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AMICAS 10-K 2010 Table of Contents
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C. 20549
Commission File Number
000-25311
20 Guest Street, Suite 400, Boston, Massachusetts 02135
(Address of principal executive
offices, including zip code)
Registrant’s telephone number, including area code:
(617) 779-7878
Securities registered pursuant to Section 12(b) of the
Act:
Securities registered pursuant to Section 12(g) of the
Act:
None
Indicate by check mark if the registrant is a well known
seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes o No þ
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the
Act. Yes o No þ
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been
subject to such filing requirements for the past
90 days. Yes þ No o
Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate Web site, if any,
every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of
Regulation S-T
during the preceding 12 months (or for such shorter period
that the registrant was required to submit and post such
files). Yes o No o
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of
Regulation S-K
is not contained herein, and will not be contained, to the best
of registrant’s knowledge, in definitive proxy or
information statements incorporated by reference in
Part III of this
Form 10-K
or any amendment to this
Form 10-K. o
Indicate by check mark whether the registrant is 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. (Check one):
(Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-12
of the
Act). Yes o No þ
The aggregate market value of the voting and non-voting common
equity held by non-affiliates as of June 30, 2009 was
approximately $97.4 million based on the closing price of
$2.78 at which the common equity was last sold. Solely for the
purpose of this calculation, directors and officers of the
registrant are deemed to be affiliates.
As of March 9, 2010, there were 37,020,131 shares
outstanding of the Registrant’s $0.001 par value
common stock.
Portions of the Registrant’s Proxy Statement for the 2010
Annual Meeting of Stockholders, expected to be held in August,
2010, are incorporated into Part III herein by reference.
AMICAS,
INC.
Form 10-K
AMICAS, AMICAS One Suite, AMICAS PACS, AMICAS RIS, AMICAS
Financials, AMICAS VERICIS,
AMICAS Hemodynamics, AMICAS ECM, AMICAS Documents, AMICAS
Dashboards, AMICAS Watch,
AMICAS Reach, AMICAS RadStream, RealTime Worklist, Halo
Viewer, and Cashfinder Worklist are
trademarks, service marks or registered trademarks and
service marks of AMICAS, Inc. All other
trademarks and company names mentioned are the property of
their respective owners.
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AMICAS, Inc. (“we,” “us,” “our,”
“AMICAS” or the “Company”), is a leading
independent provider of imaging IT solutions. AMICAS offers a
comprehensive suite of image and information management
solutions for healthcare providers — from radiology
picture archiving communication system (“PACS”) to
cardiology PACS, from radiology information systems to
cardiovascular information systems, from business intelligence
tools to enterprise content management tools, from revenue cycle
management solutions to teleradiology solutions. AMICAS provides
a complete,
end-to-end
solution for imaging centers, ambulatory care facilities, and
radiology practices. Hospitals are provided with a comprehensive
image management solution for cardiology and radiology as well
as an enterprise-wide image management infrastructure that
complements existing electronic medical record (“EMR”)
strategies to enhance clinical, operational, and administrative
functions.
We were incorporated in Delaware in November 1996 as InfoCure
Corporation. On November 25, 2003, we acquired 100% of the
outstanding capital stock of Amicas PACS Corp. (formerly known
as Amicas, Inc.), a developer of Web-based diagnostic image
management software solutions. The addition of Amicas PACS Corp.
(“Amicas PACS”) provided us with the ability to offer
radiology groups and imaging center customers a comprehensive
information and image management solution that incorporates the
key components of a complete radiology data management system
(i.e., image management, workflow management and financial
management). The acquisition was completed to position us to
achieve our goal of establishing a leadership position in the
growing PACS market. PACS allows radiologists to access, archive
and distribute diagnostic images for interpretation as well as
to enable fundamental workflow changes that can result in
improvements in operating efficiency. The AMICAS PACS solution
also supports radiologists and other groups to distribute images
and digital information to their customers — the
referring physicians.
On January 3, 2005, we completed the sale of substantially
all of the assets and liabilities of our medical division,
together with certain other assets, liabilities, properties and
rights of the Company relating to our anesthesiology business
(the “Medical Division”) to Cerner Corporation
(“Cerner”) and certain of Cerner’s wholly-owned
subsidiaries. The Medical Division provided IT-based,
specialty-specific solutions for medical practices specializing
in anesthesiology, ophthalmology, emergency medicine, plastic
surgery, dermatology and internal medicine. The sale was
completed in accordance with the terms and conditions of the
Asset Purchase Agreement between the Company and Cerner dated as
of November 15, 2004.
On April 2, 2009 we completed the acquisition of Emageon
Inc (“Emageon”). As a result of the acquisition we
expanded our presence in the image and information management
market. The resultant combined solution suite now includes
radiology PACS, cardiology PACS, radiology information systems,
cardiology information systems, revenue cycle management
systems, referring physician tools, business intelligence tools,
and enterprise content management or vendor-neutral medical
imaging archive capabilities that enable the electronic medical
record with imaging content capabilities (the imaging
“EMR”). We now have operations in Canada, acquired as
part of the Emageon acquisition.
On December 24, 2009, we entered into an Agreement and Plan
of Merger by and among AMICAS, Project Alta Holdings Corp., and
Project Alta Merger Corp., which provides for the acquisition of
100% of the capital stock of AMICAS by an affiliate of Thoma
Bravo, LLC (the “Thoma Bravo Merger Agreement”), for
$5.35 per share in cash. On February 23, 2010, we received
from Merge Healthcare Incorporated (“Merge”) a
proposal to acquire all of the outstanding shares of AMICAS for
$6.05 per share in cash, which included an executed definitive
commitment letter for $200 million of financing from Morgan
Stanley and confirmation that Merge would place a portion of the
pre-funded proceeds received from its mezzanine investors into
an escrow account directly accessible by AMICAS. After reviewing
the proposal, on March 1, 2010, our Board of Directors
determined that the proposal constituted a “Superior
Proposal” as defined under the Thoma Bravo Merger
Agreement. In accordance with the terms of the Thoma Bravo
Merger Agreement, we negotiated in good faith with Thoma Bravo
during the five business day period to make such adjustments in
the terms and conditions of the Thoma Bravo Agreement such that
the Merge proposal would cease to constitute a Superior Proposal.
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On March 4, 2010, Thoma Bravo notified AMICAS that it was
not offering a counter proposal and waived the remainder of the
notice period. On March 5, 2010, we terminated the Thoma
Bravo Merger Agreement and paid a termination fee of
approximately $8.6 million, half of which was reimbursed by
Merge. Subsequently, we entered into an Agreement and Plan of
Merger (the “Merge Merger Agreement”), dated as of
February 28, 2010, by and among AMICAS, Merge and Project
Ready Corp. pursuant to which Merge will acquire all of the
outstanding shares of AMICAS for $6.05 per share in cash. Under
the terms of the Merge Merger Agreement, Merge will commence a
cash tender offer for all of AMICAS’ outstanding common
stock. Merge will then consummate a merger pursuant to which any
untendered shares of AMICAS common stock (other than those
shares held by AMICAS’ stockholders who have properly
exercised their dissenters’ rights under Section 262
of the Delaware General Corporation Law) will be converted into
the right to receive the same $6.05 per share cash price. The
tender offer and merger are subject to certain closing
conditions, including, but not limited to, a successful tender
of a minimum number of shares of AMICAS common stock, antitrust
clearance and other regulatory approvals. The merger is expected
to close in the second quarter of 2010. There is no financing
condition to the consummation of the Acquisition.
The healthcare market is one of the largest vertical markets in
the United States with annual spending of more than $2.2
trillion in 2007, representing over 16% of the U.S. gross
domestic product. Spending on healthcare continues to outpace
the rest of the economy, with experts predicting that healthcare
expenditures will reach 19.5% of the U.S. gross domestic
product by
2017.1
Within the healthcare market vertical, diagnostic imaging
service lines (which includes general radiography, computed
tomography, magnetic resonance imaging, nuclear medicine,
ultrasound and positron emission tomography, among others) and
certain cardiovascular service lines (which includes both
invasive and non-invasive cardiology) represents two
fast-growing and large revenue generating specialties.
Diagnostic imaging represents approximately $100 billion of
the overall healthcare spending per year — second only
to pharmaceuticals in terms of overall expense within
healthcare. This $100 billion amount includes everything
from the cost of scanners to radiologist salaries to the costs
of managing the images produced from the scanners (e.g., buying,
developing, storing, moving and filing costly,
hard-to-transport
x-ray film and older-generation information systems). Millennium
Research Group reports that diagnostic imaging procedure volume
in the United States is expected to continue to grow over 3%
annually to nearly 600 million annual procedures by 2013.
Advances in diagnostic technologies, an aging population, and a
more health-conscious consumer all contribute to an increase in
the number of diagnostic imaging procedures. With this increase
in utilization comes a comparable increase in the cost of
imaging services and complexity of managing imaging services.
Comprehensive image and information management technology and
applications can help to improve throughput and reduce costs as
utilization of these services continues to increase rapidly.
Diagnostic imaging scanners have become much more sophisticated
in recent years — primarily by producing an increased
volume of high-quality images in a shorter time period. These
improvements aid early diagnosis and detection and are believed
to improve the overall patient experience. For healthcare
providers, these improvements have resulted in both a higher
utilization of imaging services and increased complexity of
managing those imaging services. Multi-slice and helical
computed tomography scanners, for example, produce many more
images per procedure than traditional scanners, allowing for
detection of smaller abnormalities and better reconstruction of
three dimensional models to aid treatment decisions. For
providers without PACS, this increase in images per scan results
in increased film costs, longer reading time for primary
diagnosis, and cumbersome management of the increasing volume of
film.
The number of cardiovascular procedures performed in
U.S. hospitals is also increasing, going from less than
50 million annual procedures in 2007 to over
60 million annual procedures in 2011 according to
Frost & Sulllivan, a global business research and
consulting firm. This increase in cardiovascular utilization is
being driven by the aging of the population, a greater awareness
and need for management of cardiovascular disease, and
technological advances in diagnosis and treatment. Experts
anticipate the incidence of cardiovascular disease will continue
to rise
1 Centers
for Medicare & Medicaid Services, Office of the
Actuary.
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because risks for coronary artery disease, arrhythmia, and other
conditions are all associated with advanced age. This trend,
combined with improved public and physician awareness of
cardiovascular health issues and the ability to use non-invasive
and minimally invasive procedures as alternatives to open
surgery, will continue to drive utilization. With this increase
in utilization comes a commensurate increase in the images and
data generated by cardiology departments. The growth in images
and data generation requires sophisticated tools to collect and
analyze data for the purposes of both patient care and
productivity.
This increased demand for diagnostic imaging and cardiovascular
procedures and related services comes at a time when there is an
industry-wide staffing shortage. While the volume of diagnostic
imaging procedures has continued to grow, the number of
clinicians has remained relatively flat. Hospitals, imaging
centers, radiology group practices, and healthcare organizations
have found themselves under increasing pressure from referring
physicians and specialists to process more procedures, increase
patient throughput, and improve the turn-around time of both the
initial diagnostic interpretation and the final written report.
Analog film-based practices have numerous inefficiencies,
including lost or misplaced prior imaging studies, non-scalable
methods for capturing orders, an inability to obtain detailed
accurate patient demographic information, issues with scheduling
appointments and resources, as well as challenges coding and
preparing billing and reimbursement data. Often, these practices
are not able to meet the increased demands from their referring
physicians and specialists.
A variety of products and services have emerged to help make
healthcare providers more efficient and address these increases
in complexity, cost, and utilization. For example, radiology
PACS helps ensure that prior imaging studies are not misplaced
and that the time spent searching for those studies is
minimized. PACS solutions also improve radiologist productivity
with advanced clinical and workflow tools. Hemodynamics
solutions automate the collection and distribution of critical
patient information from the cardiac catheterization lab. This
helps streamline reporting and communications of critical
patient results. Revenue cycle management solutions help ensure
that exam coding and the billing and reimbursement data for
payers and patients is done faster with a higher quality level
to ensure that payment is accurate and timely.
At the same time, payers nationwide — including both
government and private payers — continue to seek
different mechanisms to curtail the utilization and expense of
imaging. One example of this was the Deficit Reduction Act of
2005 (“DRA”). This legislation enacted special payment
rules limiting Medicare reimbursements, beginning in 2006, for
certain portions of imaging services performed in the office,
ambulatory and other non-hospital settings. In some cases, the
reduction in Medicare reimbursement was greater than 30% per
procedure. In addition, President Obama has committed to work
with Congress to pass a comprehensive healthcare reform bill in
2010 in order to control rising health care costs, guarantee
choice of doctor, and assure high-quality, affordable health
care for all Americans. Part of this bill may include further
reductions in reimbursement for the technical component for
advanced diagnostic imaging (computed tomography, ,magnetic
resonance imaging, nuclear medicine, and positron emission
tomography) as well as a potential freeze on or even reduction
of professional fees for Medicare via the Sustainable Growth
Rate formula, ultimately followed by decreases in professional
reimbursement for both radiology and cardiology.
A second example of utilization controls is the introduction of
radiology benefits management (“RBM”) organizations
that seek to help health plans control the growth in imaging
costs. These firms pre-authorize physician imaging orders on
behalf of health plans to ensure providers are not performing
expensive exams that do not meet a set of pre-determined
guidelines. Whereas legislation such as the DRA is designed to
minimize the use of imaging by reducing the per study
reimbursement, RBM organizations attempt to reduce the use of
imaging by screening exams for what they deem to be medical
necessity and appropriateness. RBM organizations have the
potential to reduce utilization while at the same time creating
an administrative burden for care providers.
We believe that legislation targeting reductions in
reimbursement, such as the DRA and healthcare reform bill, and
utilization controls such as those offered by RBM organizations
put financial pressure on imaging service providers. As a result
of the DRA and the potential impacts of the healthcare
legislation, providers of imaging services are required to
operate on a lower per study revenue run rate. As a result of
RBM organizations, imaging providers may have a higher cost
basis and may have more exams rejected from payers. We believe
that our
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automation solutions help providers of imaging solutions reduce
their overall cost basis and increase volumes, which would
offset these reimbursement reductions.
Another noteworthy trend that has emerged in imaging is
telemedicine. Telemedicine refers to the practice where the
physician providing the interpretation of an imaging exam is
physically at a different location from where the patient is or
was scanned, and is using some form of image management software
and a network connection to receive and interpret the exam. By
reducing some of the geographic constraints in providing
interpretation services, telemedicine offers the potential to
effectively provide remote physician staffing for areas that do
not have coverage due to
sub-specialty
expertise, inability to recruit physicians, or difficulty in
providing temporary coverage. On a macro level, telemedicine
offers the potential to help alleviate transient
and/or
regional supply-demand mismatches. We believe this represents
another growth opportunity for AMICAS solutions as customers
look to drive growth initiatives through teleradiology and
telemedicine.
Image
and Information Management Solutions
According to Millennium Research Group, certain segments of the
market for image and information management solutions remain
underpenetrated — such as the market for radiology
PACS in small community hospitals and diagnostic imaging
centers. In addition, there is a noteworthy market for
replacement solutions in other segments of the
market — including radiology and cardiology PACS in
large hospitals. The following table illustrates the total
market opportunity anticipated for new (or
“greenfield”) contracts as well as replacement
contracts from 2010 through 2013 by market segment.
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“CAGR” means compound annual growth rate.
Source: US Markets for PACS, RIS, & CVIS 2009: Millennium
Research Group
AMICAS is a leading independent provider of imaging IT
solutions. AMICAS offers a comprehensive suite of image and
information management solutions for image-intensive specialties
— including radiology, cardiology, and other
image-intensive specialties, and enterprise imaging automation
solutions at healthcare provider organizations. Our offerings
include software solutions, professional services, electronic
data interchange (“EDI”) services, support and
maintenance, which enable our customers to transform an
organization from an analog to a digital operation. Our
go-to-market
strategy focuses on two primary market segments:
In the ambulatory imaging businesses segment, AMICAS offers a
comprehensive automation solution across the entire provider
operation. We believe that we are the only vendor of significant
size focused on providing image and information management
solutions that is not encumbered with competing and sometimes
conflicting priorities like those that may come with being a
legacy healthcare information system vendor or a large
multi-national modality manufacturer. We believe that we are the
only major independent vendor focused on ambulatory imaging
businesses that owns and directly offers a comprehensive
software suite for image management, enterprise workflow,
revenue cycle management, administrative, financial, and
clinical information management functions — what we
call the AMICAS ONE
Suitetm —
that is singularly focused on the needs of ambulatory imaging
businesses.
In general, ambulatory imaging businesses are small to medium
sized businesses that have significant automation needs to
support their operations. These needs include tools to
facilitate marketing efforts, workflow tools to provide high
quality services in the most efficient manner, and tools to help
efficiently collect fees for the services rendered. Ambulatory
imaging businesses need automation support in all of these areas
to gain operating
6
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efficiencies and remain competitive in their markets. While
these businesses have significant automation needs, they
typically have limited staff and expertise in IT related
matters. We believe these businesses prefer not to purchase
software applications from multiple vendors due to the inherent
complexities of managing multiple vendors’ products,
multiple relationships, and multiple maintenance arrangements
and contracts. A critical value proposition to these businesses
is the ability to establish a partnership with a single vendor
that offers a complete,
end-to-end
solution for their entire operation. The AMICAS ONE Suite is a
comprehensive solution for ambulatory businesses that can be
purchased as a single, comprehensive solution or as a modular
solution that can be adopted over time.
Within the ambulatory imaging business segment, radiology
practices represent an important
sub-segment
for AMICAS. In general, radiology practices provide
interpretation services for area hospitals and often times own
imaging centers in their respective markets. In addition to the
value propositions noted above, AMICAS is well positioned to
serve radiology practices in two additional respects. The first
is that AMICAS offers the ability to create a “single
worklist” environment spanning their work for area
hospitals as well as any owned imaging centers. This drives
significant operating efficiencies for radiologists. AMICAS also
uses relationships with radiology groups as a strategy to secure
visibility and exposure with affiliated hospitals to win the
image management business at those affiliated hospitals. We
accomplish this by leveraging our relationships with the
radiology practices and the exposure that AMICAS gains from
being the image management platform for the radiology practice
to gain traction within the hospital.
In the acute care segment, we provide top-flight departmental
solutions for radiology and cardiology departments and an
enterprise-wide imaging infrastructure that serves as the
imaging component for the enterprise electronic medical record.
Our departmental solutions for radiology include a web-based
PACS that features innovative image management capabilities at
what we believe is a low total cost of ownership. For example,
AMICAS RadStream’s innovative critical results management
capability helps our customers meet the national patient safety
goals from The Joint Commission (a national accreditation and
certification organization focused on quality in healthcare). In
addition, we believe that the total cost of ownership of an
AMICAS solution is relatively low and helps produce an
attractive return on investment. Furthermore, unlike several of
our major competitors, AMICAS’ PACS is already web-based,
providing the customer the comfort of knowing that they are
already on a current generation technology platform.
Our departmental solutions for cardiology include a
multi-modality image management platform, a web-based structured
reporting solution, and a hemodynamic monitoring solution. This
comprehensive cardiovascular solution offers a complete,
end-to-end
automation solution for all aspects of a cardiology department.
For example, the combination of AMICAS VERICIS and AMICAS
Hemodynamics provides a complete solution for the cardiac
catheterization lab. Our products , including our web-based
structured reporting platform codifies clinical data for
national and state level registries and facilitates the report
generation and distribution process for cardiologists.
AMICAS’ cardiology platform is a mature platform, used at
over 250 institutions across the United States.
Our enterprise solutions include vendor neutral archive for
image management infrastructure. A vendor neutral archive allows
healthcare providers to consolidate their medical imaging
infrastructure for multiple departmental image management
solutions from multiple vendors and multiple locations. AMICAS
ECM (Enterprise Content Manager) can be deployed as a standalone
medical image archive solution or it can be deployed complete
with an integrated viewing platform to allow providers to use
AMICAS ECM as the imaging component of their overall EMR
strategy.
