||||||
837 | | 4.75 | 7/1/2012 | ||||||||||||||||
15,000 | | 4.75 | 8/1/2012 | ||||||||||||||||
775 | | 4.75 | 7/1/2013 | ||||||||||||||||
600 | | 4.75 | 7/1/2013 | ||||||||||||||||
600 | | 4.75 | 7/1/2013 | ||||||||||||||||
600 | | 4.75 | 7/1/2013 | ||||||||||||||||
600 | | 4.75 | 7/1/2013 | ||||||||||||||||
6,000 | | 5.19 | 9/15/2019 | ||||||||||||||||
4,948 | 7,552 | (1) | 5.19 | 11/4/2019 | |||||||||||||||
308 | | 6.92 | 6/30/2020 | ||||||||||||||||
| 6,250 | (2) | 6.92 | 10/18/2020 | |||||||||||||||
851 | | 7.09 | 2/1/2021 | ||||||||||||||||
25,000 | | 7.09 | 2/1/2021 | ||||||||||||||||
25,000 | | 7.09 | 2/1/2021 | ||||||||||||||||
2,000 | | 7.09 | 2/1/2021 | ||||||||||||||||
| 231 | (3) | 7.09 | 2/1/2021 | |||||||||||||||
| 3,000 | (3) | 7.09 | 2/1/2021 | |||||||||||||||
| 26,426 | (3) | 7.09 | 2/1/2021 | |||||||||||||||
| 3,750 | (4) | 11.58 | 6/28/2021 |
77
Option awards |
|||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Name |
Number of securities underlying unexercised options exercisable |
Number of securities underlying unexercised options unexercisable |
Option exercise price ($) |
Option expiration date | |||||||||||||||
William G.
Esslinger, Jr., Vice President, General Counsel and Secretary |
340 | | 4.75 | 7/1/2011 | |||||||||||||||
474 | | 4.75 | 7/1/2012 | ||||||||||||||||
15,000 | | 4.75 | 8/1/2012 | ||||||||||||||||
516 | | 4.75 | 7/1/2013 | ||||||||||||||||
530 | | 4.75 | 7/1/2013 | ||||||||||||||||
530 | | 4.75 | 7/1/2013 | ||||||||||||||||
1,979 | 3,021 | (1) | 5.19 | 11/4/2019 | |||||||||||||||
20,000 | | 6.92 | 6/30/2020 | ||||||||||||||||
| 2,500 | (2) | 6.92 | 10/18/2020 | |||||||||||||||
133 | | 7.09 | 2/1/2021 | ||||||||||||||||
2,000 | | 7.09 | 2/1/2021 | ||||||||||||||||
| 10,000 | (3) | 7.09 | 2/1/2021 | |||||||||||||||
| 1,067 | (3) | 7.09 | 2/1/2021 | |||||||||||||||
| 7,500 | (4) | 11.58 | 6/28/2021 |
(1) |
The option vests over four years, with 25% vesting in November 2010 and the remainder vesting over three years thereafter in monthly installments. |
(2) |
The option vests over four years, with 25% vesting in August 2011 and the remainder vesting over three years thereafter in monthly installments. |
(3) |
The option vests over four years, with 25% vesting in February 2012 and the remainder vesting over three years thereafter in monthly installments. |
(4) |
The option vests over four years, with 25% vesting in June 2012 and the remainder vesting over three years thereafter in monthly installments. |
78
Potential Payments Upon Termination or Change of
Control
We do not have any employment or
severance agreements with any of our NEOs. Except with respect to the potential vesting of options in connection with a merger or consolidation, none
of the NEOs are entitled to receive any payments upon termination of employment or change in control, regardless of the reason thereof. In the event
that we are a party to a merger or consolidation, all outstanding options, including those held by the NEOs, shall be subject to the agreement of
merger or consolidation. Such agreement shall provide for one or more of the following to occur: (a) outstanding options will continue to exist (if we
are the surviving company); (b) outstanding options will be assumed or substituted for an equivalent award by the surviving company or its parent; (c)
outstanding options will vest and become fully exercisable; or (d) outstanding options will be cancelled, and option recipients will receive a payment
equal to the excess of the fair market value of the shares subject to the options over the options exercise price.
Limitations on Liability; Indemnification of Directors and
Officers
Our Delaware certificate of
incorporation and bylaws, which will be in effect upon the completion of this offering, will contain provisions that limit the personal liability of
our directors for monetary damages to the fullest extent permitted by Delaware law. Consequently, our directors will not be personally liable to us or
our stockholders for monetary damages for any breach of fiduciary duties as directors, except liability for:
|
any breach of the directors duty of loyalty to us or our stockholders; |
|
any act or omission not in good faith or that involves intentional misconduct or a knowing violation of law; |
|
unlawful payments of dividends or unlawful stock repurchases or redemptions as provided in Section 174 of the DGCL; or |
|
any transaction from which the director derived an improper personal benefit. |
Our Delaware certificate of
incorporation and bylaws to be in effect upon the completion of this offering will provide that we shall indemnify our directors and officers, in each
case to the fullest extent permitted by Delaware law. Our bylaws will also provide that we are obligated to advance expenses incurred by a director or
officer in advance of the final disposition of any action or proceeding, and permit us to secure insurance on behalf of any officer, director, employee
or other agent for any liability arising out of his or her actions in that capacity regardless of whether we would otherwise be permitted to indemnify
him or her under the provisions of Delaware law. We expect to enter into agreements to indemnify our directors, executive officers and other employees
as determined by our Board of Directors. With specified exceptions, these agreements will provide for indemnification for related expenses including,
among other things, attorneys fees, judgments, fines and settlement amounts incurred by any of these individuals in any action or proceeding. We
believe that these provisions in our amended and restated certificate of incorporation and amended and restated bylaws and indemnification agreements
are necessary to attract and retain qualified persons as directors and officers. We also maintain directors and officers liability
insurance. The limitation of liability and indemnification provisions in our amended and restated certificate of incorporation and amended and restated
bylaws may discourage stockholders from bringing a lawsuit against our directors and officers for breach of their fiduciary duties. They may also
reduce the likelihood of derivative litigation against our directors and officers, even though an action, if successful, might benefit us and other
stockholders. Further, a stockholders investment may be adversely affected to the extent that we pay the costs of settlement and damage awards
against directors and officers as required by these indemnification provisions. At present, there is no pending litigation or proceeding involving any
of our directors, officers or employees for which indemnification is sought, and we are not aware of any threatened litigation that may result in
claims for indemnification.
79
The following table sets forth
information with respect to the beneficial ownership of our common stock as of June 30, 2011, subject to certain assumptions set forth in the footnotes
and as adjusted to reflect the sale of the shares of our common stock offered in this offering under this prospectus for:
|
each stockholder, or group of affiliated stockholders, who we know beneficially owns more than 5% of the outstanding shares of our common stock; |
|
each of our current directors; |
|
each of our named executive officers; |
|
all of our current directors and current executive officers as a group; and |
|
each of the selling stockholders. |
Beneficial ownership is
determined in accordance with rules of the SEC and generally includes any shares over which a person exercises sole or shared voting and/or investment
power. Shares of common stock subject to options and warrants currently exercisable or exercisable within 60 days are deemed outstanding for computing
the percentage ownership of the person holding the options but are not deemed outstanding for computing the percentage ownership of any other person.
Except as otherwise indicated, we believe the beneficial owners of the common stock listed below, based on information furnished by them, have sole
voting and investment power with respect to the number of shares listed opposite their names.
The number of shares and
percentages of beneficial ownership prior to this offering set forth below are based on shares of common stock outstanding as of June 30, 2011, which
gives effect to the conversion of all outstanding shares of preferred stock into 8,842,112 shares of common stock simultaneously with the closing of
this offering.
The number of shares and
percentages of beneficial ownership after this offering set forth below are based on the number of shares of our common stock to be issued and
outstanding immediately after the consummation of this offering, assuming no exercise of the underwriters option to purchase up to an aggregate
of shares of our common stock.
Unless otherwise indicated, the
address of each of the individuals named below is 121 Greenway Boulevard, Carrollton, GA 30117.
Shares beneficially owned prior to the offering |
Shares beneficially owned after the offering |
||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Name of beneficial owner |
Number(1) |
Percent (%) |
Number of shares offered(2) |
Number (3) |
Percent (%) |
||||||||||||||||||
5%
Stockholders |
|||||||||||||||||||||||
Investor
Group L.P.(4) |
1,806,197 | 8.8 | |||||||||||||||||||||
Investor
Growth Capital Limited(5) |
4,214,462 | 20.5 | |||||||||||||||||||||
Pamlico
Capital II, L.P.(6) |
3,957,514 | 19.3 | |||||||||||||||||||||
Named
Executive Officers and Directors |
|||||||||||||||||||||||
W. Thomas
Green, Jr.(7) |
2,279,400 | 10.9 | |||||||||||||||||||||
Wyche T.
Green, III(8) |
454,110 | 2.2 | |||||||||||||||||||||
Gregory H.
Schulenburg(9) |
101,970 | * | |||||||||||||||||||||
James A.
Cochran(10) |
60,668 | * | |||||||||||||||||||||
William G.
Esslinger, Jr.(11) |
104,697 | * | |||||||||||||||||||||
Neal
Morrison(12) |
3,967,514 | 19.3 | |||||||||||||||||||||
Thomas T.
Richards(13) |
375,537 | 1.8 | |||||||||||||||||||||
Walter
Turek(14) |
100,000 | * | |||||||||||||||||||||
Noah
Walley(15) |
6,030,659 | 29.4 | |||||||||||||||||||||
All
directors and executive officers as a group (9 persons)(16) |
13,474,555 | 63.9 | |||||||||||||||||||||
Other
Selling Stockholders |
80
* |
less than 1%. |
(1) |
This column lists all shares of common stock beneficially owned, whether or not registered hereunder, including all shares of common stock that can be acquired through warrant or option exercises within 60 days of June 30, 2011. Beneficial ownership of Series A preferred stock is on a fully diluted-to-common stock basis. |
(2) |
Assumes no exercise of the underwriters over-allotment option. |
(3) |
Assumes all shares of common stock registered hereunder are sold by the selling stockholders. |
(4) |
The address of Investor Group L.P. (IGLP) is Canada Court, Upland Road, St. Peter Port, GY1 3BQ, Guernsey. IGLP is an affiliate of Investor Growth Capital Limited (IGCL). |
(5) |
The address of Investor Growth Capital Limited is Canada Court, Upland Road, St. Peter Port, GY1 3BQ, Guernsey. IGCL is an affiliate of IGLP. |
(6) |
The address of Pamlico Capital II, L.P. is 150 North College Street, Suite 2400, Charlotte, NC 28202. |
(7) |
Shares beneficially owned by Mr. Green include 302,893 shares of common stock issuable upon exercise of stock options, of which 297,268 are currently vested and 5,625 will vest within the next 60 days. |
(8) |
Shares beneficially owned by Mr. Green include 206,004 shares of common stock issuable upon exercise of stock options, of which 201,004 are currently vested and 5,000 will vest within the next 60 days. |
(9) |
Shares beneficially owned by Mr. Schulenberg include 86,145 shares of common stock issuable upon exercise of stock options, of which 84,062 are currently vested and 2,083 will vest within the next 60 days. |
(10) |
Shares beneficially owned by Mr. Cochran include 60,668 shares of common stock issuable upon exercise of stock options, of which 54,890 are currently vested and 5,778 will vest within the next 60 days. |
(11) |
Shares beneficially owned by Mr. Esslinger include 85,666 shares of common stock issuable upon exercise of stock options, of which 84,832 are currently vested and 834 will vest within the next 60 days. |
(12) |
Shares beneficially owned by Mr. Morrison include (i) 10,000 shares of common stock issuable upon exercise of stock options, all of which are currently vested, and (ii) could be deemed to include 3,957,514 shares owned by Pamlico Capital II, L.P. Mr. Morrison is a member of Pamlico Capital GP II, LLC, which is the general partner of Pamlico Capital II, L.P. and has a one percent interest in the investments of Pamlico Capital II, L.P. Mr. Morrison disclaims beneficial ownership of the shares owned by Pamlico Capital II, L.P. |
(13) |
Shares beneficially owned by Mr. Richards include (i) 21,625 shares of common stock issuable upon exercise of stock options, all of which are currently vested, and (ii) 90,586 shares of common stock issuable upon exercise of warrants. |
(14) |
Shares beneficially owned by Mr. Turek include 100,000 shares of common stock issuable upon exercise of stock options, of which 97,917 are currently vested and 2,083 will vest within the next 60 days. |
(15) |
Shares beneficially owned by Mr. Walley include (i) 10,000 shares of common stock issuable upon exercise of stock options, all of which are currently vested, (ii) could be deemed to include 1,806,197 shares owned by IGLP, and (iii) could be deemed to include 4,214,462 shares owned by IGCL. Mr. Walley is a limited partner of IGLP and is head of North American technology investing for an affiliate company of IGLP and IGCL. Mr. Walley disclaims beneficial ownership of the shares held by IGLP and IGCL. |
(16) |
Shares beneficially owned include (i) 883,001 shares of common stock issuable upon exercise of stock options, (ii) 90,586 shares of common stock issuable upon exercise of warrants, (iii) could be deemed to include 1,806,197 shares owned by IGLP, (iv) could be deemed to include 4,214,462 shares owned by IGCL, and (v) could be deemed to include 3,957,514 shares owned by Pamlico Capital II, L.P. |
81
In addition to the director and
executive officer compensation arrangements discussed above under Executive Compensation, the following is a description of transactions
since June 30, 2008, to which we have been a party in which the amount involved or exceeded or will exceed $120,000 and in which any of our directors,
executive officers, beneficial holders of more than 5% of our capital stock, or persons or entities affiliated with them, had or will have a direct or
indirect material interest.
Headquarters Lease
Effective July 1, 2000, the
Company entered into an agreement to lease its headquarters from Green Family Real Estate, LLC, formerly Elizabeth Village, LLP, an entity controlled
by the Companys Chairman, for approximately $20,000 per month, plus annual adjustments for inflation, until June 30, 2015.
Property Purchase
On March 15, 2011, the Board of
Directors approved the Companys purchase of three commercial lots totaling 5.81 acres from the Companys Chairman which the Company plans to
use for its future corporate headquarters. The Company paid $482,500 for the property pursuant to an independent appraisal.
Preferred Stock
Concurrently with the closing of
this offering, upon the automatic conversion of shares of our preferred stock as described above, we are required to make cash liquidation preference
payments to the holders of our outstanding preferred stock. The following table sets forth the liquidation preference payments to be made to our
directors, executive officers, selling stockholders and holders of more than 5% of our voting securities who hold shares of our preferred stock and,
based on elections received by such holders, the allocation of such payments between cash and shares of common stock assuming an initial public
offering price of $ per share, the midpoint of the estimated price range shown on the cover of this prospectus:
Liquidation preference payment |
||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Name of holder |
Amount of preferred stock owned |
Cash |
Number of common stock |
|||||||||||||||
Investor Offer
In December 2009, Investor Growth
Capital Limited and Investor Group, L.P. (collectively IG), each a holder of in excess of 5% of the outstanding stock of the Company on a
fully-diluted basis, as well as Pamlico Capital II, L.P. (along with IG, the Investors), also a holder of in excess of 5% of the stock of
the Company on a fully-diluted basis, collectively, made an offer to other stockholders to purchase for cash any and all of the then outstanding 1.6
million warrants for purchase of our common stock at $2.50 per share with the intent of exercising such warrants at their $6.00 stated exercise price.
Each of the Investors is affiliated with certain members of our Board of Directors. The Investors also offered to purchase shares of common stock for
$8.50 per share up to a combined aggregate of $25 million in total value of warrants and shares. The offer was fully subscribed and closed on December
29, 2010. A total of 1,420,673 warrants were purchased and the Investors immediately exercised such warrants. As such, the Company issued 1,420,673
shares of common stock in connection with the exercise of the warrants. The Investors purchased a total of 2,941,176 shares of common
stock.
82
The following table summarizes
the number of warrants and the number shares of our common stock sold by our executive officers, directors or their affiliates in connection with the
Investors offer. The terms of these sales were the same as those made available to unaffiliated offerees.
Seller |
Warrants |
Common stock |
||||||||
---|---|---|---|---|---|---|---|---|---|---|
W. Thomas.
Green, Jr. |
426,466 | 319,850 | ||||||||
Elizabeth J.
Green(1) |
17,059 | 12,794 | ||||||||
Andrew J.
Green(2) |
25,588 | 19,191 | ||||||||
Elizabeth
Ayers(3) |
25,588 | 19,191 | ||||||||
Thomas T.
Richards |
80,000 | 30,000 | ||||||||
T&J Green
Family Partnership(4) |
| 25,666 |
(1) |
Elizabeth J. Green is the wife of W. Thomas Green, Jr., the Chairman of the Companys Board of Directors, and the mother of Wyche T. Green, III, the Companys President and Chief Executive Officer |
(2) |
Andrew J. Green is the son of W. Thomas Green, Jr., the Chairman of the Companys Board of Directors, and the brother of Wyche T. Green, III, the Companys President and Chief Executive Officer |
(3) |
Elizabeth Ayers is the daughter of W. Thomas Green, Jr., the Chairman of the Companys Board of Directors, and the sister of Wyche T. Green, III, the Companys President and Chief Executive Officer |
(4) |
Wyche T. Green, III, the Companys President and Chief Executive Officer, is an affiliate of T&J Green Family Partnership |
Investors Rights Agreement
Pursuant to a second amended and
restated investors rights agreement (the Investors Rights Agreement), following the closing of this offering, certain of our
stockholders who hold greater than 5% of our outstanding shares of common stock on a fully-diluted basis will have registration rights. Please see
Description of Capital StockInvestors Rights Agreement for more information. The Investors Rights Agreement also provides
certain holders with a right of first offer (subject to certain exceptions, including an underwritten public offering) in the event the Company wishes
to issue additional shares and also provides the holders with board observer rights. These rights of first offer and board observer rights will
terminate upon the closing of this offering.
Voting Agreement
Pursuant to the terms of a second
amended and restated voting agreement (the Voting Agreement), the holders of the Companys Common Stock, Series A Preferred Stock and
Series B Preferred Stock, have certain rights pertaining to the election of directors. Please see Management And Board of DirectorsOur
Board of Directors for more information. The Voting Agreement will terminate in accordance with its terms upon the closing of this
offering.
Rights of First Refusal, Co-Sale, and First
Negotiation
Pursuant to the terms of a first
negotiation and co-sale agreement (the First Negotiation Agreement), the Investors, each a holder of in excess of 5% of the common stock of
the Company on a fully-diluted basis, agreed to provide each other with a right of first negotiation in the event any of them wish to sell their
shares. In addition, in the event an Investor chooses not to acquire the shares being sold, such Investor has the right to participate in the proposed
sale.
Pursuant to the terms of an
amended and restated first refusal and co-sale agreement (First Refusal Agreement), certain holders of the Companys common stock
agreed to provide the Company a first refusal to acquire their common stock. In the event the Company chooses not to exercise such right, the Investors
have a second priority right to obtain such stock. To the extent the rights of first refusal are not exercised, the Investors have a right of
co-sale.
Each of The First Negotiation
Agreement and the First Refusal Agreement will terminate in accordance with its terms upon the closing of this offering and will not apply to any
shares sold in this offering.
83
Policies and Procedures for Related Party
Transactions
Pursuant to the audit committee
charter to be effective upon completion of this offering, our audit committee will be responsible for reviewing and approving in advance any related
party transaction. Our full Board of Directors currently reviews all material related party transactions. We intend to adopt a new code of conduct and
ethics, which we expect will include a formal policy regarding conflicts of interest. All of the transactions described above were entered into prior
to the adoption of this policy. Upon completion of this offering, we will post the full text of the code on our website.
Director Independence
For a discussion of the
independence of our directors, please see Management and Board of Directors Director Independence above.
84
The following is a summary of our
capital stock and certain provisions of our Delaware certificate of incorporation and bylaws, each of which will be in effect immediately prior to the
closing of this offering. This summary does not purport to be complete and is qualified in its entirety by the provisions of the certificate of
incorporation and bylaws, copies of which will be filed as exhibits to the registration statement of which this prospectus is a part, and by the
provisions of applicable law.
General
The shares registered pursuant to
the registration statement, of which this prospectus is a part, are shares of common stock, all of the same class and entitled to the same rights and
privileges as all other shares of common stock. We currently have authorized capital of shares,
of which shares have been designated as common stock, par value
$ per share and shares as preferred stock,
par value $ per share. As of
, there were shares of common stock
outstanding (after giving effect to the conversion of all of our outstanding shares of Preferred Stock into shares of common stock, as described below)
held of record by approximately stockholders. As of
, there were shares of Preferred Stock
issued and outstanding. Upon the closing of this offering, there will be shares of common stock outstanding (assuming no exercise of the
underwriters over-allotment option and no exercise of outstanding options) and shares of
preferred stock.
Common Stock
Holders of our common stock are
entitled to one vote for each share of stock held of record on all matters submitted to a vote of the stockholders, and do not have cumulative voting
rights. Subject to rights that may be fixed for holders of preferred stock, when and if any preferred stock is issued, holders of common stock are
entitled to receive ratably such dividends, if any, as may be declared from time to time by our Board of Directors out of funds legally available for
dividend payments. Our credit facility imposes restrictions on our ability to declare dividends with respect to our common stock. See the section
entitled Dividend Policy. In the event of our liquidation, dissolution, winding up or merger, consolidation, sale or transfer of all or
substantially all of our assets, holders of common stock will be entitled to share in our assets that are remaining after payment or provision for
payment of all of our debts. Holders of common stock have no preemptive or conversion rights or other subscription rights. There are no redemption or
sinking fund provisions applicable to our common stock.
Preferred Stock
Upon the closing of this
offering, all outstanding shares of our Series A and Series B Preferred Stock will be converted into shares of common stock. Thereafter, and pursuant
to our Delaware certificate of incorporation, to be in effect upon the closing of this offering, our Board of Directors will have the authority,
without further action by the stockholders, to issue up to shares of preferred
stock in one or more series and to determine the rights, preferences, privileges and restrictions of each such series, any or all of which may be
greater than or senior to the rights of the common stock. The issuance of preferred stock could adversely affect the voting power of holders of common
stock and reduce the likelihood that such holders will receive dividend payments and payments upon liquidation, and may have the effect of delaying,
deterring or preventing a change in control, which could depress the market price of our common stock. We have no current plan to issue any shares of
preferred stock.
Outstanding Warrants
As of June 30, 2011, the Company
had warrants outstanding for the purchase of 135,218 shares of common stock. These warrants are exercisable at $6.00 a share and expire in October
2012.
Investor Rights Agreement
After this offering, pursuant to
the terms of a second amended and restated investors rights agreement (the Investors Rights Agreement), holders of
shares of our common stock issued upon conversion of our preferred stock will be entitled to rights with respect
to the registration of these shares under the Securities Act, as described below.
