SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_______________
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) May 17, 1996
QUALITY SYSTEMS, INC.
(Exact name of registrant as specified in charter)
Delaware 0-13801 95-2888568
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
17822 E. 17th Street, Suite 210, Tustin, California 92680
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (714) 731-7171
Not Applicable
(Former name or former address, if changed since last report.)
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
On May 17, 1996, Quality Systems, Inc. ("QSI") acquired
Clinitec International, Inc. ("Clinitec"), a Pennsylvania
corporation, in a forward-triangular merger (the "Acquisition").
The Acquisition was achieved pursuant to an Agreement and Plan of
Merger (the "Merger Agreement"), dated May 16, 1996, by and among
QSI, Clinitec, CII Acquisition Corporation ("Sub"), a California
corporation and wholly-owned subsidiary of QSI, and certain
principal shareholders of Clinitec (as indicated in the Merger
Agreement). Pursuant to the Merger Agreement, Clinitec was
merged with and into Sub, with Sub surviving as a wholly-owned
subsidiary of QSI. In connection with the Acquisition, the
shareholders of Clinitec (other than QSI) received an aggregate
of 309,846 shares of QSI Common Stock and $4,896,000 in cash on a
pro rata basis as set forth in the Merger Agreement. In
determining the aggregate purchase price for Clinitec, QSI took
into account the value of software companies of similar industry
and size to Clinitec, comparable transactions, and the market for
software companies generally.
In May 1995, QSI acquired a 25% ownership interest in
Clinitec, and with the completion of the Acquisition acquired the
remaining 75% of Clinitec that it did not own. The shareholders'
vote of Clinitec unanimously approved the Acquisition. In
addition, Sheldon Razin, an officer, director and shareholder of
QSI and a member of the Clinitec Board of Directors, abstained
from the Clinitec Board's vote on the Acquisition.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements of Business Acquired.
The annual audited financial statements of
Clinitec International, Inc. ("Clinitec")
prepared in accordance with Regulation S-B
consisting of the balance sheet as of
December 31, 1995 and the statements of
operations, shareholders' equity and cash
flows for the period from January 31, 1994
(inception) through December 31, 1994 and
for the year ended December 31, 1995 together
with the corresponding Independent Auditors'
Report and Report of Independent Accountants
are hereby incorporated by reference to the
Registrant's Registation Statement on Form S-1,
File No. 333-00161.
The unaudited financial statements of Clinitec
prepared in accordance with Regulation S-B
consisting of the balance sheet as of
March 31, 1996 and the statements of operations
and cash flows for the three months ended March
31, 1996 and 1995 filed with this report are
listed in the Index to Financial Statements
on page F-1 of this report.
(b) Pro Forma Financial Information.
The pro forma financial statements
for the combined companies filed with
this report are listed in the Index
to Financial Statements on page F-1 of
of this report.
(c) Exhibits
*2 Agreement and Plan of Merger, dated May 16,
1996, by and among Quality Systems, Inc., CII
Acquisition Corporation, Clinitec
International, Inc., and certain shareholders
of Clinitec International, Inc. and certain exhibits.
10.1 Employement Agreement dated May 16, 1996 by and
between CII Acquisition Corporation and Patrick Cline.
*99.1 Text of Press Release dated May 17, 1996.
* Incorporated herein by reference to the Registrant's Current
Report on Form 8-K dated May 17, 1996 and filed May 30, 1996.
SIGNATURES
Pursuant to the requirements of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be
signed on its behalf by the undersigned hereunto duly authorized.
Date: June 21, 1996 QUALITY SYSTEMS, INC.
/s/ Robert G. McGraw
Robert G. McGraw
Vice President,
Chief Financial Officer
(Principal Financial and
Accounting Officer)
Index to Financial Statements
To Current Report on Form 8-K/A
Page
(a) Financial Statements of Business Acquired. No.
----
Balance Sheet as of March 31, 1996 F-2
Statements of Operations for the Three
Months Ended March 31, 1996 and 1995 F-3
Statements of Cash Flows for the Three
Months Ended March 31, 1996 and 1995 F-4
Notes to Financial Statements -- March
31, 1996 F-5
(b) Pro Forma Financial Information.
Unaudited Pro Forma Consolidated
Balance Sheets as of March 31, 1996 F-6
Unaudited Pro Forma Consolidated
Statements of Operations for the
Year Ended March 31, 1996 F-8
Unaudited Notes to Pro Forma Consolidated
Financial Statements -- March 31, 1996 F-9
F-1
CLINITEC INTERNATIONAL, INC.