Many hospitals continue to pursue “best of breed”
purchasing habits as it relates to image management decisions.
This dynamic can be attributed to the fact that the imaging
industry has very well defined standards for systems
interoperability and the fact that many large healthcare IT
vendors do not offer an image management solution or they offer
suboptimal image management solutions. AMICAS is able to
capitalize on this through a strong focus on standards-based
interoperability, including integration to hospital information
systems, radiology information systems and electronic medical
record systems products, and relationships with leading EMR
vendors, such as MEDITECH, Epic Systems, and Patient Keeper.
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We believe that our target market offers significant potential
opportunities represented by a large and growing imaging
services market with a low penetration of efficient image and
information management systems. In 2008, we refined our
ambulatory
go-to-market
strategy through radiology practices, expanded our product
offerings, and established several key strategic partnerships.
In 2009, we greatly expanded our strategy and solution set for
large hospitals and IDN’s with our acquisition of Emageon.
This acquisition gave us additional solutions in the enterprise
and cardiovascular space and gave us a number of additional
referenceable large customer accounts. With our existing market
presence, industry-recognized product and service offerings,
experienced management team, strong financial condition and
momentum, we believe that we are well-positioned to capitalize
on the opportunities available in the future.
AMICAS invests in research and development with a goal of
further establishing the Company as an innovative solution
provider of image and information management-related needs for
the healthcare industry. We invest in complementary products and
services that help the businesses in our target market grow and
gain further efficiency and effectiveness in their operations
and marketing activities.
The AMICAS Suite of solutions includes the following:
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Payer and Patient Services offerings, commonly referred to as
EDI, include the following services which are offered through
third parties;
We believe that innovation is a critical component to our
success in a highly competitive market with a dramatic need for
automation. During 2009, we continued to invest in research and
development in order to refine and expand our comprehensive
solution suite. We continue to extend the capabilities of our
solution suite through the addition of modules and functionality
that help with workflow, business and operations execution; we
believe that these additional capabilities will provide
competitive advantages for our customers.
Our plan with respect to new product development is to continue
to invest in research and development and we are continually
evaluating strategic technology acquisitions. Examples of
certain offerings in development include:
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Similarly, some examples of potential future offerings include:
We offer professional services to provide additional assistance
before, during and after installation of our software. We
recognize that our customers can be more successful in realizing
their goals and objectives through a services offering combined
with our software. We offer project management, implementation,
integration, training, and support. We utilize best practice
methodologies that we continually improve based upon our
customer implementation experiences that are optimized via the
utilization of well-trained and experienced staff. We believe
that the customer obtains the greatest benefits from our
products when they are implemented and supported by the AMICAS
professional services team.
Software Support. Under the terms of our
standard support and maintenance agreement, our customers pay a
periodic (e.g., monthly, quarterly, annually) support and
maintenance fee associated with the software modules. The
support and maintenance fee entitles the customer to telephone
and Web-based technical support as well as software updates if
and when updates are released. The initial support and
maintenance fee is generally a fixed percentage of the list
price of the licensed software at the time of contract signing.
Hardware Support. Customers may contract with
us for maintenance of the hardware that runs our software. In
return for periodic maintenance fees, the customer is provided
comprehensive telephone diagnostic support and
on-site
support. We subcontract with various third-party hardware
support firms and manufacturers to help provide our hardware
support services.
We believe that a strong product development capability is
essential to our strategy of enhancing our core technology,
developing additional applications, incorporating that
technology into new products and maintaining comprehensive
product and service offerings The priority of our research and
development organization is to enhance and expand the
capabilities of our core product offerings and to develop new
and innovative solutions that will meet the needs of our
increasingly sophisticated customers. Our development
organization is responsible for product definition, product
architecture, core technology development, product testing and
quality assurance.
Our research and development organization consisted of
85 employees as of December 31, 2009, and is
supplemented by contracted resources.
In 2009, 2008 and 2007, our research and development expenses
were $15.1 million, $8.7 million and
$8.5 million, or 16.9%, 17.4% and 17.1% of total revenues,
respectively. We did not capitalize any software development
costs in 2009, 2008 or 2007.
We market and sell our products primarily in the United States
through a direct sales force, composed of 55 sales and marketing
personnel as of December 31, 2009. We have marketing and
sales personnel located in our Daytona Beach, Florida; Hartland,
Wisconsin and Boston, Massachusetts offices and in other cities
around the country. We organize our sales force by region for
both radiology and cardiology solutions. Members of our sales
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organization participate in sales and product training that
enables them to understand strategic selling points, as well as
the specific needs and requirements of our respective customers.
Within our existing customer base, we promote and sell system
upgrades, maintenance contracts, product add-ons, ancillary
products, support services, and EDI services. In addition, we
target new customers principally through trade shows, direct
mail campaigns, telemarketing, referral programs, and
advertisements in various trade publications. Moreover, our
senior personnel and members of management assist in sales and
marketing initiatives to larger and more technically advanced
prospective customers. Sales cycles generally range from an
average of six to twelve months, to as long as twelve months to
two years for large-scale or multi-location systems.
For each of the past three fiscal years, no single customer has
accounted for more than 10% of our total revenues.
We rely primarily on a combination of patent, copyright and
trademark laws, trade secrets, confidentiality procedures, and
contractual provisions to protect our intellectual property and
proprietary rights. These laws and procedures afford only
limited protection.
Despite our efforts to protect our proprietary rights,
unauthorized parties may attempt to copy aspects of our products
or obtain and use information that we regard as proprietary.
Policing unauthorized use of our products is difficult, and such
problems may persist. There can be no assurance that our means
of protecting our proprietary rights will be adequate. In
addition, our competitors could independently develop similar
technology, and if they are able to obtain a patent or other
protection of their intellectual property, then we could be
restricted with respect to the development of our own technology.
Some of our programs have been delivered to our customers along
with their applicable source code, which is protected by
contractual provisions. In other cases, we have entered into
source code escrow agreements with a limited number of our
customers requiring release of the applicable source code under
certain limited conditions, including any bankruptcy proceeding
by or against us, cessation of our business, or our failure to
meet our contractual obligations. Our source code agreements
typically enable the customer to utilize the source code for
their internal use only.
We rely upon certain software that is licensed from third
parties, including software that is integrated with some of our
internally developed software
and/or is
used with some of our products to perform certain functions.
There can be no assurance that these third-party software
licenses will continue to be available to us on commercially
reasonable terms, if at all, which could adversely affect our
business, operating results and financial condition. In
addition, there can be no assurance that third parties will not
claim infringement by us with respect to our products, any parts
thereof, or enhancements thereto.
We distribute our software under software license agreements
that grant customers a nonexclusive, nontransferable, perpetual
or, in some cases, a term license to our products. Such
agreements contain terms and conditions prohibiting the
unauthorized reproduction or transfer of our products.
We have four issues patents in the United States and one in
Canada: U.S. Patent No. 7,426,567 entitled
“Methods and Apparatus for Streaming DICOM Images through
Data Element Sources and Sinks” (issued September 16,
2008); U.S. Patent No. 7,170,521 entitled “Method
and System for Storing, Communicating and Displaying Image
data” (issued January 20, 2007); U.S. Patent
No. 7,000,186 entitled “Method and structure for
Electronically Transmitting a Text Document and Linked
Information (issued February 14, 2006); U.S. Patent
No. 5,908,387 entitled “Device and Method for Improved
Quantitative Coronary Artery Analysis (issued June 1,
1999); and Canadian Patent No. 2230032 entitled
“Method and System for testing and Adjusting Threshold
Voltages in FLAS and EEPROMS” (issued June 12, 2001).
These patents provide us with the exclusive rights to practice
and exploit the claimed inventions, and provide defensive
protections in the event that claims are asserted against us. We
also have several patent applications pending, and we have
acquired licenses under certain third party patents to practice
and sublicense certain technologies.
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We have registered or have applied for registration a number of
trademarks in the U.S. Patent and Trademark Office which
are currently used by us including: AMICAS, VERICIS and
RADSTREAM. In addition, we use and believe that we have priority
in right to use, the following unregistered trademarks; AMICAS
One Suite, AMICAS PACS, AMICAS RIS, AMICAS Financials, AMICAS
Hemodynamics, AMICAS ECM, AMICAS Documents, AMICAS Dashboards,
AMICAS Watch, AMICAS Reach, AMICAS RadStream, RealTime Worklist,
Halo Viewer, HeartSuite, MammoSuite, OrthoSuite, RadSuite,
WorkFlow Accelerator and Cashfinder Worklist.
There can be no assurance that the registration of our patents
or trademarks, our patent licenses or such rights as have arisen
by virtue of our use of our trademarks will be sufficient to
enable us to continue to use such intellectual property in the
event that a claim of infringement is asserted against us.
Our principal competitors include international, national, and
regional clinical, practice management and image management
system vendors. These competitors include medical device
manufacturers, large healthcare IT vendors, film manufacturers,
business conglomerates, and
start-up
software companies. In addition, we compete with national and
regional providers of computerized billing, insurance
processing, and record management services to healthcare
practices, hospitals and integrated delivery networks or
“IDNs.” As the market for our products and services
expands, additional competitors are likely to enter this market.
We believe that the primary competitive factors in our markets
are:
In the market for ambulatory imaging businesses, one of
AMICAS’ primary competitive advantages is our ability to
offer a comprehensive solution automating the entire provider
operation. We believe that we are the only major independent
vendor focused on ambulatory imaging businesses that owns and
directly offers a comprehensive software suite for image
management, enterprise workflow, revenue cycle management,
administrative, financial, and clinical information management
functions. We believe that ambulatory imaging businesses prefer
not to purchase software applications from multiple vendors due
to the inherent complexities of managing multiple vendors’
products, multiple relationships, and multiple maintenance
contracts. A critical value proposition to these businesses is
the ability to establish a partnership with a single vendor that
offers a complete,
end-to-end
solution for their entire operation. We also believe that our
ability to offer technology, such as AMICAS Reach, that is
designed to help these providers meet their business goals and
objectives provides a competitive advantage for AMICAS.
Our strategy and competitive position in the market for
ambulatory imaging businesses could be compromised by a number
of tactics by our competitors. Large modality vendors, such as
General Electric and Fuji, could adversely impact our strategy
by bundling IT solutions with their imaging modalities. Larger
competitors, such as McKesson, Cerner or Philips, might build or
acquire technologies to enable them to offer an
end-to-end
solution for ambulatory imaging businesses. In addition, other
companies might enter the ambulatory imaging market with new
products
and/or
technologies that this market values that we do not have
available in our solution.
In the market for acute care facilities, AMICAS’ primary
competitive advantage is our ability to offer innovative
departmental solutions that offer a low total cost of ownership
as well as our ability to offer a proven, enterprise-wide image
management infrastructure. We believe that AMICAS PACS offers
lower up-front costs in
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terms of hardware, software, professional services, and related
products and services than many of our larger competitors. We
also believe that the ongoing costs for system administration
and maintenance are lower with AMICAS PACS than our competition.
This creates a compelling return on investment for our
customers. We also believe that AMICAS VERICIS is one of the
most proven, complete multi-modality cardiovascular automation
solutions on the market with installations at over 200 sites
spanning the last 10 years. Finally, we believe that
offering a vendor-neutral archive solution in AMICAS ECM will be
a critical point of differentiation for both radiology and
cardiology PACS replacement decisions as well as an emerging
market for vendor neutral archives serving as the imaging
component of a provider’s overall EMR strategy.
Our strategy and competitive position in the market for acute
care facilities could also be compromised by a number of
competitive tactics. Leading healthcare IT vendors could enter
the market for image and information management, creating new
competitors for AMICAS. In addition, large modality vendors,
such as General Electric or Siemens, may bundle IT solutions
with their imaging modalities. Acute care facilities might move
away from a “best of breed” purchasing program and
prefer to purchase image management solutions from modality or
healthcare IT companies. Finally, the market for vendor-neutral
archives has become increasingly crowded with competition from
start-ups,
large storage vendors, and traditional PACS providers. This
could compromise our strategy in this market segment.
We have experienced, and we expect to continue to experience,
increased competition from current and potential competitors,
many of whom have significantly greater financial, technical,
marketing, distribution and other resources than us. Such
competitors may be able to respond more quickly to new or
emerging technologies and changes in customer requirements, or
devote greater resources to the development, promotion, and sale
of their products than us. Also, certain current and potential
competitors have greater name recognition or more extensive
customer bases that could be leveraged, thereby gaining market
share to our detriment. We expect to face additional competition
as other established and emerging companies enter into the
clinical and practice management software markets and as new
products and technologies are introduced. Increased competition
could result in price reductions, fewer customer orders, reduced
gross margins and loss of market share, any of which would
materially adversely affect our business, operating results,
cash flows and financial condition.
Current and potential competitors may make strategic
acquisitions or establish cooperative relationships among
themselves or with third parties, thereby increasing the ability
of their products to address the needs of our existing and
prospective customers. Further competitive pressures, such as
those resulting from competitors’ discounting of their
products, may require us to reduce the price of our software and
complementary products, which would materially and adversely
affect our business, operating results, cash flows and financial
condition.
There can be no assurance that we will be able to compete
successfully against current and future competitors, and the
failure to do so would have a material adverse effect upon our
business, operating results, cash flows and financial condition.
Because our customers use our applications and services to
transmit and manage highly sensitive and confidential health
information, we must address the security and confidentiality
concerns of our customers and their patients. To enable the use
of our applications and services for the transmission of
sensitive and confidential medical information, we use various
methods to ensure an appropriate level of security. These
methods generally include:
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The level of data encryption used by our products is in
compliance with the encryption guidelines set forth in rules
regarding security and electronic signature standards in
connection with the Health Insurance Portability and
Accountability Act of 1996 (see “Government
Regulation” below). We also encourage our customers to
implement their own firewall and security procedures to protect
the confidentiality of information being transferred into and
out of their computer networks.
Internally, we work to ensure the safe handling of confidential
data by employees in our electronic services department by:
We monitor proposed regulations that might affect our
applications and services to ensure our compliance with such
regulations when and if they are implemented.
In the United States, radiology and medical image and
information management systems are regulated as medical devices.
Before a new medical device can be marketed, its manufacturer
must either obtain marketing clearance through a premarket
notification under Section 510(k) of the Federal Food, Drug
and Cosmetic Act or marketing approval of a premarket approval
application, or PMA. The information that must be submitted to
the Food and Drug Administration (“FDA”) in order to
obtain clearance or approval to market a new medical device
varies depending on how the medical device is classified by the
FDA. Medical devices are classified into one of three classes on
the basis of the controls deemed by the FDA to be necessary to
reasonably ensure their safety and effectiveness. Class I
devices are subject to general controls, including labeling,
premarket notification and adherence to the quality systems
regulations, or QSRs, which sets forth good manufacturing
practices applicable to medical devices. Class II devices
are subject to general controls and special controls, including
performance standards and post-market surveillance.
Class III devices are subject to most of the previously
identified requirements as well as to pre-market approval.
A 510(k) premarket notification must demonstrate that the device
in question is substantially equivalent to another legally
marketed device, or predicate device, that does not require
premarket approval. Most 510(k) notifications do not require
clinical data for clearance, but a minority do require clinical
data support. The FDA has an internal performance goal for
issuing a decision letter within 90 days of receipt of a
510(k) if it has no additional questions, however, the FDA does
not always meet its internal performance goal review time. In
addition, requests for additional data, including clinical data,
will increase the time necessary to review the notice. Most
Class I devices and many Class II devices are exempt
from the 510(k) requirement. Modifications to a 510(k)-cleared
medical device may require the submission of another 510(k) or a
PMA if the changes could significantly affect the safety or
effectiveness or constitute a major change in the intended use
of the device. Our marketed products are Class I or II
medical devices.
The PMA process is more complex, costly and time consuming than
the 510(k) clearance procedure.
After a device is placed on the market, numerous regulatory
requirements apply. These include compliance with:
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Failure to comply with applicable regulatory requirements can
result in enforcement action by the FDA, which may include,
among other things, warning letters; fines, injunctions, and
civil penalties; operating restrictions, partial suspension or
total shutdown of production; refusal to grant or withdrawal of
510(k) clearance or PMA approvals; and criminal prosecution.
The FDA audits the facilities and operations of medical device
manufacturers on a periodic basis. Our facilities and operations
in Daytona, Florida, Hartland, Wisconsin and Boston,
Massachusetts have been audited over recent years. Each such
audit has resulted in a “voluntary actions indicated”
report that contains recommendations of the examining official
imposing corrective actions and
follow-up
reporting.
We believe that we are in compliance with FDA regulations and
with the requirements arising from FDA audits, abut thee can be
no assurance that we will continue to be in compliance in the
future.
The testing, marketing and manufacturing of our products
requires regulatory approval, including approval from the FDA
and, in some cases, governmental authorities outside of the
United States that perform roles similar to those of the FDA,
including the Australian Therapeutic Goods Administration, or
TGA. In particular, we have a partnership with a distributor in
Australia that requires our products to receive clearance from
the TGA.
The Health Insurance Portability and Accountability Act of 1996,
and the regulations implementing its administrative
simplification provisions (“HIPAA”), include five
healthcare-related standards governing, among other things:
HIPAA regulations governing the electronic exchange of
information establish a standard format for the most common
healthcare transactions, including claims, remittances,
eligibility, and claims status. Many of our customers are
required to comply with the transaction standards as they
exchange health-related administrative information. Our products
and services must facilitate compliance with these standards.
HIPAA also establishes privacy standards for the protection of
PHI used and disclosed by certain healthcare organizations or
“Covered Entities.” Covered Entities are health plans,
health care clearing houses, and health care providers who
conduct certain health care transactions electronically. Covered
Entities must ensure that all uses and disclosures of PHI are
permissible under HIPAA and comply with other aspects of the
rule. We are not a Covered Entity, however many of our customers
are. As a result, a substantial part of our business involves
the receipt of PHI. We have access to PHI when we assist our
Covered Entity customers with the processing of healthcare
transactions and the provision of technical services such as
software maintenance. When we provide such services involving
the use or disclosure of PHI, we are considered a “Business
Associate” of a customer, and as such, we are subject to
significant regulatory compliance obligations as discussed
further below. HIPAA requires a Business Associate to sign a
specific agreement (called a “Business Associate
Agreement”) and to provide assurances that it will
safeguard PHI in accordance with HIPAA standards in the course
of providing services. Careful review of all Business Associate
Agreements is critical to compliance with HIPAA standards.
Additionally, over-reaching Business Associate Agreements or the
failure to execute a Business Associate Agreement when one is
required, may result in contractual liability or regulatory risk.
HIPAA has required and will continue to require significant
business and operational changes on the part of our customers
and on our part and may require additional changes in the
future. HIPAA-mandated changes to our
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applications, services, policies, and procedures may require us
to charge higher prices to our customers or may also affect our
customers’ purchasing practices. In addition, many states
have patient confidentiality and data breach laws that are more
restrictive than HIPAA and that could impose additional
obligations with regard to the use and disclosure of PHI and
additional notification obligations and penalties in the event
of breach.
On February 17, 2009, Congress enacted Subtitle D of the
Health Information Technology for Economic and Clinical Health
Act (“HITECH”) provisions of the American Recovery and
Reinvestment Act of 2009. HITECH amends HIPAA and, among other
things, creates significant new regulatory compliance
obligations for Business Associates. Additionally, HITECH
expands and strengthens HIPAA enforcement, imposes new penalties
for noncompliance and establishes new breach notification
requirements for Covered Entities and Business Associates.
Prior to HITECH, HIPAA imposed privacy and security requirements
on Covered Entities only. Business associates (e.g., third-party
administrators, consultants, and other vendors) were not
directly covered by HIPAA, but they were indirectly regulated
through Business Associate Agreements. Under HITECH, certain of
HIPAA’s privacy and all of HIPAA’s security provisions
apply to Business Associates.