85
Demand Registration
Rights
Subject to the restrictions set
forth below, if the holders of 30% of the common stock issued or issuable upon conversion of either class of our preferred stock and any other common
stock held by Investor Group, LP, Investor Growth Capital Limited, or Pamlico Capital II, L.P. (the Investors) pursuant to the provisions
of an amended and restated First Refusal and Co-Sale Agreement (collectively, the Registrable Securities), request registration of their
Registrable Securities, the Company must use its best efforts to effect such registration.
However, we are not required to
file a registration statement pursuant to the demand registration rights provisions above: (i) after three registration statements have been filed
pursuant to the demand registration rights provisions, (ii) during the period starting 90 days prior to the companys good faith estimate of the
filing date and ending 180 days following the effective date of a company-initiated registration, (iii) if the proposed securities could be registered
on Form S-3, (iv) if the Company certifies that the timing of such registration would be seriously detrimental to the Company and its
stockholders, in which case the Company can delay the filing for up to 120 days, or (v) in a jurisdiction in which the Company would be required to
execute a general consent to service of process in connection with the registration, unless the Company is already subject to service in that
jurisdiction.
S-3 Registration
Rights
If any preferred stockholders
request S-3 registration with an anticipated aggregate offering price of at least $1 million, we shall give notice of the registration to the other
preferred stockholders and use its best efforts to effect such registration.
We are not obligated to effect an
S-3 registration pursuant to the registration rights provisions above if (i) Form S-3 is not available for such offering, (ii) the value of the
proposed offering is less than $1 million, (iii) the Company certifies that the timing of such registration would be seriously detrimental
to the Company and its stockholders, in which case the Company can defer the filing for up to 120 days, (iv) the Company has already effected two Form
S-3 registrations for the holders of registration rights in the previous 12 months, or (v) the Company would have to qualify to do business or execute
a general consent to service of process in connection with the registration.
Piggyback Registration
Rights
In addition, if at any time after
this offering we register any shares of our common stock, the holders of all shares having registration rights are entitled to notice of the
registration and the Company must use all commercially reasonable efforts to include in the registration all of the common stock such
holders request to be included the registration.
Other
Provisions
In the event that any
registration in which the holders of Registrable Securities participate pursuant to the registration rights agreement is an underwritten public
offering, the number of registrable shares to be included may, in specified circumstances, be limited due to market conditions.
We must pay all registration
expenses, other than underwriting discounts and selling commissions, related to any demand, S-3 or piggyback registration. The registration rights
agreement contains customary cross-indemnification provisions, pursuant to which we are obligated to indemnify the selling stockholders in the event of
material misstatements or omissions in the registration statement attributable to us, and they are obligated to indemnify us for material misstatements
or omissions in the registration statement attributable to them.
Termination
The registration rights in the
Investors Rights Agreement terminate: (i) five years after the sale of common stock in a firm commitment underwritten public offering on Form S-1
resulting in net proceeds to the Company of at least $50 million and a pre-offering equity valuation of at least $250 million; (ii) as to any holder of
registration rights, the earlier after an initial public offering that the stockholder can (A) sell all its shares under Rule 144(k), or (B) holds 1%
or less of the Companys outstanding common stock, and all of the stockholders common stock resulting from converted preferred or acquired
pursuant to right of first refusal or co-sale rights can be sold in any
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three-month period without registration under Rule 144; or (iii) after the consummation of liquidation event (the definition of which excludes a transaction of which the sole purpose is to change the state of incorporation or to create a holding company that will be owned in substantially the same proportions by the persons who held the companys securities immediately prior to the transaction).
Anti-Takeover Provisions Under Our Charter and Bylaws and
Delaware Law
Certain provisions of Delaware
law, and our certificate of incorporation and bylaws that will be in effect upon the closing of this offering contain provisions that could have the
effect of delaying, deferring or discouraging another party from acquiring control of us. These provisions, which are summarized below, may have the
effect of discouraging coercive takeover practices and inadequate takeover bids. These provisions are also designed, in part, to encourage persons
seeking to acquire control of us to first negotiate with our Board of Directors. We believe that the benefits of increased protection of our potential
ability to negotiate with an unfriendly or unsolicited acquiror outweigh the disadvantages of discouraging a proposal to acquire us because negotiation
of these proposals could result in an improvement of their terms.
Board of Directors
Our certificate of incorporation
provides that the Board of Directors will be classified with approximately one-third elected each year. The number of directors will be fixed from time
to time by a majority of the total number of directors which we would have at the time such number is fixed if there were no vacancies. The directors
will be divided into three classes, designated Class I, Class II and Class III. Each class will consist, as nearly as may be possible, of one-third of
the total number of directors constituting the entire Board of Directors. The initial division of the Board of Directors into classes will be made by
the decision of a majority of the entire Board of Directors. The term of the initial class I directors will terminate on the date of the annual meeting
of stockholders; the term of initial class II directors will terminate on the date of the annual meeting of stockholders; and the term of initial class
III directors will terminate on the date of the annual meeting of stockholders. At each annual meeting of stockholders beginning in
, successors to the class of directors whose term
expires at that annual meeting will be elected for a three-year term. In addition, if the number of directors is changed, any increase or decrease will
be apportioned among the classes so as to maintain the number of directors in each class as nearly equal as possible, and any additional director of
any class elected to fill a vacancy resulting from an increase in such class will hold office for a term that will coincide with the remaining term of
that class, but in no case will a decrease in the number of directors shorten the term of any incumbent director. The Board of Directors has the sole
authority to fill any vacancy on the Board of Directors, whether such vacancy occurs as a result of an increase in the number of directors or
otherwise. Our amended and restated certificate of incorporation also provides that directors may be removed only for cause at a meeting of
stockholders at which a quorum is present by the affirmative vote of at least two-thirds of the votes entitled to be cast thereon. Any amendment to the
provisions of our certificate of incorporation described in this paragraph requires the affirmative vote of at least 66-2/3% of the votes entitled to
be cast on such matter.
Undesignated Preferred Stock
As discussed above, our Board of
Directors has the ability to issue, without stockholder approval, preferred stock with voting or other rights or preferences as may be fixed by the
Board of Directors that could impede the success of any takeover attempt. This and other provisions may have the effect of deferring hostile takeovers
or delaying changes in control or management of the Company.
Limitations on the Ability of Stockholders to Act by
Written Consent or Call a Special Meeting
Our amended and restated
certificate of incorporation provides that our stockholders may not act by written consent. The inability of our stockholders to act by written consent
may lengthen the amount of time required to take stockholder actions. As a result, a holder controlling a majority of our capital stock would not be
able to amend our bylaws or remove directors without holding a meeting of our stockholders called in accordance with our bylaws.
In addition, our amended and
restated certificate of incorporation and amended and restated bylaws provide that special meetings of the stockholders may be called only by the Board
of Directors. A stockholder may not call
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a special meeting, which may delay the ability of our stockholders to force consideration of a proposal or for holders controlling a majority of our capital stock to take any action, including the removal of directors.
Requirements for Advance Notification of Stockholder
Nominations and Proposals
Our amended and restated bylaws
establish advance notice procedures with respect to stockholder proposals and the nomination of candidates for election as directors, other than
nominations made by or at the direction of the Board of Directors or a committee of the Board of Directors. These provisions may have the effect of
precluding the conduct of certain business at a meeting if the proper procedures are not followed. These provisions may also discourage or deter a
potential acquiror from conducting a solicitation of proxies to elect the acquirors own slate of directors or from otherwise attempting to obtain
control of the Company.
Board Vacancies Filled Only by Majority of
Directors
Vacancies and newly created seats
on our Board of Directors may be filled only by a majority of the number of then-authorized members of our Board of Directors. Only our Board of
Directors may determine the number of directors on our Board of Directors. The inability of stockholders to determine the number of directors or to
fill vacancies or newly created seats on our Board of Directors makes it more difficult to change the composition of our Board of Directors, but these
provisions promote a continuity of existing management.
No Cumulative Voting
The Delaware General Corporation
Law provides that stockholders are not entitled to the right to cumulate votes in the election of directors unless our certificate of incorporation
provides otherwise. Our amended and restated certificate of incorporation and amended and restated bylaws do not expressly provide for cumulative
voting.
Directors Removed Only for Cause
Our amended and restated
certificate of incorporation provides for the removal of directors only for cause and only upon the affirmative vote of the holders of a majority of
our outstanding capital stock entitled to vote generally in the election of directors.
Amendment of Charter Provisions
The amendment of certain of the
above provisions in our amended and restated certificate of incorporation and amended and restated bylaws requires approval by holders of at least
two-thirds of our outstanding capital stock entitled to vote generally in the election of directors.
Delaware Anti-Takeover Statute
We are subject to DGCL Section
203, which regulates corporate acquisitions. DGCL Section 203 prevents certain Delaware corporations from engaging, under certain circumstances, in a
business combination with any interested stockholder for three years following the date that such stockholder became an interested stockholder. For
purposes of DGCL Section 203, a business combination includes, among other things, a merger or consolidation involving us and the interested
stockholder and the sale of 10% or more of our assets. In general, DGCL Section 203 defines an interested stockholder as any entity or person owning
15% or more of our outstanding voting stock and any entity or person affiliated with or controlling or controlled by such entity or person. A Delaware
corporation may opt out of DGCL Section 203 with an express provision in its original certificate of incorporation or an express provision in its
certificate of incorporation or bylaws resulting from amendments approved by the holders of at least a majority of the corporations outstanding
voting shares. We have not opted out of the provisions of DGCL Section 203. This provision has an anti-takeover effect with respect to transactions not
approved in advance by our Board of Directors, including discouraging takeover attempts that might result in a premium over the market price for our
shares.
The provisions of Delaware law,
our amended and restated certificate of incorporation and amended and restated bylaws could have the effect of discouraging others from attempting
hostile takeovers and, as a
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consequence, they may also inhibit temporary fluctuations in the market price of our common stock that often result from actual or rumored hostile takeover attempts. These provisions may also have the effect of preventing changes in our management. It is possible that these provisions could make it more difficult to accomplish transactions that stockholders may otherwise deem to be in their best interests.
Transfer Agent and Registrar
The transfer agent and registrar
for the common stock is
.
The transfer agents address is and its telephone number is
.
Listing
We will apply to list our common
stock on the
under the symbol GWAY.
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Prior to this offering, there has
been no public market for our common stock. Future sales of substantial amounts of our common stock in the public market could reduce prevailing market
prices. Furthermore, since a substantial number of shares will be subject to contractual and legal restrictions on resale as described below, sales of
substantial amounts of our common stock in the public market after these restrictions lapse could adversely affect the prevailing market price and our
ability to raise equity capital in the future.
Upon completion of this offering,
we will have outstanding an aggregate of shares of common stock,
assuming no exercise of the underwriters option to purchase additional shares and no exercise of outstanding options or warrants. Of these
shares, all of the shares sold in this offering will be freely tradable without restriction or further registration under the Securities Act, unless
these shares are purchased by affiliates. The remaining shares of common stock held by existing stockholders are restricted securities as
that term is defined in Rule 144 under the Securities Act or are subject to the contractual restrictions described below. Restricted securities may be
sold in the public market only if registered or if the transaction qualifies for an exemption from registration described below under Rules 144 or 701
promulgated under the Securities Act.
Restricted shares and
shares subject to the contractual restrictions described below will be available for sale in the public market as follows:
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shares will be eligible for sale upon completion of this offering; and |
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shares will be eligible for sale upon the expiration of the lock-up agreements, described below, beginning 180 days after the date of this prospectus. |
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shares will be eligible for sale upon the exercise of vested options days after the date of this prospectus. |
In addition, of the
shares of our common stock that were subject to stock options outstanding as of
, options to purchase shares of common
stock were vested as of and will be eligible for sale
days following the effective date of this offering. In addition, as of
, warrants to purchase shares of our
common stock with a weighted average exercise price of $ were outstanding.
Lock-Up Agreements and Obligations
Pursuant to Lock-Up Agreements to
be executed in anticipation of this offering each of our officers and directors and certain of our stockholders, who together hold
% of our outstanding common stock as of , have agreed not to lend, offer, sell, contract
to sell, pledge, grant any option to purchase, make any short sale or otherwise dispose of any shares of our common stock, or any options or warrants
to purchase any shares of our common stock, or any securities convertible into, exchangeable for or that represent the right to receive shares of our
common stock, whether directly or indirectly for a period of at least 180 days after the date of this prospectus, except for bona fide gifts to
immediate family members, transfers to family trusts, distributions to affiliates or transfers pursuant to testate, intestate succession or bona fide
estate planning. Transfers or dispositions can be made sooner only under the conditions described above or with the prior written consent of each of
the representatives. In addition, the holders of a majority of the Companys stock outstanding prior to this offering, executed a market stand-off
agreement, pursuant to which such stockholders agreed not to sell their shares until 180 days after the effectiveness of an initial public offering
registration statement.
Rule 144
In general, under Rule 144 as
currently in effect, a person (or persons whose shares are aggregated) who is not deemed to have been an affiliate of ours at any time during the three
months preceding a sale, and who has beneficially owned restricted securities within the meaning of Rule 144 for at least six months (including any
period of consecutive ownership of preceding non-affiliated holders) would be entitled to sell those shares, subject only to the availability of
current public information about us. A non-affiliated person who has beneficially owned restricted securities within the meaning of Rule 144 for at
least one year would be entitled to sell those shares without regard to the provisions of Rule 144.
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In general, under Rule 144 as
currently in effect, our affiliates or persons selling shares on behalf of our affiliates are entitled to sell upon expiration of the lock-up
agreements described above, within any three-month period beginning 90 days after the date of this prospectus, a number of shares that does not exceed
the greater of:
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1% of the number of shares of common stock then outstanding, which will equal approximately shares immediately after this offering; or |
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the average weekly trading volume of the common stock during the four calendar weeks preceding the filing of a notice on Form 144 with respect to such sale. |
Sales under Rule 144 by our
affiliates or persons selling shares on behalf of our affiliates are also subject to certain manner of sale provisions and notice requirements and to
the availability of current public information about us.
Rule 701
Rule 701 of the Securities Act,
as currently in effect, permits any of our employees, officers, directors, consultants or advisors who purchase or receive shares from us pursuant to a
written compensatory plan or contract to resell such shares in reliance upon Rule 144, but without compliance with certain restrictions. Subject to any
applicable lock-up agreements, Rule 701 provides that affiliates may sell their Rule 701 shares under Rule 144 beginning 90 days after the date of this
prospectus without complying with the holding period requirement of Rule 144 and that non-affiliates may sell such shares in reliance on Rule 144
beginning 90 days after the date of this prospectus without complying with the holding period, public information, volume limitation or notice
requirements of Rule 144.
Registration Rights
Upon completion of this offering,
the holders of an aggregate of shares of our common stock, or their transferees, will be entitled to certain rights with
respect to the registration of their shares under the Securities Act. Registration of these shares under the Securities Act would result in these
shares becoming freely tradable without restriction under the Securities Act immediately upon the effectiveness of such registration. See
Description of our Capital StockRegistration Rights Agreement for more information.
Form S-8 Registration Statements
Following the completion of this
offering, we intend to file one or more registration statements on Form S-8 under the Securities Act to register the shares of our common stock that
are issuable pursuant to our incentive plans. See the section entitled Management and Board of DirectorsEquity Incentive Plan.
Subject to the lock-up agreements described above and any applicable vesting restrictions, shares registered under these registration statements will
be available for resale in the public market immediately upon the effectiveness of these registration statements, except with respect to Rule 144
volume limitations that apply to our affiliates.
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The following is a general
discussion of the material U.S. federal income and certain estate tax considerations relating to the acquisition, ownership and disposition of our
common stock to a holder that acquires shares of common stock in this offering and that holds the common stock as a capital asset (generally, property
held for investment within the meaning of Section 1221 of the United States Internal Revenue Code of 1986, as amended (the Code)). This
discussion is based on currently existing provisions of the Code, Treasury regulations promulgated thereunder, and administrative and judicial
interpretations thereof, all as in effect on the date hereof and all of which are subject to change, possibly with retroactive effect, or different
interpretations.
This discussion is for general
information only and does not address all of the tax considerations that may be relevant to specific holders in light of their particular circumstances
or to holders subject to special treatment under U.S. federal tax laws (such as certain financial institutions, regulated investment companies, real
estate investment trusts, partnerships or other pass-through entities, insurance companies, tax-exempt entities, retirement plans, brokers or dealers
in securities, traders in securities that elect to use a mark-to-market method of accounting for their securities holdings, persons liable for
alternative minimum tax, expatriates, persons who hold our common stock as part of a straddle, hedge, conversion transaction or other risk-reduction or
integrated investment, controlled foreign corporations, passive foreign investment companies, foreign personal holding companies, companies that
accumulate earnings to avoid U.S. federal income tax, taxpayers whose functional currency is not the U.S. dollar, and persons who hold or receive our
common stock as compensation).
Except as specifically noted
below, this discussion does not address U.S. federal taxes other than the federal income tax. In addition, this discussion does not address the U.S.
state and local or non-U.S. tax considerations relating to the acquisition, ownership and disposition of our common stock.
As used in this discussion, the
term U.S. holder means a beneficial owner of our common stock that is for U.S. federal income tax purposes:
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an individual citizen or resident of the U.S.; |
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a corporation or other entity taxable as a corporation created or organized in or under the laws of the U.S. or of any state or political subdivision thereof or therein, including the District of Columbia; |
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an estate, the income of which is subject to U.S. federal income tax regardless of the source thereof; or |
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a trust, if (a) a court within the U.S. is able to exercise primary supervision over its administration and one or more U.S. persons have the authority to control all of its substantial decisions or (b) it has a valid election in effect under applicable U.S. Treasury regulations to be treated as a U.S. person. |
The term non-U.S.
holder means a beneficial owner of our common stock that is not a U.S. holder and that is not a partnership.
If a partnership (including an
entity or arrangement treated as a partnership for U.S. federal income tax purposes) holds our common stock, the tax treatment of a partner will
generally depend on the status of the partner and the activities of the partnership. If you are a partner of a partnership holding our common stock,
you should consult your own tax advisor as to the particular U.S. federal income and estate tax consequences applicable to you.
Prospective purchasers are urged
to consult their own tax advisors as to the particular tax considerations applicable to them relating to the acquisition, ownership and disposition of
our common stock, including the application of U.S. federal, state or local tax laws or non-U.S. tax laws, any changes in applicable tax laws and any
pending or proposed legislation or regulations.
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U.S. Holders
Dividends
Distributions paid on shares of
our common stock will be treated as dividends for U.S. federal income tax purposes to the extent they are paid out of our current or accumulated
earnings and profits and, to the extent so treated, will be includible in gross income by a U.S. holder upon receipt. To the extent that the amount of
any distribution paid on shares of our common stock exceeds our current and accumulated earnings and profits, such excess will be treated first as a
return of capital, which will be applied against and reduce your adjusted tax basis (but not below zero) in such shares of our common stock, and
thereafter as capital gain.
If you are an individual,
dividends received by you on a share of our common stock generally will be subject to a reduced maximum U.S. federal income tax rate of 15% for taxable
years beginning prior to January 1, 2013, if you meet certain holding period and other requirements. If you are a corporation, dividends on our common
stock generally will be eligible for the dividends-received deduction, if you meet the holding period and other requirements for the dividends-received
deduction.
Sale, Exchange or Other Disposition
Upon a sale, exchange or other
taxable disposition of our common stock, a U.S. holder will recognize capital gain or loss in an amount equal to the difference between the amount
realized on the sale, exchange or other disposition and such U.S. holders adjusted tax basis in the share of our common stock. Such gain or loss
will be capital gain or loss and will be long-term capital gain or loss if your holding period for such share of our common stock exceeds one year.
Long-term capital gain of a noncorporate U.S. holder is subject to a maximum tax rate of 15% for taxable years beginning prior to January 1, 2013. The
deduction of capital losses is subject to limitations.
Information Reporting and Backup Withholding
Tax
In general, dividends on our
common stock and payments of the proceeds of a sale, exchange or other disposition of our common stock paid to a U.S. holder may be subject to
information reporting. Certain U.S. holders may be subject to backup withholding tax (currently at a rate of 28%) on payments made on or with respect
to our common stock if such U.S. holder fails to supply a correct taxpayer identification number or otherwise fails to comply with applicable U.S.
information reporting or certification requirements. Certain persons are exempt from backup withholding including, in certain circumstances,
corporations and financial institutions.
Backup withholding is not an
additional tax. Any amounts withheld under the backup withholding rules from a payment to a U.S. holder will be allowed as a refund or a credit against
such U.S. holders U.S. federal income tax liability, if any, provided that the required information is furnished to the Internal Revenue Service
(the IRS). U.S. holders should consult their own tax advisors regarding the filing of a U.S. tax return for claiming a refund of such
backup withholding.
Non-U.S. Holders
Dividends
We or another withholding agent
will be required to withhold U.S. federal withholding tax at a rate of 30% from the gross amount of any dividends on our common stock paid to a
non-U.S. holder, unless (a) an applicable income tax treaty reduces or eliminates such tax, and such non-U.S. holder claiming the benefit of such
treaty provides to us or such agent proper IRS documentation, or (b) the dividends are effectively connected with such non-U.S. holders conduct
of a trade or business in the U.S. and the non-U.S. holder provides to us or such agent proper IRS documentation. In the latter case, such non-U.S.
holder generally will be subject to U.S. federal income tax on a net income basis, at the same graduated individual and corporate rates applicable to
U.S. persons. Additionally, a non-U.S. holder that is taxed as a corporation may be subject to a branch profits tax on its effectively connected
earnings and profits, as adjusted for certain items, at a rate of 30% (or at a reduced rate under an applicable income tax treaty).
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Where dividends are paid to a
non-U.S. holder that is a partnership or other pass-through entity, persons holding an interest in the entity may need to provide certification
claiming an exemption or reduction in withholding under an applicable income tax treaty in order for the entity to obtain an exemption or reduction in
withholding. If a non-U.S. holder is eligible for a reduced rate of U.S. federal withholding tax pursuant to an income tax treaty, such non-U.S. holder
may obtain a refund of any excess amount withheld by timely filing an appropriate claim for refund with the IRS.