BALANCE SHEET
March 31, 1996
(in thousands)
A S S E T S
1996
-------
Current Assets:
Cash and cash equivalents $ 226
Receivables, net of allowance of $25--
Trade 556
Affiliates 70
Prepaid expenses and other current assets 79
-------
Total current assets 931
Equipment and Furniture, net of accumulated
depreciation of $47 219
Capitalized Software Costs, net of accumulated
amortization of $88 179
Deferred Tax Asset, net 128
Other Assets 11
-------
Total assets $ 1,468
=======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued expenses $ 337
Accrued payroll 58
Deferred revenue 61
Deferred tax liability 29
-------
Total current liabilities 485
-------
Deferred Tax Liability 59
-------
Commitments and Contingencies
Shareholders' Equity:
Convertible preferred stock, no par
value; 1,000,000 shares authorized;
359,382 shares issued and outstanding 985
Common stock, no par value; 3,000,000
shares authorized; 1,078,250 shares
issued and outstanding 941
Accumulated deficit (1,002)
-------
Total shareholders' equity 924
-------
Total liabilities and shareholders' equity $ 1,468
=======
See Notes to Financial Statements.
F-2
CLINITEC INTERNATIONAL, INC.
STATEMENTS OF OPERATIONS
(in thousands)
Three Months Ended March 31,
----------------------------
1996 1995
------------- -------------
REVENUES $ 1,313 $ 229
COST OF SALES-HARDWARE 588 108
------------- -------------
Gross Profit 725 121
------------- -------------
OPERATING EXPENSES:
Payroll and Related Expenses 455 167
Selling, General and Administrative 223 97
Research and Development 92 10
------------- -------------
770 274
------------- -------------
Loss from Operations (45) (153)
INTEREST INCOME 4 1
------------- -------------
NET LOSS $ (41) $ (152)
============= =============
See Notes to Financial Statements.
F-3
CLINITEC INTERNATIONAL, INC.
STATEMENTS OF CASH FLOWS
(in thousands)
Three Months Ended March 31,
----------------------------
1996 1995
------------- -------------
Cash Flows from Operating
Activities:
Net loss $ (41) $ (152)
Adjustments to reconcile net
loss to net cash used in
operating activities:
Depreciation and amortization 34 12
Common stock issued for services - 38
Changes in--
Accounts receivable (255) (55)
Inventories 128 19
Other current assets 10 (8)
Accounts payable and accrued
expenses 287 14
Customer deposits (616) 56
Deferred revenue 26 -
Other (8) (14)
------------- -------------
Net Cash Used In Operating Activities (435) (90)
------------- -------------
Cash Flows from Investing Activities:
Additions to equipment and furniture (57) (12)
Additions to capitalized software
costs - (41)
------------- -------------
Net Cash Used In Investing Activities (57) (53)
------------- -------------
Cash Flows from Financing Activities:
Proceeds from issuance of common
stock - 5
Proceeds from issuance of note
payable to shareholder - 50
------------- -------------
Net Cash Provided By Financing
Activities - 55
------------- -------------
Net Increase (Decrease) in Cash
and Cash Equivalents (492) (88)
Cash and Cash Equivalents,
beginning of period 718 112
------------- -------------
Cash and Cash Equivalents, end
of period $ 226 $ 24
============= =============
See Notes to Financial Statements.
F-4
CLINITEC INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS
March 31, 1996 (Unaudited)
1. BASIS OF PRESENTATION
The information set forth in these financial statements of
Clinitec International, Inc. ("Clinitec") as of March 31, 1996 and
for the three months ended March 31, 1996 and 1995 is unaudited. The
information reflects all adjustments consisting only of normal
recurring entries that, in the opinion of management, are necessary to
present fairly the financial position and results of operations of
Clinitec for the periods indicated. The results of operations for
interim periods are not necessarily indicative of the results of
operations for the respective full fiscal year or for any future
period.
Certain information in footnote disclosures normally included in
financial statements has been condensed or omitted, in accordance with
the rules and regulations of the Securities and Exchange Commission.
The information contained in these interim financial statements
should be read in conjunction with the audited financial statements of
Clinitec contained in the Registrant's Registration Statement on Form
S-1, File No. 333-00161, incorporated herein by reference.
F-5
QUALITY SYSTEMS, INC.