The HIPAA security standards require the adoption of
administrative, physical, and technical safeguards and the
adoption of written security policies and procedures. HITECH
expanded this requirement to Business Associates who must now
comply with the HIPAA security standards in the same way and to
the same extent as a covered entity. Accordingly, in order to
comply with HITECH, we must conduct a formal security risk
assessment, appoint a security officer, adopt written security
policies and procedures, and train our employees among other
things. We must also implement safeguards to protect electronic
PHI (or “ePHI”), such as encrypting emails and
computer files and limiting access to records.
HITECH imposes new notification requirements on Covered Entities
and Business Associates in the event of a breach of unsecured
PHI. Covered Entities must, within 60 days of discovery,
notify each individual whose information has been, or is
reasonably believed to have been, accessed, acquired, or
disclosed as a result of a breach. If a breach is discovered by
a Business Associate, the Business Associate is required to
notify the Covered Entity. Covered Entities must also report
breaches to the Department of Health and Human Services
(“HHS”), and in some cases, publish information about
the breach in local or prominent media outlets. Consequently, we
must ensure that breaches of PHI are promptly detected and
reported within the Company, so that we can provide notification
to our Covered Entity customers. Additionally, there may be
reputational harm from the public nature of the breach
notification process.
Under HITECH, both Covered Entities and Business Associates are
directly subject to prosecution or administrative enforcement
and increased civil and criminal penalties, including a new
four-tiered system of monetary penalties, for HIPAA violations.
HITECH extends criminal penalties for wrongful disclosure of PHI
to individuals who without authorization obtain or disclose such
information maintained by a Covered Entity, whether or not they
are employees of the Covered Entity, and extends HIPAA
enforcement authority to state attorneys general. Both Covered
Entities and Business Associates are subject to audit by the
Office of Civil Rights, the agency responsible for HIPAA
enforcement.
Our radiology and cardiology EVMS and hemodynamic measurement
recording software products are medical devices subject to
regulation by the Medical Devices Bureau of the Therapeutic
Products Directorate, or TPD, Health Canada. Health Canada is
the Canadian federal regulator responsible for licensing medical
devices in accordance with the Food and Drugs Act and
Regulations and the Medical Devices Regulations. The TPD applies
the Food and Drug Regulations and the Medical Devices
Regulations under the authority of the Food and Drugs Act to
ensure that the pharmaceutical drugs and medical devices offered
for sale in Canada are safe, effective and of high quality. Each
device that we wish to distribute commercially in Canada, unless
otherwise exempt, requires attainment of the appropriate type of
medical device license prior to commercial distribution. We have
procedures in place to ensure that we are compliant with the
Canadian Medical Device Regulation as documented in the Food
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and Drugs Act: Medical Devices Regulations for Canada:
SOR/98-282 which includes quality system certificates for ISO
13485:2003, and CMDCAS for the classes of our devices.
Once our products are sold, we must comply with various
U.S. federal and state laws, rules and regulations
pertaining to healthcare fraud and abuse, including
anti-kickback laws and physician self-referral laws, rules and
regulations. Violations of the fraud and abuse laws are
punishable by criminal and civil sanctions, including, in some
instances, exclusion from participation in federal and state
healthcare programs, including Medicare, Medicaid, Veterans
Administration health programs, workers’ compensation
programs and TRICARE. There is bipartisan agreement in Congress
and with the Obama Administration on the need to increase
enforcement efforts to combat health care fraud.
The federal Anti-Kickback Statute prohibits persons from
knowingly or willfully soliciting, receiving, offering or paying
remuneration, directly or indirectly, in exchange for or to
induce:
The definition of “remuneration” has been broadly
interpreted to include anything of value, including such items
as gifts, certain discounts, waiver of payments, and providing
anything at less than its fair market value. In addition,
several courts have interpreted the law to mean that if
“one purpose” of an arrangement is intended to induce
referrals, the statute is violated.
The Anti-Kickback Statute is broad and prohibits many
arrangements and practices that are lawful in businesses outside
of the healthcare industry. The statutory penalties for
violating the Anti-Kickback Statute include imprisonment for up
to five years and criminal fines of up to $25,000 per violation.
In addition, through application of other laws, conduct that
violates the Anti-Kickback Statute can also give rise to False
Claims Act lawsuits, civil monetary penalties and possible
exclusion from Medicare and Medicaid and other federal
healthcare programs. In addition to the Federal Anti-Kickback
Statute, many states have their own anti-kickback laws. Often,
these laws closely follow the language of the federal law,
although they do not always have the same scope, exceptions,
safe harbors or sanctions. In some states, these anti-kickback
laws apply not only to payment made by a government health care
program but also with respect to other payers, including
commercial insurance companies.
Government officials have focused recent kickback enforcement
efforts on, among other things, the sales and marketing
activities of healthcare companies, including medical device
manufacturers, and recently have brought cases against
individuals or entities with personnel who allegedly offered
unlawful inducements to potential or existing customers in an
attempt to procure their business. This trend is expected to
continue. Settlements of these cases by healthcare companies
have involved significant fines
and/or
penalties and in some instances criminal plea or deferred
prosecution agreements.
The federal ban on physician self-referrals, commonly known as
the “Stark Law,” prohibits, subject to certain
exceptions, physician referrals of Medicare and Medicaid
patients to an entity providing certain “designated health
services” if the physician or an immediate family member of
the physician has any financial relationship with the entity.
The Stark Law also prohibits the entity receiving the referral
from billing for any good or service furnished pursuant to an
unlawful referral, and any person collecting any amounts in
connection with an unlawful referral is obligated to refund
these amounts. A person who engages in a scheme to circumvent
the Stark Law’s referral prohibition may be fined up to
$100,000 for each such arrangement or scheme. The penalties for
violating the Stark Law also include civil monetary penalties of
up to $15,000 per service and possible exclusion from federal
healthcare programs. In addition to the Stark Law, many states
have their own self-referral laws. Often, these laws
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closely follow the language of the federal law, although they do
not always have the same scope, exceptions, safe harbors or
sanctions. In some states these self-referral laws apply not
only to payment made by a federal health care program but also
with respect to other payers, including commercial insurance
companies. In addition, some state laws require physicians to
disclose any financial interest they may have with a healthcare
provider to their patients when referring patients to that
provider even if the referral itself is not prohibited.
The federal False Claims Act, or FCA, prohibits any person from
knowingly presenting, or causing to be presented, a false claim
or knowingly making, or causing to made, a false statement to
obtain payment from the federal government. Those found in
violation of the FCA can be subject to fines and penalties of
three times the damages sustained by the government, plus
mandatory civil penalties of between $5,000 and $10,000
(adjusted for inflation) for each separate false claim. Actions
filed under the FCA can be brought by any individual on behalf
of the government, a “qui tam” action, and this
individual, known as a “relator” or, more commonly, as
a “whistleblower,” may share in any amounts paid by
the entity to the government in damages and penalties or by way
of settlement. Congress strengthened the False Claims Act in
amendments contained in the Fraud Enforcement and Recovery Act
of 2009 (Pub.L.
111-21). In
addition, certain states have enacted laws modeled after the
FCA, and this legislative activity is expected to increase. Qui
tam actions have increased significantly in recent years,
causing greater numbers of healthcare companies, including
medical device manufacturers, to defend false claim actions, pay
damages and penalties or be excluded from Medicare, Medicaid or
other federal or state healthcare programs as a result of
investigations arising out of such actions.
The Department of Health and Human Services Office of Inspector
General (“OIG”), specifically the Office of Counsel to
the Inspector General, Administrative and Civil Remedies Branch,
also has authority to bring administrative actions against
entities for alleged violations of a number of prohibitions,
including the Anti-Kickback Statute and the Stark Law. The OIG
may seek to impose civil monetary penalties or exclusion from
the Medicare, Medicaid and other federal healthcare programs.
Civil monetary penalties can range from $2,000 to $50,000 for
each violation or failure plus, in certain circumstances, three
times the amounts claimed in reimbursement or illegal
remuneration. Typically, the OIG seeks to impose exclusions for
a minimum five year period.
In addition, we must comply with a variety of other laws, such
as laws prohibiting the filing of false claims for reimbursement
under Medicare and Medicaid, all of which can also be triggered
by violations of federal anti-kickback laws; the Health
Insurance Portability and Accounting Act of 1996, which makes it
a federal crime to commit healthcare fraud and make false
statements; and the Federal Trade Commission Act and similar
laws regulating advertisement and consumer protections. Again,
many states have similar laws and states Attorneys General have
become increasingly involved in using these authorities to
combat health care fraud.
Because we expect to receive payment for our products directly
from our customers, we do not anticipate relying directly on
payment for any of our products from third-party payers, such as
Medicare, Medicaid, commercial health insurers and managed care
companies. However, our business will be affected by policies
adopted by federal and state governmental authorities, such as
Medicare and Medicaid, as well as private payers, which often
follow the policies of these public programs. For example, our
business will be indirectly impacted by the ability of a
hospital or medical facility to obtain coverage and third-party
reimbursement for procedures performed using our products. These
third-party payers may deny coverage if they determine that a
device used in a procedure was not medically necessary, was not
used in accordance with cost-effective treatment methods, as
determined by the third-party payer, or was used for an
unapproved indication. They may also pay an inadequate amount
for the procedure which could cause healthcare providers to used
a lower cost competitor’s device or perform a medical
procedure without our device.
Our Internet address is www.amicas.com. The information
on our website is not a part of, or incorporated into, this
Annual Report on
Form 10-K.
We make our Annual Reports on
Form 10-K,
Quarterly Reports on
Form 10-Q,
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Current Reports on
Form 8-K,
and amendments to those reports, filed or furnished pursuant to
Section 13(a) or 15(d) of the Securities Exchange Act of
1934, as amended available, without charge, on our website as
soon as reasonably practicable after they are filed
electronically with, or otherwise furnished to, the Securities
and Exchange Commission (“SEC”).
As of December 31, 2009, our workforce consisted of
393 employees, including 55 in sales and marketing, 206 in
customer support and services, 85 in research and development
and 47 in finance, senior management, administration, human
resources, and information technology. Our research and
development and customer support organizations are supplemented
by contracted resources. None of our employees is subject to a
collective bargaining agreement. We consider our relations with
our employees to be satisfactory.
Warning
About Forward-Looking Statements and Risk Factors That May
Affect Future Results
Our disclosure and analysis in this Annual Report on
Form 10-K
contains forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995 that set forth
anticipated results based on management’s plans and
assumptions. From time to time, we may also provide
forward-looking statements in other materials that we release to
the public as well as oral forward-looking statements.
Forward-looking statements discuss our strategy, expected future
financial position, results of operations, cash flows, financing
plans, intellectual property, competitive position, and plans
and objectives of management. We often use words such as
“anticipate,” “estimate,”
“expect,” “project,” “intend,”
“plan,” “believe,” “will,”
“should,” “might,” “may” and
similar expressions to identify forward-looking statements.
Additionally, forward-looking statements include those relating
to future actions, prospective products, future performance,
financing needs, liquidity, sales efforts, expenses, interest
rates and the outcome of contingencies, and financial results.
We cannot guarantee that any forward-looking statement will be
realized. Achievement of future results is subject to risks,
uncertainties and potentially inaccurate assumptions. Should
known or unknown risks or uncertainties materialize, or should
underlying assumptions prove inaccurate, actual results could
differ materially from past results and those anticipated,
estimated or projected by our forward-looking statements. You
should bear this in mind as you consider forward-looking
statements.
We undertake no obligation to publicly update forward-looking
statements. You are advised, however, to consult any further
disclosures we make on related subjects in our Quarterly Reports
on
Form 10-Q
and Current Reports on
Form 8-K.
We provide the following cautionary discussion of risks,
uncertainties and possibly inaccurate assumptions relevant to
our businesses. These are important factors that, individually
or in the aggregate, could cause our actual results to differ
materially from expected and historical results. You should
understand that it is not possible to predict or identify all
such factors. Consequently, you should not consider the
following to be a complete discussion of all potential risks or
uncertainties.
Our operating results will vary significantly from quarter to
quarter and from year to year. We had net losses of
$4.0 million, $30.1 million (including impairment
charges of $27.5 million), and $0.9 million for the
years ended December 31, 2009, 2008, and 2007,
respectively. On a continuing operations basis, we had losses of
$4.0 million, $30.1 million, and $0.9 million,
respectively, for the years ended December 31, 2009, 2008,
and 2007.
Our operating results have been
and/or may
be influenced significantly by factors such as:
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Quarterly and annual revenues and operating results are highly
dependent on the volume and timing of the signing of license
agreements and product deliveries during each quarter, which are
very difficult to forecast. A significant portion of our
quarterly sales of software product licenses and computer
hardware is concluded in the last month of the fiscal quarter,
generally with a concentration of our quarterly revenues earned
in the final ten business days of that month. A portion of our
revenues are contingent upon the successful implementation of
our products, and can only be recognized once the
customer’s solution is installed and ready for productive
use. Also, our projections for revenues and operating results
include significant sales of new product and service offerings.
Due to these and other factors, our revenues and operating
results are very difficult to forecast. A major portion of our
costs and expenses, such as personnel and facilities, is of a
fixed nature and, accordingly, a shortfall or decline in
quarterly
and/or
annual revenues typically results in lower profitability or
losses. As a result, comparison of our
period-to-period
financial performance is not necessarily meaningful and should
not be relied upon as an indicator of future performance. Due to
the many variables in forecasting our revenues and operating
results, it is likely that our results for any particular
reporting period will not meet our expectations or the
expectations of public market analysts or investors. Failure to
attain these expectations would likely cause the price of our
common stock to decline.
On March 5, 2010, we entered into the Merge Merger
Agreement, pursuant to which Merge will acquire all of the
outstanding shares of AMICAS for $6.05 per share in cash. Under
the terms of the Merge Merger Agreement, Merge will commence a
cash tender offer for all of AMICAS’ outstanding common
stock. Merge will then consummate a merger pursuant to which any
untendered shares of AMICAS common stock (other than those
shares held by AMICAS’ stockholders who have properly
exercised their dissenters’ rights under Section 262
of the
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Delaware General Corporation Law) will be converted into the
right to receive the same $6.05 per share cash price. Following
the consummation of the merger, the Company will continue as the
surviving corporation and will be a wholly-owned subsidiary of
Merge.
The tender offer and merger are subject to certain closing
conditions, including, but not limited to, a successful tender
of a minimum number of shares of AMICAS common stock, antitrust
clearance and other regulatory approvals. We cannot assure you
that these conditions will be satisfied or waived, that the
necessary approvals will be obtained, or the tender offer and
the merger will be successfully completed as contemplated under
the Merge Merger Agreement or at all. If for any reason the
tender offer and merger are not consummated: our investors may
not receive $6.05 in cash or $6.05 in fair market value of
shares of AMICAS common stock that Merge has agreed to provide
in the tender offer and the merger, and our stock price would
likely decline unless some other party were to offer an
equivalent or higher price for our shares (and we have no
expectation that there is any other party willing to offer an
equivalent or higher price); and under some circumstances, we
may have to pay a termination fee to Merge of 4% of the
aggregate consideration to be paid in the tender offer and
merger
and/or
reimburse Merge for its
out-of-pocket
transaction-related expenses up to $3.0 million.
In addition, the pendency of the tender offer and the merger
could adversely affect our operations because:
The occurrence of any of these events individually or in
combination could have a material adverse affect on our results
of operations and our stock price.
The success of our business depends and will continue to depend
in large part on the market acceptance of:
There can be no assurance that our customers will accept any of
these products, product upgrades, support or services. In
addition, even if our customers accept our products and services
initially, we cannot assure you that they will continue to
purchase our products and services at levels that are consistent
with, or higher than, past quarters. Customers may significantly
reduce their relationships with us or choose not to expand their
relationship with us. In addition, any pricing strategy that we
implement for any of our products, product upgrades, or services
may not be economically viable or acceptable to our target
markets. Failure to achieve or to sustain significant
penetration in our target markets with respect to any of our
products, product upgrades, or services could have a material
adverse effect on our business.
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Achieving and sustaining market acceptance for our products,
product upgrades and services is likely to require substantial
marketing and service efforts and the expenditure of significant
funds to create awareness and demand by participants in the
healthcare industry. In addition, deployment of new or newly
integrated products or product upgrades may require the use of
additional resources for training our existing sales force and
customer service personnel and for hiring and training
additional sales and customer service personnel. There can be no
assurance that the revenue opportunities for our new products,
product upgrades and services will justify the amounts that we
spend for their development, marketing and rollout.
If we are unable to sell our new and next-generation software
products to healthcare providers that are in the market for
healthcare information
and/or image
management systems, such inability will likely have a material
adverse effect on our business, revenues, operating results,
cash flows and financial condition. If anticipated software
sales and services do not materialize, or if we lose customers
or experience significant declines in orders from our customers,
our revenues would decrease over time due to the combined
effects of attrition of existing customers and a shortfall in
new client additions.
Our recently completed acquisition of Emageon continues to
require substantial integration and management efforts and we
expect future acquisitions to require similar efforts.
Acquisitions of this nature involve a number of risks, including:
As a result of these and other risks, if we are unable to
successfully integrate acquired businesses, we may not realize
the anticipated benefits from our acquisitions. Any failure to
achieve these benefits or failure to successfully integrate
acquired businesses and technologies could seriously harm our
business.
We now have operations in Canada as a result of our acquisition
of Emageon. Consequently, we are and will continue to be,
subject to risks related to operating in a foreign country.
International operations are subject to many inherent risks,
including:
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These risks may increase our cost of doing business. Moreover,
as our customers are adversely affected by these conditions, our
business with them may be disrupted and our results of
operations could be adversely affected.
Our principal competitors include both national and regional
practice management and clinical systems vendors. In general,
until recently, larger, international and national vendors have
targeted primarily large healthcare providers. We believe that
the larger, national vendors may broaden their markets to
include both small and large healthcare providers. In addition,
we compete with national and regional providers of computerized
billing, insurance processing and record management services to
healthcare practices. As the market for our products and
services expands, additional competitors are likely to enter
this market. We believe that the primary competitive factors in
our markets are:
We have experienced, and we expect to continue to experience,
increased competition from current and potential competitors,
such as McKesson, Cerner, General Electric, Fuji, AGFA, Philips,
Merge Healthcare and others many of which have significantly
greater financial, technical, marketing and other resources than
us. Such competitors may be able to respond more quickly to new
or emerging technologies and changes in customer requirements or
devote greater resources to the development, promotion and sale
of their products than we can. Also, certain current and
potential competitors have greater name recognition or more
extensive customer bases that could be leveraged, which could
cause us to lose customers. We expect additional competition as
other established and emerging companies enter into the practice
management and clinical software markets and as new products and
technologies are introduced. Increased competition could result
in price reductions, fewer customer orders, losses in customers,
reduced gross margins and loss of market share, any of which
could materially adversely affect our business, operating
results, cash flows and financial condition.
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Current and potential competitors may make strategic
acquisitions or establish cooperative relationships among
themselves or with third parties, thereby increasing their
abilities to address the needs of our existing and prospective
customers. Further competitive pressures, such as those
resulting from competitors’ discounting of their products,
may require us to reduce the price of our software and
complementary products, which would materially adversely affect
our business, operating results, cash flows and financial
condition. There can be no assurance that we will be able to
compete successfully against current and future competitors, and
our failure to do so would have a material adverse effect upon
our business, operating results, cash flows and financial
condition.
We
rely on some of our existing customers to serve as reference
sites for us in developing and expanding relationships with
other customers and potential customers, and if the customers
who serve as reference sites become unwilling to do so, our
ability to obtain new customers or to expand customer
relationships could be materially harmed.
As an integral part of the process of establishing new client
relationships and expanding existing relationships, we rely on
current clients who agree to serve as reference sites for
potential customers of our products and services. The reference
sites allow potential customers to observe the operation of our
products and services in a
true-to-life
environment and to ask questions of actual customers concerning
the functionality, features and benefits of our product and
service offerings. We cannot assure you that the sites that we
currently have will continue to be willing to serve as reference
sites, nor that the availability of the reference sites will be
successful in establishing or expanding relationships with
existing or new customers. If we lose reference sites and are
unable to establish new ones in a timely manner, this could have
a material adverse effect on our business and results of
operations.