Sale, Exchange or Other Disposition
Generally, a non-U.S. holder will
not be subject to U.S. federal income tax on gain realized upon the sale, exchange or other disposition of our common stock unless:
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such non-U.S. holder is an individual present in the U.S. for 183 days or more in the taxable year of the sale, exchange or other disposition and certain other conditions are met; |
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the gain is effectively connected with such non-U.S. holders conduct of a trade or business in the U.S. (and, under certain income tax treaties, is attributable to a U.S. permanent establishment of such non-U.S. holder); or |
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we are or have been a United States real property holding corporation for U.S. federal income tax purposes (which we believe that we are not and have never been, and do not anticipate that we will become) and the non-U.S. holder holds or has held, directly or indirectly, at any time within the shorter of the five-year period preceding such sale, exchange or disposition or the period that such non-U.S. holder held our common stock, more than 5% of our common stock. |
If the first exception applies,
the non-U.S. holder generally will be subject to U.S. federal income tax at a rate of 30% (or at a reduced rate under an applicable income tax treaty)
on the amount by which capital gains allocable to U.S. sources (including gains from the sale, exchange or other disposition of our common stock)
exceed capital losses (but not capital loss carryovers) allocable to U.S. sources. If the second exception applies, the non-U.S. holder generally will
be subject to U.S. federal income tax with respect to such gain on a net-income basis in the same manner as a U.S. citizen or corporation, as
applicable, unless otherwise provided in an applicable income tax treaty, and a non-U.S. holder that is a corporation may also be subject to a branch
profits tax at a rate of 30% (or at a reduced rate under an applicable income tax treaty).
In the event that, despite our
expectations, the third exception applies, a non-U.S. holder will be subject to tax on any gain realized upon the disposition of our common stock, but
withholding taxes would not be applied.
Information Reporting and Backup Withholding
Tax
We must report annually to the
IRS the amount of dividends or other distributions we pay to you on your shares of common stock and the amount of tax we withhold on these
distributions regardless of whether withholding is required. The IRS may make this information available to the tax authorities in the country in which
you reside pursuant to the provisions of an applicable income tax treaty or exchange of information agreement. Backup withholding tax (currently at a
rate of 28%) may also apply to payments made to a non-U.S. holder on or with respect to our common stock, unless the non-U.S. holder certifies as to
its status as a non-U.S. holder under penalties of perjury or otherwise establishes an exemption, and certain other conditions are
satisfied.
Information reporting and backup
withholding generally are not required with respect to the amount of any proceeds from the sale of your shares of common stock outside the U.S. through
a foreign office of a foreign broker that does not have certain specified connections to the U.S. However, if you sell your shares of common stock
through a U.S. office of a broker, the broker will be required to report the amount of proceeds paid to you to the IRS and also to impose backup
withholding on that amount unless you provide appropriate certification, under penalty of perjury, to the broker of your status as a non-U.S. holder or
you otherwise establish an exemption. Information reporting, but not backup withholding, will apply if you sell your shares of common stock through a
foreign office of a broker that has any of certain connections to the U.S., unless such broker has documentary evidence in its records, including
certification, that you are a non-U.S. holder and certain other conditions are met or you otherwise establish an exemption.
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Backup withholding is not an
additional tax. Any amounts withheld under the backup withholding rules from a payment to a non-U.S. holder will be allowed as a refund or a credit
against such non-U.S. holders U.S. federal income tax liability, if any, provided that the required information is timely furnished to the IRS.
Non-U.S. holders should consult their own tax advisors regarding the filing of a U.S. tax return for claiming a refund of such backup
withholding.
THE SUMMARY OF MATERIAL U.S.
FEDERAL TAX CONSEQUENCES ABOVE IS INCLUDED FOR GENERAL INFORMATION PURPOSES ONLY. POTENTIAL PURCHASERS OF OUR COMMON STOCK ARE URGED TO CONSULT THEIR
OWN TAX ADVISORS TO DETERMINE THE U.S. FEDERAL, STATE, LOCAL AND NON-U.S. TAX CONSIDERATIONS OF PURCHASING, OWNING AND DISPOSING OF OUR COMMON
STOCK.
Federal Estate Tax
Common stock owned or treated as
owned by an individual who is not a citizen or resident (as defined for U.S. federal estate tax purposes) of the U.S. at the time of his or her death
generally will be included in the individuals gross estate for U.S. federal estate tax purposes and therefore may be subject to U.S. federal
estate tax unless an applicable estate tax treaty provides otherwise.
New Legislation Affecting Taxation of Common Stock Held
By or Through Foreign Entities
Recently enacted legislation
generally will impose a withholding tax of 30% on dividend income from our common stock and the gross proceeds of a disposition of our common stock
paid to a foreign financial institution, unless such institution enters into an agreement with the U.S. government to collect and provide to the U.S.
tax authorities substantial information regarding U.S. account holders of such institution (which would include certain equity and debt holders of such
institution, as well as certain account holders that are foreign entities with U.S. owners). Absent any applicable exception, this legislation also
generally will impose a withholding tax of 30% on dividend income from our common stock and the gross proceeds of a disposition of our common stock
paid to a foreign entity that is not a foreign financial institution unless such entity provides the withholding agent with a certification identifying
the substantial U.S. owners of the entity, which generally includes any U.S. person who directly or indirectly owns more than 10% of the entity. Under
certain circumstances, a non-U.S. holder of our common stock might be eligible for refunds or credits of such taxes, and a non-U.S. holder might be
required to file a U.S. federal income tax return to claim such refunds or credits. This legislation generally is effective for payments made after
December 31, 2012. Investors are encouraged to consult with their own tax advisors regarding the implications of this legislation on their investment
in our common stock.
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We are offering the shares of
common stock described in this prospectus through a number of underwriters. J.P. Morgan Securities LLC and Morgan Stanley & Co. LLC are acting as
joint book-running managers of the offering and as representatives of the underwriters. We have entered into an underwriting agreement with the
underwriters. Subject to the terms and conditions of the underwriting agreement, we have agreed to sell to the underwriters, and each underwriter has
severally agreed to purchase, at the public offering price less the underwriting discounts and commissions set forth on the cover page of this
prospectus, the number of shares of common stock listed next to its name in the following table.
Name |
Number of shares |
|||||
---|---|---|---|---|---|---|
J.P. Morgan
Securities LLC |
||||||
Morgan
Stanley & Co. LLC |
||||||
William Blair
& Company, L.L.C. |
||||||
Piper Jaffray
& Co |
||||||
Raymond James
& Associates, Inc. |
||||||
Total
|
The underwriters are committed to
purchase all the shares of common stock offered by us if they purchase any shares. The underwriting agreement also provides that if an underwriter
defaults, the purchase commitments of non-defaulting underwriters may also be increased or the offering may be terminated.
The underwriters propose to offer
the shares of common stock directly to the public at the public offering price set forth on the cover page of this prospectus and to certain dealers at
that price less a concession not in excess of $ per share. After the initial public offering of the shares, the offering price and other
selling terms may be changed by the underwriters. Sales of shares made outside of the United States may be made by affiliates of the underwriters. The
representatives have advised us that the underwriters do not intend to confirm discretionary sales in excess of 5% of the shares of common stock
offered in this offering.
The underwriters have an option
to purchase up to additional shares of common stock from
to cover sales of shares by the underwriters which exceed the number of shares specified in the table above. The underwriters have 30 days from the
date of this prospectus to exercise this over-allotment option. If any shares are purchased with this over-allotment option, the underwriters will
purchase shares in approximately the same proportion as shown in the table above. If any additional shares of common stock are purchased, the
underwriters will offer the additional shares on the same terms as those on which the shares are being offered.
The underwriting discounts and
commissions are equal to the public offering price per share of common stock less the amount paid by the underwriters to us per share of common stock.
The underwriting discounts and commissions are $ per share. The following table shows the per share and total underwriting discounts and
commissions payable by us to the underwriters assuming both no exercise and full exercise of the underwriters over-allotment
option.
Without over-allotment exercise |
With full over-allotment exercise |
|||||||||
---|---|---|---|---|---|---|---|---|---|---|
Per share
|
$ | $ | ||||||||
Total
|
$ | $ |
We estimate that the total
expenses of this offering, including registration, filing and listing fees, printing fees and legal and accounting expenses, but excluding the
underwriting discounts and commissions, will be approximately $ , all of which is payable by us. The underwriters have agreed to reimburse
us for a portion of our out-of-pocket expenses in connection with this offering.
A prospectus in electronic format
may be made available on the websites maintained by one or more underwriters, or selling group members, if any, participating in the offering. The
underwriters may agree to allocate a number of shares to underwriters and selling group members for sale to their online brokerage account
holders.
96
Internet distributions will be allocated by the representatives to underwriters and selling group members that may make Internet distributions on the same basis as other allocations.
We have agreed that we will not,
subject to limited exceptions, (i) offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to
sell, grant any option, right or warrant to purchase, lend or otherwise transfer or dispose of, directly or indirectly, or file with the SEC a
registration statement under the Securities Act relating to, any shares of our common stock or securities convertible into or exercisable or
exchangeable for any shares of our common stock, or publicly disclose the intention to make any offer, sale, pledge, disposition or filing, or (ii)
enter into any swap or other agreement that transfers, in whole or in part, any of the economic consequences of ownership of any shares of common stock
or any such other securities, whether any such transaction described in clause (i) or (ii) above is to be settled by delivery of common stock or such
other securities, in case or otherwise, without the prior written consent of J.P. Morgan Securities LLC and Morgan Stanley & Co. LLC for a period
of 180 days after the date of this prospectus other than (A) the shares of our common stock to be sold in this offering, and (B) any shares of our
common stock issued upon the exercise of options granted under our stock plans. Notwithstanding the foregoing, if (1) during the last 17 days of the
180-day restricted period, we issue an earnings release or material news or a material event relating to our company occurs; or (2) prior to the
expiration of the 180-day restricted period, we announce that we will release earnings results during the 16-day period beginning on the last day of
the 180-day period, the restrictions described above shall continue to apply until the expiration of the 18-day period beginning on the issuance of the
earnings release or the occurrence of the material news or material event.
Our directors and executive
officers and substantially all of our equity holders have entered into lock-up agreements with the underwriters prior to the commencement of this
offering pursuant to which each of these persons or entities, with limited exceptions, for a period commencing on the date of the lock-up agreement and
ending 180 days after the date of this prospectus, may not, without the prior written consent of J.P. Morgan Securities LLC and Morgan Stanley &
Co. LLC, (1) offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option,
right or warrant to purchase, lend or otherwise transfer or dispose of, directly or indirectly, any shares of our common stock or any securities
convertible into or exercisable or exchangeable for shares of our common stock, including without limitation, common stock or such other securities
which may be deemed to be beneficially owned by such directors, executive officers and equity holders in accordance with the rules and regulations of
the SEC and securities which may be issued upon exercise of a stock option or warrant, or publicly disclose the intention to make any offer, sale,
pledge or disposition, or (2) enter into any swap or other agreement that transfers, in whole or in part, any of the economic consequences of ownership
of the common stock or such other securities, whether any such transaction described in clause (1) or (2) above is to be settled by delivery of common
stock or such other securities, in cash or otherwise, or (3) make any demand for or exercise any right with respect to the registration of any shares
of our common stock or any security convertible into or exercisable or exchangeable for our common stock, in each case other than (A) any shares of
common stock to be sold by the director, officer or stockholder pursuant to the underwriting agreement; (B) transfers of shares of common stock as a
bona fide gift or gifts; (C) distributions or transfers of shares of our common stock to the stockholders partners (if a partnership), members
(if a limited liability company), stockholders (in the case of a corporation) or a wholly-owned subsidiary of the stockholder, (D) transfers to any
trust for the direct or indirect benefit of the stockholder or the immediate family of the stockholder, and (E) transfers as a result of testate,
intestate succession or bona fide estate planning, provided that in the case of any transfer or distribution pursuant to clauses (C), (D) or (E), each
transferee, donee or distributee shall execute and deliver to J.P. Morgan Securities LLC and Morgan Stanley & Co. LLC a lock-up agreement; and
provided, further, that in the case of any acquisition, transfer or distribution pursuant to clauses (B), (C), (D) or (E), no filing by any party
(acquirer, donor, donee, transferor or transferee) under the Exchange Act, or other public announcement shall be required or shall be made voluntarily
in connection with such acquisition, transfer or distribution (other than a filing on a Form 5 made after the expiration of the 180-day period referred
to above). Notwithstanding the foregoing, if (1) during the last 17 days of the 180-day restricted period, we issue an earnings release or material
news or a material event relating to our company occurs; or (2) prior to the expiration of the 180-day restricted period, we announce that we will
release earnings results during the 16-day period beginning on the last day of the 180-day period, the restrictions described above shall continue to
apply until the expiration of the 18-day period beginning on the issuance of the earnings release or the occurrence of the material news or material
event.
97
We have agreed to indemnify the
underwriters against certain liabilities, including liabilities under the Securities Act.
In connection with this offering,
the underwriters may engage in stabilizing transactions, which involves making bids for, or purchasing and selling shares of, common stock in the open
market for the purpose of preventing or retarding a decline in the market price of the common stock while this offering is in progress. These
stabilizing transactions may include making short sales of the common stock, which involves the sale by the underwriters of a greater number of shares
of common stock than they are required to purchase in this offering, and purchasing shares of common stock on the open market to cover positions
created by short sales. Short sales may be covered shorts, which are short positions in an amount not greater than the underwriters
over-allotment option referred to above, or may be naked shorts, which are short positions in excess of that amount. The underwriters may
close out any covered short position either by exercising their over-allotment option, in whole or in part, or by purchasing shares in the open market.
In making this determination, the underwriters will consider, among other things, the price of shares available for purchase in the open market
compared to the price at which the underwriters may purchase shares through the over-allotment option. A naked short position is more likely to be
created if the underwriters are concerned that there may be downward pressure on the price of the common stock in the open market that could adversely
affect investors who purchase in this offering. To the extent that the underwriters create a naked short position, they will purchase shares in the
open market to cover the position.
The underwriters have advised us
that, pursuant to Regulation M of the Securities Act, they may also engage in other activities that stabilize, maintain or otherwise affect the price
of the common stock, including the imposition of penalty bids. This means that if the representatives of the underwriters purchase common stock in the
open market in stabilizing transactions or to cover short sales, the representatives can require the underwriters that sold those shares as part of
this offering to repay the underwriting discount received by them.
These activities may have the
effect of raising or maintaining the market price of the common stock or preventing or retarding a decline in the market price of the common stock and,
as a result, the price of the common stock may be higher than the price that otherwise might exist in the open market. If the underwriters commence
these activities, they may discontinue them at any time. The underwriters may carry out these transactions on
, in the over-the-counter market or otherwise.
Other than in the United States,
no action has been taken by us or the underwriters that would permit a public offering of the shares of common stock offered by this prospectus in any
jurisdiction where action for that purpose is required. The shares of common stock offered by this prospectus may not be offered or sold, directly or
indirectly, nor may this prospectus or any other offering material or advertisements in connection with the offer and sale of any such shares of common
stock be distributed or published in any jurisdiction, except under circumstances that will result in compliance with the applicable rules and
regulations of that jurisdiction. Persons into whose possession this prospectus comes are advised to inform themselves about and to observe any
restrictions relating to the offering and the distribution of this prospectus. This prospectus does not constitute an offer to sell or a solicitation
of an offer to buy any shares of common stock offered by this prospectus in any jurisdiction in which such an offer or a solicitation is
unlawful.
This document is only being
distributed to and is only directed at (i) persons who are outside the United Kingdom or (ii) to investment professionals falling within Article 19(5)
of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, referred to as the Order, or (iii) high net worth entities and other
persons to whom it may lawfully be communicated, falling within Article 49(2)(a) to (d) of the Order, all such persons together being referred to as
relevant persons. The shares of common stock are only available to, and any invitation, offer or agreement to subscribe, purchase or otherwise acquire
such shares of common stock will be engaged in only with, relevant persons. Any person who is not a relevant person should not act or rely on this
document or any of its contents.
In relation to each Member State
of the European Economic Area which has implemented the Prospectus Directive, each referred to as a Relevant Member State, from and including the date,
or Relevant Implementation Date, on which the European Union Prospectus Directive, or EU Prospectus Directive, is implemented in that Relevant Member
State, an offer of shares of common stock described in this prospectus may not be made to the public in that Relevant Member State prior to the
publication of a prospectus in relation to the shares which has
98
been approved by the competent authority in that Relevant Member State or, where appropriate, approved in another Relevant Member State and notified to the competent authority in that Relevant Member State, all in accordance with the EU Prospectus Directive, except that it may, with effect from and including the Relevant Implementation Date, make an offer of shares to the public in that Relevant Member State at any time:
|
to legal entities which are authorized or regulated to operate in the financial markets or, if not so authorized or regulated, whose corporate purpose is solely to invest in securities; |
|
to any legal entity which has two or more of (1) an average of at least 250 employees during the last financial year; (2) a total balance sheet of more than 43,000,000 and (3) an annual net turnover of more than 50,000,000, as shown in its last annual or consolidated accounts; |
|
to fewer than 100 natural or legal persons, other than qualified investors as defined in the EU Prospectus Directive, subject to obtaining the prior consent of the book-running managers for any such offer; or |
|
in any other circumstances which do not require the publication by the Issuer of a prospectus pursuant to Article 3 of the Prospectus Directive. |
Prior to this offering, there has
been no public market for our common stock. The initial public offering price was determined by negotiations among us and the representatives of the
underwriters. In determining the initial public offering price of our common stock, we and the representatives of the underwriters considered a number
of factors, including:
|
our future prospects and those of our industry in general; and |
|
the price earnings ratios, price sales ratios, market prices of securities and certain financial and operating information of companies engaged in activities similar to ours. |
Neither we nor the underwriters
can assure investors that an active trading market will develop for our common stock, or that the shares of common stock will trade in the public
market at or above the initial public offering price.
For the purposes of this
provision, the expression an offer of securities to the public in relation to any securities in any Relevant Member State means the
communication in any form and by any means of sufficient information on the terms of the offer and the securities to be offered so as to enable an
investor to decide to purchase or subscribe for the securities, as the same may be varied in that Member State by any measure implementing the EU
Prospectus Directive in that Member State and the expression EU Prospectus Directive means Directive 2003/71/EC and includes any relevant implementing
measure in each Relevant Member State.
Certain of the underwriters and
their affiliates have provided in the past to us and our affiliates and may provide from time to time in the future certain commercial banking,
financial advisory, investment banking and other services for us and such affiliates in the ordinary course of their business, for which they have
received or will receive customary fees and commissions. In addition, from time to time, certain of the underwriters and their affiliates may effect
transactions for their own account or the account of customers, and hold on behalf of themselves or their customers, long or short positions in our
debt or equity securities or loans, and may do so in the future.
Directed Share Program
At our request, the underwriters
have reserved for sale to our officers, directors and employees, immediate family members of the foregoing, and other persons selected by us, up to
shares of the common stock offered by this prospectus, at the initial public offering price. Any
shares purchased by officers and directors in the directed share program will be subject to the 180 day lock-up agreements described above. The number
of shares of common stock available for sale to the general public will be reduced to the extent such persons purchase such reserved shares. Any
reserved shares of common stock that are not so purchased will be offered by the underwriters to the general public on the same basis as the other
shares of common stock offered by this prospectus. In connection with the sale of directed shares we have agreed to indemnify the underwriters against
certain liabilities and expenses, including losses due to the failure of directed share participants to pay for shares they subscribe for and for
liabilities under the Securities Act.
99
Certain legal matters with
respect to the validity of the shares of common stock offered hereby will be passed upon for us by Paul, Hastings, Janofsky & Walker LLP, Atlanta,
Georgia. Certain legal matters in connection with this offering will be passed upon for the underwriters by Kirkland & Ellis LLP, New York, New
York.
The audited financial statements
included in this prospectus and elsewhere in the registration statement have been so included in reliance upon the report of Grant Thornton LLP,
independent registered public accountants, upon the authority of said firm as experts in accounting and auditing in giving said
reports.
We have filed with the SEC a
registration statement on Form S-1 under the Securities Act with respect to the shares of common stock we are offering under this prospectus. As
permitted under the rules and regulations of the SEC, this prospectus does not contain all of the information set forth in the registration statement
and exhibits and schedule to the registration statement. You should refer to the registration statement and its exhibits and schedule for additional
information. Statements contained in this prospectus as to the contents of any contract, agreement or any other document referred to are not
necessarily complete, and in each instance, we refer you to the copy of the contract, agreement or other document filed as an exhibit to the
registration statement. Each of these statements is qualified in all respects by this reference.
Copies of the registration
statement, including its exhibits and schedules, may be examined without charge at the Public Reference Room of the SEC, 100 F Street, N.E.,
Washington, D.C. 20549. Information about the operation of the Public Reference Room may be obtained by calling the SEC at 1-800-SEC-0300. Copies of
all or a portion of the registration statement may be obtained from the Public Reference Room of the SEC upon payment of prescribed fees. Our SEC
filings, including our registration statement are also available to you, free of charge, on the SECs website at
www.sec.gov.
Upon completion of this offering,
we will be subject to the information and reporting requirements of the Securities Exchange Act of 1934, as amended, and we will file reports, proxy
statements and other information with the SEC. We will make available to our stockholders annual reports containing financial statements audited by our
independent registered public accounting firm and quarterly reports for the first three quarters of each fiscal year containing unaudited interim
financial information.
100
Page |
||||||
---|---|---|---|---|---|---|
Greenway
Medical Technologies, Inc. |
||||||
F-2 | ||||||
F-3 | ||||||
F-4 | ||||||
F-5 | ||||||
F-6 | ||||||
F-7 | ||||||
F-23 | ||||||
F-24 | ||||||
F-25 |
F-1
Board of Directors and Shareholders
Greenway Medical Technologies, Inc.
Greenway Medical Technologies, Inc.
We have audited the accompanying balance sheets of Greenway
Medical Technologies, Inc. (a Georgia corporation) (the Company) as of June 30, 2009 and 2010, and the related statements of operations,
changes in convertible preferred and shareholders deficit, and cash flows for each of the three years in the period ended June 30, 2010. These
financial statements are the responsibility of the Companys 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. The Company is not required to have, nor were we engaged to perform
an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for
designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the
Companys internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial position of Greenway Medical Technologies, Inc., as of June 30, 2009 and 2010, and the results
of its operations and its cash flows for each of the three years in the period ended June 30, 2010, in conformity with accounting principles generally
accepted in the United States of America.
/s/ Grant Thornton LLP
Atlanta, Georgia
July 15, 2011
Atlanta, Georgia
July 15, 2011
F-2
GREENWAY MEDICAL TECHNOLOGIES, INC.