PRO FORMA CONSOLIDATED BALANCE SHEETS
As of March 31, 1996 (Unaudited)
(in thousands)
QSI CLINITEC Pro
As of As of Forma
March 31, December Adjust-
1996 31, 1995 ments Pro Forma
--------- -------- -------- ---------
(Note 2)
ASSETS
Current Assets:
Cash and cash equivalents $ 27,872 $ 718 $(4,896) a $23,694
Short-term investments 1,072 - - 1,072
Accounts receivable, net 4,751 371 - 5,122
Inventories 853 144 - 997
Other current assets 135 73 - 208
--------- -------- -------- ---------
Total current assets 34,683 1,306 (4,896) 31,093
Equipment and Improvements, net 572 173 - 745
Capitalized Software Costs, net 599 202 - 801
Investment in Clinitec
International, Inc. 976 - 11,790 a -
51 b
(11,852) c
(965) e
Other Assets 442 138 830 c 1,410
Goodwill - - 3,054 c 3,054
--------- -------- -------- ---------
Total assets $ 37,272 $ 1,819 $ (1,988) $ 37,103
========= ======== ======== =========
See Notes to Pro Forma Consolidated Financial Statements.
F-6
QUALITY SYSTEMS, INC.
PRO FORMA CONSOLIDATED BALANCE SHEETS (Continued)
As of March 31, 1996 (Unaudited)
(in thousands)
QSI CLINITEC Pro
As of As of Forma
March 31, December Adjust-
1996 31, 1995 ments Pro Forma
--------- -------- -------- ---------
(Note 2)
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable 1,706 $ 50 $ - $ 1,756
Deferred service revenue 1,031 35 - 1,066
Estimated costs to complete
system installations 402 - - 402
Customer deposits - 616 - 616
Other current liabilities 1,348 94 - 1,442
--------- -------- -------- ---------
Total current liabilities 4,487 795 - 5,282
--------- -------- -------- ---------
Deferred Tax Liability 84 59 332 c 475
--------- -------- -------- ---------
Commitments And Contingencies
Shareholders' Equity:
Preferred stock - 985 (985) e -
Common stock 56 941 3 a 59
(941) e
Additional paid-in capital 27,148 - 6,891 a 34,039
Unrealized loss on available-
for-sale securities (44) - - (44)
Retained earnings (deficit) 5,541 (961) (8,300) c (2,708)
961 e
51 b
--------- -------- -------- ---------
Total shareholders' equity 32,701 965 (2,320) 31,346
--------- -------- -------- ---------
Total liabilities and
shareholders' equity $ 37,272 $ 1,819 $ (1,988) $ 37,103
========= ======== ======== =========
See Notes to Pro Forma Consolidated Financial Statements.
F-7
QUALITY SYSTEMS, INC.
PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
For the Year ended March 31, 1996 (Unaudited)
(in thousands, except per shares amounts)
QSI CLINITEC
Year Year Pro
Ended Ended Forma
March 31, December Adjust-
1996 31, 1995 ments Pro Forma
--------- -------- -------- ---------
(Note 2)
NET REVENUES:
Sales of Computer Systems,
Upgrades and Supplies $ 9,623 $ 1,493 $ - $ 11,116
Maintenance and Other Services 7,109 - - 7,109
--------- -------- -------- ---------
16,732 1,493 - 18,225
COST OF PRODUCTS AND SERVICES 7,929 449 277 d 8,655
--------- -------- -------- ---------
Gross Profit 8,803 1,044 (277) 9,570
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 3,897 1,399 305 d 5,601
RESEARCH AND DEVELOPMENT COSTS 1,567 150 - 1,717
--------- -------- -------- ---------
Income (Loss) from Operations 3,339 (505) (582) 2,252
INVESTMENT INCOME 533 17 - 550
EQUITY IN LOSS OF CLINITEC
INTERNATIONAL, INC. (51) - 51 b -
--------- -------- -------- ---------
Income (Loss) before Income Tax
Provision (Benefit) 3,821 (488) (531) 2,802
INCOME TAX PROVISION (BENEFIT) 1,528 (40) (111) d 1,377
--------- -------- -------- ---------
NET INCOME (LOSS) $ 2,293 $ (448) $ (420) $ 1,425
========= ======== ======== =========
NET INCOME PER SHARE $0.48 $0.28
===== =====
Weighted Average Shares
Used in Calculation 4,788 5,098
===== =====
See Notes to Pro Forma Consolidated Financial Statements.
F-8
QUALITY SYSTEMS, INC.