The
U.S. government is considering healthcare reform legislation,
which may have a negative impact on our business. Among other
things, reductions in Medicare and Medicaid reimbursement rates
for imaging procedures and professional services could
negatively affect revenues of our hospital and imaging clinic
customers, which could reduce our customers’ ability to
purchase our software and services.
The Congress and the Obama administration are currently
considering far-reaching healthcare legislation that could have
a negative impact on our business. There are significant
differences between the legislation passed by the House of
Representatives and the Senate, and the President of the United
States has offered compromise proposals. While the outcome and
impact of this legislative process is difficult to predict,
pressure will continue to control spending in government
programs (e.g., Medicare and Medicaid) and by third party
payors. The ability of customers to obtain appropriate
reimbursement for imaging services they provide from these
programs and payors is critical to the success of our company.
One specific change this year was enacted by the Department of
Health and Human Services in the Medicare Physician Fee Schedule
regulation increases the equipment utilization assumption, which
is part of the practice expense component of the technical part
of the reimbursement rate, for MRI and CT services to
90 percent from 50 percent over a
4-year
transition period. House and Senate health care reform bills
make certain adjustments to this regulation. These changes in
the utilization rate once fully implemented or further adjusted
by future legislation have the potential to dramatically
decrease technical reimbursements for radiology procedures, and
could have a particularly negative impact on hospitals and
imaging clinics in rural regions of the country where
utilization rates are naturally lower. A second significant
potential reimbursement change relates to the Sustainable Growth
Rate (“SGR”) component of the Medicare Physician Fee
Schedule. The SGR is part of the update factor process used to
set the annual rate of growth in allowed expenditures, and is
determined by a formula specified by Congress. Because the
annual calculation of the SGR would have led to reimbursement
reductions that Congress found unacceptable, every year Congress
has interceded to delay the implementation of this statutory SGR
update factor. While these changes have provided temporary
reimbursement relief, because of the significant budgetary
impacts, Congress has left the SGR formula, thereby allowing
annual unimplemented payment reductions to accumulate in the
Medicare statute. As a result, for 2010, if this SGR had been
allowed to be implemented, it would have caused a reduction in
the update adjustment factor of 21.3 percent in the
calculation of the Physician Fee Schedule. The Congress and
Obama administration are currently considering various
legislation to attempt to fix this problem, but the prospects
for enactment remain uncertain. These changes being considered
have the potential to negatively impact the professional
component of reimbursement.
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Either of these changes related to the equipment utilization
assumption or the SGR calculation or other changes in a health
care reform bill could result in a reduction in software and
service procurement of our customers, and have a material
adverse effect on our revenues and operating results.
We currently derive a substantial portion of our revenues from
traditional perpetual software license, maintenance and service
fees, as well as from the resale of computer hardware. Our
revenues from application service provider
and/or
software as a service are immaterial. Increased marketplace
demands for subscription pricing, multi-year financing
arrangements, application service provider offerings
and/or
software as a service offering, may cause us to adjust our
strategy accordingly by offering a higher percentage of our
products and services on such terms. Shifting to subscription
pricing, multi-year financing arrangements, application service
provider
and/or
software as a service offerings could materially adversely
impact our financial condition, cash flows and quarterly and
annual revenues and results of operations, as our revenues could
continue to be negatively impacted.
The products and services that we offer are inherently complex.
Despite testing and quality control, we cannot be certain that
errors will not be found in prior, current or future versions,
or enhancements of our products and services. We also cannot
assure you that our products and services will not experience
partial or complete failure, especially with respect to our new
product or service offerings. It is also possible that as a
result of any of these errors
and/or
failures, our customers may suffer loss of data. The loss of
business, medical, diagnostic, or patient data or the loss of
the ability to process data for any length of time may be a
significant problem for some of our customers who have
time-sensitive or mission-critical practices. We could face
breach of warranty or other claims or additional development
costs if our software contains errors, if our customers suffer
loss of data or are unable to process their data, if our
products
and/or
services experience failures, do not perform in accordance with
their documentation, or do not meet the expectations that our
customers have for them. Even if these claims do not result in
our having any liability, investigating and defending against
them could be expensive and time-consuming and could divert
management’s attention away from our operations. In
addition, negative publicity caused by these events may delay or
reduce market acceptance of our products and services, including
unrelated products and services. Such errors, failures or claims
could also cause us to lose customers or to experience
significant decreases in orders from existing customers, and
could materially adversely affect our business, revenues,
operating results, cash flows and financial condition.
Our ability to compete depends in part on our ability to protect
our intellectual property rights. We rely on a combination of
copyright, patent, trademark, and trade secret laws and
restrictions on disclosure to protect the intellectual property
rights related to our software applications. Most of our
software technology is not patented and existing copyright laws
offer only limited practical protection. Our practice is to
require all new employees to sign a confidentiality agreement
and most of our employees have done so. However, not all
existing employees have signed confidentiality agreements. In
addition, third parties with whom we share confidential
information are required to sign confidentiality agreements. We
cannot assure you that the legal protections that we rely on
will be adequate to prevent misappropriation of our technology.
Further, we may need to bring lawsuits or pursue other legal or
administrative proceedings to enforce our intellectual property
rights. Generally, lawsuits and proceedings of this type, even
if successful, are costly, time consuming and could divert our
personnel and other resources away from our business, which
could harm our business.
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Moreover, these protections do not prevent independent
third-party development of competitive technology or services.
Unauthorized parties may attempt to copy or otherwise obtain and
use our technology. Monitoring use of our technology is
difficult, and we cannot assure you that the steps we have taken
will prevent unauthorized use of our technology, particularly in
foreign countries where the laws may not protect our proprietary
rights as fully as in the United States.
As the number of software products and services in our target
markets increases and as the functionality of these products and
services overlaps, we are increasingly subject to the threat of
intellectual property infringement claims. Any infringement
claims alleged against us, regardless of their merit, will be
time-consuming and expensive to defend. Infringement claims will
also divert our management’s attention and resources and
could also cause delays in the delivery of our products and
services to our customers. Settlement of any infringement claims
could require us to enter into royalty or licensing agreements
on terms that are costly or cost-prohibitive. If a claim of
infringement against us was successful and if we were unable to
license the infringing or similar technology or redesign our
products and services to avoid infringement, our business,
financial condition, cash flows, and results of operations will
be harmed.
We announced our acquisition of Emageon on in April 2009. We may
undertake additional acquisitions if we identify companies with
desirable applications, products, services, customer bases,
businesses or technologies. We may not achieve any of the
anticipated synergies and other benefits that we expected to
realize from these acquisitions. In addition, software companies
depend heavily on their employees to maintain the quality of
their software offerings and related customer services. If we
are unable to retain the acquired companies’ personnel or
integrate them into our operations, the value of the acquired
applications, products, services, distribution capabilities,
business, technology,
and/or
customer base could be compromised. The amount and timing of the
expected benefits of any acquisition are also subject to other
significant risks and uncertainties. These risks and
uncertainties include:
Further, our profitability may also suffer because of
acquisition-related costs
and/or
amortization or impairment of intangible assets.
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The information technology market in which we compete is
characterized by rapidly changing technology, evolving industry
standards, emerging competition and the frequent introduction of
new services, software and other products. Our success depends
partly on our ability to:
We cannot be sure that we will be able to accomplish these
goals. Our development of new and enhanced products and services
may take longer than originally expected, require more testing
than originally anticipated and require the acquisition of
additional personnel and other resources. In addition, there can
be no assurance that the products
and/or
services we develop or license will be able to compete with the
alternatives available to our customers. Our competitors may
develop products or technologies that are better or more
attractive than our products or technologies, or that may render
our products or technologies obsolete. If we do not succeed in
adapting our products, technology and services or developing new
products, technologies and services, our business could be
harmed.
Our future revenues and orders growth depend on sales of our
image and information management solution for imaging businesses
and hospitals, which require a significant investment in
software, professional services and hardware. Our sales
prospects often seek financing to fund these initiatives.
Economic conditions in the credit markets could limit our
potential customers’ ability to obtain financing. The
inability to obtain financing could cause a prospective customer
to delay
and/or
refrain from making new purchases from us, which could adversely
impact our results of operations, cash flows and financial
condition.
Some of our customers demand the ability to acquire a variety of
products from one provider. Some of these products are not owned
or developed by us. Through agreements with third parties, we
currently resell the desired hardware, software and services to
these customers. However, in the event these agreements are not
renewed or are renewed on less favorable terms, we could lose
sales to competitors who market the desired products to these
customers or recognize less revenue. If we do not succeed in
maintaining our relationships with our third-party providers,
our business could be harmed.
As a product and service provider in the healthcare industry, we
operate under the continual threat of product liability claims
being brought against us. Errors or malfunctions with respect to
our products or services could result in product liability
claims. In addition, certain agreements require us to indemnify
and hold others harmless against certain matters. Although we
believe that we carry adequate insurance coverage against
product liability claims, we cannot assure you that claims in
excess of our insurance coverage will not arise. In addition,
our insurance policies must be renewed annually. Although we
have been able to obtain what we believe to be adequate
insurance coverage at an acceptable cost in the past, we cannot
assure you that we will continue to be able to obtain adequate
insurance coverage at an acceptable cost.
In many instances, agreements which we enter into contain
provisions requiring the other party to the agreement to
indemnify us against certain liabilities. However, any
indemnification of this type is limited, as a practical matter,
to the creditworthiness of the indemnifying party. If the
contractual indemnification rights
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available under such agreements are not adequate, or
inapplicable to the product liability claims that may be brought
against us, then, to the extent not covered by our insurance,
our business, operating results, cash flows and financial
condition could be materially adversely affected.
We rely on third parties to provide certain services and
products critical to our business. For example, we use national
clearinghouses in the processing of insurance claims and we
outsource some of our hardware maintenance services and the
printing and delivery of patient billings for our customers. We
also sell third-party products, several of which manipulate
clinical data and information. We also have relationships with
certain third parties where these third parties serve as sales
channels through which we generate a portion of our revenues.
Due to these third-party relationships, we could be subject to
claims as a result of the activities, products, or services of
these third-party service providers even though we were not
directly involved in the circumstances leading to those claims.
Even if these claims do not result in liability to us, defending
against and investigating these claims could be expensive and
time-consuming, divert personnel and other resources from our
business and result in adverse publicity that could harm our
business.
We are
subject to government regulation and legal uncertainties,
compliance with which could have a material adverse effect on
our business.
Federal regulations impact the manner in which we conduct our
business. We have been, and may continue to be, required to
expend additional resources to comply with regulations under the
Health Insurance Portability and Accountability Act of 1996
(“HIPAA”) as amended by Subtitle D of the Health
Information Technology for Economic and Clinical Health Act
(“HITECH”). The total extent and amount of resources
to be expended is not yet known. Because HITECH is relatively
new, and there has been little guidance published regarding
significant aspects of the law, there is uncertainty as to how
we must comply, and how HITECH will be interpreted and enforced.
Although we have made, and will continue to make, a good faith
effort to ensure that we comply with, and that our future
products enable compliance with, applicable law, we may not be
able to conform all of our operations and products to such
requirements in a timely manner, or at all. The failure to do so
could subject us and our customers to penalties and damages, as
well as civil liability and criminal sanctions. We also face
significant reputational harm in the event that we are
responsible for a breach that is publicly reported under the
law. In addition, any delay in developing or failure to develop
products
and/or
deliver services that would enable HIPAA compliance for our
current and prospective customers could put us at a significant
disadvantage in the marketplace. Accordingly, our business, and
the sale of our products and services, could be materially
harmed by failures with respect to our compliance with HIPAA and
HITECH.
We may be subject to federal and state statutes and regulations
in connection with offering services and products via the
Internet. On an increasingly frequent basis, federal and state
legislators are proposing laws and regulations that apply to
Internet commerce and communications. Areas being affected by
these regulations include user privacy, pricing, content,
taxation, copyright protection, distribution, and quality of
products and services. To the extent that our products and
services are subject to these laws and regulations, the sale of
our products and services could be harmed.
Our PACS and Hemodynamics products are regulated as Class I
or Class II medical devices by the FDA. As a result, we are
required to register with the FDA, obtain clearance to market
our FDA-regulated products and comply with applicable FDA
requirements including its quality systems regulations.
Satisfaction of the clearance requirements and other regulatory
requirements is time consuming and costly. Failure to comply
could result in enforcement actions such as withdrawal of
clearances, delays in or refusal to clear new products, product
recalls
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or seizures, injunctions, civil fines and criminal prosecutions.
Any of these enforcement actions could have a material adverse
effect on our business, revenues, operating results, cash flows
and financial condition.
The FDA currently is reevaluating the criteria that it uses in
its review of 510(k) premarket notifications and has indicated
that it expects to issue new guidance on the 510(k) requirements
by September 2010. We cannot predict how or whether the new
requirements will affect any of our then pending or subsequent
510(k) notifications for new products.
The FDA audits the facilities and operations of medical device
manufacturers on a periodic basis. Our facilities and operations
in Daytona, Florida, Hartland, Wisconsin and Boston,
Massachusetts have been audited over recent years. Each such
audit has resulted in a “voluntary actions indicated”
report that contains recommendations of the examining official
imposing corrective actions and
follow-up
reporting.
We believe that we are in compliance with FDA regulations and
with the requirements arising from FDA audits, abut thee can be
no assurance that we will continue to be in compliance in the
future. Our failure to comply with FDA regulations or to
maintain compliance with the recommendations contained in recent
FDA audits could result in the imposition of enforcement
actions, any of which could have a material adverse effect on
our business, revenues, operating results, cash flows and
financial condition.
Our relationships with our customers are subject to scrutiny
under various federal anti-kickback, self-referral, false claims
and similar laws, often referred to collectively as healthcare
fraud and abuse laws. The scope and enforcement of all of these
laws is uncertain and subject to rapid change, especially in
light of the lack of applicable precedent and regulations. There
can be no assurance that federal or state regulatory or
enforcement authorities will not investigate or challenge our
current or future activities under these laws. Any such
investigation or challenge could have a material adverse effect
on our business, financial condition and results of operations.
Any state or federal regulatory or enforcement review of us,
regardless of the outcome, would be costly and time consuming.
Additionally, we cannot predict the impact of any changes in
these laws, whether or not retroactive.
The confidentiality of patient records and the circumstances
under which records may be released are already subject to
substantial governmental regulation, and these regulations as
well as patient confidentiality rights are evolving rapidly. A
breach of any privacy rights of a customer
and/or
patient of a customer by one of our employees could subject us
to significant liability, civil or criminal enforcement, and
reputational harm. In addition to the obligations being imposed
at the state level, there is also legislation governing the
privacy, security and dissemination of medical information at
the federal level. Federal law requires holders of this
information to implement security measures, which could entail
substantial expenditures on our part. Adoption of additional
legislation, changes to state or federal laws or our failure to
comply with them could materially affect or restrict the ability
or willingness of healthcare providers to submit information
from patient records using our products and services. These
kinds of restrictions would likely decrease the value of our
applications to our customers, which could materially harm our
business.
We
depend on our partners and suppliers for delivery of electronic
data interchange (e.g., insurance claims processing and invoice
printing services), commonly referred to as EDI, hardware
maintenance services, third-party software or software or
hardware components of our offerings, and sales lead generation.
Any failure, inability or unwillingness of these suppliers to
perform these services or provide their products could
negatively impact our customers’ satisfaction and our
revenues.
We use various third-party suppliers to provide our customers
with EDI transactions and
on-site
hardware maintenance. EDI revenues would be particularly
vulnerable to a supplier failure because EDI revenues are earned
on a daily basis. We rely on numerous third-party products that
are made part of our software offerings
and/or that
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we resell. Although other vendors are available in the
marketplace to provide these products and services, it would
take time to switch suppliers. If these suppliers were unable or
unwilling to perform such services, provide their products or if
the quality of these services or products declined, it could
have a negative impact on our customers satisfaction and result
in a decrease in our revenues, cash flows and operating results.
The success of our strategy to offer our products depends on the
confidence of our customers in our ability to securely transmit
confidential information. Our products rely on encryption,
authentication and other security technology licensed from third
parties to achieve secure transmission of confidential
information. We may not be able to stop unauthorized attempts to
gain access to or disrupt the transmission of communications by
our customers. Some of our customers have had their use of our
software significantly impacted by computer viruses. Anyone who
is able to circumvent our security measures could misappropriate
confidential user information or interrupt our operations and
those of our customers. In addition, our products may be
vulnerable to viruses, physical or electronic break-ins, and
similar disruptions. Any failure to provide secure electronic
communication services could result in a lack of trust by our
customers, causing them to seek out other vendors,
and/or
damage our reputation in the market, making it difficult to
obtain new customers. Moreover, any such failure could cause us
to be sued. Even if these law suits do not result in any
liability to us, defending against and investigating these law
suits could be expensive and time-consuming, and could divert
personnel and other resources from our business.
We believe that our success depends largely on our ability to
attract and retain highly skilled technical, managerial and
sales personnel to develop, sell and implement our products and
services. Individuals with the information technology,
managerial and selling skills we need to further develop, sell
and implement our products and services are in short supply and
competition for qualified personnel is particularly intense. We
may not be able to hire the necessary personnel to implement our
business strategy, or we may need to pay higher compensation for
employees than we currently expect. We cannot assure you that we
will succeed in attracting and retaining the personnel we need
to continue to grow and to implement our business strategy. In
addition, we depend on the performance of our executive officers
and other key employees. The loss of any member of our senior
management team could negatively impact our ability to execute
our business strategy. In addition, healthcare reform
initiatives, if enacted, and existing government stimulus
legislation may stimulate greater demand for personnel skilled
in creating and delivering solutions in the electronic medical
records and related markets. As such, AMICAS and other companies
in our market space may experience a significant increase in the
demand for and compensation payable to qualified healthcare IT
personnel in areas such as sales, implementation, and training,
and we may encounter greater difficulty in attracting and
retaining qualified employees in these areas.
We recorded revenues of $89.1 million in fiscal year 2009
and we bill substantial amounts to many of our customers. A
deterioration of the creditworthiness of our customers could
impact our ability to collect receivables or sell future
services to those customers, which could negatively impact the
results of our operations. In addition, we have provided payment
terms in excess of one year to certain customers, which exposes
us to future credit risk with those customers. At
December 31, 2009, no one customer represented more than
10% of our accounts receivable. If any group of our significant
customers were unable to pay us in a timely fashion, or if we
were to experience significant credit losses in excess of our
reserves, our results of operations, cash flows and financial
condition could be harmed.
To remain competitive, we will need to develop new products,
evolve existing products, and adapt to technological change.
Technical developments, customer requirements, computer
programming languages and industry standards change frequently
in our markets. As a result, success in current markets and new
markets will depend upon our ability to enhance current
products, develop and introduce new products that meet customer
needs,
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keep pace with changes in technology, respond to competitive
products, and achieve market acceptance. Product development
requires substantial investments for research, refinement and
testing. There can be no assurance that we will have sufficient
resources to make necessary product development investments. We
may experience difficulties that will delay or prevent the
successful development, introduction or implementation of new or
enhanced products. Our inability to introduce or implement new
or enhanced products in a timely manner would adversely affect
our future financial performance. Our products are complex and
may contain errors. Computer programming errors in products will
require us to ship corrected products to customers. Errors in
products could cause the loss of or delay in market acceptance
or sales and revenue, the diversion of development resources,
injury to our reputation, and increased service, indemnification
and warranty costs which would have an adverse effect on our
financial performance.