June 30 |
|||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
2009 |
2010 |
||||||||||
Assets |
|||||||||||
Current
assets: |
|||||||||||
Cash and cash
equivalents |
$ | 9,710,657 | $ | 19,178,718 | |||||||
Accounts
receivable, net of a $450,000 and $900,000 allowance for doubtful accounts in 2009 and 2010, respectively |
7,815,424 | 11,515,041 | |||||||||
Inventory
|
488,917 | 324,083 | |||||||||
Prepaids and
other current assets |
873,957 | 692,691 | |||||||||
Total current
assets |
18,888,955 | 31,710,533 | |||||||||
Property
and equipment, net |
3,281,016 | 5,631,972 | |||||||||
Software
development cost, net |
| 1,221,576 | |||||||||
Other
assets |
40,000 | 40,000 | |||||||||
Total assets
|
$ | 22,209,971 | $ | 38,604,081 | |||||||
Liabilities and shareholders deficit |
|||||||||||
Current
liabilities: |
|||||||||||
Accounts
payable |
$ | 1,885,409 | $ | 5,197,191 | |||||||
Accrued
liabilities |
3,069,408 | 5,215,788 | |||||||||
Deferred
revenue |
3,717,273 | 4,320,021 | |||||||||
Current
maturities of long-term debt and capital lease |
355,433 | 11,658 | |||||||||
Total current
liabilities |
9,027,523 | 14,744,658 | |||||||||
Long-term
debt and capital lease Net of current maturities |
1,904,380 | | |||||||||
Commitments and contingencies (Notes 9 and 13) |
|||||||||||
Convertible preferred stock, at fair value: |
|||||||||||
Series
A-Issued and outstanding 3,333,333 shares at June 30, 2009 and 2010 (cumulative liquidation preference $30,069,296 and $32,474,840, respectively)
|
45,766,662 | 49,466,662 | |||||||||
Series
B-Issued and outstanding 4,631,579 shares at June 30, 2009 and 2010 (cumulative liquidation preference $27,027,501 and $29,189,701, respectively)
|
50,050,890 | 54,388,744 | |||||||||
Shareholders deficit: |
|||||||||||
Common stock
|
9,769,313 | 11,299,989 | |||||||||
Additional
paid-in capital |
48,541,667 | 56,727,733 | |||||||||
Accumulated
deficit |
(142,850,464 | ) | (148,023,705 | ) | |||||||
Total
shareholders deficit |
(84,539,484 | ) | (79,995,983 | ) | |||||||
Total
liabilities, convertible preferred and shareholders deficit |
$ | 22,209,971 | $ | 38,604,081 |
The accompanying notes are an integral part of these
financial statements.
F-3
GREENWAY MEDICAL TECHNOLOGIES, INC.
For the years ended June 30 |
|||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
2008 |
2009 |
2010 |
|||||||||||||
Revenue: |
|||||||||||||||
System sales
|
$ | 24,205,189 | $ | 28,574,664 | $ | 36,034,840 | |||||||||
Software
support services |
8,457,025 | 11,420,857 | 16,030,914 | ||||||||||||
Electronic
data interchange and business services |
6,136,936 | 8,716,065 | 12,576,063 | ||||||||||||
Total revenue
|
38,799,150 | 48,711,586 | 64,641,817 | ||||||||||||
Cost of
revenue: |
|||||||||||||||
System sales
|
10,550,935 | 12,207,811 | 14,903,870 | ||||||||||||
Software
support services |
2,762,650 | 3,279,405 | 4,179,395 | ||||||||||||
Electronic
data interchange and business services |
4,439,512 | 5,953,438 | 8,712,589 | ||||||||||||
Total cost of
revenue |
17,753,097 | 21,440,654 | 27,795,854 | ||||||||||||
Gross profit
|
21,046,053 | 27,270,932 | 36,845,963 | ||||||||||||
Operating
expenses: |
|||||||||||||||
Sales,
general and administrative |
16,859,822 | 20,369,931 | 27,726,807 | ||||||||||||
Research and
development |
5,355,807 | 5,767,227 | 5,991,410 | ||||||||||||
Total
operating expenses |
22,215,629 | 26,137,158 | 33,718,217 | ||||||||||||
Operating
income (loss) |
(1,169,576 | ) | 1,133,774 | 3,127,746 | |||||||||||
Interest
income |
292,154 | 52,790 | 36,534 | ||||||||||||
Interest
expense |
(36,431 | ) | (130,394 | ) | (113,786 | ) | |||||||||
Other
(expense), net |
(11,920 | ) | (75,710 | ) | (37,867 | ) | |||||||||
Income
(loss) before income taxes |
(925,773 | ) | 980,460 | 3,012,627 | |||||||||||
Provision
for income taxes |
| (25,509 | ) | (148,014 | ) | ||||||||||
Net income
(loss) |
(925,773 | ) | 954,951 | 2,864,613 | |||||||||||
Preferred
stock dividends and accretion |
(6,471,555 | ) | (9,013,994 | ) | (8,037,854 | ) | |||||||||
Loss
available to common shareholders |
$ | (7,397,328 | ) | $ | (8,059,043 | ) | $ | (5,173,241 | ) | ||||||
Per share
data: |
|||||||||||||||
Net loss per
share: |
|||||||||||||||
Basic and
diluted |
$ | (0.74 | ) | $ | (0.81 | ) | $ | (0.48 | ) | ||||||
Weighted
average number of common shares outstanding |
|||||||||||||||
Basic and
diluted |
9,939,835 | 9,947,358 | 10,683,518 |
The accompanying notes are an integral part of these
financial statements.
F-4
GREENWAY MEDICAL TECHNOLOGIES, INC.
Convertible Preferred |
Shareholders Deficit |
||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Series A |
Series B |
Common Stock |
|||||||||||||||||||||||||||||||||||||
For the years ending June 30, 2008, 2009 and 2010 |
Shares |
Amount |
Shares |
Amount |
Shares |
Amount |
Paid-in Capital |
Accumulated Deficit |
Total |
||||||||||||||||||||||||||||||
Balance, June
30, 2007 |
3,333,333 | $ | 38,633,329 | 4,631,579 | $ | 41,698,674 | 9,939,835 | $ | 9,760,845 | $ | 46,425,497 | $ | (127,394,093 | ) | $ | (71,207,751 | ) | ||||||||||||||||||||||
Employee stock
compensation |
| | | | | | 1,548,871 | | 1,548,871 | ||||||||||||||||||||||||||||||
Accretion of
stock issue cost |
| | | 262,783 | | | | (262,783 | ) | (262,783 | ) | ||||||||||||||||||||||||||||
Preferred
dividends |
| 2,062,367 | | 1,853,738 | | | | (3,916,105 | ) | (3,916,105 | ) | ||||||||||||||||||||||||||||
Accretion
adjustment of preferred stock fair value |
| 904,300 | | 1,388,367 | | | | (2,292,667 | ) | (2,292,667 | ) | ||||||||||||||||||||||||||||
Net loss
|
| | | | | | | (925,773 | ) | (925,773 | ) | ||||||||||||||||||||||||||||
Balance, June
30, 2008 |
3,333,333 | 41,599,996 | 4,631,579 | 45,203,562 | 9,939,835 | 9,760,845 | 47,974,368 | (134,791,421 | ) | (77,056,208 | ) | ||||||||||||||||||||||||||||
Exercise of
stock options |
| | | | 8,468 | 8,468 | 1,755 | | 10,223 | ||||||||||||||||||||||||||||||
Employee stock
compensation |
| | | | | | 565,544 | | 565,544 | ||||||||||||||||||||||||||||||
Accretion of
stock issue cost |
| | | 262,065 | | | | (262,065 | ) | (262,065 | ) | ||||||||||||||||||||||||||||
Preferred
dividends |
| 2,227,355 | | 2,002,037 | | | | (4,229,392 | ) | (4,229,392 | ) | ||||||||||||||||||||||||||||
Accretion
adjustment of preferred stock fair value |
| 1,939,311 | | 2,583,226 | | | | (4,522,537 | ) | (4,522,537 | ) | ||||||||||||||||||||||||||||
Net income
|
| | | | | | | 954,951 | 954,951 | ||||||||||||||||||||||||||||||
Balance, June
30, 2009 |
3,333,333 | 45,766,662 | 4,631,579 | 50,050,890 | 9,948,303 | 9,769,313 | 48,541,667 | (142,850,464 | ) | (84,539,484 | ) | ||||||||||||||||||||||||||||
Exercise of
stock warrants |
| | | | 1,505,966 | 1,505,966 | 7,529,830 | | 9,035,796 | ||||||||||||||||||||||||||||||
Exercise of
stock options |
| | | | 24,710 | 24,710 | 74,196 | | 98,906 | ||||||||||||||||||||||||||||||
Employee stock
compensation |
| | | | | | 622,693 | | 622,693 | ||||||||||||||||||||||||||||||
Stock issuance
cost |
| | | | | | (40,653 | ) | | (40,653 | ) | ||||||||||||||||||||||||||||
Accretion of
preferred stock issue cost |
| | | 262,064 | | | | (262,064 | ) | (262,064 | ) | ||||||||||||||||||||||||||||
Preferred
dividends |
| 2,405,544 | | 2,162,200 | | | | (4,567,744 | ) | (4,567,744 | ) | ||||||||||||||||||||||||||||
Accretion
adjustment of preferred stock fair value |
| 1,294,456 | | 1,913,590 | | | | (3,208,046 | ) | (3,208,046 | ) | ||||||||||||||||||||||||||||
Net income
|
| | | | | | | 2,864,613 | 2,864,613 | ||||||||||||||||||||||||||||||
Balance, June
30, 2010 |
3,333,333 | $ | 49,466,662 | 4,631,579 | $ | 54,388,744 | 11,478,979 | $ | 11,299,989 | $ | 56,727,733 | $ | (148,023,705 | ) | $ | (79,995,983 | ) |
The accompanying notes are an integral part of these
financial statements.
F-5
GREENWAY MEDICAL TECHNOLOGIES, INC.
For the years ending June 30 |
|||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
2008 |
2009 |
2010 |
|||||||||||||
Cash flows
from operating activities: |
|||||||||||||||
Net income
(loss) |
$ | (925,773 | ) | $ | 954,951 | $ | 2,864,613 | ||||||||
Adjustments
to reconcile net income (loss) to net cash provided by (used in) operating activities: |
|||||||||||||||
Loss on the
sale of property and equipment |
488 | | 1,391 | ||||||||||||
Net stock
compensation expense |
1,548,871 | 565,544 | 622,693 | ||||||||||||
Depreciation
|
334,226 | 405,861 | 432,143 | ||||||||||||
Provision for
bad debts |
367,024 | 530,108 | 620,000 | ||||||||||||
Changes in
assets and liabilities: |
|||||||||||||||
Accounts
receivable |
(3,727,226 | ) | (801,378 | ) | (4,319,617 | ) | |||||||||
Inventory
|
327,956 | (207,529 | ) | 164,834 | |||||||||||
Prepaids and
other current assets |
(275,303 | ) | (318,794 | ) | 181,266 | ||||||||||
Accounts
payable and accrued liabilities |
1,470,278 | 456,772 | 5,458,162 | ||||||||||||
Deferred
revenue |
(1,536,615 | ) | 484,185 | 602,748 | |||||||||||
Net cash
provided by (used in) operating activities |
(2,416,074 | ) | 2,069,720 | 6,628,233 | |||||||||||
Cash flows
from investing activities: |
|||||||||||||||
Purchases of
property and equipment |
(3,128,002 | ) | (324,920 | ) | (2,784,490 | ) | |||||||||
Proceeds from
sale of property and equipment |
300 | | | ||||||||||||
Capitalized
software development |
| | (1,221,576 | ) | |||||||||||
Net cash used
in investing activities |
(3,127,702 | ) | (324,920 | ) | (4,006,066 | ) | |||||||||
Cash flows
from financing activities: |
|||||||||||||||
Proceeds from
term debt arrangements |
2,419,000 | 2,326,345 | | ||||||||||||
Repayments on
term debt arrangements |
(51,533 | ) | (2,490,270 | ) | (2,203,542 | ) | |||||||||
Payments on
capital leases |
(38,685 | ) | (41,543 | ) | (44,613 | ) | |||||||||
Proceeds from
exercise of stock options and warrants, net of issuance costs |
| 10,223 | 9,094,049 | ||||||||||||
Net cash
provided by (used in) financing activities |
2,328,782 | (195,245 | ) | 6,845,894 | |||||||||||
Net
increase (decrease) in cash and cash equivalents |
(3,214,994 | ) | 1,549,555 | 9,468,061 | |||||||||||
Cash and
cash equivalents at beginning of year |
11,376,096 | 8,161,102 | 9,710,657 | ||||||||||||
Cash and
cash equivalents at end of year |
$ | 8,161,102 | $ | 9,710,657 | $ | 19,178,718 | |||||||||
Supplemental cash flow information: |
|||||||||||||||
Cash paid for
interest |
$ | 36,431 | $ | 130,394 | $ | 113,562 | |||||||||
Cash paid for
taxes |
$ | | $ | 25,509 | $ | 109,479 |
The accompanying notes are an integral part of these
financial statements.
F-6
1.
|
Description of Company |
Greenway Medical Technologies,
Inc. (the Company) was incorporated September 15, 1998, as a Georgia corporation headquartered in Carrollton, Georgia. The Company
develops, markets and sells an integrated suite of healthcare information technology software solutions, including practice management and electronic
medical records software applications for physician practices, clinics and other ambulatory settings throughout the United States.
The Company is subject to the
risks and challenges similar to other companies in the health care information technology market including, but not limited to, operating in a rapidly
evolving market, competition from larger companies, dependence on new products and on key personnel, as well as the regulatory requirements in the
healthcare information environment.
2.
|
Summary of Significant Accounting Policies |
Adoption of the FASB Accounting Standards Codification
In June 2009, the Financial
Accounting Standards Board (FASB) issued the FASB Accounting Standards Codification (ASC). The ASC became the single source for
all authoritative Generally Accepted Accounting Principles (GAAP) recognized by the FASB and is required to be applied to financial
statements issued for interim and annual periods ending after September 15, 2009. The ASC does not change GAAP and did not impact the Companys
financial statements. All references to GAAP in these notes to the financial statements reflect ASC references.
Fiscal Year
The Companys fiscal
year-end is June 30. Unless otherwise noted, all references to 2008, 2009, and 2010 refer to the fiscal years ended June 30 of the respective
year.
Use of Estimates
In preparing financial statements
in conformity with accounting principles generally accepted in the United States of America (US GAAP), management is required to make estimates and
assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the
financial statements, and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those
estimates.
Subsequent Events
The Company discloses material
events that occur after the balance sheet date but before financial statements are issued. In general, these events are recognized if the condition
existed at the date of the balance sheet, but are not recognized if the condition did not exist at the balance sheet date. The Company discloses
non-recognized events if required to keep the financial statements from being misleading. Management evaluated events occurring subsequent to June 30,
2010 through July 15, 2011.
Cash and Cash Equivalents
Cash consists primarily of money
market accounts. The Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash
equivalents.
F-7
GREENWAY MEDICAL TECHNOLOGIES, INC.
Notes to Financial Statements(Continued)
Notes to Financial Statements(Continued)
2. Summary of Significant Accounting
Policies (Continued)
Accounts Receivable and Allowance for Doubtful
Accounts
Accounts receivable are stated at
the amount the Company expects to collect and do not bear interest. The Company maintains an allowance for doubtful accounts based upon the expected
collectability of accounts receivable. When specific amounts are determined to be uncollectible, they are charged to the allowance. Management
determines the collectability of accounts receivable based primarily on the periodic review of accounts receivable aging schedules, past experience and
knowledge of individual customers.
Following is a schedule of the
changes in the allowance for doubtful accounts:
For the years ended June 30 |
|||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
2008 |
2009 |
2010 |
|||||||||||||
Balance at
beginning of period |
$ | 181,000 | $ | 200,000 | $ | 450,000 | |||||||||
Charged to
expense |
367,000 | 530,000 | 620,000 | ||||||||||||
Write-offs
|
(348,000 | ) | (280,000 | ) | (170,000 | ) | |||||||||
Balance at
end of period |
$ | 200,000 | $ | 450,000 | $ | 900,000 |
Inventory
Inventories consist primarily of
computer equipment expected to be resold and are stated at the lower of cost, determined using the First-In-First-Out (FIFO) method, or market, defined
as net realizable value.
Property and Equipment
Property and equipment are stated
at cost, net of accumulated depreciation. Major property additions, replacements and betterments are capitalized, while maintenance and repairs that do
not extend the useful lives of these assets are expensed as incurred. Depreciation expense was approximately $334,000, $406,000 and $432,000 for the
years ended June 30, 2008, 2009, and 2010, respectively. Depreciation is provided using the specific straight-line method over the useful lives of the
property and equipment, which are as follows:
Years |
||||||
---|---|---|---|---|---|---|
Software
|
3 | years | ||||
Computer and
other equipment |
3 | years | ||||
Leasehold
improvements |
Lesser of lease term or 7 | years | ||||
Furniture and
fixtures |
5 | years | ||||
Buildings
|
39 | years | ||||
Impairment of Long-Lived Assets
The Company evaluates long-lived
assets for potential impairment whenever adverse events or changes in circumstances or business climate indicate that expected undiscounted future cash
flows related to such long-lived assets may not be sufficient to support the net book value of such assets. Impairment exists when the carrying value
of a long-lived asset exceeds its fair value. An impairment loss is recognized only if the carrying value of a long-lived asset is not recoverable and
exceeds its fair value. The carrying value of a long-lived asset is not recoverable if it exceeds the sum of the undiscounted cash flows expected to
result from the use and eventual disposition of the asset. There were no such impairment losses during the years ended June 30, 2008, 2009 or
2010.
Software Development Costs
The Company applies the
provisions of ASC 985-20, Software, Costs of Computer Software to be Sold, Leased or Marketed, which requires the capitalization of costs
incurred in connection with the research and development of new software products and enhancements to existing software products once technological
feasibility is
F-8
GREENWAY MEDICAL TECHNOLOGIES, INC.
Notes to Financial Statements(Continued)
Notes to Financial Statements(Continued)
2. Summary of Significant Accounting
Policies (Continued)
established. Such costs are amortized on a straight-line basis over the estimated economic life of the related product, which is typically three years. The establishment of technological feasibility and the ongoing assessment of the recoverability of these costs require considerable judgment by management with respect to certain external factors including, but not limited to, anticipated future gross product revenue, estimated economic life, and changes in technology.
Capitalized software development
costs were not material in the years ended June 30, 2008 and 2009 and approximated $1,222,000 for the year ended June 30, 2010. Inasmuch as none of the
related projects have been released to market as yet, no amortization has been recorded as of June 30, 2010.
Revenue Recognition
The Company generates revenue
from the following sources:
|
The sale of information systems, which includes software, hardware and peripherals, deployment and training |
|
The provision of system support services (PCS), which includes software application support and hardware maintenance |
|
The provision of outsourcing services, which includes the processing of medical claims, electronic patient statements and revenue cycle management |
The Company recognizes revenue in
accordance with US GAAP, principally ASC 985-605, Software Revenue Recognition.
The Company enters into
contractual obligations to sell hardware, perpetual software licenses, deployment and training services, PCS services and outsourcing services. ASC
985-605-25 requires revenue earned on software arrangements involving multiple elements to be allocated to each element based on the relative fair
values of those elements. The fair value of an element must be based on vendor specific objective evidence (VSOE). The Company limits its assessment of
VSOE for each element to either the price charged when the same element is sold separately or the price established by management having the relevant
authority to do so, for an element not yet sold separately. VSOE calculations are updated and reviewed annually. When evidence of fair value exists for
the delivered and undelivered elements of a transaction, then discounts for individual elements are aggregated and the total discount is allocated to
the individual elements in proportion to the elements fair value relative to the total contract fair value.
When evidence of fair value
exists for the undelivered elements only, the residual method, provided for under ASC 985-605, is used. Under the residual method, the Company defers
revenue related to the undelivered elements in a sale based on VSOE of fair value of each of the undelivered elements and allocates the remainder of
the contract price, net of all discounts, to revenue recognized from the delivered elements. Undelivered elements of a sale may include, among other
things, training services, outsourcing services and PCS. If VSOE of fair value of any undelivered element does not exist, all revenue is deferred until
VSOE of fair value of the undelivered element is established or the element has been delivered.
Revenue is recognized on the
hardware and software deliverables upon shipment at which point VSOE has been established for all of the undelivered items which consist of training
services, outsourcing services and PCS. The Company recognizes the revenue on the delivered elements using the residual method in accordance with ASC
985-605. The residual method allocates an amount of the arrangement to the elements for which fair value can be determined (training, PCS and
outsourcing services) and any remaining arrangement consideration (the residual revenue) is then allocated to the delivered elements (perpetual
software licenses, hardware staging and installation, and data conversion). The fair value of undelivered elements (training, PCS and outsourcing
services)
F-9
GREENWAY MEDICAL TECHNOLOGIES, INC.
Notes to Financial Statements(Continued)
Notes to Financial Statements(Continued)
2. Summary of Significant Accounting
Policies (Continued)
is determined based on VSOE of fair value of those elements and these amounts are deferred and recognized as revenue ratably over the maintenance term or as the services are provided. The residual revenue is allocated to perpetual software licenses, hardware, staging and installation, and data conversion and is recognized upon shipment of the software if persuasive evidence of an agreement exists, collection of the resulting receivable is probable, and the amount of fees to be paid is fixed or determinable.
The fair value of training is
determined based on VSOE of fair value of those services sold separately. VSOE of fair value of PCS and outsourcing services is determined by reference
to the price the Companys customers are required to pay for the services when sold separately via renewals.
On occasion, the Company also
generates revenue from its software products under software subscription agreements. These software subscription agreements include the right to use
the software and receive unspecified future product enhancements and upgrades when and if available for a specified term, usually 60 months. PCS
services are not sold separately in subscription arrangements. Revenue from all of the deliverables related to subscription agreements, including
training services and PCS is recognized ratably over the life of the agreement. Any amounts invoiced or cash received in advance is recorded as
deferred revenue.
The Company records
reimbursements of out-of-pocket expenses as revenue in the accompanying statements of operations. These amounts totaled approximately $1,527,000,
$1,852,000 and $2,141,000 for the years ended June 30, 2008, 2009 and 2010, respectively.
The Company presents sales net of
sales tax and other sales-related taxes collected from customers.
Deferred Revenue
Deferred revenue represents
deposits and other amounts received from customers for contracts for which the revenue earnings process has not yet been completed.
Share-Based Compensation
The Company applies the
provisions of ASC 718, Compensation Stock Compensation which requires companies to estimate the fair value of share-based payment awards
on the date of grant based on an option-pricing model. The estimated fair value of such awards ultimately expected to vest is recognized ratably as
expense over the requisite service period.
The Company will only recognize a
tax benefit from stock based awards in additional paid-in capital if an incremental tax benefit is realized after all other tax attributes currently
available to the Company have been utilized. In addition, the Company has elected to account for the indirect effects of stock based awards on other
tax attributes, such as the research tax credit, through its statement of operations.
Equity instruments issued to
nonemployees are recorded at their fair value on the measurement date. The measurement of share-based compensation is subject to periodic adjustment as
the underlying equity instruments vest. The fair value of options granted to consultants is expensed over the vesting period.
Shipping and Handling
Shipping and handling fees
charged to customers are included in hardware and third-party software revenue, and shipping and handling costs are included in cost of revenue in the
accompanying statements of operations.
