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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of report (Date of earliest event reported): February 3, 2000
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HealthGrades.com, Inc.
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(Exact Name of Registrant Specified in Charter)
Delaware 0-22019 62-1623449
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(State or Other Jurisdiction of (Commission File Number) (I.R.S. Employer
Incorporation) Identification No.)
44 Union Boulevard, Suite 600
Lakewood, Colorado 80228
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(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (303) 716-0041
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ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
Effective January 4, 2000, the registrant changed its name from Specialty Care
Network, Inc. to HealthGrades.com, Inc. (hereafter, "the Company").
Simultaneously, the registrant changed the name of its majority-owned
subsidiary, HealthGrades.com, Inc. to HG.com, Inc. In addition, as previously
reported, the Company paid $4,000,000 to Venture5 on December 31, 1999 to
purchase a number of shares of its majority-owned subsidiary, HG.com, Inc.,
which increased the Company's ownership in HG.com, Inc. to 90%.
Effective February 3, 2000, the Company merged its majority-owned subsidiary,
HG.com, Inc. into a recently formed, wholly-owned subsidiary, HealthcareRatings,
Inc (hereafter, the "Merger Transaction"). In order to effectuate the Merger
Transaction, the minority shareholders of HG.com were given 800,000 shares of
Company common stock.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
(a) Pro Forma Financial Information (unaudited)
Unaudited Pro Forma Consolidated Financial Statements
of HealthGrades.com, Inc. and Subsidiaries
Basis of Presentation
The following unaudited pro forma consolidated financial statements give effect
to the Merger Transaction. The pro forma consolidated financial statements have
been prepared by management based upon the historical financial statements of
HealthGrades.com, Inc. and subsidiaries and certain preliminary estimates and
assumptions deemed appropriate by management. These pro forma consolidated
financial statements may not be indicative of actual results if the transactions
had occurred on the dates indicated or which may be realized in the future. The
pro forma balance sheet as of September 30, 1999 gives effect to the Merger
Transaction as if such transaction had occurred on September 30, 1999. The pro
forma consolidated statement of operations for the nine months ended September
30, 1999, assumes the Merger Transaction had occurred on January 1, 1999. The
pro forma consolidated statement of operations for the year ended December 31,
1998 assumes the Merger Transaction had occurred on January 1, 1998.
The following unaudited pro forma financial statements should be read in
conjunction with the historical consolidated financial statements of the
Company, including the related notes thereto, and "Management's Discussion and
Analysis of Financial Condition and Results of Operations," that appear in the
Company's Annual Report on Form 10-K for the year ended December 31, 1998, as
well as the historical consolidated financial statement of the Company,
including the related notes thereto, and "Management's Discussion and Analysis
of Financial Condition and Resutls of Operations," that appear in the Company's
Quarterly Report on Form 10-Q for the quarter ended September 30, 1999.
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Unaudited Pro Forma Consolidated Financial Statements of
HealthGrades.com, Inc. and Subsidiaries
Pro Forma Balance Sheet
September 30, 1999
<TABLE>
<CAPTION>
HealthGrades.com, Inc. Pro Forma Footnote Pro Forma
and Subsidiaries Adjustments Legend As Adjusted
---------------------- ---------------------- ------------
<S> <C> <C> <C> <C>
Assets:
Cash and cash equivalents $ 797,504 $ - $ 797,504
Accounts receivable, net 1,607,351 1,607,351
Due from affiliated practices in litigation, net 2,967,280 2,967,280
Receivables from sales of affiliated practices assets
and execution of new service agreements 1,083,407 1,083,407
Loans to physician stockholders 306,499 306,499
Prepaid expenses and other 519,461 519,461
Current portion note receivable 1,176,686 1,176,686
Deferred tax asset 202,217 202,217
Prepaid and recoverable income taxes 1,069,399 1,069,399
------------ ---------- ------------
Total current assets 9,729,804 - 9,729,804
Property and equipment, net 3,663,802 3,663,802
Intangible assets, net 17,692 1,850,000 (1) 1,867,692
Management service agreements, net 2,155,346 2,155,346
Advances to affiliates and other 827,590 827,590
Other assets 1,013,989 1,013,989
------------ ---------- ------------
Total assets $ 17,408,223 $1,850,000 $ 19,258,223
============ ========== ============
Liabilities and Stockholders' Equity:
Accounts payable 126,688 126,688
Accrued payroll, incentive compensation and related
expenses 549,065 549,065
Accrued expenses 1,455,649 1,455,649
Current portion note payable 800,000 800,000
Deferred income 1,080,109 1,080,109
------------ ---------- ------------
Total current liabilities 4,011,511 - 4,011,511
Note payable, less current portion 11,700,000 11,700,000
Deferred income 865,900 865,900
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Total liabilities 16,577,411 - 16,577,411
Stockholders' equity:
Preferred stock - -
Common stock 18,621 800 (2) 19,421
Additional paid-in capital 67,426,955 1,849,200 (2) 69,276,155
Accumulated deficit (56,094,467) (56,094,467)
Treasury stock (10,520,297) (10,520,297)
------------ ---------- ------------