We assessed the effectiveness of our internal control over
financial reporting as of December 31, 2009 and assessed
all deficiencies on both an individual basis and in combination
to determine if, when aggregated, they constitute a material
weakness. As a result of this evaluation, no material weaknesses
were identified. Although we have completed the documentation
and testing of the effectiveness of our internal control over
financial reporting for the fiscal year ended December 31,
2009, as required by Section 404 of the Sarbanes-Oxley Act
of 2002, we expect to continue to incur costs, including
increased accounting fees and increased staffing levels, in
order to maintain compliance with that section of the
Sarbanes-Oxley Act. We continue to monitor controls for any
weaknesses or deficiencies. No evaluation can provide complete
assurance that our internal controls will detect or uncover all
failures of persons within the company to disclose material
information otherwise required to be reported. The effectiveness
of our controls and procedures could also be limited by simple
errors or faulty judgments.
In the future, if we fail to complete the Sarbanes-Oxley 404
evaluation in a timely manner, or if our independent registered
public accounting firm cannot attest to the effectiveness of our
internal controls in a timely manner, we could be subject to
regulatory scrutiny and a loss of public confidence in our
internal controls. In addition, any failure to implement
required new or improved controls, or difficulties encountered
in their implementation, could harm our operating results or
cause us to fail to meet our reporting obligations.
The trading prices of many publicly-traded companies are highly
volatile, particularly companies such as ours that have limited
operating histories. The trading price of our common stock has
been subject to wide fluctuations. Factors that will continue to
affect the trading price of our common stock include:
In addition, if the market for healthcare stocks or healthcare
services or the stock market in general experiences loss of
investor confidence, the trading price of our common stock could
decline for reasons unrelated to our business, operating results
or financial condition.
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The trading market for our common stock will rely in part on the
availability of research and reports that third-party industry
or financial analysts publish about us. There are many large,
publicly-traded companies active in the healthcare services
industry, which may mean it will be less likely that we receive
widespread analyst coverage. Furthermore, if one or more of the
analysts who do cover us downgrade our stock, our stock price
would likely decline. If one or more of these analysts cease
coverage of our company, we could lose visibility in the market,
which in turn could cause our stock price to decline.
Not applicable.
We lease and occupy the following properties:
Boston, Massachusetts: We lease
27,081 square feet of space for our corporate headquarters.
We renewed the lease effective January 11, 2008 with a base
rent of $65,446 per month and increases by $1.00 per square foot
annually over the lease term of five years. The lease will
expire on January 11, 2013.
Daytona Beach, Florida: We lease
35,655 square feet of space for a customer support facility
at a monthly cost of $25,500. The lease will expire in April
2012. The monthly rent increases by $1,000 per month in the
April, 2010 and by an additional $500 per month in the
subsequent year.
Hartland, Wisconsin: We lease
2,400 square feet of office space at a monthly cost of
$2,000, for research and development. The lease will expire in
April 2010. We also own 79,500 square feet of office and
manufacturing space, including approximately 13 acres of
land.
Ottawa, Ontario: We lease
6,000 square feet of office space for a customer support
facility at a monthly cost of $10,720. The lease will expire in
December 2013.
Birmingham, Alabama: We lease
43,500 square feet of office space, at a monthly cost of
$72,293. The lease will expire in March 2010 and $6,382 under a
lease that will expire in June 2013. During the third quarter of
2009, the Company completed the exit of the facility. We have
recorded a liability of $0.5 million associated with the
lease costs of the vacated space recorded as of
December 31, 2009.
Winter Park, Florida: We lease
2,000 square feet of office space at a monthly cost of
$2,882 per month. The lease expires in October 2010. We vacated
this space and relocated the employees to our Daytona Beach,
Florida office during the second quarter of 2009. We have
recorded a liability of approximately $36,000 associated with
the lease costs of the vacated space as of December 31,
2009.
Madison, Wisconsin: In connection with
the acquisition of Emageon (see Note E to our Consolidated
Financial Statements), we acquired an existing lease obligation
which extends through January, 2013. The facility has been
subleased to another entity. The net lease obligation has been
accrued and at December 31, 2009 the accrued liability was
$0.3 million.
From time to time, in the normal course of business, we are
involved with disputes and have various claims made against us.
We are a party to various legal proceedings arising out of the
ordinary course of our business. Except for the proceedings
described below, there are no material proceedings to which we
are a party and management is unaware of any material
contemplated actions against us.
On January 14, 2010, a purported stockholder class action
complaint was filed in the Superior Court of Suffolk County,
Massachusetts in connection with the announcement of the
proposed merger of AMICAS with a subsidiary of Thoma Bravo, LLC
(the “Thoma Bravo Merger”), entitled Progress
Associates, on behalf of itself and all others similarly
situated v. AMICAS, Inc., et al., Civil Action
No. 10-0174.
The complaint names as defendants the
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Company and its directors, as well as Thoma Bravo. The plaintiff
purports to represent similarly situated stockholders of AMICAS.
The complaint alleges that the Company and its directors
breached fiduciary duties owed to its stockholders in connection
with the Thoma Bravo Merger. Specifically, the complaint alleges
that the process used was unfair because our directors
supposedly failed to solicit strategic buyers and deterred
potential buyers other than Thoma Bravo; that the per share
price of the proposed Thoma Bravo Merger is inadequate; that our
directors had a conflict of interest due to the accelerated
vesting of their options and payments thereon and rights to
indemnification; and that the proxy statement was materially
misleading
and/or
incomplete because it allegedly failed to disclose the
consideration that each director would receive from vesting of
his options, the amount of severance to be received by
Dr. Kahane, the Company’s Chief Executive Officer, the
amount of the fee paid to Raymond James & Associates,
Inc. (“Raymond James”), our financial advisor, the
number of potential acquirers that were financial and those that
were strategic, whether companies not contacted by Raymond James
expressed an interest in the Company, and the substance of the
discussions between Raymond James and Thoma Bravo between
October 8, 2009 and October 18, 2009. The complaint
further alleges that Thoma Bravo aided and abetted the alleged
breach of fiduciary duties by the Company and its directors. The
plaintiff seeks certification of a class, damages, costs and
fees.
On February 1, 2010, a follow-on stockholder class action
complaint was filed in the same court entitled Lawrence
Mannhardt, on behalf of himself and all others similarly
situated v. AMICAS, Inc., et al., Civil Action 0-0412,
making substantially the same allegations and seeking the same
relief. On February 12, 2010, the parties appeared before
the Court for a hearing on the plaintiffs’ motion for a
preliminary injunction seeking to postpone the special meeting
of stockholders scheduled for February 19, 2010. Also on
February 12, 2010, the Court entered an order consolidating
the two purported stockholder class actions. On
February 16, 2010, Merge Healthcare, Inc.
(“Merge”) filed an intervenor complaint. On
February 17, 2010, Merge filed a motion for a preliminary
injunction. The parties appeared before the Court on
February 17, 2010. On February 18, 2010, the Court
ordered that the special meeting of stockholders scheduled to be
held on February 19, 2010 be adjourned pending a full
hearing on the merits of the plaintiff’s allegation
concerning the adequacy of the Company’s disclosures in its
proxy statement. On February 22, 2010, the Company filed an
amendment and supplement to its definitive proxy of
January 19, 2010. On March 5, 2010, the parties
appeared before the Court for a status conference during which
the Company informed the Court that the Company had terminated
the Thoma Bravo Merger and entered into the Merge Merger
Agreement. In light of these developments, the Court indicated
that it would prepare an order dissolving the preliminary
injunction and dismissing the plaintiffs’ claims as moot.
The Court has yet to issue this order. On March 9, 2010
Merge filed a Notice of Dismissal, without prejudice, with
respect to its complaint. The Court has scheduled a status
conference for March 25, 2010 to address the handling of
impounded documents and any application for attorneys fees
submitted by plaintiffs. Although the Company intends to oppose
any fee application, the Company cannot predict the amount of
fees, if any, the Court may award to plaintiffs.
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Market Information. Our trading symbol on The
NASDAQ Global Market is “AMCS.” On March 8, 2010,
the last reported sale price of our common stock on The NASDAQ
Global Market was $6.00 The high and low sale prices of our
common stock for each quarter during the last two full fiscal
years are set forth below:
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Stock Price Performance Graph. The graph below
compares the cumulative total return on our common stock with
the NASDAQ Global Market index (U.S. companies) and Russell
2000 index for the period from December 31, 2004 to
December 31, 2009. The comparison assumes that $100 was
invested on December 31, 2004 in our common stock and in
each of the comparison indices, and assumes reinvestment of
dividends, where applicable. We have selected the Russell 2000
index for comparison purposes as we do not believe we can
reasonably identify an appropriate peer group index. The
comparisons shown in the graph below are based upon historical
data and we caution that the stock price performance shown in
the graph below is not indicative of, nor intended to forecast,
the potential future performance of our common stock.
Information used in the graph was obtained from Research Data
Group, a source believed to be reliable, but we are not
responsible for any errors or omissions in such information.
*$100 invested on 12/31/04 in stock or index, including
reinvestment of dividends.
Fiscal year ending December 31.
Stockholders. As of March 9, 2010, there
were approximately 1,044 record holders of our common stock.
Dividend Policies. In December 2002, the
Company adopted a stockholder rights plan, as amended (the
“Rights Plan”) and declared a dividend of one right
(the “Right”) on each share of our common stock. The
dividend was paid on December 27, 2002, to stockholders of
record on December 27, 2002. We currently intend to retain
our future earnings for use in the operation and expansion of
our business and do not anticipate declaring or paying any cash
dividends in the foreseeable future. Any future determination as
to the declaration and payment of dividends will be at the
discretion of our board of directors and will depend on then
existing conditions, including our financial condition, results
of operations, contractual restrictions, capital requirements,
business prospects and other factors that our board of directors
considers relevant.
Sales of Unregistered Securities. We did not
sell any unregistered securities during fiscal year 2009.
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Issuer Purchases of Equity Securities. On
November 3, 2008, our Board of Directors approved our
repurchase of shares of our common stock having an aggregate
value of up to $5 million. During the fiscal year ended
December 31, 2009, we repurchased 87,766 shares of
stock under a
Rule 10b5-1
trading plan. In aggregate, we have repurchased
280,903 shares of stock under this plan. The table below
sets forth repurchases of our common stock in each of the three
months of the fourth quarter of the year ended December 31,
2009.
The following tables set forth selected consolidated financial
data of our Company as of and for each of the years in the
five-year period ended December 31, 2009 and should be read
in conjunction with “Management’s Discussion and
Analysis of Financial Condition and Results of Operations”
and our consolidated financial statements and notes thereto
included elsewhere in this Annual Report on
Form 10-K.
The selected consolidated financial data as of December 31,
2009 and 2008 and for each of the three years in the period
ended December 31, 2009 have been derived from our
consolidated financial statements which are included elsewhere
in this Annual Report on
Form 10-K
and were audited by BDO Seidman, LLP, an independent registered
public accounting firm. The selected consolidated financial data
as of December 31, 2007, 2006 and 2005 and for each of the
years ended December 31, 2006 and 2005 have been derived
from our consolidated financial statements not included herein,
which were audited by BDO Seidman, LLP.
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The following discussion should be read in conjunction with the
other parts of this report, including the audited consolidated
financial statements and related notes. Historical results and
percentage relationships set forth in the statement of
operations, including trends that might appear, are not
necessarily indicative of future operations. Please see
“Risk Factors — Warning About Forward-Looking
Statements and Risk Factors that May Affect Future Results”
for a discussion of the uncertainties, risks and assumptions
associated with these statements.
37
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We are a leading independent provider of imaging IT solutions in
the United States and Canada. AMICAS offers a comprehensive
suite of image and information management solutions —
from radiology PACS to cardiology PACS, from radiology
information systems to cardiovascular information systems, from
business intelligence tools to enterprise content management
tools, and from revenue cycle management solutions to
teleradiology solutions. AMICAS provides a complete,
end-to-end
solution for imaging centers, ambulatory care facilities,
radiology practices and billing services. Solutions include
automation support for workflow, imaging, billing and document
management. Hospitals are provided with a comprehensive image
management solution for cardiology and radiology as well as an
enterprise-wide image management infrastructure that complements
existing electronic medical record (“EMR”) strategies
to enhance clinical, operational, and administrative functions.
Complementing the product suites is AMICAS professional
services, a set of client-centered professional and consulting
services that assist the Company’s customers with a
well-planned transition to a digital enterprise.
The Company is focused in two primary markets, ambulatory
imaging businesses and acute care facilities. The ambulatory
imaging business is composed of radiology groups, teleradiology
businesses, imaging centers, multi-specialty groups and billing
services. Acute care facilities consist primarily of integrated
delivery networks (“IDNs”) and hospitals. In the
ambulatory imaging market, the Company is focused on delivering
an
end-to-end
solution. Our revenues in this market consist of software
license fees and systems, services, maintenance, and EDI
revenues. The
end-to-end
solution is modular and customers can purchase one component or
several and add enhancements over time. We believe radiology
groups need an automation solution focused on improving their
competitiveness, service delivery capabilities, and operating
financial performance.
In the acute care market, we provide top-flight departmental
solutions for radiology and cardiology departments and an
enterprise-wide imaging infrastructure that serves as the
imaging component for the enterprise electronic medical record.
Our departmental solutions for radiology include a web-based
PACS that features innovative image management capabilities at
what we believe is a low total cost of ownership. Our
departmental solutions for cardiology include a multi-modality
image management platform, a web-based structured reporting
solution, and a hemodynamic monitoring solution. This
comprehensive cardiovascular solution offers a complete,
end-to-end automation solution for all aspects of a cardiology
department.
Our enterprise solutions include vendor neutral archive for
image management infrastructure. A vendor neutral archive allows
healthcare providers to consolidate their medical imaging
infrastructure for multiple departmental image management
solutions from multiple vendors and multiple locations. AMICAS
ECM (Enterprise Content Manager) can be deployed as a standalone
medical image archive solution or it can be deployed complete
with an integrated viewing platform to allow providers to use
AMICAS ECM as the imaging component of their overall EMR
strategy.
In fiscal year 2009, the Company continued the trend of large
multi-site customers in the ambulatory market, where payments
have shifted from a license fee in advance to a multi-year
financing arrangement. We believe that this shift is due to the
need for radiology groups to reduce the up front capital needs
typically required in a traditional software sale. Our revenues
continue to be impacted as a result of the need to recognize the
revenue over extended periods as compared to prior periods.
Software discounts have remained relatively constant during
fiscal year 2009; however, uncertainty could impact both the
level of discounts as well as delay capital purchasing
decisions. Revenues in the acute care market consist primarily
of software and the associated maintenance and services. We
believe the acute care market continues to be driven by the
replacement market for existing PACS systems, especially to
reduce total cost of ownership and reduce overhead costs. We
believe the replacement market represents an attractive
opportunity for our solution to improve return on investment and
lower costs. However, continued uncertainty could cause
potential customers to delay or eliminate capital expenditures
when they have an existing system.
On April 2, 2009, we completed the acquisition of Emageon.
As a result of the acquisition, we expanded our presence in the
image and information management market. The combined solution
suite includes radiology PACS, cardiology PACS, radiology
information systems, cardiology information systems, revenue
cycle management systems, referring physician tools, business
intelligence tools, and electronic medical record-enabling
enterprise content management capabilities. We now have
operations in Canada, acquired as part of the Emageon
acquisition.
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On December 24, 2009, we entered into the Thoma Bravo
Merger Agreement, which provides for the acquisition of 100% of
the capital stock of AMICAS by an affiliate of Thoma Bravo for
$5.35 per share in cash. On February 23, 2010, we received
from Merge a proposal to acquire all of the outstanding shares
of AMICAS for $6.05 per share in cash, which included an
executed definitive commitment letter for $200 million of
financing from Morgan Stanley and confirmation that Merge would
place a portion of the pre-funded proceeds received from its
mezzanine investors into an escrow account directly accessible
by AMICAS. After reviewing the proposal, on March 1, 2010,
our Board of Directors determined that the proposal constituted
a “Superior Proposal” as defined under the Thoma Bravo
Merger Agreement. In accordance with the terms of the Thoma
Bravo Merger Agreement, we negotiated in good faith with Thoma
Bravo during the five business day period to make such
adjustments in the terms and conditions of the Thoma Bravo
Agreement such that the Merge proposal would cease to constitute
a Superior Proposal.
On March 4, 2010, Thoma Bravo notified AMICAS that it was
not offering a counter proposal and waived the remainder of the
notice period. On March 5, 2010, we terminated the Thoma
Bravo Merger Agreement and paid a termination fee of
approximately $8.6 million, half of which was reimbursed by
Merge. Subsequently, we entered into the Merge Merger Agreement,
pursuant to which Merge will acquire all of the outstanding
shares of AMICAS for $6.05 per share in cash. Under the terms of
the Merge Merger Agreement, Merge will commence a cash tender
offer for all of AMICAS’ outstanding common stock. Merge
will then consummate a merger pursuant to which any untendered
shares of AMICAS common stock (other than those shares held by
AMICAS’ stockholders who have properly exercised their
dissenters’ rights under Section 262 of the Delaware
General Corporation Law) will be converted into the right to
receive the same $6.05 per share cash price. The tender offer
and merger are subject to certain closing conditions, including,
but not limited to, a successful tender of a minimum number of
shares of AMICAS common stock, antitrust clearance and other
regulatory approvals. The merger is expected to close in the
second quarter of 2010. There is no financing condition to the
consummation of the Acquisition.
RESULTS
OF OPERATIONS
The Company has two primary revenue-generating areas: software
license fees and system revenues, and maintenance and services
revenues. Software license fees and system revenues are derived
from the sale of software product licenses and computer
hardware. Maintenance and services revenues come from providing
ongoing software and hardware maintenance, EDI and services
revenues. Approximately 69%, 67% and 62% of our total revenues
were of a recurring nature, such as support and transaction
processing services, in 2009, 2008 and 2007, respectively.
There are three primary components of maintenance and services
revenues: (1) software and hardware maintenance,
(2) EDI revenues, and (3) service revenues.
Maintenance and services revenues grew 80.6% or
$32.1 million in the fiscal year of 2009 as compared to the
fiscal year of 2008. The components of the change are as follows:
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Maintenance and services revenues grew 4.5% or $1.7 million
in fiscal year 2008 as compared to fiscal year 2007. The
components of the change are:
Software license and system revenues increased 63.6% or
$6.7 million in fiscal year 2009 as compared to fiscal year
2008.
The increase in software license and systems revenues was due to
an increase of $7.9 million of additional revenues from our
acquisition of Emageon offset by a decrease of $1.2 million
versus the twelve months ended December 31, 2008. The
decrease of $1.2 million was primarily attributable to the
effect of extended payment terms, which increases the time it
takes to convert the software license and systems orders to
revenue and the effect of a large system sale that occurred in
the first quarter of 2008. In general, the recognition of
software license and systems revenues under generally accepted
accounting principles can depend on product mix (i.e. whether
systems or software are being sold), and whether there are
changes in the prevailing terms (such as payment terms) under
which our sales are concluded, all of which may vary over time
and from quarter to quarter.
Software license and system revenues decreased 10.6% or
$1.2 million in fiscal year 2008 as compared to fiscal year
2007.
The decrease in software license and systems revenues is
primarily attributable to the effect of extended payment terms,
which increased our time to convert the order to software
license and systems revenues by approximately 50%. Software
license and systems revenues are highly dependent on our product
mix, such as large third party purchases or significant software
license volumes to our customers, the level of software
discounts, and software revenue recognition policies under
generally accepted accounting principles, which can delay
revenue recognition.
We believe our customers and potential customers continue to
look for automation solutions as they try to grow their
businesses. Underlying these trends is the public demand for
non-invasive diagnostic procedures and a public
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interest in health and fitness which we believe will continue to
drive growth in the imaging industry. We believe these trends
support our
end-to-end
strategy and are consistent with our goal to approach the market
with our AMICAS One Suite product. However we believe that there
will be intense competition in this market as demand grows which
can threaten our competitive position.