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1996
(Unaudited)
1. UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
In May 1995, Quality Systems, Inc. ("QSI") acquired a 25%
ownership interest in Clinitec International, Inc. ("Clinitec")
through the purchase of 359,382 shares of Clinitec convertible
preferred stock for $1.0 million in cash. On May 17, 1996, QSI
acquired the remaining 75% of Clinitec by purchasing 100% of the
outstanding shares of Clinitec common stock for $4.9 million in cash
plus 309,846 shares of QSI Common Stock. For purposes of the
acquisition, the shares were valued at $6.9 million, or $22.25 per
share. The unaudited pro forma consolidated balance sheets and
statements of operations give effect on a purchase accounting basis to
the acquisition of Clinitec. The pro forma consolidated balance
sheets as of March 31, 1996 have been prepared by consolidating the
balance sheet of QSI as of March 31, 1996 with the balance sheet of
Clinitec as of December 31, 1995. The pro forma consolidated
statements of operations for the fiscal year ended March 31, 1996 are
comprised of the results of QSI for the fiscal year ended March 31,
1996 and the results of Clinitec for the year ended December 31, 1995.
The pro forma consolidated balance sheets as of March 31, 1996
assume that the acquisition occurred on March 31, 1996. The pro forma
consolidated statements of operations for the fiscal year ended March
31, 1996 assume that the acquisition occurred on April 1, 1995. The
pro forma consolidated balance sheets and statements of operations do
not purport to represent the results of operations or financial
position of the Company had the transaction and events assumed therein
occurred on the dates specified, nor are they necessarily indicative
of the results of operations that may be achieved in the future. The
pro forma adjustments are based on management's preliminary
assumptions regarding purchase accounting adjustments. The actual
allocation of the purchase price will be adjusted to the extent that
actual amounts differ from management's estimates in accordance with
FAS No. 38, "Accounting for Preacquisition Contingencies of Purchased
Enterprises."
The pro forma consolidated financial information is based upon
certain assumptions and adjustments described in the notes to the pro
forma consolidated financial statements. The pro forma consolidated
financial information should be read in conjunction with the
historical financial statements, and related notes, of QSI contained
in QSI's Annual Report on Form 10-KSB for the year ended March 31,
1996 and of Clinitec contained in QSI's Registration Statement on Form
S-1, File No. 333-00161.
2. PRO FORMA ADJUSTMENTS
The following items describe the pro forma adjustments made to
reflect the acquisition of Clinitec:
a) To reflect the acquisition of 100% of the outstanding shares
of Clinitec common stock for $4.9 million in cash and $6.9
million in QSI Common Stock.
F-9
QUALITY SYSTEMS, INC.
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS (Continued)
March 31, 1996
(Unaudited)
b) To reverse QSI's portion of Clinitec's net loss initially
recorded using the equity accounting method due to the pro
forma change to the consolidation method.
c) To record purchase accounting adjustments resulting from the
acquisition of Clinitec based on an appraisal of the fair
value of the net assets of Clinitec as follows:
QSI's investment, including $1.0 million for QSI's
original 25% investment .......................... $12,817
Clinitec's net assets .............................. 965
-------
Excess of purchase price over net assets ........... $11,852
=======
Allocated to:
In-process research and development ................ $ 8,300
Intangible assets relating to existing technology
of $830, net of $332 tax liability ............... 498
Goodwill ........................................... 3,054
-------
$11,852
=======
d) To record amortization of and the corresponding tax benefit
related to the existing purchased technology and goodwill
based on the straight line method over three year and ten year
useful lives, respectively.
e) To eliminate Clinitec's equity accounts and QSI's investment
account.
f) In accordance with FASB Interpretation No. 4, the Company is
required to write-off the $8.3 million in-process research and
development acquired in the acquisition. This write-off will
be reflected in the quarter ending June 30, 1996 and has not
been reflected in the Pro Forma Consolidated Statements of
Operations because it is a one-time non-recurring charge, but
the write-off is reflected in the Pro Forma Consolidated
Balance Sheets.
3. PRO FORMA WEIGHTED AVERAGE SHARES OUTSTANDING
Pro forma weighted average shares outstanding after the
acquisition of Clinitec assumes as outstanding the 309,846 new shares
issued by QSI to fund the $6.9 million portion of the purchase price
paid with QSI Common Stock, valuing each QSI share at $22.25.
F-10
Index to Exhibit
To Current Report on Form 8-K/A
Exhibit Page
Number Description Number
------- ------------------------------------ ------
10.1 Employment agreement dated E-2
May 16, 1996 by and between CII
Acquisition Corporation and
Patrick Cline.
E-1