Total stockholders' equity 830,812 1,850,000 2,680,812
------------ ---------- ------------
Total liabilities and stockholders' equity $ 17,408,223 $1,850,000 $ 19,258,223
============ ========== ============
</TABLE>
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Unaudited Pro Forma Consolidated Financial Statements of
HealthGrades.com, Inc. and Subsidiaries
Pro Forma Consolidated Statement of Operations
Year Ended December 31, 1998
<TABLE>
<CAPTION>
HealthGrades.com, Inc. Pro Forma Footnote
and Subsidiaries Adjustments Legend Pro Forma
---------------------- ----------------------- ------------
<S> <C> <C> <C> <C>
Revenue
Service fees $ 76,649,778 $ 76,649,778
Other 2,531,524 2,531,524
------------ ----------- ------------
79,181,302 - 79,181,302
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Costs and expenses:
Clinic expenses 55,188,411 55,188,411
General and administrative 14,468,537 370,000 (3) 14,838,537
Impairment loss on service
agreements 94,582,227 94,582,227
Litigation and other costs 3,564,392 3,564,392
Impairment loss on intangible assets
and other long-lived assets 3,316,651 3,316,651
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171,120,218 370,000 171,490,218
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Loss from operations (91,938,916) (370,000) (92,308,916)
Other:
Gain on sale of equity investment 1,240,078 1,240,078
Interest income 187,450 187,450
Interest expense (3,741,089) (3,741,089)
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Loss before income taxes (94,252,477) (370,000) (94,622,477)
Income tax benefit 32,466,391 - 32,466,391
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Net loss $(61,786,086) $ (370,000) $(62,156,086)
============ =========== ============
Net loss per common share (basic) $ (3.39) $ (3.26)
============ ============
Weighted average number of common
shares used in computation (basic) 18,237,827 800,000 (4) 19,037,827
============ =========== ============
Net loss per common share (diluted) $ (3.39) $ (3.26)
============ ============
Weighted average number of common
shares used in computation (diluted) 18,237,827 800,000 (4) 19,037,827
============ =========== ============
</TABLE>
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Unaudited Pro Forma Consolidated Financial Statements of
HealthGrades.com, Inc. and Subsidiaries
Pro Forma Consolidated Statement of Operations
Nine Months Ended September 30, 1999
<TABLE>
<CAPTION>
HealthGrades.com, Inc. Pro Forma Footnote
and Subsidiaries Adjustments Legend Pro Forma
---------------------- ---------------------- ------------
<S> <C> <C> <C> <C>
Revenue
Service fees $ 27,126,783 $ 27,126,783
Marketing, advertising and other Internet revenue 279,778 279,778
Other 362,472 362,472
------------ --------- ------------
27,769,033 - 27,769,033
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Costs and expenses:
Clinic expenses 14,866,690 14,866,690
General and administrative 8,483,618 277,500 (3) 8,761,118
Production, content and
product development 1,374,556 1,374,556
Litigation and other costs 4,269,295 4,269,295
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28,994,159 277,500 29,271,659
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Loss from operations (1,225,126) (277,500) (1,502,626)
Other:
Gain on sale of assets, amendment
and restatement of service
agreements, and litigation
settlement 3,649,243 3,649,243
Gain on sale of equity investment 127,974 127,974
Gain on sale of majority interest
in subsidiary 221,258 221,258
Interest income 249,245 249,245
Interest expense (2,205,552) (2,205,552)
------------ --------- ------------
Income (loss) before income taxes 817,042 (277,500) 539,542
Income tax benefit 775,561 - 775,561
------------ --------- ------------
Net income $ 1,592,603 $(277,500) $ 1,315,103
============ ========= ============
---------
Net income per common share (basic) $ 0.11 $(277,500) $ 0.08
============ ========= ============
Weighted average number of common
shares used in computation (basic) 14,817,837 800,000 (4) 15,617,837
============ ========= ============
Net income per common share (diluted) $ 0.10 $ 0.08
============ ============
Weighted average number of common
shares used in computation (diluted) 15,637,817 800,000 (4) 16,437,817
============ ========= ============
</TABLE>
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Notes to the HealthGrades.com, Inc. and Subsidiaries
Unaudited Pro Forma Consolidated Balance Sheet
Unaudited Pro Forma Consolidated Balance Sheet Adjustments:
1. Represents the excess of the value of Company common stock issued to the
minority shareholders of HG.com, Inc. over the net book value of the
underlying assets acquired.
2. Reflects the 800,000 shares of Company common stock issued to the minority
shareholders of HG.com, Inc. valued at $2.3125 per share, the closing price
per the NASDAQ on February 3, 2000.
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Notes to the HealthGrades.com, Inc. and Subsidiaries
Unaudited Pro Forma Consolidated Statement of Operations
Unaudited Pro Forma Consolidated Statement of Operations Adjustments:
3. Represents the increase in amortization expense related to the creation of
goodwill in connection with the Merger Transaction. The goodwill amount of
$1,850,000 is amortized using an estimated life of five years.
4. Reflects the shares issued in connection with the Merger Transaction.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
HEALTHGRADES.COM, INC.
(Registrant)
By: /s/ D. Paul Davis
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D. Paul Davis
Executive Vice President of
Finance/Chief Financial Officer
Dated: February 18, 2000
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