Advertising Costs
Advertising costs are expensed as
incurred. Advertising expenses of approximately $749,000, $996,000 and $1,587,000 were included within sales, general and administrative expenses in
2008, 2009 and 2010, respectively.
F-10
GREENWAY MEDICAL TECHNOLOGIES, INC.
Notes to Financial Statements(Continued)
Notes to Financial Statements(Continued)
2. Summary of Significant Accounting
Policies (Continued)
Income Taxes
The Company accounts for income
taxes under the provisions of ASC 740-10, Income Taxes, which requires the use of an asset and liability method of accounting for deferred
income taxes. Under ASC 740, deferred tax assets or liabilities at the end of each period are determined using the tax rate expected to apply to
taxable income in the period in which the deferred tax asset or liability is expected to be settled or realized.
The Company has adopted the
applicable provisions of ASC 740-10 relating to tax contingencies which had previously been accounted for under ASC 450, Contingencies. As
required by the uncertain tax position guidance under ASC 740-10, the Company recognizes the financial statement benefit of a tax position only after
determining that the relevant tax authority would more likely than not sustain the position following an audit. For tax positions meeting this
more-likely-than-not threshold, the amount to be recognized in the financial statements is the largest benefit that has a greater than 50 percent
cumulative likelihood of being realized upon ultimate settlement with the relevant tax authority. At the adoption date, the Company determined that
application of the guidance to its open tax positions had no impact on its financial statements. Subsequent recognition, de-recognition, and
measurement is based on managements best judgment given the facts, circumstances and information available at the reporting
date.
Comprehensive Income
Comprehensive income is the total
of net income and all other non-owner changes in shareholders equity. In 2008, 2009 and 2010, comprehensive income approximated net
income.
Net (Loss) Per Share Available to Common
Shareholders
Basic (loss) per share available
to common shareholders is computed by dividing (loss) available to common stockholders by the sum of the weighted average number of common shares
outstanding during the period. (Loss) available to common shareholders reflects accretion of preferred stock dividends, preferred stock issue cost and
adjustment to recognize the estimated fair value of the put feature ascribed to these securities (Note 7).
Diluted income (loss) per share
gives effect to all potentially dilutive common share equivalents outstanding during the period. Such potentially dilutive common share equivalents
included Series A and B Preferred Stock convertible into 8,842,104 shares of common stock for each of the years ended June 30, 2008, 2009 and 2010;
outstanding warrants exercisable for common shares totaling 1,766,181 for each of the years ended June 30, 2008 and 2009, and 260,218 for the year
ended June 30, 2010; and stock options exercisable for 1,619,366, 1,616,954 and 1,729,263 shares of common stock for each of the years ended June 30,
2008, 2009 and 2010, respectively. The dilutive effect of outstanding stock options and warrants would be computed using the treasury stock method. The
computation of diluted income (loss) per share does not assume conversion, exercise, or contingent exercise of securities that would have an
anti-dilutive effect on earnings and inasmuch as all inclusion of any or all of the potentially dilutive common share equivalents is anti-dilutive for
each of the years ended June 30, 2008, 2009 and 2010, presentation of (loss) per share available to common shareholders basic and diluted are
the same for the periods presented.
Concentration of Credit Risk
Financial instruments that
potentially subject the Company to significant concentrations of credit risk consist principally of cash and cash equivalents and trade accounts
receivable.
The Company maintains cash and
cash equivalents with various financial institutions. The Company performs periodic evaluations of the relative credit standing of those financial
institutions that are considered in the Companys investment strategy. Trade receivables are unsecured and the Company is at risk to the extent
such amounts become uncollectible.
F-11
GREENWAY MEDICAL TECHNOLOGIES, INC.
Notes to Financial Statements(Continued)
Notes to Financial Statements(Continued)
2. Summary of Significant Accounting
Policies (Continued)
For the years ended June 30,
2008, 2009 and 2010, no customer accounted for more than 10% of revenue and no customer accounted for more than 10% of accounts receivable at June 30,
2008, 2009 and 2010.
Fair Value of Financial Instruments
The book values of cash and cash
equivalents, accounts receivable and accounts payable approximate their fair values, principally because of the short-term maturities of these
instruments. The carrying value of the Companys long-term debt approximates fair value since the interest rates are market based and adjusted
periodically. As provided by their terms, the Companys Series A and Series B Convertible Preferred Stock issuances are carried at estimated fair
value based on the greater of a) liquidation preference including accrued dividends or b) fair value of these instruments as determined by independent
appraisal.
The Company applies ASC 820,
Fair Value Measurements and Disclosures, with respect to fair value of (a) nonfinancial assets and liabilities that are recognized or disclosed
at fair value in the Companys financial statements on a recurring basis and (b) all financial assets and liabilities. Effective July 1, 2009, the
Company adopted the aspects of ASC 820 relative to nonfinancial assets and liabilities that are measured at fair value, but are recognized and
disclosed at fair value on a nonrecurring basis electing not to apply the fair value option. This adoption had no material impact on the Companys
financial statements.
ASC 820 prioritizes the inputs
used in measuring fair value as follows: Level 1 Quoted market prices in active markets for identical assets or liabilities; Level
2 Observable inputs other than those included in Level 1 (for example, quoted market prices for similar assets in active markets or quoted
market prices for identical assets in inactive markets); and Level 3 Unobservable inputs reflecting managements own assumptions
about the inputs used in estimating the value of the asset.
The Companys financial
instruments consist primarily of its Series A and B Convertible Preferred Stock classified as temporary equity, which is measured using Level 3 inputs.
Changes in the observability of valuation inputs may result in transfers within the fair value measurement hierarchy. The Company did not identify any
transfers among levels of the fair value measurements hierarchy during fiscal 2009 and 2010.
The Companys assets and
equity balances measured at fair value on a recurring basis consisted of its Series A and B Convertible Preferred Stock as of June 30, 2009 and
2010:
Fair Value Hierarchy Category |
|||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Level 1 |
Level 2 |
Level 3 |
|||||||||||||
Series A
Convertible Preferred Stock: |
|||||||||||||||
June 30,
2009 |
$ | | $ | | $ | 45,766,662 | |||||||||
June 30,
2010 |
| | 49,466,662 | ||||||||||||
Series B
Convertible Preferred Stock: |
|||||||||||||||
June 30,
2009 |
| | 50,050,890 | ||||||||||||
June 30,
2010 |
| | 54,388,744 |
The following table presents the
change in the estimated fair value of the Series A and B Convertible Preferred Stock measured using significant unobservable inputs (Level
3):
June 30, 2008 |
June 30, 2009 |
June 30, 2010 |
||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Series A
Convertible Preferred Stock: |
||||||||||||||
Fair value
measurement at beginning of period |
$ | 38,633,329 | $ | 41,599,996 | $ | 45,766,662 | ||||||||
Change in
fair value recorded in accumulated deficit |
2,966,667 | 4,166,666 | 3,700,000 | |||||||||||
Fair value
measurement at end of period |
$ | 41,599,996 | $ | 45,766,662 | $ | 49,466,662 |
F-12
GREENWAY MEDICAL TECHNOLOGIES, INC.
Notes to Financial Statements(Continued)
Notes to Financial Statements(Continued)
2. Summary of Significant Accounting
Policies (Continued)
June 30, 2008 |
June 30, 2009 |
June 30, 2010 | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Series B
Convertible Preferred Stock: |
||||||||||||||
Fair value
measurement at beginning of period |
$ | 41,698,674 | $ | 45,203,562 | $ | 50,050,890 | ||||||||
Change in
fair value recorded in accumulated deficit |
3,504,888 | 4,847,328 | 4,337,854 | |||||||||||
Fair value
measurement at end of period |
$ | 45,203,562 | $ | 50,050,890 | $ | 54,388,744 |
The Series A and B Convertible
Preferred Stock is remeasured to fair value each reporting period. The changes in fair value are recorded, combined with dividends, are recorded in the
statements of convertible preferred and are based on the change in the underlying fair value of the Companys equity during each fiscal year
presented. The fair value of the Companys equity is the amount for which a share of each of the Companys equity instruments could be sold
in a current transaction between willing parties. The Company estimates its fair value using primarily a discounted cash flow model. The operating
assumptions used in the discounted cash flow model are generally consistent with the Companys past performance and with the projections and
assumptions that are used in the Companys current operating plans. Such assumptions are subject to change as a result of changing economic and
competitive conditions.
Recent Accounting Pronouncements
In October 2009, the FASB issued
Accounting Standards Update (ASU) 2009-13, Multiple-Deliverable Revenue Arrangements a consensus of the FASB Emerging Issues Task Force,
to amend certain guidance in ASC 605-25, Revenue Recognition, Multiple-Element Arrangements. The amended guidance in ASC 605-25 (1)
modifies the separation criteria by eliminating the criterion that requires objective and reliable evidence of fair value for the undelivered item(s),
and (2) eliminates the use of the residual method of allocation and instead requires that arrangement consideration be allocated, at the inception of
the arrangement, to all deliverables based on their relative selling price.
The FASB also issued ASU 2009-14,
Certain Revenue Arrangements That Include Software Elements a consensus of the FASB Emerging Issues Task Force, to amend the scope of
arrangements under ASC 985-605, Software, Revenue Recognition to exclude tangible products containing software components and non-software
components that function together to deliver a products essential functionality.
The amended guidance in ASC
605-25 and ASC 985-605 is effective prospectively for revenue arrangements entered into or materially modified in fiscal years beginning on or after
June 15, 2010, with early application and retrospective application permitted.
The Company will prospectively
apply the amended guidance in these updates beginning July 1, 2010 and the adoption of the amendments to ASC 985-605 and ASC 605-25 is expected to have
no significant impact on its financial statements.
In January 2010, the FASB issued
ASU 2010-06, Improving Disclosures about Fair Value Measurements, guidance that amends ASC 820 and clarifies and requires new disclosures about
fair value measurements effective for the Company July 1, 2010. The Companys adoption of this guidance had no significant impact on its financial
statements.
F-13
GREENWAY MEDICAL TECHNOLOGIES, INC.
Notes to Financial Statements(Continued)
Notes to Financial Statements(Continued)
3.
|
Property and Equipment |
Property and equipment consists
of:
June 30 |
|||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
2009 |
2010 |
||||||||||
Land
|
$ | 281,166 | $ | 281,166 | |||||||
Building
|
2,294,352 | 2,294,352 | |||||||||
Leasehold
improvements |
251,101 | 273,942 | |||||||||
Equipment
|
1,702,901 | 2,158,770 | |||||||||
Furniture and
fixtures |
783,447 | 802,992 | |||||||||
Purchased
software |
535,138 | 617,705 | |||||||||
5,848,105 | 6,428,927 | ||||||||||
Less
Accumulated depreciation |
(2,567,089 | ) | (2,966,618 | ) | |||||||
3,281,016 | 3,462,309 | ||||||||||
Construction
in progress |
| 2,169,663 | |||||||||
Total
|
$ | 3,281,016 | $ | 5,631,972 |
4.
|
Accrued Liabilities |
The following table shows the
components of accrued liabilities as of June 30, 2009 and 2010:
June 30 |
|||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
2009 |
2010 |
||||||||||
Accrued
liabilities |
|||||||||||
Accrued
salaries, wages and benefits |
$ | 1,523,898 | $ | 3,561,968 | |||||||
Accrued sales
tax |
453,429 | 825,543 | |||||||||
Accrued
third-party services |
991,081 | 587,000 | |||||||||
Other accrued
expenses |
101,000 | 241,277 | |||||||||
Total |
$ | 3,069,408 | $ | 5,215,788 |
5.
|
Transactions with Related Parties |
Effective July 1, 2000, the
Company entered into an agreement to lease the corporate office from Green Family Real Estate, LLC, an entity controlled by the Companys
Chairman, for approximately $20,000 per month, plus annual adjustments for inflation, until June 30, 2015 (see Note 9).
In 2000, the Company entered into
an agreement to rent on an hourly basis an airplane from Greenway Air, LLC, an entity controlled by the Companys Chairman. Expenses incurred
related to this agreement were approximately $33,000, $45,000 and $50,000 in 2008, 2009 and 2010, respectively. In March 2002, the Company purchased a
1% interest in Greenway Air, LLC, for $12,500. This investment is recorded at cost in the accompanying balance sheets.
The Company has determined that
neither of these is a variable interest entity under applicable guidance.
F-14
GREENWAY MEDICAL TECHNOLOGIES, INC.
Notes to Financial Statements(Continued)
Notes to Financial Statements(Continued)
6.
|
Long-term Debt |
Notes payable and long-term debt
are as follows:
June 30 |
|||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
2009 |
2010 |
||||||||||
Building loan,
originally with monthly payments of $14,200 representing principal and varying interest payment amounts computed at Prime plus 1.0% with a floor of
5.5%. Original maturity date of December 14, 2013, paid in full in 2010 |
$ | 1,900,600 | $ | | |||||||
Equipment loan,
originally with monthly payments of interest only through May 30, 2009; thereafter, payments due in equal installments of principal and interest
computed at Prime plus 1.0% with a floor of 5.5%. Original maturity date of November 1, 2011, paid in full in 2010 |
302,942 | | |||||||||
2,203,542 | | ||||||||||
Add
Capital lease obligations (Note 10) |
56,271 | 11,658 | |||||||||
Less-Current
maturities of long-term debt and capital lease |
(355,433 | ) | (11,658 | ) | |||||||
Long-term debt
and capital lease Net of current maturities |
$ | 1,904,380 | $ | |
During December of 2008, the
Company entered into a Loan and Security Agreement (the Agreement), the proceeds of which were used to pay all existing obligations to previous debt
holders. The Agreement provided available financing of up to $7,000,000. All indebtedness under this Agreement was paid in full at June 30, 2010.
Subsequent to year-end the Company received a commitment for a new loan agreement which was closed in March 2011. This facility provides financing up
to $5,000,000 with interest at LIBOR plus 275 basis points, is secured by a pledge of the Companys assets and contains customary provisions
regarding covenants.
7.
|
Convertible Preferred Stock and Shareholders Deficit |
The amount of stock authorized,
issued and outstanding is summarized as follows as of June 30:
2009 |
2010 |
||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Common Stock |
Series A Preferred |
Series B Preferred |
Common Stock |
Series A Preferred |
Series B Preferred |
||||||||||||||||||||||
Authorized
|
25,000,000 | 3,458,333 | 4,631,579 | 25,000,000 | 3,458,333 | 4,631,579 | |||||||||||||||||||||
Issued
|
9,948,303 | 3,333,333 | 4,631,579 | 11,478,979 | 3,333,333 | 4,631,579 | |||||||||||||||||||||
Outstanding
|
9,948,303 | 3,333,333 | 4,631,579 | 11,478,979 | 3,333,333 | 4,631,579 |
Tender Offer
In December 2009, the
Companys institutional shareholders made an offer to other shareholders to purchase for cash any and all of the then outstanding 1.6 million
warrants for purchase of our common stock at $2.50 per share with the intent of exercising such warrants at their $6.00 stated exercise price.
Additionally, they offered to purchase shares of common stock for $8.50 per share up to a combined aggregate of $25 million. The fully subscribed offer
was closed on December 29, 2010. The Company issued 1,420,673 shares of common stock in connection with the exercise of the warrants. Subsequent to
this Tender Offer by the institutional shareholders, an unrelated warrant holder exercised warrants held to purchase 85,293 shares of the
Companys common stock under warrant terms.
Series A Convertible Preferred Stock
On March 16, 2004, shareholders
of the Company approved an amendment to the Companys articles of incorporation to authorize the issuance of 3,333,333 shares of Series A
Convertible Preferred Stock (the Series A Preferred Stock), with a par value of $0.01 per share. In May 2004, the Company issued all of the authorized
shares
F-15
GREENWAY MEDICAL TECHNOLOGIES, INC.
Notes to Financial Statements(Continued)
Notes to Financial Statements(Continued)
7. Convertible Preferred Stock and
Shareholders Deficit (Continued)
of the Series A Preferred Stock for gross proceeds of approximately $20,000,000. Holders of the Series A Preferred Stock are entitled to receive accruing dividends in an amount equal to 8% per annum, cumulative, accruing daily and compounding annually, which are only payable upon the declaration of, but prior to the payment of, ordinary dividends or upon certain liquidation events or upon certain redemption events. Additionally, holders of the Series A Preferred Stock are entitled to participate pro rata in any dividends paid on the common stock on an as-converted basis. Each share of the Series A Preferred Stock is convertible at the option of the holder thereof at any time into shares of common stock of the Company, par value $1 per share, at a conversion price of $5.89 per share of common stock, subject to adjustment under certain conditions. Upon issuance of the Series B Preferred Stock in 2007, this conversion price was adjusted to reflect the same conversion price of the Series B Preferred Stock of $4.75 and the Company recorded a deemed dividend of $3,870,968 to reflect the fair value of the beneficial conversion as a result of this conversion price adjustment. The Series A Preferred Stock has the right of full-ratchet anti-dilution protection upon any dilutive financing. The shares of Series A Preferred Stock automatically convert into shares of common stock of the Company, par value $1 per share, upon the closing of a qualified initial public offering of common stock. In addition to this automatic conversion, holders of the preferred stock are entitled to receive cash in the amount per share equal to their original issue price upon the closing of an initial public offering of common stock. The Series A Preferred Stock is not entitled to the benefit of any sinking fund. The holders of the Series A Preferred Stock vote with the holders of the common stock on an as-converted basis but have certain exclusive voting rights. The holders of the Series A Preferred Stock have certain registration rights, preemptive rights, rights of first refusal and co-sale rights.
Additionally, on or after August
14, 2010, a majority of the holders of the Series A Preferred Stock have the right to request that the Company redeem all shares of the Series A
Preferred Stock in one installment, payable within 90 days of the request. The purchase price to be paid by the Company under this put for
the redemption of the shares shall be the greater of (A) (i) the original issue price, plus (ii) any accruing dividends accrued but unpaid thereon,
whether or not declared, plus (iii) any other declared but unpaid dividends on such shares or (B) the fair market value on the date of redemption as
determined by an independent appraisal. As of June 30, 2010, $12,475,000 of preferred dividends has been accreted and $16,992,000 has been accreted for
the estimated fair value of the redemption feature.
On July 27, 2005, shareholders of
the Company approved an amendment to the Companys articles of incorporation to increase the number of authorized shares of preferred stock from
3,333,333 shares to 3,458,333 shares, with a par value of $.01 per share. These additional authorized shares were reserved for issuance upon exercise
of the Series A Preferred Stock warrants granted to the maker of the August 9, 2005, term loan that was subsequently paid in full.
Series B Convertible Preferred Stock
On September 6, 2006,
shareholders of the Company approved an amendment to the Companys articles of incorporation to increase the authorized shares of preferred stock
from 3,458,333 to 7,668,859 and, on October 30, 2006, shareholders of the Company approved a subsequent amendment of the Companys articles of
incorporation to increase the authorized shares of preferred stock from 7,668,859 to 8,089,912. The additional 4,631,579 authorized shares were
designated as Series B Convertible Preferred Stock with a par value of $0.01 per share.
During 2007, the Company
converted $3,500,000 of shareholders notes together with accrued interest thereon of $273,082 into 794,333 shares of Series B Convertible
Preferred Stock at a conversion price of $4.75 per share. Additionally during 2007, the Company issued 3,837,246 shares of Series B Convertible
Preferred Stock for $4.75 per share resulting in proceeds of $18,226,918. The Company also paid issuance costs of $993,693 relating to this Preferred
Stock issuance, resulting in net proceeds of $17,233,225. These issuance costs are being accreted over the period to when redemption is permitted. As
of June 30, 2010, $961,000 of these issuance costs has been accreted.
F-16
GREENWAY MEDICAL TECHNOLOGIES, INC.
Notes to Financial Statements(Continued)
Notes to Financial Statements(Continued)
7. Convertible Preferred Stock and
Shareholders Deficit (Continued)
Holders of the Series B Preferred
Stock are entitled to receive accruing dividends in an amount equal to 8% per annum, cumulative, accruing daily and compounding annually, which are
only payable upon the declaration of, but prior to the payment of, ordinary dividends or upon certain liquidation events or upon certain redemption
events. Additionally, holders of the Series B Preferred Stock are entitled to participate pro rata in any dividends paid on the common stock on an
as-converted basis. Each share of the Preferred Stock is convertible at the option of the holder thereof at any time into shares of common stock of the
Company, par value $1 per share, at a conversion price of $4.75 per share of common stock. The Series B Preferred Stock has the right of full-ratchet
anti-dilution protection upon any dilutive financing. The shares of Preferred Stock automatically convert into shares of common stock of the Company,
par value $1 per share, upon the closing of a qualified initial public offering of common stock. In addition to this automatic conversion, holders of
the preferred stock are entitled to receive cash in the amount per share equal to their original issue price upon the closing of an initial public
offering of common stock. The Series B Preferred Stock is not entitled to the benefit of any sinking fund. The holders of the Series B Preferred Stock
vote with the holders of the common stock on an as-converted basis, but have certain exclusive voting rights. The holders of the Preferred Stock have
certain registration rights, preemptive rights, rights of first refusal, right of first negotiation and co-sale rights.
On or after August 14, 2010, a
majority of the holders of the Series B Preferred Stock have the right to request that the Company redeem all shares of the Series B Preferred Stock in
one installment, payable within 90 days of the request. The purchase price to be paid by the Company under this put for the redemption of
the shares shall be the greater of (A) (i) the original issue price, plus (ii) any accruing dividends accrued but unpaid thereon, whether or not
declared, plus (iii) any other declared but unpaid dividends on such shares or (B) the fair market value on the date of redemption as determined by an
independent appraisal. As of June 30, 2010, $7,190,000 of preferred dividends has been accreted and $25,232,000 has been accreted for the estimated
fair value of the redemption feature.
Stock Options
In October 1999, the Board of
Directors approved the 1999 Stock Option Plan (the Plan). The Plan allows the Company to grant incentive stock options and non-statutory stock options
to eligible employees, directors, and consultants of the Company. Options are generally granted for a term of 10 years and generally cliff vest over
periods up to four years. However, the vesting period may be accelerated upon completion of an initial public offering of the Company or after twelve
months following a change in control of the Company, as defined in the Plan. Incentive options granted to employees who, at the date of grant, own more
than 10% of the voting power of the Companys stock have an exercise price equal to 110% of the fair market value at the date of grant and expire
five years from the date of grant. The Plan was terminated in May 2004 and was replaced with the 2004 Stock Option Plan (the 2004 Plan); however,
options granted under the 1999 plan are still outstanding. The 2004 Plan allows the Company to grant incentive stock options and non-statutory stock
options to eligible employees, directors and consultants of the Company. Options are generally granted for a term of 10 years and generally vest 25%
after the first year and then in equal monthly increments for the subsequent three years. On September 24, 2007, the shareholders of the Company
increased the number of shares of common stock reserved for issuance under the 2004 Plan from 484,000 to 934,000. At June 30, 2010, approximately
2,340,681 options under the plans have been granted and approximately 24,000 options remain ungranted.