Quarterly and annual revenues and related operating results are
highly dependent on the volume and timing of the signing of
license agreements and product deliveries during each quarter,
which are very difficult to forecast. A significant portion of
our quarterly sales of software product licenses and computer
hardware is concluded in the last month of each quarter,
generally with a concentration of our quarterly revenues earned
in the final ten business days of that month. Also, our
projections for revenues and operating results include
significant new sales of product and service offerings,
including our AMICAS PACS, AMICAS RIS, AMICAS Financials,
RadStream, Dashboards and AMICAS Documents, AMICAS Vericis and
AMICAS Hemo. Due to these and other factors, our revenues and
operating results are very difficult to forecast.
Cost of maintenance and services revenues primarily consists of
the cost of EDI insurance claims processing, outsourced hardware
maintenance, EDI billing and statement printing services,
postage, third party consultants and personnel salaries,
benefits and other allocated indirect costs related to the
delivery of services and support.
Cost of maintenance and services revenue for the fiscal year
2009 increased 77.5% or $13.9 million as compared to the
fiscal year 2008.
Cost of maintenance and services revenues increased by
$1.2 million to $17.9 million or 7.2% in fiscal year
2008 as compared to fiscal year 2007.
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Cost of software license and system revenues primarily consists
of costs incurred to purchase computer hardware, third-party
software and other items for resale in connection with sales of
new systems, as well as amortization of software product costs.
Cost of software licenses and hardware sales increased 139.9% or
$6.7 million for the fiscal year 2009 as compared to fiscal
year 2008. The increase in the cost of software license and
systems revenues was primarily due to the acquisition of
Emageon, including $6.7 million of third party hardware and
internal manufacturing costs. The increase in third party and
internal costs is directly related to the increase in third
party software and hardware revenue.
Amortization of software increased by $0.6 million or 28.0%
in fiscal year 2009 as compared to fiscal year 2008. The
increase in amortization is directly related to the acquisition
of technology assets from the purchase of Emageon.
Cost of software license and system sales as a percentage of
software license and system revenues increased to 67.2% in
fiscal year 2009 as compared to 45.9% in fiscal year 2008. The
increase of approximately 21% is due to the increase in the
costs of systems sales related to manufacturing and internal
costs for acquired products, which has changed the product mix
relative to software revenues.
Cost of software license and system sales increased by
approximately $0.3 million or 5.9% in fiscal year 2008 as
compared to fiscal year 2007. The increase in cost of software
license and system sales is attributable to $0.3 million
write off of third party costs that were previously capitalized.
Amortization of software costs increased by $0.2 million or
12.6% from fiscal year 2008 versus fiscal year 2007 which is
related to the purchase of AMICAS Financials, as described below.
Cost of software license and system sales as a percentage of
software license and system revenues increased to 45.9% in
fiscal year 2008 as compared to 38.7% in fiscal year 2007. The
increase of approximately 7% is due primarily to the product mix
of software revenues versus systems sales.
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Selling, general and administrative expenses include fixed and
variable compensation and benefits, facilities, travel,
communications, bad debt, legal, marketing, insurance,
stock-based compensation and other administrative expenses.
Selling, general and administrative expenses increased by
$5.9 million or 28.6% to $26.8 million in fiscal year
2009 as compared to $20.9 million in fiscal year 2008. This
increase was due to the acquisition of Emageon, including
additional sales and marketing personnel costs and additional
personnel costs in finance and administration.
Selling, general and administrative expenses as a percentage of
revenue decreased to 30.0% from 41.4% as compared to fiscal year
2008. The decrease in selling, general and administrative
expenses as a percentage of revenue is the result of the
increased revenue base from the acquisition of Emageon, as the
costs to support the organization do not increase proportionally
to revenues.
Selling, general and administrative expenses decreased by
$1.3 million or 5.9% to $20.9 million in fiscal year
2008 as compared to $22.2 million in fiscal year 2007. This
decrease was due to primarily to a $0.8 million decrease in
personnel salaries and benefits due to reduced headcount and a
$0.5 million decrease in stock-based compensation included
in general and administrative expenses. Non-personnel related
expenses remained consistent with fiscal year 2007.
Selling, general and administrative expenses as a percentage of
revenue decreased to 41.4% from 44.4% as compared to fiscal year
2007. The decrease in selling and general and administrative
expenses as a percentage of revenue is due primarily to the
decrease in such expenses of $1.3 million and an increase
in revenues.
On October 1, 2007, we notified our then President and
Chief Operating Officer (“COO”) that the Employment
Agreement between our COO and us dated March 28, 2005 (the
“Employment Agreement”) would not be renewed. Pursuant
to the terms of the Employment Agreement and in connection with
the non-renewal by us of that agreement, we and our COO entered
into a general release and separation agreement, dated as of
October 25, 2007 (the “Separation Agreement”).
Pursuant to the Separation Agreement our COO was entitled to
receive one year’s salary as a severance payment. In the
year ended December 31, 2007, we accrued approximately
$0.3 million in general and administrative expenses related
to this Separation Agreement. The severance payments per the
agreement were paid in fiscal year 2008.
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Research and development expenses include fixed and variable
compensation and benefits, facilities, travel, communications,
stock-based compensation and other administrative expenses
related to our research and development activities.
Research and development expense increased from
$8.8 million to $15.1 million or 72.2% in fiscal year
2009 as compared to fiscal year 2008. The increase in research
and development expense represents operating increases in
personnel costs and benefits. The increase in research and
development expense is due to increased personnel costs related
to the acquisition of Emageon, as there are additional products
to develop and support. As a percentage of revenue, research and
development expenses were 16.9% of revenues in fiscal year 2009
as compared to 17.4% of revenues in fiscal year 2008.
Research and development expense increased from
$8.6 million to $8.8 million or 1.5% in fiscal year
2008 as compared to fiscal year 2007. The increase in research
and development expense represents operating increases in
personnel costs and benefits. The Company continues to invest in
research and development to develop new and innovative products
and features and enhance the Company’s existing product
suite. As a percentage of revenue, research and development
expenses were 17.4% of revenues in fiscal year 2008 as compared
to 17.3% of revenues in fiscal year 2007, which reflects this
continued investment.
We incurred approximately $3.0 million in acquisition
related and integration costs in fiscal year 2009. Approximately
$2.4 million related to our acquisition of Emageon Inc, and
the remaining $0.6 million was incurred in connection with
the proposed acquisition by Thoma Bravo announced on
December 24, 2009. These costs consisted primarily of
legal, accounting, and fees for consulting services.
We incurred restructuring costs of $3.8 million related to
our acquisition of Emageon during fiscal year 2009, which
included $0.9 million in excess facilities charges,
$2.2 million in severance and termination costs, and
$0.6 million in disposal of leasehold improvements,
furniture and equipment in the sites exited under the
restructuring, and $0.1 million of other equipment
relocation and storage charges.
Amortization increased from $402,000 in the year ended
December 31, 2008 to $548,000 or 36.3% in the year ended
December 31, 2009. The increase is due to the increased
amortization resulting from intangible assets acquired that were
acquired as part of the acquisition of Emageon.
Amortization decreased from $427,000 in the year ended
December 31, 2007 to $402,000 or 5.9% in the year ended
December 31, 2008. The decrease is due to the reduction in
the amortization of an intangible asset that became fully
amortized in November, 2008.
During the period ended March 31, 2007, we acquired certain
ownership rights to a practice management software application
for $2.3 million. We now market this product as AMICAS
Financials. AMICAS Financials became commercially available in
April 2008, at which point we began amortization of the costs
over the estimated life of approximately seven years, which is
reflected in the cost of software license and systems revenue.
We did not capitalize any internal costs prior to commercial
availability as such amounts were immaterial.
We performed our annual goodwill impairment test at
September 30, 2009 and determined that the fair value of
equity exceeded the carrying value of equity, therefore goodwill
was not impaired as of that date.
In the fourth quarter of 2008, we incurred $27.5 million of
impairment charges of which $27.3 million related to
goodwill. We performed our annual goodwill impairment test at
September 30, 2008 and determined that the fair value of
equity exceeded the carrying value of equity, therefore goodwill
was not impaired as of that date.
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Subsequent to September 30, 2008, there were certain
triggering events that required us to perform an interim
goodwill impairment test at December 31, 2008. These
triggering events primarily include the duration of the decline
of our stock price at a market value below the carrying value of
equity from September 30, 2008 through December 31,
2008, and the continued deterioration of the credit markets and
the economy in the fourth quarter, which negatively impacts our
customers’ ability to obtain financing to purchase our
products and services. As a result, we recorded an impairment
charge of $27.3 million in the fourth quarter, (see
note C to consolidated financial statements). We also
incurred a $0.2 million charge related to internal use
purchased software that we determined during the fourth quarter
will not be utilized.
Interest income decreased by approximately $1.4 million or
64.9% in fiscal year 2009 as compared to fiscal year 2008. The
decrease in interest income is the result of the decrease in
cash and marketable securities as a result of our use of cash to
purchase Emageon and lower yields on our balances.
Interest income decreased by approximately $1.7 million or
43.5% in fiscal year 2008 as compared to fiscal year 2007. The
decrease in interest income is the result of the combination of
(i) the decrease in cash and marketable securities as a
result of our stock repurchase plan and (ii) lower yields
on our investments due to the current economic climate. We
attribute approximately $0.8 million of the decline in
interest income to the change in cash balances and the remaining
$0.9 million due to lower yields.
We incurred approximately $37,000 of interest expense in fiscal
year 2009 related to leases. We had no interest expense during
2008 or 2007.
We recorded an income tax benefit of $1,570,000 from continuing
operations in fiscal year 2009. The income tax benefit for the
year ended December 31, 2009 is primarily due to the
reversal of reserves for uncertain tax positions, and an
alternative minimum tax refund.
In fiscal year 2008 we recorded an income tax provision of
approximately $158,000. The provision decreased versus fiscal
year 2007 by approximately $51,000. The income tax provision in
fiscal year 2008 is the result of state franchise tax
liabilities and accrued interest and penalties associated with
uncertain tax positions. We did not record a federal tax
provision as we did not have federal taxable income in fiscal
year 2008.
Management has assessed the recovery of our deferred tax assets
of $47.7 million and as a result of this assessment,
recorded a valuation allowance of $45.9 million as of
December 31, 2009. The valuation allowance, along with
deferred tax liabilities of $1.8 million, reduces the net
deferred tax asset to zero. A full valuation allowance has been
recorded against the net deferred tax asset since management
believes it is more likely than not that the deferred tax asset
will not be realized.
LIQUIDITY
AND CAPITAL RESOURCES
On December 31, 2009, our cash and cash equivalents and
marketable securities were $47.7 million, a decrease of
$7.3 million from $55.0 million of cash and cash
equivalents and marketable securities at December 31, 2008.
Net cash provided by operating activities was $12.0 million
in fiscal year 2009 as compared to cash provided by operating
activities of $4.4 million in fiscal year 2008. Net cash
from operations in fiscal year 2009 included approximately
$6.7 million of cash generated from changes in working
capital, primarily due to the increases in deferred revenue, and
prepaid expense and other current assets. The Company generated
approximately $5.3 million
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of cash from operations due to; net loss of $4.0 million,
adjusted for non-cash items of $2.8 million of
amortization, $3.2 million of depreciation,
$2.0 million of stock based compensation and
$0.3 million of bad debt expense.
Investing activities used $12.8 million of cash in fiscal
year 2009. We decreased our marketable securities balances by
approximately $8.6 million and invested $0.7 million
in fixed assets during fiscal year 2009, and used
$20.1 million to purchase Emageon.
Net cash provided by financing activities was $2.3 million.
The primary source of cash was from the exercise of stock
options by certain employees.
Net cash provided by operating activities was $4.4 million
in fiscal year 2008 as compared to cash provided by operating
activities of $7.0 million in fiscal year 2007. Net cash
from operations in fiscal year 2008 included approximately
$2.1 million of cash generated from changes in working
capital, primarily an increase of $4.3 million of deferred
revenue, offset by a decrease of $2.8 million related to
accounts payable. Net loss, after adjusting for non-cash items
of $2.2 million of amortization, $1.1 million of
depreciation, $27.3 million of goodwill impairment charges,
$1.5 million of stock based compensation and
$0.1 million of bad debt expense generated approximately
$2.4 million of cash from operations. In fiscal year 2008
our product mix included a higher percentage of term deals than
in fiscal year 2007.
Net cash provided by investing activities provided
$18.8 million of cash in fiscal year 2008. We decreased our
marketable securities balances by approximately
$19.5 million and invested $0.6 million in fixed
assets during fiscal year 2008.
Net cash used in financing activities was $24.4 million.
The primary use of cash related to $24.8 million used to
fund our stock repurchase programs which were authorized by our
Board of Directors in December 2007 and November 2008. The
primary source of cash used to fund these repurchases was the
sale of our marketable securities, with the remainder provided
by working capital.
Our primary source of liquidity is our cash and cash equivalents
and marketable securities. We believe our cash and cash
equivalents and marketable securities, together with cash
provided by operations, will be sufficient to meet our projected
cash requirements for at least the next 12 months.
The following table summarizes the payments due in connection
with specific contractual obligations during the periods
specified.
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We anticipate capital expenditures for computer software and
equipment, other equipment, and leasehold improvements of
approximately $1.2 million for 2010.
To date, the overall impact of inflation on us has not been
material.
From time to time, in the normal course of business, we are
involved with disputes and have various claims made against us.
There are no material proceedings to which we are a party
currently pending, and management is unaware of any material
contemplated actions against us.
As permitted under Delaware law, we have agreements under which
we indemnify our executive officers and directors for certain
events or occurrences while the officer or director is or was
serving at our request in such capacity. The term of the
indemnification period is for the officer’s or
director’s lifetime. The maximum potential amount of future
payments we could be required to make under these
indemnification agreements is unlimited; however, we have a
director and officer insurance policy that limits our exposure
and enables us to recover a portion of any future amounts paid.
Given the insurance coverage in effect, we believe the estimated
fair value of these indemnification agreements is minimal. We
have no liabilities recorded for these agreements as of
December 31, 2009.
We generally include intellectual property indemnification
provisions in our software license agreements. Pursuant to these
provisions, we hold harmless and agree to defend the indemnified
party, generally our business partners and customers, in
connection with certain patent, copyright, trademark and trade
secret infringement claims by third parties with respect to our
products. The term of the indemnification provisions varies and
may be perpetual. In the event an infringement claim against us
or an indemnified party is made, generally we, in our sole
discretion, agree to do one of the following: (i) procure
for the indemnified party the right to continue use of the
software, (ii) provide a modification to the software so
that its use becomes noninfringing; (iii) replace the
software with software which is substantially similar in
functionality and performance; or (iv) refund all or the
residual value of the software license fees paid by the
indemnified party for the infringing software. We believe the
estimated fair value of these intellectual property
indemnification agreements is minimal. We have no liabilities
recorded for these agreements as of December 31, 2009.
The discussion and analysis of our financial condition and
results of operations is based on our financial statements and
accompanying notes, which we believe have been prepared in
conformity with generally accepted accounting principles. The
preparation of these financial statements requires management to
make estimates, assumptions and judgments that affect the
amounts reported in the financial statements and accompanying
notes. On an ongoing basis, we evaluate our estimates,
assumptions and judgments, including those related to revenue
recognition, allowances for future returns, discounts and bad
debts, tangible and intangible assets, deferred costs, income
taxes, restructurings, commitments, contingencies, claims and
litigation. We base our judgments and estimates on historical
experience and on various other assumptions that we believe are
reasonable under the circumstances. However, our actual results
could differ from those estimates.
We believe the following critical accounting policies affect our
more significant judgments and estimates used in the preparation
of our financial statements.
Revenue Recognition. We recognize revenue in
accordance in accordance with FASB ASC 605 —
Revenue Recognition (originally issued as Statement of
Position (“SOP”)
97-2,
“Software Revenue Recognition,” as amended by
SOP 98-9,
“Modification of
SOP 97-2
with Respect to Certain Transactions,”
SOP 81-1
“Accounting for Performance of Construction Type and
Certain Performance Type Contracts”, the Securities and
Exchange Commission’s Staff Accounting Bulletin 104,
“Revenue Recognition in Financial Statements” and
EITF 01-14,
“Income Statement Characterization of Reimbursements for
’Out-of-Pocket’ Expenses Incurred”). We recognize
software license revenues and system (computer hardware) sales
upon execution of the sales contract and delivery of the
software
(off-the-shelf
application software)
and/or
hardware. In all cases, however, the fee must be fixed or
determinable, collection of any related receivable must be
considered probable, and no significant post-contract
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obligations of ours shall be remaining. Otherwise, we defer the
sale until all of the requirements for revenue recognition have
been satisfied. Maintenance fees for routine client support and
unspecified product updates are recognized ratably over the term
of the maintenance arrangement.
We review all contracts that are offered outside our standard
payment terms. We review customer credit history to determine
probability of collection and we do not have a history of
granting post contract concessions. When there is a history of
successfully collecting payments from our customer without
making post contract concessions, we recognize revenue upon
delivery. In instances where we do not have an established
payment history
and/or if
the payment terms are in excess of twelve months we recognize
revenue as payments become due and payable. Our license and
service arrangements generally do not require significant
customization or modification of our software products to meet
specific customer needs. In those limited instances that do
require significant modification, including significant changes
to our software products’ source code or where there are
acceptance criteria or milestone payments, we defer the
recognition of software license revenue. In instances where we
have determined that services are essential to the
functionality, we recognize the services revenues and software
license and systems revenues using the percentage of completion
method.
Most of our sales and licensing contracts involve multiple
elements, in which case, we allocate the total value of the
customer arrangement to each element based on the vendor
specific objective evidence, or VSOE, of its fair value of the
respective elements. The residual method is used to determine
revenue recognition with respect to a multiple-element
arrangement when VSOE of fair value exists for all of the
undelivered elements (e.g., implementation, training and
maintenance services), but does not exist for one or more of the
delivered elements of the contract (e.g., computer software or
hardware). VSOE of fair value is determined based upon the price
charged when the same element is sold separately. If VSOE of
fair value cannot be established for the undelivered element(s)
of an arrangement, the total value of the customer arrangement
is deferred until the undelivered element(s) is delivered or
until VSOE of its fair value is established.
Contracts and arrangements with customers may include acceptance
provisions, which would give the customer the right to accept or
reject the product after it is shipped. If an acceptance
provision is included, revenue is recognized upon the
customer’s acceptance of the product, which occurs upon the
earlier receipt of a written customer acceptance or expiration
of the acceptance period. The timing of customer acceptances
could materially affect the results of operations during a given
period.
We recognize revenues using contract accounting if payment of
the software license fees is dependent upon the performance of
consulting services or the consulting services are otherwise
essential to the functionality of the licensed software. In
these instances we allocate the contract value to services
(maintenance and services revenues) based on list price; which
is consistent with our VSOE (defined in previous paragraph) for
such services, and the residual to product (software licenses
and systems sales) in our Consolidated Statement of Operations.
We generally determine the
percentage-of-completion
by comparing the labor hours incurred to date to the estimated
total labor hours required to complete the project. We consider
labor hours to be the most reliable, available measure of
progress on these projects. Adjustments to estimates to complete
are made in the periods in which facts resulting in a change
become known. When the estimate indicates that a loss will be
incurred, such loss is recorded in the period identified.
Significant judgments and estimates are involved in determining
the percent complete of each contract. Different assumptions
could yield materially different results.
Recognition of revenues in conformity with generally accepted
accounting principles requires management to make judgments that
affect the timing and amount of reported revenues.
Cash Equivalents and Marketable Debt
Securities. Cash equivalents consist primarily of
money market funds and are classified as available for sale and
carried at fair value, which approximates cost.
Marketable debt securities consist of high quality debt
instruments, primarily U.S. government, municipal and
corporate obligations. Investments in corporate obligations are
classified as
held-to-maturity,
as we have the intent and ability to hold them to maturity.
Held-to-maturity
marketable debt securities are reported at amortized cost.