Stock Option Repricing
During November 2007, the Company
repriced certain stock option awards held by some of its employees. Under the terms of this repricing, the Company repriced employee stock options
having an exercise price of $6.00 or above to an exercise price of $4.75 per share. Other than the exercise price, all other terms of the repriced
options, such as vesting and contractual life, remained the same. As a result of this repricing, the Company repriced options to purchase 930,327
shares of the Companys common stock of which 839,518 were vested and 90,809 were
F-17
GREENWAY MEDICAL TECHNOLOGIES, INC.
Notes to Financial Statements(Continued)
Notes to Financial Statements(Continued)
7. Convertible Preferred Stock and
Shareholders Deficit (Continued)
unvested each having a weighted average original exercise price of $6.11, respectively. The Company accounted for the repricing as a modification and recorded any net incremental fair value related to vested awards as compensation expense on the date of modification. In accordance with applicable guidance, the Company will record the incremental fair value related to the unvested awards, together with unamortized stock-based compensation expense associated with the unvested awards, over the remaining requisite service period of the option holders. In connection with the repriced options, the Company recorded stock based compensation expense of approximately $298,000, $15,000 and $7,000 for the years ended June 30, 2008, 2009 and 2010, respectively. As of June 30, 2010, there was approximately $7,000 of total unrecognized compensation cost related to non-vested options granted under the option plan which is expected to be recognized in the year ending June 30, 2011.
Activity under the Plan is
summarized as follows:
Options Outstanding |
Weighted Average Exercise Price |
|||||||||
---|---|---|---|---|---|---|---|---|---|---|
Outstanding
as of June 30, 2007 |
1,858,386 | $ | 5.19 | |||||||
Granted
|
367,306 | 4.75 | ||||||||
Repriced
|
930,327 | 4.75 | ||||||||
Exercised
|
| | ||||||||
Canceled
|
(266,290 | ) | 5.59 | |||||||
Repriced
|
(930,327 | ) | 6.11 | |||||||
Outstanding
as of June 30, 2008 |
1,959,402 | $ | 4.40 | |||||||
Granted
|
80,450 | 4.88 | ||||||||
Exercised
|
(8,468 | ) | 1.21 | |||||||
Canceled
|
(120,232 | ) | 2.88 | |||||||
Outstanding
as of June 30, 2009 |
1,911,152 | $ | 4.53 | |||||||
Granted
|
603,452 | 5.52 | ||||||||
Exercised
|
(24,710 | ) | 4.00 | |||||||
Canceled
|
(149,213 | ) | 4.01 | |||||||
Outstanding
as of June 30, 2010 |
2,340,681 | $ | 4.91 | |||||||
Options
exercisable as of June 30, 2010 |
1,729,263 | $ | 4.73 | |||||||
Options
exercisable as of June 30, 2009 |
1,616,954 | $ | 4.49 |
The following table sets forth
the Companys outstanding options and options exercisable, including the exercise price range, number of shares, weighted average exercise price
and remaining contractual lives by groups of similar price and grant date as of June 30, 2010:
Options Outstanding |
Options Exercisable |
|||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Exercise Price |
Number of Shares |
Weighted Average Remaining Contractual Life |
Exercise Price |
Exercisable as of June 30, 2010 |
Weighted Average Remaining Contractual Life |
|||||||||||||||||||
$3.00 |
11,331 | 3.01 | $ | 3.00 | 11,331 | 3.01 | ||||||||||||||||||
4.00 |
381,284 | 0.63 | 4.00 | 368,784 | 0.50 | |||||||||||||||||||
4.75 |
1,332,314 | 4.76 | 4.75 | 1,163,660 | 4.39 | |||||||||||||||||||
5.19 |
488,799 | 9.30 | 5.19 | 79,879 | 9.17 | |||||||||||||||||||
6.00 |
3,000 | 3.03 | 6.00 | 1,156 | 6.05 | |||||||||||||||||||
6.92 |
123,953 | 9.98 | 6.92 | 104,453 | 10.01 | |||||||||||||||||||
2,340,681 | 5.30 | 1,729,263 | 4.11 |
F-18
GREENWAY MEDICAL TECHNOLOGIES, INC.
Notes to Financial Statements(Continued)
Notes to Financial Statements(Continued)
7. Convertible Preferred Stock and
Shareholders Deficit (Continued)
The weighted average fair value
of the options granted during 2008, 2009 and 2010 was $2.78, $3.01 and $2.72 respectively. The fair values were estimated using the Black-Scholes
options pricing model with the following weighted average assumptions:
For the years ending June 30 |
||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
2008 |
2009 |
2010 |
||||||||||||
Risk-free
interest rate |
2.61% 4.60% | 1.61% 3.39% | 1.79% 2.49% | |||||||||||
Expected
dividend yield |
| | | |||||||||||
Expected
volatility |
65.9% | 71.7% | 54.8% | |||||||||||
Expected lives
of options |
5 years | 5 years | 5 years | |||||||||||
Forfeiture
rate |
4% | 4% | 5% | |||||||||||
The foregoing assumptions were
based on the following:
|
The risk-free interest rate reflects the average rate on a United States Treasury bond with maturity equal to the expected term of the option; |
|
Because we do not currently pay dividends or expect to pay dividends in the near future, the dividend yield is zero; |
|
The expected volatility in stock price reflects the historical change in the volatility of a publicly traded peer entity over the same expected term of the option; and |
|
The expected lives of options and assumed forfeiture rates are based on historical experience. |
Stock-based compensation expense
recorded for option grants was approximately $1,549,000, $566,000 and $623,000 in 2008, 2009 and 2010, respectively. As of June 30, 2010, there was
approximately $1,263,000 of total unrecognized compensation cost related to non-vested options granted under the option plan. This cost is expected to
be recognized over a weighted-average period of 2.0 years.
Warrants
At June 30, 2010 the Company had
warrants outstanding for purchase of 135,218 shares of common stock at an exercise price of $6.00 per share. These warrants expire October 2012.
Additionally, warrants were outstanding for purchase of 125,000 shares of Series A Preferred Stock at an exercise price of $6.00 per share which expire
August 2012.
8.
|
Income Taxes |
As of June 30, 2010, gross net
operating loss carryforwards of approximately $72,000,000 are available to offset otherwise taxable income in future years. The Company has also
generated research credit carryforwards of approximately $2,380,000. The Company has established a valuation allowance related to these carryforwards
due to the uncertainty of the timing of future taxable income to utilize such carryforwards. The net operating loss carryforwards expire from 2020 to
2029.
F-19
GREENWAY MEDICAL TECHNOLOGIES, INC.
Notes to Financial Statements(Continued)
Notes to Financial Statements(Continued)
8. Income Taxes
(Continued)
The following is a reconciliation
of income taxes at the federal statutory rate with income taxes recorded by the Company:
For the years ending June 30 |
|||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
2008 |
2009 |
2010 |
|||||||||||||
Income tax
computed at the federal statutory rate |
$ | (314,763 | ) | $ | 333,361 | $ | 1,024,294 | ||||||||
State income
taxes, net of federal income tax benefit |
(37,031 | ) | 39,219 | 120,505 | |||||||||||
Permanent
items |
107,199 | 429,186 | 201,712 | ||||||||||||
Research and
development and other credits |
(304,734 | ) | (356,014 | ) | 524,512 | ||||||||||
Other
|
(90,714 | ) | | | |||||||||||
Change in
valuation allowance |
640,043 | (420,243 | ) | (1,723,009 | ) | ||||||||||
$ | | $ | 25,509 | $ | 148,014 |
The Companys deferred tax
assets and liabilities consist of the following:
June 30 |
|||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
2009 |
2010 |
||||||||||
Deferred
tax assets: |
|||||||||||
Deferred
revenue |
$ | 176,985 | $ | 154,651 | |||||||
Stock option
obligations |
1,412,085 | 1,145,753 | |||||||||
Investments
|
132,665 | 131,143 | |||||||||
Fixed assets
|
120,134 | 66,230 | |||||||||
Research and
development credit |
2,736,317 | 2,380,304 | |||||||||
Allowance for
doubtful accounts |
170,999 | 341,981 | |||||||||
Other
|
101,909 | 14,735 | |||||||||
Inventory
|
105,027 | 203,533 | |||||||||
Net operating
loss carryforwards |
28,826,444 | 27,121,225 | |||||||||
Deferred
tax assets |
33,782,565 | 31,559,555 | |||||||||
Less
Valuation allowance |
(33,782,565 | ) | (31,559,555 | ) | |||||||
Net deferred
tax assets |
$ | | $ | |
As of June 30, 2010, the Company
had no unrecognized tax benefits. The Company is no longer subject to U.S. federal income or state tax return examinations by tax authorities for tax
years before 2006. The Company will recognize accrued interest and penalties related to unrecognized tax benefits in income tax expense when and if
incurred. The Company had no interest or penalties related to unrecognized tax benefits accrued as of June 30, 2010. The Company does not anticipate
that the amount of the unrecognized benefit will significantly increase within the next 12 months.
Subsequent to June 30, 2010, at
March 31, 2011, the Company determined that it would be more likely than not that the cumulative net operating loss and other deferred tax benefits
would be recoverable. Accordingly, net deferred tax assets of approximately $31.0 million were recorded on the Companys balance sheet as of March
31, 2011 with a corresponding $31.0 million income tax benefit recorded in the statement of operations. The determination of when to adjust the
valuation allowance requires significant judgment on the part of management. This determination was based on historical experience, knowledge of
current business factors and belief of what could occur in the future. Although realization is not assured, management concluded that it is more likely
than not that the deferred tax assets at March 31, 2011 will be realized in the ordinary course of operations based on the available positive and
negative evidence, primarily our history of cumulative profitability for the 12 quarters ended March 31, 2011 coupled with recent projected earnings.
Therefore a valuation allowance was determined to be unnecessary. The amount of the deferred tax assets considered realizable, however, could be
reduced in the near term if actual future earnings are lower than estimated, or if there are differences in the timing or amount of future reversals of
existing taxable or deductible temporary differences.
F-20
GREENWAY MEDICAL TECHNOLOGIES, INC.
Notes to Financial Statements(Continued)
Notes to Financial Statements(Continued)
9.
|
Leases |
As discussed in Note 5, the
Company leases office space from related parties under operating leases through 2015. Rental expense, recognized on a straight-line basis, for all
building and equipment leases totaled approximately $403,000, $257,000 and $266,000 in 2008, 2009 and 2010, respectively. As of June 30, 2010, future
minimum lease payments under operating leases with non-cancelable terms are as follows:
Amount |
||||||
---|---|---|---|---|---|---|
For the year
ending June 30: |
||||||
2011 |
$ | 273,000 | ||||
2012 |
267,000 | |||||
2013 |
256,000 | |||||
2014 |
248,000 | |||||
2015 |
248,000 | |||||
Thereafter |
| |||||
Total |
$ | 1,292,000 |
10.
|
Capital Lease |
On September 20, 2005, the
Company entered into a capital lease agreement totaling approximately $198,000 with an expiration date of September 20, 2010. The capital lease has a
term of 60 months and bears interest at 7.15%. The lease is secured by certain fully depreciated equipment of the Company, with cost and accumulated
depreciation of $198,000 at June 30, 2010. As of June 30, 2010, approximately $12,000 was outstanding on the lease. All remaining amounts due under the
lease mature in 2011.
11.
|
Retirement Savings Plan |
The Company offers a retirement
savings plan (the Plan) under Section 401(k) of the Internal Revenue Code to eligible employees, as defined in the plan document. The Plan allows a
participant to make pre-tax contributions up to the maximum allowable percentage of eligible earnings under IRS guidelines. In addition, the Company
can elect to make a discretionary matching contribution based on a uniform percentage of participants contributions determined by the Board of
Directors each year. The Company may also make additional discretionary contributions upon a resolution of the Board of Directors. The Company made no
matching or discretionary contributions to the Plan for the years ended June 30, 2008, 2009 and 2010, respectively.
12.
|
Segment information |
The Company complies with ASC
Topic 280, Segment Reporting. ASC 280, which is based on a management approach to segment reporting and requires that the Company disclose
information about the business components (operating segments) as utilized to make operating decisions and assess performance. The objective of this
guidance is to help financial statement users understand the Companys performance, assess prospects for future cash flows and judge the entity as
a whole. An operating segment is defined as a component that engages in business activities whose operating results are reviewed by the chief operating
decision maker and for which discrete financial information is available. The Company manages its resources and assesses its performance on an
enterprise-wide basis. The Company does report revenue according to the nature of the products and services provided to its customers; providers in
various settings within the ambulatory sector of the domestic healthcare market who share similar economic characteristics.
F-21
GREENWAY MEDICAL TECHNOLOGIES, INC.
Notes to Financial Statements(Continued)
Notes to Financial Statements(Continued)
13.
|
Contingencies |
The Company is, in the routine
operation of its business, subject to litigation, claims, assessments and various other legal matters. In the opinion of management, none of these
matters are expected to result in a settlement or judgment having a material adverse effect on the Companys financial position or results of
operations.
F-22
GREENWAY MEDICAL TECHNOLOGIES,
INC.
June 30, 2010 |
March 31, 2011 |
|||||||||
---|---|---|---|---|---|---|---|---|---|---|
(Unaudited) | ||||||||||
Assets |
||||||||||
Current
assets: |
||||||||||
Cash and cash
equivalents |
$ | 19,178,718 | $ | 7,539,103 | ||||||
Short-term
investments |
| 10,507,187 | ||||||||
Accounts
receivable, net of a $900,000 and $420,000 allowance for doubtful accounts at June 30, 2010 and March 31, 2011 (unaudited), respectively
|
11,515,041 | 12,602,211 | ||||||||
Inventory
|
324,083 | 584,540 | ||||||||
Prepaids and
other current assets |
692,691 | 1,117,402 | ||||||||
Deferred tax
assets |
| 3,700,000 | ||||||||
Total current
assets |
31,710,533 | 36,050,443 | ||||||||
Property
and equipment, net |
5,631,972 | 8,416,477 | ||||||||
Software
development cost, net |
1,221,576 | 4,516,199 | ||||||||
Deferred
tax assets-noncurrent |
| 27,300,000 | ||||||||
Other
assets |
40,000 | 40,055 | ||||||||
Total assets
|
$ | 38,604,081 | $ | 76,323,174 | ||||||
Liabilities and shareholders deficit |
||||||||||
Current
liabilities: |
||||||||||
Accounts
payable |
$ | 5,197,191 | $ | 6,338,614 | ||||||
Accrued
liabilities |
5,215,788 | 5,349,523 | ||||||||
Deferred
revenue |
4,320,021 | 7,881,779 | ||||||||
Current
maturities of long-term debt and capital lease |
11,658 | | ||||||||
Total current
liabilities |
14,744,658 | 19,569,916 | ||||||||
Obligation
for purchased technology |
| 359,065 | ||||||||
Commitments and contingencies (Notes 10 and 12) |
||||||||||
Convertible preferred stock, at fair value: |
||||||||||
Series
A-Issued and outstanding 3,333,333 shares at June 30, 2010 and March 31, 2011 (unaudited), respectively (cumulative liquidation preference $32,474,840
and $34,345,972 (unaudited), respectively) |
49,466,662 | 68,366,660 | ||||||||
Series
B-Issued and outstanding 4,631,579 shares at June 30, 2010 and March 31, 2011 (unaudited), respectively (cumulative liquidation preference $29,189,701
and $30,869,105 (unaudited), respectively) |
54,388,744 | 75,216,843 | ||||||||
Shareholders deficit: |
||||||||||
Common stock
|
11,299,989 | 11,427,530 | ||||||||
Additional
paid-in capital |
56,727,733 | 58,758,303 | ||||||||
Accumulated
deficit |
(148,023,705 | ) | (157,375,143 | ) | ||||||
Total
shareholders deficit |
(79,995,983 | ) | (87,189,310 | ) | ||||||
Total
liabilities, convertible preferred stock and shareholders deficit |
$ | 38,604,081 | $ | 76,323,174 |
The accompanying notes are an integral part of these
financial statements.
F-23
GREENWAY MEDICAL TECHNOLOGIES, INC.
For the nine months ended March 31 |
|||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
2010 |
2011 |
||||||||||
(Unaudited) | |||||||||||
Revenue: |
|||||||||||
System sales
|
$ | 24,019,180 | $ | 31,982,974 | |||||||
Software
support services |
11,522,158 | 16,010,831 | |||||||||
Electronic
data interchange and business services |
8,985,660 | 12,437,824 | |||||||||
Total revenue
|
44,526,998 | 60,431,629 | |||||||||
Cost of
revenue: |
|||||||||||
System sales
|
10,428,226 | 14,670,819 | |||||||||
Software
support services |
3,070,364 | 4,750,388 | |||||||||
Electronic
data interchange and business services |
6,142,035 | 8,785,529 | |||||||||
Total cost of
revenue |
19,640,625 | 28,206,736 | |||||||||
Gross profit
|
24,886,373 | 32,224,893 | |||||||||
Operating
expenses: |
|||||||||||
Sales,
general and administrative |
18,950,811 | 27,144,676 | |||||||||
Research and
development |
4,338,128 | 5,628,313 | |||||||||
Total
operating expenses |
23,288,939 | 32,772,989 | |||||||||
Operating
income (loss) |
1,597,434 | (548,096 | ) | ||||||||
Interest
income |
24,101 | 53,153 | |||||||||
Interest
expense |
(95,192 | ) | (20,209 | ) | |||||||
Other
(expense), net |
(14,291 | ) | (52,244 | ) | |||||||
Income
(loss) before income taxes |
1,512,052 | (567,396 | ) | ||||||||
Provision
(benefit) for income taxes |
35,787 | (30,944,055 | ) | ||||||||
Net income
|
1,476,265 | 30,376,659 | |||||||||
Preferred
stock dividends and accretion |
(7,676,900 | ) | (39,728,097 | ) | |||||||
Loss
available to common shareholders |
$ | (6,200,635 | ) | $ | (9,351,438 | ) | |||||
Per share
data: |
|||||||||||
Net loss per
share: |
|||||||||||
Basic and
diluted |
$ | (.59 | ) | $ | (.81 | ) | |||||
Weighted
average number of common shares outstanding |
|||||||||||
Basic and
diluted |
10,425,491 | 11,561,887 |
The accompanying notes are an integral part of these
financial statements.
F-24
GREENWAY MEDICAL TECHNOLOGIES, INC.
For the nine months ending March 31 |
|||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
2010 |
2011 |
||||||||||
(Unaudited) | |||||||||||
Cash flows
from operating activities: |
|||||||||||
Net income
|
$ | 1,476,265 | $ | 30,376,659 | |||||||
Adjustments
to reconcile net income to net cash provided by operating activities: |
|||||||||||
Net stock
compensation expense |
601,461 | 1,339,791 | |||||||||
Reversal of
deferred tax valuation allowance |
| (31,000,000 | ) | ||||||||
Depreciation
and amortization |
312,790 | 634,766 | |||||||||
Provision for
bad debt |
270,000 | 538,452 | |||||||||
Changes in
assets and liabilities: |
|||||||||||
Accounts
receivable |
(786,260 | ) | (1,625,622 | ) | |||||||
Inventory
|
(21,469 | ) | (260,457 | ) | |||||||
Prepaids and
other assets |
936,139 | (424,766 | ) | ||||||||
Accounts
payable and accrued liabilities |
1,523,910 | 1,275,158 | |||||||||
Deferred
revenue |
(726,874 | ) | 3,561,758 | ||||||||
Net cash
provided by operating activities |
3,585,962 | 4,415,739 | |||||||||
Cash flows
from investing activities: |
|||||||||||
Net purchases
of short-term investments |
| (10,507,187 | ) | ||||||||
Purchases of
property and equipment |
(1,562,288 | ) | (2,660,206 | ) | |||||||
Capitalized
software development |
(916,182 | ) | (3,294,623 | ) | |||||||
Net cash used
in investing activities |
(2,478,470 | ) | (16,462,016 | ) | |||||||
Cash flows
from financing activities: |
|||||||||||
Repayments on
term debt arrangements |
(233,115 | ) | | ||||||||
Payments on
capital leases |
(33,159 | ) | (11,658 | ) | |||||||
Proceeds from
exercise of stock options and warrants, net of issuance costs |
9,007,259 | 418,320 | |||||||||
Net cash
provided by financing activities |
8,740,985 | 406,662 | |||||||||
Net
increase (decrease) in cash and cash equivalents |
9,848,477 | (11,639,615 | ) | ||||||||
Cash and
cash equivalents at beginning of period |
9,710,657 | 19,178,718 | |||||||||
Cash and
cash equivalents at end of period |
$ | 19,559,134 | $ | 7,539,103 | |||||||
Supplemental cash flow information: |
|||||||||||
Cash paid for
interest |
$ | 95,192 | $ | 8,645 | |||||||
Cash paid for
taxes |
49,287 | $ | 299,913 | ||||||||
Non-cash
investing and financing activities: |
|||||||||||
Common stock
and obligation for future payments at fair value, given in exchange for acquisition of technology |
$ | | $ | 859,502 |
The accompanying notes are an integral part of these
financial statements.
F-25
GREENWAY MEDICAL TECHNOLOGIES, INC.
Notes to Financial Statements
(Unaudited)
Notes to Financial Statements
(Unaudited)
1.
|
Description of Company |
Greenway Medical Technologies,
Inc. (the Company) was incorporated September 15, 1998, as a Georgia corporation headquartered in Carrollton, Georgia. The Company develops, markets
and sells an integrated suite of healthcare information technology software solutions, including practice management and electronic medical records
software applications for physician practices, clinics and other ambulatory settings throughout the United States.
The Company is subject to the
risks and challenges similar to other companies in the health care information technology market including, but not limited to, operating in a rapidly
evolving market, competition from larger companies, dependence on new products and on key personnel, as well as the regulatory requirements in the
healthcare information environment.
2.
|
Summary of Significant Accounting Policies |
Use of Estimates
In preparing financial statements
in conformity with accounting principles generally accepted in the United States of America (US GAAP), management is required to make estimates and
assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the
financial statements, and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those
estimates.
Unaudited Interim Financial Statements
The accompanying interim balance
sheet as of March 31, 2011 and the interim statements of operations and cash flows for the nine months ended March 31, 2010 and 2011 are unaudited and
have been prepared in accordance with the rules and regulations of the U.S. Securities and Exchange Commission. They do not include all the information
and footnotes required by US GAAP for complete financial statements. The unaudited interim financial statements have been prepared on the same basis as
the audited financial statements and, in the opinion of the Companys management, reflect all adjustments consisting of normal recurring accruals
considered necessary to present fairly the Companys results of its operations and cash flows for the nine months ended March 31, 2010 and 2011.
The balance sheet at June 30, 2010 was derived from audited financial statements included elsewhere in this registration statement. The results of the
nine months ended March 31, 2011 are not necessarily indicative of the results to be expected for the year ending June 30, 2011 or for any other
interim period or for any other future year. Unaudited interim financial statement should be read in conjunction with the Companys audited
financial statements included elsewhere in this registration statement.
Cash and Cash Equivalents
Cash consists primarily of money
market accounts. The Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash
equivalents.
Short-term Investments
The Company invests a portion of
its excess cash in short-term investments and has classified these investments as available-for-sale securities. These securities are reported at fair
value with any changes in market value reported as a part of comprehensive income.
F-26
GREENWAY MEDICAL TECHNOLOGIES, INC.
Notes to Financial Statements(Continued)
(Unaudited)
Notes to Financial Statements(Continued)
(Unaudited)
2. Summary of Significant Accounting
Policies (Continued)
Accounts Receivable and Allowance for Doubtful
Accounts
Accounts receivable are stated at
the amount the Company expects to collect and do not bear interest. The Company maintains an allowance for doubtful accounts based upon the expected
collectibility of accounts receivable. The allowance for doubtful accounts approximated $900,000 and $420,000 at June 30, 2010 and March 31, 2011,
respectively. When specific amounts are determined to be uncollectible, they are charged to the allowance. Management determines the collectibility of
accounts receivable based primarily on the periodic review of accounts receivable aging schedules, past experience and knowledge of individual
customers.
Long-Lived Assets
The Company evaluates long-lived
assets for potential impairment whenever adverse events or changes in circumstances or business climate indicate that expected undiscounted future cash
flows related to such long-lived assets may not be sufficient to support the net book value of such assets. Impairment exists when the carrying value
of a long-lived asset exceeds its fair value. An impairment loss is recognized only if the carrying value of a long-lived asset is not recoverable and
exceeds its fair value. The carrying value of a long-lived asset is not recoverable if it exceeds the sum of the undiscounted cash flows expected to
result from the use and eventual disposition of the asset. There was no such impairment noted at June 30, 2010 or March 31, 2011.
Software Development Costs
The Company applies the
provisions of ASC 985-20, Software, Costs of Computer Software to be Sold, Leased or Marketed, which requires the capitalization of costs
incurred in connection with the research and development of new software products and enhancements to existing software products once technological
feasibility is established. Such costs are amortized on a straight-line basis over the estimated economic life of the related product, which is
typically three years. The establishment of technological feasibility and the ongoing assessment of the recoverability of these costs require
considerable judgment by management with respect to certain external factors including, but not limited to, anticipated future gross product revenue,
estimated economic life, and changes in technology.
Capitalized software development
costs approximated $916,000 and $3,295,000 during the nine months ended March 31, 2010 and 2011, respectively.
Revenue Recognition
The Company recognizes revenue in
accordance with US GAAP, principally ASC 985-605, Software Revenue Recognition. In October 2009, the FASB issued Accounting Standards Update
(ASU) 2009-13, Multiple-Deliverable Revenue Arrangements and ASU 2009-14, Certain Revenue Arrangements That Include Software Elements
both representing consensus of the FASB Emerging Issues Task Force, to amend certain revenue recognition guidance.
ASU 2009-13 amended guidance in
ASC 605-25, Revenue Recognition, Multiple-Element Arrangements to (1) modify the separation criteria by eliminating the criterion
that requires objective and reliable evidence of fair value for the undelivered item(s), and (2) eliminate use of the residual method of allocation and
instead require that arrangement consideration be allocated, at the inception of the arrangement, to all deliverables based on their relative selling
price. ASU 2009-14 amended the scope of arrangements under ASC 985-605, Software, Revenue Recognition to exclude tangible products containing
software components and non-software components that function together to deliver a products essential functionality.
The amended guidance in ASC
605-25 and ASC 985-605 was effective prospectively for revenue arrangements entered into or materially modified in fiscal years beginning on or after
June 15, 2010, with early application and
F-27
GREENWAY MEDICAL TECHNOLOGIES, INC.
Notes to Financial Statements(Continued)
(Unaudited)
Notes to Financial Statements(Continued)
(Unaudited)
2. Summary of Significant Accounting
Policies (Continued)
retrospective application permitted. The Company adopted this amended guidance effective July 1, 2010 but there was no significant impact on our financial statements as a result.
Deferred Revenue
Deferred revenue represents
deposits and other amounts received from customers for contracts for which the revenue earnings process has not yet been completed.
Share-Based Compensation
The Company accounts for
share-based compensation under the provisions of ASC 718, Compensation Stock Compensation. ASC 718 requires measurement of compensation
for share-based awards at fair value on the date of grant (or measurement date if different) and recognition of compensation expense, net of
forfeitures, over the requisite service period for awards expected to vest.
The Company will only recognize a
tax benefit from stock based awards in additional paid-in capital if an incremental tax benefit is realized after all other tax attributes currently
available to the Company have been utilized. In addition, the Company has elected to account for the indirect effects of stock based awards on other
tax attributes, such as the research tax credit, through its statement of operations.
Equity instruments issued to
nonemployees are recorded at their fair value on the measurement date. The measurement of share-based compensation is subject to periodic adjustment as
the underlying equity instruments vest. The fair value of options granted to consultants is expensed over the vesting period.
The assumptions utilized for
stock option grants during the nine months ended March 31, 2011 were as follows:
March 31, 2011 |
||||||
---|---|---|---|---|---|---|
Risk-free
interest rate |
1.14% 2.02% | |||||
Expected
dividend yield |
| |||||
Expected
volatility |
42.5% | |||||
Expected lives
of options |
5 years | |||||
Forfeiture rate
|
4% | |||||
The foregoing assumptions were
based on the following:
|
The risk-free interest rate reflects the average rate on a United States Treasury bond with maturity equal to the expected term of the option; |
|
Because we do not currently pay dividends or expect to pay dividends in the near future, the dividend yield is zero; |
|
The expected volatility in stock price reflects the historical change in the volatility of a publicly traded peer entity over the same expected term of the option; and |
|
The expected lives of options and assumed forfeiture rates are based on historical experience. |
F-28
GREENWAY MEDICAL TECHNOLOGIES, INC.
Notes to Financial Statements(Continued)
(Unaudited)
Notes to Financial Statements(Continued)
(Unaudited)
2. Summary of Significant Accounting
Policies (Continued)
In the first nine months of 2011,
the Company issued 732,307 stock option awards to employees and non-employee directors. The weighted average fair value of each stock option was $2.78
per option and the aggregate fair value was $2.0 million. The majority of these awards vest over a four-year period, with the remaining awards vesting
immediately. Share-based compensation expense related to options awards was $602,000 and $1,340,000 for the nine months ended March 31, 2010 and 2011,
respectively. At March 31, 2011, the unrecognized compensation expense related to stock option grants was $2.1 million with a remaining weighted
average life of 2.1 years.
A summary of option activity for
the nine months ended March 31, 2011 follows:
Options Outstanding |
Weighted Average Exercise Price |
|||||||||
---|---|---|---|---|---|---|---|---|---|---|
Outstanding as of June 30, 2010 |
2,340,681 | $ | 4.91 | |||||||
Granted
|
732,307 | 7.05 | ||||||||
Exercised
|
(77,541 | ) | 5.39 | |||||||
Canceled
|
(298,248 | ) | 4.02 | |||||||
Outstanding as of March 31, 2011 |
2,697,199 | $ | 5.58 | |||||||
Options
exercisable as of March 31, 2011 |
1,760,513 | $ | 5.23 |
Income Taxes
The Company accounts for income
taxes under the provisions of ASC 740, Income Taxes, which requires the use of an asset and liability method of accounting for deferred income
taxes. Under ASC 740, deferred tax assets or liabilities at the end of each period are determined using the tax rate expected to apply to taxable
income in the period in which the deferred tax asset or liability is expected to be settled or realized. The Company has adopted the applicable
provisions of ASC 740 relating to tax contingencies which had previously been accounted for under ASC 450 Contingencies. As required by the
uncertain tax position guidance under ASC 740, the Company recognizes the financial statement benefit of a tax position only after determining that the
relevant tax authority would more likely than not sustain the position following an audit. For tax positions meeting this more-likely-than-not
threshold, the amount to be recognized in the financial statements is the largest benefit that has a greater than 50 percent cumulative likelihood of
being realized upon ultimate settlement with the relevant tax authority. At the adoption date, the Company determined that application of the guidance
to its open tax positions had no impact on its financial statements. Subsequent recognition, de-recognition, and measurement is based on
managements best judgment given the facts, circumstances and information available at the reporting date.
Comprehensive Income
Comprehensive income is the total
of net income and all other non-owner changes in shareholders equity. Unrecognized gain or loss on investments held as available-for-sale and
carried at fair value is reported in comprehensive income; such amounts are not material; therefore, for the nine months ended March 31, 2010 and 2011
comprehensive income approximated net income.
Net (Loss) Per Share Available to Common
Shareholders
Basic (loss) per share available
to common shareholders is computed by dividing (loss) available to common shareholders by the sum of the weighted average number of common shares
outstanding during the period. (Loss) available to common shareholders reflects accretion of preferred stock dividends, preferred stock issue cost and
adjustment to recognize the estimated fair value of the put feature ascribed to these securities (Note 8).
F-29
GREENWAY MEDICAL TECHNOLOGIES, INC.
Notes to Financial Statements(Continued)
(Unaudited)
Notes to Financial Statements(Continued)
(Unaudited)
2. Summary of Significant Accounting
Policies (Continued)
Diluted income (loss) per share
gives effect to all potentially dilutive common share equivalents outstanding during the period. Such potentially dilutive common share equivalents
included Series A and B Preferred Stock convertible into 8,842,104 shares of common for each of the nine months ended March 31, 2010 and 2011;
outstanding warrants exercisable for common shares totaling 260,218 for the nine months ended March 31, 2010 and 2011; and stock options exercisable
for 1,745,855, and 1,760,513 shares of common for each of the nine months ended March 31, 2010 and 2011, respectively. The dilutive effect of
outstanding stock options and warrants would be computed using the treasury stock method. The computation of diluted income (loss) per share does not
assume conversion, exercise, or contingent exercise of securities that would have an anti-dilutive effect on earnings and inasmuch as inclusion of any
or all of the potentially dilutive common share equivalents is anti-dilutive for the each of the nine months ended March 31, 2010 and 2011,
presentation of (loss) per share available to common shareholders basic and diluted are the same for the periods presented.
Concentration of Credit Risk
Financial instruments that
potentially subject the Company to significant concentrations of credit risk consist principally of cash and cash equivalents, short-term investments
and trade accounts receivable.
The Company maintains cash and
cash equivalents and short-term investments with various financial institutions. The Company performs periodic evaluations of the relative credit
standing of those financial institutions that are considered in the Companys investment strategy. Trade receivables are unsecured and the Company
is at risk to the extent such amounts become uncollectible.
As of June 30, 2010 and March 31,
2011 and for the nine months ended March 31, 2010 and 2011, no customer accounted for a material percentage of accounts receivable or
revenue.
Fair Value of Financial Instruments
The book values of cash and cash
equivalents, accounts receivable and accounts payable approximate their fair values, principally because of the short-term maturities of these
instruments. The carrying value of the Companys long-term debt approximates fair value since the interest rates are market based and adjusted
periodically. As provided by their terms, the Companys Series A and Series B Convertible Preferred Stock issuances are carried at estimated fair
value based on the greater of a) liquidation preference including accrued dividends or b) fair value of these instruments as determined by independent
appraisal.
The Company applies ASC 820,
Fair Value Measurements and Disclosures, with respect to fair value of (a) nonfinancial assets and liabilities that are recognized or disclosed
at fair value in the Companys financial statements on a recurring basis and (b) all financial assets and liabilities. The Company applies the
aspects of ASC 820 relative to nonfinancial assets and liabilities that are measured at fair value, but are recognized and disclosed at fair value on a
nonrecurring basis but elects not to apply the fair value option.
ASC 820 prioritizes the inputs
used in measuring fair value as follows: Level 1 Quoted market prices in active markets for identical assets or liabilities; Level
2 Observable inputs other than those included in Level 1 (for example, quoted market prices for similar assets in active markets or quoted
market prices for identical assets in inactive markets); and Level 3 Unobservable inputs reflecting managements own assumptions
about the inputs used in estimating the value of the asset.
F-30
GREENWAY MEDICAL TECHNOLOGIES, INC.
Notes to Financial Statements(Continued)
(Unaudited)
Notes to Financial Statements(Continued)
(Unaudited)
2. Summary of Significant Accounting
Policies (Continued)
The Companys Series A and B
Convertible Preferred Stock, classified as temporary equity, is measured using level 3 inputs and changes in the estimated value therein is as
follows:
Fair Value Hierarchy Category |
|||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Level 1 |
Level 2 |
Level 3 |
|||||||||||||
Series A
Convertible Preferred Stock: |
|||||||||||||||
June 30, 2010
|
$ | | $ | | $ | 49,466,662 | |||||||||
March 31,
2011 |
| | 68,366,660 | ||||||||||||
Series B
Convertible Preferred Stock: |
|||||||||||||||
June 30, 2010
|
$ | | $ | | $ | 54,388,744 | |||||||||
March 31,
2011 |
| | 75,216,843 |
March 31, 2010 |
March 31, 2011 |
|||||||||
---|---|---|---|---|---|---|---|---|---|---|
Series A
Convertible Preferred Stock: |
||||||||||
Fair value
measurement at beginning of period |
$ | 45,766,662 | $ | 49,466,662 | ||||||
Change in
fair value recorded in accumulated deficit |
3,566,666 | 18,899,998 | ||||||||
Fair value
measurement at end of period |
$ | 49,333,328 | $ | 68,366,660 | ||||||
Series B
Convertible Preferred Stock: |
||||||||||
Fair value
measurement at beginning of period |
$ | 50,050,890 | $ | 54,388,744 | ||||||
Change in
fair value recorded in accumulated deficit |
4,110,234 | 20,828,099 | ||||||||
Fair value
measurement at end of period |
$ | 54,161,124 | $ | 75,216,843 |
3.
|
Investments |
Short-term investments consist of
money market funds, U.S. agency bonds and corporate bonds with original maturities greater than three months and remaining maturities of less than one
year. Investments are also made in corporate bonds with original maturities of greater than one year but maximum remaining maturities of 18 months;
these investments are also included in short-term investments since the Companys intent is to convert them into cash as may be necessary to meet
liquidity needs. At March 31, 2011, all of the Companys investments were classified as available-for-sale and are reported at fair value with any
changes in market value reported as a part of comprehensive income. As of March 31, 2011, gross accumulated unrealized gains and losses for these
investments were immaterial. Fair value is based on the Level 1 criteria of the fair value hierarchy specified in ASC 820-10, Fair Value
Measurements and Disclosures.
Investments consisted of the
following:
March 31, 2011 |
||||||
---|---|---|---|---|---|---|
U.S. agency
bonds |
$ | 2,925,305 | ||||
Corporate bonds
|
4,831,400 | |||||
Money market
funds |
2,750,482 | |||||
Total
|
$ | 10,507,187 |
F-31
GREENWAY MEDICAL TECHNOLOGIES, INC.
Notes to Financial Statements(Continued)
(Unaudited)
Notes to Financial Statements(Continued)
(Unaudited)
4.
|
Property and Equipment |
Property and equipment consists
of:
Estimated useful lives |
June 30, 2010 |
March 31, 2011 |
||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
(Unaudited) | ||||||||||||||
Land
|
|
$ | 281,166 | $ | 341,716 | |||||||||
Building
|
39
years |
2,294,352 | 4,433,351 | |||||||||||
Leasehold
improvements |
Lesser
of lease term or 7 years |
273,942 | 290,834 | |||||||||||
Equipment
|
3
years |
2,158,770 | 2,604,312 | |||||||||||
Furniture and
fixtures |
5
years |
802,992 | 1,017,539 | |||||||||||
Purchased
software |
3
years |
617,705 | 1,335,872 | |||||||||||
Acquired
technology |
3
years |
| 859,502 | |||||||||||
6,428,927 | 10,883,126 | |||||||||||||
Less-Accumulated depreciation and amortization |
(2,966,618 | ) | (3,601,384 | ) | ||||||||||
3,462,309 | 7,281,742 | |||||||||||||
Construction
in progress |
2,169,663 | 1,134,735 | ||||||||||||
Total
|
$ | 5,631,972 | $ | 8,416,477 |
In September 2010, the Company
acquired certain technology and intellectual property in exchange for cash and 50,000 shares of common stock. The $600,000 cash portion of the purchase
price is payable over three years in variable amounts based on sales of the Companys product offering into which the technology is incorporated.
The purchase agreement provided for a potential reduction of this cash portion of the purchase price when and if an initial public offering of the
Companys common stock were to be completed. The fair value of the aggregate consideration was estimated at $860,000 and allocated in its entirety
to acquired technology estimated to have a useful life of three years. Amortization is charged to cost of goods sold and totaled $115,000 for the nine
months ended March 31, 2011.
5.
|
Accrued Liabilities |
The following table shows the
components of accrued liabilities as of June 30, 2010 and March 31, 2011 (in thousands):
June 30, 2010 |
March 31, 2011 |
|||||||||
---|---|---|---|---|---|---|---|---|---|---|
Accrued
liabilities |
||||||||||
Accrued
salaries, wages and benefits |
$ | 3,561,968 | $ | 2,851,321 | ||||||
Accrued sales
tax |
825,543 | 1,082,370 | ||||||||
Accrued
third-party services |
587,000 | 1,270,321 | ||||||||
Other accrued
expenses |
241,277 | 145,511 | ||||||||
Total |
$ | 5,215,788 | $ | 5,349,523 |
6.
|
Transactions with Related Parties |
Effective July 1, 2000, the
Company entered into an agreement to lease the corporate office from Green Family Real Estate, LLC, an entity controlled by the Companys
Chairman, for approximately $20,000 per month, plus annual adjustments for inflation, until June 30, 2015 (see Note 10).
In 2000, the Company entered into
an agreement to rent on an hourly basis an airplane from Greenway Air, LLC, an entity controlled by the Companys Chairman. Expenses incurred
related to this agreement were approximately $41,000 and $58,000 for the nine months ended March 31 2010 and 2011, respectively. In
March
F-32
GREENWAY MEDICAL TECHNOLOGIES, INC.
Notes to Financial Statements(Continued)
(Unaudited)
Notes to Financial Statements(Continued)
(Unaudited)
6. Transactions with Related Parties
(Continued)
2002, the Company purchased a 1% interest in Greenway Air, LLC, for $12,500. This investment is recorded at cost in the accompanying balance sheets.
The Company has considered
applicable guidance regarding variable interest entities and has determined that neither of these arrangements is such an entity.
7.
|
Credit Facility |
During December of 2008, the
Company entered into a Loan and Security Agreement (the Agreement), the proceeds of which were used to pay all existing obligations to previous debt
holders. The Agreement provided available financing of up to $7,000,000. All indebtedness under this Agreement was paid in full at June 30, 2010. In
March 2011, the Company closed on a new loan agreement which provides financing up to $5,000,000 with interest at LIBOR plus 275 basis points, is by a
secured pledge of the Companys assets and contains customary provisions regarding covenants. There were no amounts outstanding on the credit
facility at March 31, 2011.
8.
|
Convertible Preferred and Shareholders Equity |
The amount of stock authorized,
issued and outstanding is summarized as follows as of June 30, 2010 and March 31, 2011:
June 30, 2010 |
March 31, 2011 |
||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Common Stock |
Series A Preferred |
Series B Preferred |
Common Stock |
Series A Preferred |
Series B Preferred |
||||||||||||||||||||||
Authorized
|
25,000,000 | 3,458,333 | 4,631,579 | 25,000,000 | 3,458,333 | 4,631,579 | |||||||||||||||||||||
Issued
|
11,478,979 | 3,333,333 | 4,631,579 | 11,606,520 | 3,333,333 | 4,631,579 | |||||||||||||||||||||
Outstanding
|
11,478,979 | 3,333,333 | 4,631,579 | 11,606,520 | 3,333,333 | 4,631,579 |
Tender Offer
In December 2009, the
Companys institutional shareholders made an offer to other shareholders to purchase for cash any and all of the then outstanding 1.6 million
warrants for purchase of our common stock at $2.50 per share with the intent of exercising such warrants at their $6.00 stated exercise price.
Additionally, they offered to purchase shares of common stock for $8.50 per share up to a combined aggregate of $25 million. The fully subscribed offer
was closed on December 29, 2010. The Company issued 1,420,673 shares of common stock in connection with the exercise of the warrants. Subsequent to
this Tender Offer by the institutional shareholders, an unrelated warrant holder exercised warrants held to purchase 85,293 shares of the
Companys common stock under warrant terms.
Series A Convertible Preferred Stock
On March 16, 2004, shareholders
of the Company approved an amendment to the Companys articles of incorporation to authorize the issuance of 3,333,333 shares of Series A
Convertible Preferred Stock (the Series A Preferred Stock), with a par value of $0.01 per share. In May 2004, the Company issued all of the authorized
shares of the Series A Preferred Stock for gross proceeds of approximately $20,000,000. Holders of the Series A Preferred Stock are entitled to receive
accruing dividends in an amount equal to 8% per annum, cumulative, accruing daily and compounding annually, which are only payable upon the declaration
of, but prior to the payment of, ordinary dividends or upon certain liquidation events or upon certain redemption events. Additionally, holders of the
Series A Preferred Stock are entitled to participate pro rata in any dividends paid on the common stock on an as-converted basis. Each share of the
Series A Preferred Stock is convertible at the option of the holder thereof at any time into shares of common stock of the Company, par value $1 per
share, at a conversion price of $5.89 per share of common
F-33
GREENWAY MEDICAL TECHNOLOGIES, INC.
Notes to Financial Statements(Continued)
(Unaudited)
Notes to Financial Statements(Continued)
(Unaudited)
8. Convertible Preferred and
Shareholders Equity (Continued)
stock, subject to adjustment under certain conditions. Upon issuance of the Series B Preferred Stock in 2007, this conversion price was adjusted to reflect the same conversion price of the Series B Preferred Stock of $4.75 and the Company recorded a deemed dividend of $3,870, 968 to reflect the fair value of the beneficial conversion as a result of this conversion price adjustment. The Series A Preferred Stock has the right of full-ratchet anti-dilution protection upon any dilutive financing. The shares of Series A Preferred Stock automatically convert into shares of common stock of the Company, par value $1 per share, upon the closing of a qualified initial public offering of common stock. In addition to this automatic conversion, holders of the preferred stock are entitled to receive cash in the amount per share equal to their original issue price upon the closing of an initial public offering of common stock. The Series A Preferred Stock is not entitled to the benefit of any sinking fund. The holders of the Series A Preferred Stock vote with the holders of the common stock on an as-converted basis but have certain exclusive voting rights. The holders of the Series A Preferred Stock have certain registration rights, preemptive rights, rights of first refusal and co-sale rights.