Investments in municipal obligations are classified as
available-for-sale
and are reported at fair value with unrealized gains and losses
reported as other comprehensive income. Marketable debt
securities include
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held-to-maturity
investments with remaining maturities of less than one year as
of the balance sheet date and
available-for-sale
investments that may be sold in the current period or used in
current operations.
Accounts Receivable. Our accounts receivable
are customer obligations due under normal trade terms carried at
their face value, less provisions for bad debts. We evaluate the
carrying amount of our accounts receivable on an ongoing basis
and establish a valuation allowance based on a number of
factors, including specific customer circumstances, historical
rate of write-offs and the past due status of the accounts. At
the end of each reporting period, the allowance is reviewed and
analyzed for adequacy and is often adjusted based on the
findings. The allowance is increased through an increase in bad
debt expense.
Inventories. Inventories are stated at the
lower of cost or market (net realizable value) using the
specific identification and
first-in,
first-out methods and include materials, labor and manufacturing
overhead. We periodically review the quantities of inventories
on hand and compare these amounts to expected usage of each
particular product or product line. We record a charge to cost
of revenue for the amount required to reduce the carrying value
of inventories to estimated net realizable value. Costs of
purchased third-party hardware and software associated with our
customer contracts are included as inventories in the
consolidated balance sheets and charged to cost of system sales
when we receive customer acceptance and all other relevant
revenue recognition criteria are met.
Long-lived Assets. We review our long-lived
assets, such as property and equipment, and purchased intangible
assets that are subject to amortization, for impairment whenever
events or changes in circumstances indicate that the carrying
amount of an asset may not be recoverable. In accordance with
FASB ASC 360 — Property Plant and Equipment
(which includes what was originally issued as
SFAS No. 144, “Accounting for the Impairment or
Disposal of Long-Lived Assets”), we periodically review
long-lived assets for impairment whenever events or changes in
business circumstances indicate that the carrying amount of the
assets may not be fully recoverable or that the useful lives of
those assets are no longer appropriate. Each impairment test is
based on a comparison of the undiscounted cash flows to the
recorded carrying value for the asset. If impairment is
indicated, the asset is written down to its estimated fair value
based on a discounted cash flow analysis. In the fourth quarter
of 2008 we recorded a $0.2 million charge related to
internal use purchased software that is no longer utilized.
Goodwill. Goodwill represents the excess of
cost over the fair value of net tangible and identifiable
intangible assets of businesses acquired. We assess the
impairment of goodwill and intangible assets with indefinite
lives on an annual basis and whenever events or changes in
circumstances indicate that the carrying value of the asset may
not be recoverable. We would record an impairment charge if such
an assessment were to indicate that, more likely than not, the
fair value of such assets was less than the carrying value.
Judgment is required in determining whether an event has
occurred that may impair the value of goodwill or identifiable
intangible assets. Factors that could indicate that impairment
may exist include significant underperformance relative to plan
or long-term projections, significant changes in business
strategy, significant negative industry or economic trends or a
significant decline in our stock price for a sustained period of
time.
The first step (defined as “Step 1”) of the goodwill
impairment test, used to identify potential impairment, compares
the fair value of the equity with its carrying amount, including
goodwill. If the fair value of the equity exceeds its carrying
amount, goodwill of the reporting unit is considered not
impaired, thus the second step of the impairment test is
unnecessary. If the carrying amount of a reporting unit exceeds
its fair value, the second step of the goodwill impairment test
shall be performed to measure the amount of impairment loss, if
any. We performed a Step 1 test at its annual testing date of
September 30, 2009 and determined that the fair value of
equity exceeding the carrying value of equity, therefore
goodwill was not impaired.
Subsequent to September 30, 2008, there were certain
triggering events that required us to perform an interim Step 1
test at December 31, 2008. These triggering events
primarily include the duration of the decline of our stock price
at a market value below the carrying value of equity from
September 30, 2008 through December 31, 2008, and the
continued deterioration of the credit markets and the economy in
the fourth quarter which negatively impacts our customers access
to capital to purchase our products and services.
At December 31, 2008 we completed an interim Step 1 test
utilizing the market approach. The market approach considered
the Company’s stock price to calculate the market
capitalization of equity to compare to the
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carrying value of equity. We selected a 30 day moving
average of the market value of equity to compare to the carrying
value. Using the market approach, the carrying value of invested
capital exceeded the market value by approximately 47%. The
interim Step 1 test resulted in the determination that the
carrying value of equity exceeded the fair value of equity, thus
requiring us to measure the amount of any goodwill impairment by
performing the second step of the impairment test.
An income approach was used to corroborate the interim Step 1
test. The discounted cash flow method is used to measure the
fair value of our equity under the income approach. Determining
the fair value using a discounted cash flow method requires us
to make significant estimates and assumptions, including
long-term projections of cash flows, market conditions and
appropriate discount rates. Our judgments are based upon
historical experience, current market trends, pipeline for
future sales, and other information. While we believe that the
estimates and assumptions underlying the valuation methodology
are reasonable, different estimates and assumptions could result
in a different outcome. In estimating future cash flows, we
relied on internally generated projections for a defined time
period for sales and operating profits, including capital
expenditures, changes in net working capital, and adjustments
for non-cash items to arrive at the free cash flow available to
invested capital. A terminal value utilizing a constant growth
rate of cash flows was used to calculate a terminal value after
the explicit projection period. The income approach supported
the interim Step 1 test that resulted in the determination that
the carrying value of equity exceeded the fair value of equity.
The second step (defined as “Step 2”) of the goodwill
impairment test, used to measure the amount of impairment loss,
compares the implied fair value of reporting unit goodwill with
the carrying amount of that goodwill. The guidance in FASB ASC
350 — Intangibles — Goodwill and
Other, (originally issued as SFAS No. 142,
“Goodwill and Other Intangible Assets), paragraph 21
was used to estimate the implied fair value of goodwill.
“If the carrying amount of the Company’s goodwill
exceeds the implied fair value of that goodwill, an impairment
loss shall be recognized in an amount equal to that excess. The
loss recognized cannot exceed the carrying amount of goodwill.
After a goodwill impairment loss is recognized, the adjusted
carrying amount of goodwill shall be its new accounting
basis.”
The implied fair value of goodwill was determined in the same
manner as the amount of goodwill recognized in a business
combination is determined. The excess of the fair value of the
reporting unit over the amounts assigned to its assets and
liabilities is the implied amount of goodwill. We identified
several intangible assets that were valued during this process,
including technology, customer relationships, trade names,
non-compete agreements, and the Company’s workforce. The
allocation process was performed only for purposes of testing
goodwill for impairment. The Step 2 test resulted in the
impairment of goodwill in an amount equal to its carrying value
of $27.3 million as of December 31, 2008.
In addition, we performed sensitivity analysis on certain key
assumptions in the Step 2 test including the discount rate,
customer retention rates and royalty rates. The net book value
of our tangible net assets was approximately 91 percent of
the fair value of equity. Our tangible net assets were adjusted
to reflect the fair value of deferred revenue. In addition, the
total tangible and intangible net assets, excluding the
assembled workforce, were $68.7 million or 122 percent
of the fair value of equity. As a result, the assumptions
included in the valuation of intangible assets would need to
change significantly to avoid goodwill impairment.
Software Development Costs. We begin
capitalizing software development costs, only after establishing
commercial and technical feasibility. Annual amortization of
these costs represents the greater of the amount computed using
(i) the ratio that current gross revenues for the
product(s) bear to the total current and anticipated future
gross revenues of the product(s), or (ii) the straight-line
method over the remaining estimated economic life of the
product(s); generally, depending on the nature and success of
the product, such deferred costs are amortized over a five- to
seven-year period. Amortization commences when the product is
made commercially available. No products were made commercially
available in 2009. In 2009 and 2008 we did not capitalize any
costs related to products as such amounts were immaterial.
We evaluate the recoverability of capitalized software based on
estimated future gross revenues less the estimated cost of
completing the products and of performing maintenance and
product support. If our gross revenues turn out to be
significantly less than our estimates, the net realizable value
of our capitalized software intended for sale would be impaired.
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Income Taxes. We provide for taxes based on
current taxable income, and the future tax consequences of
temporary differences between the financial reporting and income
tax carrying values of our assets and liabilities (deferred
income taxes). At each reporting period, management assesses the
realizable value of deferred tax assets based on, among other
things, estimates of future taxable income, and adjusts the
related valuation allowance as necessary. In June 2007, the FASB
issued Interpretation No. 48, “Accounting for
Uncertainty in Income Taxes, an interpretation of FASB Statement
109,” which is now codified in FASB ASC 740 —
Income Taxes. This statement clarifies the criteria that
an individual tax position must satisfy for some or all of the
benefits of that position to be recognized in a company’s
financial statements. It prescribes a recognition threshold of
more-likely — than-not, and a measurement attribute
for all tax positions taken or expected to be taken on a tax
return, in order for those tax positions to be recognized in the
financial statements. Effective January 1, 2007, we adopted
the provisions of ASC 740, and there has been no material effect
on the financial statements. As a result, there was no
cumulative effect related to the adoption of the guidance in ASC
740.
Accounting for Share-Based Payment. We account
for share-based payment in accordance with the guidance in the
guidance in FASB ASC 718 — Compensation
(originally issued as SFAS 123(R), “Share Based
Payment”). Under the fair value recognition provisions of
this statement, share-based compensation cost is measured at the
grant date based on the value of the award and is recognized as
expense over the requisite service period which is generally the
vesting period. Determining the fair value of share-based awards
at the grant date requires judgment, including estimating
expected dividends, share price volatility and the amount of
share-based awards that are expected to be forfeited. If actual
results differ significantly from these estimates, share-based
compensation expense and our results of operations could be
materially impacted.
Fair Value. Effective January 1, 2008, we
adopted the guidance in FASB ASC 820 — Fair Value
Measurements and Disclosures (originally issued as Statement
of Financial Accounting Standards No. 157, “Fair Value
Measurements”), which defines fair value, establishes a
framework for measuring fair value and expands disclosures about
fair value measurements required under other accounting
pronouncements. FASB ASC 820 clarifies that fair value is an
exit price, representing the amount that would be received
pursuant to the sale of an asset or paid pursuant to the
transfer a liability in an orderly transaction between market
participants. It also requires that a fair value measurement
reflect the assumptions market participants would use in pricing
an asset or liability based on the best information available.
Assumptions include the risks inherent in a particular valuation
technique (such as a pricing model)
and/or the
risks inherent in the inputs to the model.
Business Combinations. Effective
January 1, 2009, we adopted the new accounting standard
regarding business combinations. As codified under ASC 805, this
update requires an entity to recognize the assets acquired,
liabilities assumed, contractual contingencies, and contingent
consideration at their fair value on the acquisition date. It
further requires that acquisition-related costs be recognized
separately from the acquisition and expensed as incurred; that
restructuring costs generally be expensed in periods subsequent
to the acquisition date; and that changes in accounting for
deferred tax asset valuation allowances and acquired income tax
uncertainties after the measurement period be recognized as a
component of provision for taxes. The adoption had a material
impact on the Company’s 2009 consolidated financial
statements as our acquisition of Emageon was accounted for under
the guidance of ASC 805.
Loss Contingencies. We are subject to legal
proceedings, lawsuits and other claims relating to labor,
service and other matters arising in the ordinary course of
business. Quarterly, we review the status of each significant
matter and assess our potential financial exposure. If the
potential loss from any claim or legal proceeding is considered
probable and the amount can be reasonably estimated, we accrue a
liability for the estimated loss. Significant judgment is
required in both the determination of probability and the
determination as to whether an exposure is reasonably estimable.
Because of uncertainties related to these matters, accruals are
based only on the best information available at the time. As
additional information becomes available, we reassess the
potential liability related to our pending claims and litigation
and may revise our estimates. Such revisions in the estimates of
the potential liabilities could have a material impact on our
results of operations and financial position.
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Recent
Accounting Pronouncements
Effective July 1, 2009, we adopted “FASB Accounting
Standards Codification” and the Hierarchy of Generally
Accepted Accounting Principles (ASC 105). This standard
establishes only two levels of U.S. generally accepted
accounting principles (“GAAP”), authoritative and
nonauthoritative. The FASB Accounting Standards Codification
(the “Codification”) became the source of
authoritative, nongovernmental GAAP, except for rules and
interpretive releases of the SEC, which are sources of
authoritative GAAP for SEC registrants. All other
non-grandfathered, non-SEC accounting literature not included in
the Codification became nonauthoritative. The Company began
using the new guidelines and numbering system prescribed by the
Codification when referring to GAAP in the third quarter of
fiscal 2009. As the Codification was not intended to change or
alter existing GAAP, it did not have any impact on our
consolidated financial statements.
Effective June 30, 2009, we adopted three accounting
standard updates which were intended to provide additional
application guidance and enhanced disclosures regarding fair
value measurements and impairments of securities. They also
provide additional guidelines for estimating fair value in
accordance with fair value accounting. The first update, as
codified in ASC
820-10-65,
provides additional guidelines for estimating fair value in
accordance with fair value accounting. The second accounting
update, as codified in ASC
320-10-65,
changes accounting requirements for
other-than-temporary-impairment
(OTTI) for debt securities by replacing the current requirement
that a holder have the positive intent and ability to hold an
impaired security to recovery in order to conclude an impairment
was temporary with a requirement that an entity conclude it does
not intend to sell an impaired security and it will not be
required to sell the security before the recovery of its
amortized cost basis. The third accounting update, as codified
in ASC
825-10-65,
increases the frequency of fair value disclosures. These updates
were effective for fiscal years and interim periods ended after
June 15, 2009. The adoption of these accounting updates did
not have any impact on our consolidated financial statements.
Effective June 30, 2009, we adopted a new accounting
standard for subsequent events, as codified in ASC
855-10. The
update modifies the names of the two types of subsequent events
either as recognized subsequent events (previously referred to
in practice as Type I subsequent events) or non-recognized
subsequent events (previously referred to in practice as
Type II subsequent events). In addition, the standard
modifies the definition of subsequent events to refer to events
or transactions that occur after the balance sheet date, but
before the financial statements are issued (for public entities)
or available to be issued (for nonpublic entities). The update
did not result in significant changes in the practice of
subsequent event disclosures, and therefore the adoption did not
have any impact on our consolidated financial statements.
Effective January 1, 2009, we adopted an accounting
standard update regarding the determination of the useful life
of intangible assets. As codified in ASC
350-30-35,
this update amends the factors considered in developing renewal
or extension assumptions used to determine the useful life of a
recognized intangible asset under intangibles accounting. It
also requires a consistent approach between the useful life of a
recognized intangible asset under prior business combination
accounting and the period of expected cash flows used to measure
the fair value of an asset under the new business combinations
accounting (as currently codified under ASC 850). The update
also requires enhanced disclosures when an intangible
asset’s expected future cash flows are affected by an
entity’s intent
and/or
ability to renew or extend the arrangement. The adoption did not
have any impact on our consolidated financial statements.
In February 2008, the FASB issued an accounting standard update
that delayed the effective date of fair value measurements
accounting for all non-financial assets and non-financial
liabilities, except for items that are recognized or disclosed
at fair value in the financial statements on a recurring basis
(at least annually), until the beginning of the first quarter of
fiscal 2009. These include goodwill and other
non-amortizable
intangible assets. We adopted this accounting standard update
effective January 1, 2009. The adoption of this update to
non-financial assets and liabilities, as codified in ASC
820-10, did
not have any impact on our consolidated financial statements.
Effective January 1, 2009, we adopted a new accounting
standard update regarding business combinations. As codified
under ASC 805, this update requires an entity to recognize the
assets acquired, liabilities assumed, contractual contingencies,
and contingent consideration at their fair value on the
acquisition date. It further requires
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that acquisition-related costs be recognized separately from the
acquisition and expensed as incurred; that restructuring costs
generally be expensed in periods subsequent to the acquisition
date; and that changes in accounting for deferred tax asset
valuation allowances and acquired income tax uncertainties after
the measurement period be recognized as a component of provision
for taxes. The adoption had a material impact on the
Company’s 2009 consolidated financial statements as our
acquisition of Emageon was accounted for under the guidance of
ASC 805.
In September 2009, the FASB issued Update
No. 2009-13,
“Multiple-Deliverable Revenue Arrangements — a
consensus of the FASB Emerging Issues Task Force” (ASU
2009-13). It
updates the existing multiple-element revenue arrangements
guidance currently included under ASC
605-25,
which originated primarily from the guidance in EITF Issue
No. 00-21,
“Revenue Arrangements with Multiple Deliverables”
(EITF 00-21).
The revised guidance primarily provides two significant changes:
1) eliminates the need for objective and reliable evidence
of the fair value for the undelivered element in order for a
delivered item to be treated as a separate unit of accounting,
and 2) eliminates the residual method to allocate the
arrangement consideration. In addition, the guidance also
expands the disclosure requirements for revenue recognition. ASU
2009-13 will
be effective for the first annual reporting period beginning on
or after June 15, 2010, with early adoption permitted
provided that the revised guidance is retroactively applied to
the beginning of the year of adoption. We are currently
assessing the future impact of this new accounting update to its
consolidated financial statements.
As of December 31, 2009, we did not have any
“off-balance sheet arrangements,” as that term is
defined in the rules and regulations of the SEC.
We believe we are not subject to material foreign currency
exchange rate fluctuations, as most of our sales and expenses
are domestic and therefore are denominated in the
U.S. dollar. We do not hold derivative securities and have
not entered into contracts embedded with derivative instruments,
such as foreign currency and interest rate swaps, options,
forwards, futures, collars, and warrants, either to hedge
existing risks or for speculative purposes.
As of December 31, 2009, we held approximately
$8.8 million in cash and cash equivalents and
$38.9 million in marketable debt securities. Cash
equivalents are carried at fair value, which approximates cost.
Available for sale marketable securities are carried at fair
value, and held to maturity securities are held at amortized
cost.
We are exposed
to market risk, including changes in interest rates affecting
the return on our investments. A significant decline in interest
rates can have a material impact on our interest income.
Exposure to market rate risk for changes in interest rates
relates to our investment in marketable debt securities of
$38.9 million at December 31, 2009. We have not used
derivative financial instruments in our investment portfolio. We
place our investments with high-quality issuers and have
policies limiting, among other things, the amount of credit
exposure to any one issuer. We seek to limit default risk by
purchasing only investment-grade securities. We manage potential
losses in fair value by investing in relatively short term
investments thereby allowing us to hold our investments to
maturity. The current negative liquidity conditions in the
global credit markets can adversely impact the liquidity of
these securities; however, the investments are highly rated, and
our investments have an average remaining maturity of
approximately six months and are primarily fixed-rate debt
instruments. Based on a hypothetical 10% adverse movement in
interest rates, the potential losses in future earnings and cash
flows are estimated to be $180,000.
Our audited consolidated financial statements and related notes
as of December 31, 2009 and 2008 and for each of the years
ended December 31, 2009, 2008 and 2007 are included under
Item 15 and begin on
page F-1.
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None.
Our management, with the participation of our Chief Executive
Officer and Chief Financial Officer, has evaluated the
effectiveness of our disclosure controls and procedures (as
defined in
Rules 13a-15(e)
and
15d-15(e)
under the Securities Exchange Act of 1934, as amended (the
“Exchange Act”)). Our disclosure controls and
procedures are designed (i) to ensure that information
required to be disclosed by us in the reports that we file or
submit under the Exchange Act is recorded, processed and
summarized and reported within the time periods specified in the
SEC’s rules and forms and (ii) to ensure that
information required to be disclosed in the reports the Company
files or submits under the Exchange Act is accumulated and
communicated to our management, including our Chief Executive
Officer and Chief Financial Officer, to allow timely decisions
regarding required disclosure. Based on that evaluation, our
Chief Executive Officer and Chief Financial Officer concluded
that, as of December 31, 2009, our disclosure controls and
procedures were effective.
Management of the Company is responsible for establishing and
maintaining adequate internal control over financial reporting,
as defined in
Rules 13a-15(f)
and
15d-15(f)
under the Exchange Act. The Company’s internal control over
financial reporting is designed to provide reasonable assurance
regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in
accordance with U.S. generally accepted accounting
principles (“GAAP”). The Company’s internal
control over financial reporting includes those policies and
procedures that:
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of the effectiveness of
internal control over financial reporting to future periods are
subject to the risk that controls may become inadequate because
of changes in conditions, or that the degree of compliance with
policies or procedures may deteriorate.
The Company’s management assessed the effectiveness of the
Company’s internal control over financial reporting as of
December 31, 2009. In making this assessment, management
used the criteria set forth in Internal Control-Integrated
Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (“COSO”).
Based on the results of this assessment, management (including
our Chief Executive Officer and our Chief Financial Officer) has
concluded that, as of December 31, 2009, our internal
control over financial reporting was effective.
There were no changes in our internal control over financial
reporting, identified in connection with the evaluation of such
internal control that occurred during the fourth quarter of our
last fiscal year, that have materially affected or are
reasonably likely to materially affect, our internal control
over financial reporting.
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Board of Directors and Stockholders
AMICAS, Inc.
Boston, Massachusetts
We have audited AMICAS, Inc. and subsidiaries internal control
over financial reporting as of December 31, 2009, based on
criteria established in Internal Control —
Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (the COSO criteria).
AMICAS, Inc. and subsidiaries management is responsible for
maintaining effective internal control over financial reporting
and for its assessment of the effectiveness of internal control
over financial reporting, included in the accompanying
Item 9A, “Management’s Report on Internal Control
Over Financial Reporting”. Our responsibility is to express
an opinion on the company’s internal control over financial
reporting based on our audit.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control
over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of
internal control over financial reporting, assessing the risk
that a material weakness exists, and testing and evaluating the
design and operating effectiveness of internal control based on
the assessed risk. Our audit also included performing such other
procedures as we considered necessary in the circumstances. We
believe that our audit provides a reasonable basis for our
opinion.
A company’s internal control over financial reporting is a
process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. A company’s
internal control over financial reporting includes those
policies and procedures that (1) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions
are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of
management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the
company’s assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
In our opinion, AMICAS, Inc. and subsidiaries maintained, in all
material respects, effective internal control over financial
reporting as of December 31, 2009, based on the COSO
criteria.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
consolidated balance sheets of AMICAS, Inc. and subsidiaries as
of December 31, 2009 and 2008 and the related consolidated
statements of operations, stockholders’ equity and
comprehensive income (loss) and cash flows for each of the three
years in the period ended December 31, 2009 and our report
dated March 11, 2010 expressed an unqualified opinion
thereon.
/s/
BDO Seidman, LLP
Boston, Massachusetts
March 11, 2010
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None.
Portions of the AMICAS, Inc.’s definitive proxy statement
for the 2010 Meeting of Stockholders (the “Proxy
Statement”) to be filed with the Securities and Exchange
Commission pursuant to Regulation 14A are incorporated by
reference into Part III of this Annual Report on
Form 10-K.
Information about our executive officers is contained under the
caption “Employees” in Part I hereof. We have
adopted a Code of Business Conduct and Ethics for our directors,
officers (including our principal executive officer, principal
financial officer, principal accounting officer or controller,
or persons performing similar functions) and employees. Our Code
of Business Conduct and Ethics is available on our website at
www.amicas.com/investor. We intend to disclose any
amendments to, or waivers from, our Code of Business Conduct and
Ethics on our website. Disclosure regarding any amendments to,
or waivers from, provisions of our Code of Business Conduct and
Ethics that apply to our directors, Chief Executive Officer or
Chief Financial Officer will be included in a Current Report on
Form 8-K
within four business days following the date of the amendment or
waiver, unless website posting is permitted by the rules of The
NASDAQ Global Market. Stockholders may request a free copy of
the Code of Business Conduct and Ethics by writing to Investor
Relations, AMICAS, Inc., 20 Guest Street, Boston, Massachusetts
02135-2040.
The remainder of the response to this item is contained in the
Proxy Statement under the captions “Corporate Governance
Matters,” and “Management,” and is incorporated
herein by reference. Information relating to delinquent filings
of Forms 3, 4, and 5 of the Company is contained in the
Proxy Statement under the caption “Compliance with
Section 16(a) of the Securities Exchange Act of 1934,”
and is incorporated herein by reference.
The response to this item will be contained in the Proxy
Statement under the captions “Executive Compensation,”
“Compensation Committee Interlocks and Insider
Participation,” “Compensation Committee Report”
,and “Compensation Practices and Policies Relating to Risk
Management” and is incorporated herein by reference.
The response to this item will be contained in the Proxy
Statement in part under the caption “Stock Ownership of
Certain Beneficial Owners and Management” and in part below.
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The following table provides certain aggregate information with
respect to all of our equity compensation plans in effect as of
December 31, 2009:
The 2006 Stock Incentive Plan replaced our 1996 Stock Option
Plan (the “1996 Plan”). Options outstanding under the
1996 Plan continue to have force and effect in accordance with
the provisions of the instruments evidencing such options.
However, no further options will be granted under the 1996 Plan,
and no shares remain reserved for issuance under this plan. The
Directors Stock Option Plan terminated on September 9, 2007.
The response to this item will be contained in the Proxy
Statement under the captions “Certain Relationships and
Related Transactions,” “Corporate Governance
Matters — Director Independence” and is
incorporated herein by reference.
The response to this item will be contained in the Proxy
Statement under the caption “Ratification of Appointment of
Independent Registered Public Accounting Firm,” and is
incorporated herein by reference.
PART IV
Item 15(a)(1)
and (2) Financial Statements.
The financial statements beginning on
page F-1
of this report are filed as part of this report on the pages
indicated. Financial statement schedules are not included as
they are not applicable as all items are included in the
financial statements.
Financial
Statements and Supplementary Data
The following is a list of exhibits filed as part of this Annual
Report on
Form 10-K:
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59
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60
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61
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Board of Directors and Stockholders
AMICAS, Inc.
Boston, Massachusetts
We have audited the accompanying consolidated balance sheets of
AMICAS, Inc. and its subsidiaries as of December 31, 2009
and 2008 and the related consolidated statements of operations,
stockholders’ equity and comprehensive loss, and cash flows
for each of the three years in the period ended
December 31, 2009. These financial statements are the
responsibility of the Company’s management. Our
responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles
used and significant estimates made by management, as well as
evaluating the overall presentation of the financial statements.
We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the financial
position of AMICAS, Inc. and its subsidiaries at
December 31, 2009 and 2008, and the results of their
operations and their cash flows for each of the three years in
the period ended December 31, 2009, in conformity
with accounting principles generally accepted in the United
States of America.
As described in Note E of the financial statements, the
Company adopted the accounting standards related to Business
Combinations, effective for business combinations entered into
after January 1, 2009.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States),
AMICAS, Inc.’s internal control over financial reporting as
of December 31, 2009, based on criteria established in
Internal Control — Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO) and our report dated March 11, 2010
expressed an unqualified opinion thereon.
/s/ BDO
Seidman, LLP
Boston, Massachusetts
March 11, 2010
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AMICAS,
INC. and Subsidiary
CONSOLIDATED BALANCE SHEETS
The accompanying notes are an integral part of the consolidated
financial statements.
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AMICAS,
INC. and Subsidiary
CONSOLIDATED STATEMENTS OF OPERATIONS
The accompanying notes are an integral part of the consolidated
financial statements.
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AMICAS,
INC. and Subsidiary
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY AND COMPREHENSIVE INCOME (LOSS)
The accompanying notes are an integral part of the consolidated
financial statements.
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AMICAS,
INC. and Subsidiary
CONSOLIDATED STATEMENTS OF CASH FLOWS
The accompanying notes are an integral part of the consolidated
financial statements.
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AMICAS,
INC. and Subsidiary
AMICAS, Inc. (“AMICAS” or the “Company”), is
a leader in radiology and medical image and information
management solutions with operations in the United States and
Canada. The AMICAS One
Suitetm
provides a complete,
end-to-end
IT solution for imaging centers, ambulatory care facilities, and
radiology practices and billing services. Solutions include
automation support for workflow, imaging, revenue cycle
management and document management. Hospital customers are
provided a picture archiving and communication system
(“PACS”), featuring advanced enterprise workflow
support and a scalable design that can fully integrate with any
hospital information system (“HIS”), radiology
information system (“RIS”), or electronic medical
record (“EMR”). Complementing the One Suite product
family is AMICAS
Solutionssm,
a set of client-centered professional and consulting services
that assist the Company’s customers with a well-planned
transition to a digital enterprise. In addition, the Company
provides customers with ongoing software and hardware support,
implementation, training, and electronic data interchange
(“EDI”) services for patient billing and claims
processing.
On April 2, 2009 the Company completed the acquisition of
Emageon Inc. AMICAS acquired 88% of the outstanding shares of
Emageon Inc. via tender offer, another 2% of the shares were
acquired via exercise by the Company of its
“top-up”
option, and the acquisition was then completed via statutory
short-form merger. As a result of the acquisition, the
Company’s combined solution suite will include radiology
PACS, cardiology PACS, radiology information systems, cardiology
information systems, revenue cycle management systems, referring
physician tools, business intelligence tools, and electronic
medical record-enabling enterprise content management
capabilities. The Company now has operations in Canada, acquired
as part of the Emageon acquisition.
On December 24, 2009, the Company entered into an Agreement
and Plan of Merger by and among AMICAS, Project Alta Holdings
Corp., and Project Alta Merger Corp., which provides for the
acquisition of 100% of the capital stock of AMICAS by an
affiliate of Thoma Bravo, LLC (the “Thoma Bravo Merger
Agreement”), for $5.35 per share in cash. On
February 23, 2010, the Company received from Merge
Healthcare Incorporated (“Merge”) a proposal to
acquire all of the outstanding shares of AMICAS for $6.05 per
share in cash, which included an executed definitive commitment
letter for $200 million of financing from Morgan Stanley
and confirmation that Merge would place a portion of the
pre-funded proceeds received from its mezzanine investors into
an escrow account directly accessible by AMICAS. After reviewing
the proposal, on March 1, 2010, the Company’s Board of
Directors determined that the proposal constituted a
“Superior Proposal” as defined under the Thoma Bravo
Merger Agreement. In accordance with the terms of the Thoma
Bravo Merger Agreement, the Company negotiated in good faith
with Thoma Bravo during the five business day period to make
such adjustments in the terms and conditions of the Thoma Bravo
Agreement such that the Merge proposal would cease to constitute
a Superior Proposal.
On March 4, 2010, Thoma Bravo notified AMICAS that it was
not offering a counter proposal and waived the remainder of the
notice period. On March 5, 2010, the Company terminated the
Thoma Bravo Merger Agreement and paid a termination fee of
approximately $8.6 million, half of which was reimbursed by
Merge. Subsequently, the Company entered into an Agreement and
Plan of Merger (the “Merge Merger Agreement”), dated
as of February 28, 2010, by and among AMICAS, Merge and
Project Ready Corp. pursuant to which Merge will acquire all of
the outstanding shares of AMICAS for $6.05 per share in cash .
Under the terms of the Merge Merger Agreement, Merge will
commence a cash tender offer for all of AMICAS’ outstanding
common stock. Merge will then consummate a merger pursuant to
which any untendered shares of AMICAS common stock (other than
those shares held by AMICAS’ stockholders who have properly
exercised their dissenters’ rights under Section 262
of the Delaware General Corporation Law) will be converted into
the right to receive the same $6.05 per share cash price. The
tender offer and merger are subject to certain closing
conditions, including, but not limited to, a successful tender
of a minimum number of shares of AMICAS common stock, antitrust
clearance and other regulatory approvals. The merger is expected
to close in the second quarter of 2010. There is no financing
condition to the consummation of the Acquisition.
Operations outside the United States are subject to risks
inherent in operating under different legal systems and various
political and economic environments. Among the risks are changes
in existing tax laws, possible limitations
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AMICAS,
INC. and Subsidiary
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
on foreign investment and income repatriation, government price
or foreign exchange controls, and restrictions on currency
exchange. The Company does not engage in hedging activities to
mitigate its exposure to fluctuations in foreign currency
exchange rates. Net assets of foreign operations were
$0.2 million at December 31, 2009. The Company has no
earnings from the foreign subsidiary.
Operating segments are defined as components of an enterprise
about which separate financial information is available that is
evaluated regularly by the chief operating decision maker, the
Company’s chief executive officer, in deciding how to
allocate resources and in assessing performance. The Company has
identified one reportable industry segment: the development and
marketing of the Company’s products and services to
healthcare provider organizations including acute care
facilities, IDN’s and ambulatory centers. The Company
generates substantially all of its revenues from the licensing
of the Company’s software products and related professional
services and maintenance services. The Company’s revenues
are earned and expenses are incurred principally in the United
States market.
The consolidated financial statements include the accounts of
the Company and its wholly-owned subsidiaries, Emageon Inc.
(“Emageon”) and Amicas PACS, Corp. (“Amicas
PACS”). All significant intercompany accounts and
transactions have been eliminated in consolidation. Depreciation
expense has been reclassified to conform to current year
presentation.
The preparation of financial statements and related disclosures
in conformity with accounting principles generally accepted in
the United States of America requires management 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 revenue
and expenses during the period reported. These estimates include
assessing the collectability of accounts receivable, the
realization of deferred tax assets, tax contingencies and
valuation allowances, restructuring reserves, useful lives for
depreciation and amortization periods of tangible and intangible
assets, long-lived asset impairments, expected stock price
volatility and weighted average expected life and forfeiture
assumptions for share-based payments, among others. The markets
for the Company’s products are characterized by intense
competition, rapid technological development, evolving
standards, short product life cycles and price competition, all
of which could impact the future realized value of the
Company’s assets. Estimates and assumptions are reviewed
periodically and the effects of revisions are reflected in the
period that they are determined to be necessary. Actual results
could differ from those estimates.
The Company recognizes revenue in accordance with FASB ASC
605 — Revenue Recognition (originally issued as
Statement of Position (“SOP”)
97-2,
“Software Revenue Recognition,” as amended by
SOP 98-9,
“Modification of
SOP 97-2
with Respect to Certain Transactions,”
SOP 81-1
“Accounting for Performance of Construction Type and
Certain Performance Type Contracts”, the Securities and
Exchange Commission’s Staff Accounting Bulletin 104,
“Revenue Recognition in Financial Statements” and
EITF 01-14,
“Income Statement Characterization of Reimbursements for
’Out-of-Pocket’ Expenses Incurred”). Revenue from
software licenses and system (computer hardware) sales are
recognized upon execution of the sales contract and delivery of
the software
(off-the-shelf
application software)
and/or
hardware unless the contract contains acceptance provisions. In
all cases, however, the fee must be fixed or determinable,
collection of any related receivable must be considered
probable, and no significant post-contract obligations of the
Company can be remaining. Otherwise, recognition of revenue
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AMICAS,
INC. and Subsidiary
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
from the sale is deferred until all of the requirements for
revenue recognition have been satisfied. Maintenance fees for
routine client support and unspecified product updates are
recognized ratably over the term of the maintenance arrangement.
The Company reviews all contracts that contain non-standard
payment terms. For these contracts the Company reviews customer
credit history to determine probability of collection and to
determine whether or not the Company has a history of granting
post contract concessions. When there is a history of
successfully collecting payments from a customer without making
post contract concessions, revenue is recognized upon delivery.
In instances where there is not an established payment history
and/or if
the payment terms are in excess of twelve months revenue is
recognized as payments become due and payable. License and
service arrangements generally do not require significant
customization or modification of software products to meet
specific customer needs. In those limited instances that do
require significant modification, including significant changes
to software products’ source code or where there are
acceptance criteria or milestone payments, recognition of
software license revenue is deferred. In instances where it is
determined that services are essential to the functionality of
the software and there are no acceptance provisions, service
revenues and software license and systems revenues are
recognized using the percentage of completion method.
Most of the Company’s sales and licensing contracts involve
multiple elements, in which case the total value of the customer
arrangement is allocated to each element based on the vendor
specific objective evidence, or VSOE, of the fair value of the
respective elements. The residual method is used to determine
revenue recognition with respect to a multiple-element
arrangement when VSOE of fair value exists for all of the
undelivered elements (e.g., implementation, training and
maintenance services) but does not exist for one or more of the
delivered elements of the contract (e.g., computer software or
hardware). VSOE of fair value is determined based upon the price
charged when the same element is sold separately. If VSOE of
fair value cannot be established for the undelivered element(s)
of an arrangement, the total value of the customer arrangement
is deferred until the undelivered element(s) is delivered or
until VSOE of its fair value is established. The Company
accounts for certain third-party hardware/software and
third-party hardware/software maintenance as separate units of
accounting as the items to be purchased are
“off-the-shelf”
and can be sold separately on a standalone basis.
Contracts and arrangements with customers may include acceptance
provisions, which would give the customer the right to accept or
reject the product after it is shipped. If an acceptance
provision is included, revenue is recognized upon the
customer’s acceptance of the product, which occurs upon the
earlier receipt of a written customer acceptance or expiration
of the acceptance period. The timing of customer acceptances
could materially affect the results of operations during a given
period.
Revenue is recognized using contract accounting if payment of
the software license fees is dependent upon the performance of
consulting services or the consulting services are otherwise
essential to the functionality of the licensed software. In
these instances the Company allocates the contract value to
services (maintenance and services revenues) based on list
price, which is consistent with VSOE for such services, and the
residual to product (software licenses and systems sales) in the
Consolidated Statement of Operations. In instances where VSOE of
fair value of services has not been established the software
license revenue is deferred until the services are completed.
Percentage-of-completion
is determined by comparing the labor hours incurred to date to
the estimated total labor hours required to complete the
project. Labor hours are considered to be the most reliable,
available measure of progress on these projects. Adjustments to
estimates to complete are made in the periods in which facts
resulting in a change become known. When the estimate indicates
that a loss will be incurred, such loss is recorded in the
period in which it is identified. When reliable estimates cannot
be made, revenue is recognized upon completion. Significant
judgments and estimates are involved in determining the percent
complete of each contract. Different assumptions could yield
materially different results. Delays in the implementation
process could negatively affect operations in a given period by
increasing volatility in revenue recognition.
Recognition of revenues in conformity with generally accepted
accounting principles requires management to make judgments that
affect the timing and amount of reported revenues.
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AMICAS,
INC. and Subsidiary
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
The Company considers all liquid investment instruments with
original maturities of ninety days or less to be cash
equivalents.
Cash equivalents consist primarily of money market funds and are
carried at fair value, which approximates cost.
Marketable securities consist of high quality debt instruments,
primarily U.S. government, municipal and corporate
obligations. Investments in corporate obligations are classified
as
held-to-maturity,
as the Company has the intent and ability to hold them to
maturity.
Held-to-maturity
marketable debt securities are reported at amortized cost.
Investments in U.S. government and municipal obligations
are classified as
available-for-sale
and are reported at fair value with unrealized gains and losses
reported as other comprehensive income or loss.
Financial instruments that potentially subject the Company to
significant concentrations of credit risk consist principally of
cash, cash equivalents, marketable securities and accounts
receivable. The Company places its cash and cash equivalents
with financial institutions with high credit ratings. The
Company invests in marketable securities and has policies to
limit concentrations of investments.
The Company performs credit evaluations of its customers’
financial condition and does not require collateral, since
management does not anticipate nonperformance of payment. The
Company also maintains an allowance for doubtful accounts for
potential credit losses and such losses have been within
management’s expectations. At December 31, 2009 and
2008, no customer represented greater than 10% of the
Company’s revenues or net accounts receivable balance.
The Company’s accounts receivable are customer obligations
due under normal trade terms carried at their face value, less
provisions for bad debts. The Company evaluates the carrying
amount of its accounts receivable on an ongoing basis and
establishes a valuation allowance based on a number of factors,
including specific customer circumstances, historical rate of
write-offs and the past due status of the accounts. At the end
of each reporting period, the allowance is reviewed and analyzed
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