Additionally, on or after August
14, 2010, a majority of the holders of the Series A Preferred Stock have the right to request that the Company redeem all shares of the Series A
Preferred Stock in one installment, payable within 90 days of the request. The purchase price to be paid by the Company under this put for
the redemption of the shares shall be the greater of (A) (i) the original issue price, plus (ii) any accruing dividends accrued but unpaid thereon,
whether or not declared, plus (iii) any other declared but unpaid dividends on such shares or (B) the fair market value on the date of redemption as
determined by an independent appraisal. As of March 31, 2011, $14,346,000 of preferred dividends has been accreted and $34,021,000 has been accreted
for the estimated fair value of the redemption feature.
On July 27, 2005, shareholders of
the Company approved an amendment to the Companys articles of incorporation to increase the number of authorized shares of preferred stock from
3,333,333 shares to 3,458,333 shares, with a par value of $.01 per share. These additional authorized shares were reserved for issuance upon exercise
of the Series A Preferred Stock warrants granted to the maker of the August 9, 2005, term loan that was subsequently paid in full.
Series B Convertible Preferred Stock
On September 6, 2006,
shareholders of the Company approved an amendment to the Companys articles of incorporation to increase the authorized shares of preferred stock
from 3,458,333 to 7,668,859 and, on October 30, 2006, shareholders of the Company approved a subsequent amendment of the Companys articles of
incorporation to increase the authorized shares of preferred stock from 7,668,859 to 8,089,912. The additional 4,631,579 authorized shares were
designated as Series B Convertible Preferred Stock with a par value of $0.01 per share.
During 2007, the Company
converted $3,500,000 of shareholders notes together with accrued interest thereon of $273,082 into 794,333 shares of Series B Convertible
Preferred Stock at a conversion price of $4.75 per share. Additionally during 2007, the Company issued 3,837,246 shares of Series B Convertible
Preferred Stock for $4.75 per share resulting in proceeds of $18,226,918. The Company also paid issuance costs of $993,693 relating to this Preferred
Stock issuance, resulting in net proceeds of $17,233,225. These issuance costs are being accreted over the period to when redemption is permitted and
as of March 31, 2011; the entire amount has been accreted.
Holders of the Series B Preferred
Stock are entitled to receive accruing dividends in an amount equal to 8% per annum, cumulative, accruing daily and compounding annually, which are
only payable upon the declaration of, but prior to the payment of, ordinary dividends or upon certain liquidation events or upon certain redemption
events. Additionally, holders of the Series B Preferred Stock are entitled to participate pro rata in any dividends paid on the common stock on an
as-converted basis. Each share of the Preferred Stock is convertible at the option of the holder thereof at any time into shares of common stock of the
Company, par value $1 per share, at a conversion
F-34
GREENWAY MEDICAL TECHNOLOGIES, INC.
Notes to Financial Statements(Continued)
(Unaudited)
Notes to Financial Statements(Continued)
(Unaudited)
8. Convertible Preferred and
Shareholders Equity (Continued)
price of $4.75 per share of common stock. The Series B Preferred Stock has the right of full-ratchet anti-dilution protection upon any dilutive financing. The shares of Preferred Stock automatically convert into shares of common stock of the Company, par value $1 per share, upon the closing of a qualified initial public offering of common stock. In addition to this automatic conversion, holders of the preferred stock are entitled to receive cash in the amount per share equal to their original issue price upon the closing of an initial public offering of common stock. The Series B Preferred Stock is not entitled to the benefit of any sinking fund. The holders of the Series B Preferred Stock vote with the holders of the common stock on an as-converted basis, but have certain exclusive voting rights. The holders of the Preferred Stock have certain registration rights, preemptive rights, rights of first refusal, right of first negotiation and co-sale rights.
On or after August 14, 2010, a
majority of the holders of the Series B Preferred Stock have the right to request that the Company redeem all shares of the Series B Preferred Stock in
one installment, payable within 90 days of the request. The purchase price to be paid by the Company under this put for the redemption of
the shares shall be the greater of (A) (i) the original issue price, plus (ii) any accruing dividends accrued but unpaid thereon, whether or not
declared, plus (iii) any other declared but unpaid dividends on such shares or (B) the fair market value on the date of redemption as determined by an
independent appraisal. As of March 31, 2011, $8,869,000 of preferred dividends has been accreted and $44,348,000 has been accreted for the estimated
fair value of the redemption feature.
Stock Options
In October 1999, the Board of
Directors approved the 1999 Stock Option Plan (the Plan). The Plan allows the Company to grant incentive stock options and non-statutory stock options
to eligible employees, directors, and consultants of the Company. Options are generally granted for a term of 10 years and generally cliff vest over
periods up to four years. However, the vesting period may be accelerated upon completion of an initial public offering of the Company or after twelve
months following a change in control of the Company, as defined in the Plan. Incentive options granted to employees who, at the date of grant, own more
than 10% of the voting power of the Companys stock have an exercise price equal to 110% of the fair market value at the date of grant and expire
five years from the date of grant. The Plan was terminated in May 2004 and was replaced with the 2004 Stock Option Plan (the 2004 Plan); however,
options granted under the 1999 plan are still outstanding. The 2004 Plan allows the Company to grant incentive stock options and non-statutory stock
options to eligible employees, directors and consultants of the Company. Options are generally granted for a term of 10 years and generally vest 25%
after the first year and then in equal monthly increments for the subsequent three years. On September 24, 2007, the shareholders of the Company
increased the number of shares of common stock reserved for issuance under the 2004 Plan from 484,000 to 934,000. At March 31, 2011, approximately
2,697,199 options have been granted and approximately 36,000 options remain ungranted.
9.
|
Income Taxes |
In preparing its financial
statements, the Company estimates income taxes in each of the jurisdictions in which it operates. This process involves estimating actual current tax
exposure together with assessing temporary differences resulting from differing treatment of items for tax and financial reporting purposes. These
differences result in deferred income tax assets and liabilities. As of March 31, 2011, the Company had gross net operating losses (NOLs) totaling
$74,000,000. These NOLs will be available to offset any future taxable income and will begin to expire in 2020. The Company has also generated research
credit carryforwards of approximately $2,380,000. At March 31, 2011, the Company had established a valuation allowance related to its net deferred tax
assets.
F-35
GREENWAY MEDICAL TECHNOLOGIES, INC.
Notes to Financial Statements(Continued)
(Unaudited)
Notes to Financial Statements(Continued)
(Unaudited)
9. Income Taxes
(Continued)
At March 31, 2011, the Company
determined that it would be more likely than not that the cumulative net operating loss and other deferred tax benefits would be recoverable.
Accordingly, net deferred tax assets of approximately $31.0 million were recorded on the Companys balance sheet as of March 31, 2011 with a
corresponding $31.0 million income tax benefit recorded in the statement of operations. The determination of when to adjust the valuation allowance
requires significant judgment on the part of management. This determination was based on historical experience, knowledge of current business factors
and belief of what could occur in the future. Although realization is not assured, management concluded that it is more likely than not that the
deferred tax assets at March 31, 2011 will be realized in the ordinary course of operations based on the available positive and negative evidence,
primarily our history of cumulative profitability for the 12 quarters ended March 31, 2011, coupled with recent projected earnings. On the basis of
managements assessment of this positive evidence, a valuation allowance was determined to be unnecessary. The amount of the deferred tax assets
considered realizable, however, could be reduced in the near term if actual future earnings are lower than estimated, or if there are differences in
the timing or amount of future reversals of existing taxable or deductible temporary differences.
As of March 31, 2011, the Company
had no unrecognized tax benefits. The Company is no longer subject to U.S. federal income or state tax return examinations by tax authorities for tax
years before 2007. The Company will recognize accrued interest and penalties related to unrecognized tax benefits in income tax expense when and if
incurred. The Company had no interest or penalties related to unrecognized tax benefits accrued as of March 31, 2011. The Company does not anticipate
that the amount of the unrecognized benefit will significantly increase or decrease within the next 12 months.
10.
|
Leases |
As discussed in Note 6, the
Company leases office space from related parties under operating leases through 2015. Rental expense for all building and equipment leases totaled
approximately $207,000 and $337,000 for the nine months ended March 31, 2010 and 2011, respectively.
11.
|
Segment information |
The Company complies with ASC
Topic 280, Segment Reporting. ASC 280, which is based on a management approach to segment reporting and requires that the Company disclose
information about the business components (operating segments) as utilized to make operating decisions and assess performance. The objective of this
guidance is to help financial statement users understand the Companys performance, assess prospects for future cash flows and judge the entity as
a whole. An operating segment is defined as a component that engages in business activities whose operating results are reviewed by the chief operating
decision maker and for which discrete financial information is available. The Company manages its resources and assesses its performance on an
enterprise-wide basis. The Company does report revenue according to the nature of the products and services provided to its customers; providers in
various settings within the ambulatory sector of the domestic healthcare market who share similar economic characteristics.
12.
|
Contingencies |
The Company is, in the routine
operation of its business, subject to litigation, claims, assessments and various other legal matters. In the opinion of management, none of these
matters are expected to result in a settlement or judgment having a material adverse effect on the Companys financial position or results of
operations.
F-36
GREENWAY MEDICAL TECHNOLOGIES, INC.
Notes to Financial Statements(Continued)
(Unaudited)
Notes to Financial Statements(Continued)
(Unaudited)
13.
|
Subsequent Events |
The Company discloses material
events that occur after the balance sheet date but before financial statements are issued. In general, these events are recognized if the condition
existed at the date of the balance sheet, but are not recognized if the condition did not exist at the balance sheet date. The Company discloses
non-recognized events if required to keep the financial statements from being misleading. Management evaluated events occurring subsequent to March 31,
2011 through July 15, 2011.
F-37
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and
Distribution
The following table sets forth
the fees and expenses, other than underwriting discounts and commissions, payable in connection with the registration of the common stock hereunder.
All amounts are estimates except the SEC registration fee, the FINRA filing fee and listing fee.
SEC
registration fee |
$ | 11,610 | ||||
FINRA filing
fee |
10,500 | |||||
Listing fee*
|
||||||
Blue Sky fees
and expenses* |
||||||
Printing and
engraving expenses* |
||||||
Legal fees
and expenses* |
||||||
Accounting
fees and expenses* |
||||||
Transfer
agent and registrar fees* |
||||||
Miscellaneous
expenses* |
||||||
Total
|
$ |
* |
To be completed by amendment. |
Item 14. Indemnification of directors
and officers.
We are incorporated under the
laws of the State of Delaware. Our certificate of incorporation, which will be in effect upon the completion of this offering, will provide that,
except to the extent prohibited by the Delaware General Corporation Law, as amended, (the DGCL) our directors shall not be personally
liable to the company or its stockholders for monetary damages for any breach of fiduciary duty as directors of the company. Under the DGCL, the
directors have a fiduciary duty to the company which is not eliminated by this provision of the amended and restated certificate of incorporation and,
in appropriate circumstances, equitable remedies such as injunctive or other forms of nonmonetary relief will remain available. In addition, each
director will continue to be subject to liability under the DGCL for breach of the directors duty of loyalty to the company or acts or omissions
which are found by a court of competent jurisdiction to be not in good faith or involving intentional misconduct, for knowing violations of law, for
actions leading to improper personal benefit to the director, and for payment of dividends or approval of stock repurchases or redemptions that are
prohibited by the DGCL. This provision also does not affect the directors responsibilities under any other laws, such as the federal securities
laws or state or federal environmental laws.
Section 145 of the DGCL empowers
a corporation to indemnify its directors and officers and to purchase and maintain insurance with respect to liability incurred by or arising out of
their capacity or status as directors and officers, whether or not the corporation could indemnify such person against liability under section 145
(subject to certain limitations). The DGCL further provides that the indemnification permitted thereunder shall not be deemed exclusive of any other
rights to which the directors and officers may be entitled under the corporations bylaws, any agreement, vote of stockholders, or
otherwise.
Section 102(b)(7) of the DGCL
enables a corporation in its certificate of incorporation (or an amendment thereto) to eliminate or limit the personal liability of a director to the
corporation or its stockholders of monetary damages for breaches of the directors fiduciary duty of care, provided that this provision shall not
eliminate or limit the liability of a director: (1) for any breach of the directors duty of loyalty to the corporation or its stockholders, (2)
for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (3) arising under Section 174 of the
DGCL, which provides for liability of directors for unlawful payment of dividends or unlawful stock purchases or redemptions, or (4) for any
transaction from which the director derived an improper personal benefit.
II-1
Our amended and restated
certificate of incorporation, which will be in effect upon the completion of this offering, will eliminate the personal liability of directors to the
fullest extent permitted by DGCL and provides that we may fully indemnify any officers and members of the Board of Directors and, with authorization of
the Board of Directors, indemnify our employees, agents, and any other persons against all expenses, liabilities or other matters, including those
incurred in prosecuting any matter and in indemnification actions. Article VI of our bylaws also indemnifies the directors and officers to the fullest
extent permitted by DGCL. Such indemnification extends to each person, heir, executor or administrator of such person, who was or is a party,
threatened to be made a party to, or involved in any threatened, pending, or completed action, suit or proceeding, including civil, criminal,
administrative or investigative, by reason that such person is or was a director or officer of the company, or is or was serving at our request as a
director or officer of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise. Such indemnification is a
contract right that includes the right to be paid by the company expenses, including attorney fees, incurred in connection with any such suit or
proceeding in advance of its final disposition to the fullest extent permitted by law. Such indemnification also extends to employees and agents of the
company by action of our Board of Directors and to the extent and effect as determined by the Board of Directors and authorized by the
DGCL.
We maintain liability insurance
for our officers and directors. Further, we intend to enter into indemnity agreements with each of our current directors and officers to give these
directors and officers additional contractual assurances regarding the scope of the indemnification set forth in our amended and restated certificate
of incorporation and to provide additional procedural protections. At present, there is no pending litigation or proceeding involving any director,
officer, employee or agent as to which indemnification will be required or permitted under our amended and restated certificate of incorporation or our
bylaws, and we are not aware of any threatened litigation or proceeding that may result in a claim for indemnification.
The underwriting agreement to be
filed as an exhibit to this prospectus will provide for indemnification of us and our officers and directors by the underwriters for certain
liabilities arising under the Securities Act and otherwise to the extent, but only to the extent, that such liability arose from an untrue statement or
alleged untrue statement or omission or alleged omission made in reliance upon and in conformity with written information furnished to us by such
underwriter specifically for use in the prospectus.
Item 15. Recent sales of unregistered
securities.
In the past three fiscal years,
we have issued the following securities that were not registered under the Securities Act:
Stock Options
We have granted options under our
stock incentive plans to purchase an aggregate of 987,851 shares of common stock (net of expirations and cancellations) to employees, officers and
directors, having exercise prices ranging from $4.78 to $11.58 per share. Of these, options to purchase shares of common stock have been exercised for
aggregate consideration of approximately $784,609, at an weighted average exercise price of $4.55 per share. In addition, the Company has issued
1,505,966 shares of common stock upon the exercise of warrants at an exercise price of $6.00 per share. Also, on August 7, 2010, we issued 50,000
shares of common stock to VisualMED, Inc. (VisualMED), as partial consideration for an acquisition of certain assets from VisualMED.
Finally, we issued 864 shares of our common stock on June 28, 2011 to a consultant as partial compensation for services rendered. None of the foregoing
transactions involved any underwriters, underwriting discounts or commission, or any public offering, and the company believes the transactions were
exempt from the registration requirements of the Securities Act in reliance on Section 4(2) thereof, and the rules and regulations promulgated
thereunder, or Rule 701 thereunder, as transactions by an issuer not involving a public offering or transactions pursuant to compensatory benefit
plans. The recipients of the shares of common stock issued upon exercise of the options were our employees, officers or directors who received the
securities under our stock incentive plan. Appropriate legends were affixed to the securities issued in these transactions. Each of the recipients of
securities in these transactions had adequate access, through employment, business or other relationships, to information about us.
II-2
Item 16. Exhibits and financial
statement schedules.
(a) |
Exhibits |
Exhibit No. |
Description |
|||||
---|---|---|---|---|---|---|
1.1# |
Form
of Underwriting Agreement. |
|||||
3.2# |
Form
of Certificate of Incorporation of the Registrant, to be in effect upon completion of the offering. |
|||||
3.3# |
Form
of Bylaws of the Registrant, to be in effect upon completion of the offering. |
|||||
4.1# |
Form
of the Registrants Common Stock Certificate. |
|||||
4.2 |
Amended and Restated Investors Rights Agreement, by and among Greenway Medical Technologies, Inc. and the investors listed on Schedule A
thereto, dated October 30, 2006. |
|||||
5.1# |
Opinion of Paul, Hastings, Janofsky & Walker LLP. |
|||||
10.1#* |
Greenway Medical Technologies, Inc. 2011 Stock Plan, to be in effect upon completion of the offering. |
|||||
10.2#* |
Greenway Medical Technologies, Inc. 2004 Stock Plan. |
|||||
10.2.1#* |
2004
Stock Plan Form of ISO and NSO Notice of Stock Option Grant and Stock Option Agreement. |
|||||
10.2.2#* |
Amendment to 2004 Stock Plan. |
|||||
10.3#* |
Greenway Medical Technologies 1999 Stock Option Plan, as amended. |
|||||
10.3.1#* |
1999
Stock Option Plan Form of ISO Agreement. |
|||||
10.3.2#* |
1999
Stock Option Plan Form of Non-Qualified Stock Option Agreement. |
|||||
10.4#* |
Form
of Indemnification Agreement by and between Greenway Medical Technologies, Inc. and each of its directors. |
|||||
10.5 |
Triple Net Lease, by and between Elizabeth Village, LLC and Greenway Medical Technologies, Inc., dated as of July 1, 2000. |
|||||
10.6 |
Credit Agreement, among Greenway Medical Technologies, Inc., Bank of America, N.A., and the other lenders, named therein, dated as of March
22, 2011. |
|||||
10.7 |
Security Agreement, by and between Greenway Medical Technologies, Inc. and Bank of America, N.A., dated as of March 22,
2011. |
|||||
10.8#+ |
Software License and Services Agreement, by and between Greenway Medical Technologies, Inc. and Walgreen Co., dated as of February 28,
2011. |
|||||
10.9#+ |
Form
of 2011 Incentive Bonus Plan. |
|||||
14# |
Greenway Medical Technologies, Inc. Code of Business Conduct and Ethics. |
|||||
21 |
List
of subsidiaries. |
|||||
23.1 |
Consent of Grant Thornton LLP, Independent Registered Public Accounting Firm. |
|||||
23.2# |
Consent of Paul, Hastings, Janofsky & Walker LLP (included in Exhibit 5.1). |
|||||
24.1 |
Power of Attorney (contained on signature page). |
# |
To be filed by amendment. |
* |
Denotes management contract or compensatory arrangement. |
+ |
Certain portions will be omitted pursuant to a confidential treatment request. Omitted information will be filed separately with the SEC. |
|
The Company does not have any subsidiaries. |
II-3
(b) |
Financial Statement Schedules |
Schedules not listed above have
been omitted because the information required to be set forth therein is not applicable or is shown in the financial statements or notes
thereto.
Item
17. Undertakings.
Insofar as indemnification for
liabilities arising under the Securities Act of 1933, as amended, may be permitted to directors, officers and controlling persons of the Registrant
pursuant to the foregoing provisions, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act of 1933, as amended, and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as
expressed in the Securities Act of 1933, as amended, and will be governed by the final adjudication of such issue.
The Registrant hereby undertakes
that:
(a) The Registrant
will provide to the underwriters at the closing as specified in the underwriting agreement, certificates in such denominations and registered in such
names as required by the underwriters to permit prompt delivery to each purchaser.
(b) For purposes of
determining any liability under the Securities Act of 1933, as amended, the information omitted from a form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in the form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act of 1933, as amended, shall be deemed to be part of this registration statement as of the time it was declared
effective.
(c) For the purpose of
determining any liability under the Securities Act of 1933, as amended, each post-effective amendment that contains a form of prospectus shall be
deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
II-4
SIGNATURES
Pursuant to the requirements of
the Securities Act of 1933, as amended, the Registrant has duly caused this Registration Statement on Form S-1 to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Atlanta, State of Georgia, on the 15th day of July, 2011.
Greenway Medical
Technologies, Inc.
By: |
/s/ WYCHE
T. GREEN, III Wyche T. Green, III President, Chief Executive Officer, Director |
POWER OF ATTORNEY
Each person whose individual
signature appears below hereby authorizes and appoints Wyche T. Green, III, W. Thomas Green, Jr., and James A. Cochran, and each of them, with full
power of substitution and resubstitution and full power to act without the other, as his or her true and lawful attorney-in-fact and agent to act in
his or her name, place and stead and to execute in the name and on behalf of each person, individually and in each capacity stated below, and to file
any and all amendments to this Registration Statement, including any and all post-effective amendments and amendments thereto, and any registration
statement relating to the same offering as this Registration Statement that is to be effective upon filing pursuant to Rule 462(b) under the Securities
Act of 1933, as amended, and to file the same, with all exhibits thereto, and other 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,
ratifying and confirming all that said attorneys-in-fact and agents or any of them or their or his substitute or substitutes may lawfully do or cause
to be done by virtue thereof.
Pursuant to the requirements of
the Securities Act of 1933, as amended, this Registration Statement has been signed by the following persons in the capacities indicated
below.
Signature |
Title |
Date |
||||||||
---|---|---|---|---|---|---|---|---|---|---|
/s/
WYCHE T. GREEN, III Wyche T. Green, III |
President, Chief Executive Officer, Director (Principal Executive Officer) |
July 15, 2011 |
||||||||
/s/
W. THOMAS GREEN, JR. W. Thomas Green, Jr. |
Chairman of the Board of Directors |
July 15, 2011 |
||||||||
/s/
JAMES A. COCHRAN James A. Cochran |
Chief
Financial Officer (Principal Financial and Accounting Officer) |
July 15, 2011 |
||||||||
/s/
NOAH WALLEY Noah Walley |
Director |
July 15, 2011 |
||||||||
/s/
THOMAS T. RICHARDS Thomas T. Richards |
Director |
July 15, 2011 |
||||||||
/s/
WALTER TUREK Walter Turek |
Director |
July 15, 2011 |
||||||||
/s/
NEAL MORRISON Neal Morrison |
Director |
July 15, 2011 |
II-5
Shares
Greenway Medical Technologies, Inc.
Common Stock
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________________________________________
J.P. Morgan |
Morgan Stanley |
William
Blair & Company |
Piper
Jaffray |
Raymond James |
________________________________________
Through and including , 2011 (the 25th day after the date of this prospectus), all dealers effecting transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to a dealers obligation to deliver a prospectus when acting as an underwriter and with respect to an unsold allotment or subscription.