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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): December 31, 1999
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HealthGrades.com, Inc.
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(Exact Name of Registrant Specified in Charter)
<TABLE>
<S> <C> <C>
Delaware 0-22019 62-1623449
- ------------------------------- ------------------------ -------------------
(State or Other Jurisdiction of (Commission File Number) (I.R.S. Employer
Incorporation) Identification No.)
</TABLE>
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. As previously reported, in
September 1999, the Company entered into an agreement with Venture5 LLC under
which the Company agreed to purchase a number of shares of its majority-owned
subsidiary, HG.com, Inc. from the former PPI stockholders that would increase
the Company's ownership in HG.com, Inc. to 90%. The agreement (the "Shareholder
Agreement"), as subsequently amended, required that the Company pay Venture5
$4,000,000 by December 31, 1999. (For more information regarding the Shareholder
Agreement, see Note 2 to the Company's Quarterly Report on Form 10-Q for the
nine months ended September 30, 1999.) On December 31, 1999, the Company paid
$4,000,000 to Venture5 (the "Minority Interest Purchase") in full satisfaction
of the Shareholder Agreement. The Company financed the Minority Interest
Purchase through the issuance of notes payable to certain officers (the
"Officers") of the Company totaling $3,550,000 (hereafter, the "Officer Notes").
The Officer Notes bear interest at 9.25% and are payable on December 31, 2000.
The remainder of the purchase price was financed with the Company's working
capital.
In an effort to raise the funding to comply with the Company's commitment under
the Shareholder Agreement, during November and December 1999, management of the
Company pursued various financing alternatives through its relationship with its
primary lender, various venture capital firms and personal financing by the
Company's officers. On December 29, 1999, the Company's Board of Directors
approved a term sheet relating to an equity investment in the Company by a
venture capital firm (hereafter, "the VC firm"). The term sheet calls for the
purchase by the Officers of Company securities on the same economic terms as are
available to the VC firm. On December 30, 1999, management of the Company
executed the term sheet. It is anticipated that if the funding is made by the VC
firm as outlined in the term sheet, the Officers will purchase Company
securities through the cancellation of the Officer Notes. Based on their
characteristics, the Officer Notes have been classified as a current liability
in the unaudited pro-forma consolidated balance sheet as of September 30, 1999.
This report contains forward-looking statements, including statements concerning
the possible financing by a venture capital firm and the potential cancellation
of the Officer Notes to acquire equity of the Company. Actual results could
differ materially from those addressed in the forward-looking statements due to
the failure of the Company to negotiate definitive terms with the venture
capital firm and complete the financing. Other risks and uncertainties are
detailed in the Company's most recent Annual Report on Form 10-K and subsequent
filings with the Securities and Exchange Commission.
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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 Minority Interest Purchase. 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
Minority Interest Purchase 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 Minority Interest Purchase had occurred on
January 1, 1999. The pro forma consolidated statement of operations for the year
ended December 31, 1998 assumes the Minority Interest Purchase 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 Results 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 Consolidated Balance Sheet
September 30, 1999
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<CAPTION>
HEALTHGRADES.COM, INC. PRO FORMA FOOTNOTE
AND SUBSIDIARIES ADJUSTMENTS LEGEND PRO FORMA
---------------------- ----------- -------- ------------
Assets:
<S> <C> <C> <C> <C>
Cash and cash equivalents $ 797,504 $ (450,000) (1)(2) $ 347,504
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 (450,000) 9,279,804
Property and equipment, net 3,663,802 3,663,802
Intangible assets, net 17,692 4,000,000 (2) 4,017,692
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
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Total assets $ 17,408,223 $ 3,550,000 $ 20,958,223
============ ============ ============
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
Notes payable to officers -- 3,550,000 (1) 3,550,000
Deferred income 1,080,109 1,080,109
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Total current liabilities 4,011,511 3,550,000 7,561,511
Note payable, less current portion 11,700,000 11,700,000
Capital lease obligations, less current portion -- --
Deferred income 865,900 865,900
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Total liabilities 16,577,411 3,550,000 20,127,411
Stockholders' equity:
Preferred stock -- --
Common stock 18,621 18,621
Additional paid-in capital 67,426,955 67,426,955
Accumulated deficit (56,094,467) (56,094,467)
Treasury stock (10,520,297) (10,520,297)
------------ ------------ ------------
Total stockholders' equity 830,812 -- 830,812
------------ ------------ ------------
Total liabilities and stockholders' equity $ 17,408,223 $ 3,550,000 $ 20,958,223
============ ============ ============
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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
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79,181,302 -- 79,181,302
------------ ------------ ------------
Costs and expenses:
Clinic expenses 55,188,411 55,188,411
General and administrative 14,468,537 800,000 (3) 15,268,537
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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171,120,218 800,000 171,920,218
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Loss from operations (91,938,916) (800,000) (92,738,916)
Other:
Gain on sale of equity investment 1,240,078 1,240,078
Interest income 187,450 187,450
Interest expense (3,741,089) (296,000) (4) (4,037,089)
------------ ------------ ------------
Loss before income taxes (94,252,477) (1,096,000) (95,348,477)
Income tax benefit 32,466,391 103,600 (5) 32,569,991
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Net loss $(61,786,086) $ (992,400) $(62,778,486)
============ ============ ============
Net loss per common share (basic) $ (3.39) $ (3.44)
============ ============
Weighted average number of common
shares used in computation (basic) 18,237,827 18,237,827
============ ============
Net loss per common share (diluted) $ (3.39) $ (3.44)
============ ============
Weighted average number of common
shares used in computation (diluted) 18,237,827 18,237,827
============ ============
</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
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27,769,033 -- 27,769,033
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Costs and expenses:
Clinic expenses 14,866,690 14,866,690
General and administrative 8,483,618 600,000 (3) 9,083,618
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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28,994,159 600,000 29,594,159
------------ ------------ ------------
Loss from operations (1,225,126) (600,000) (1,825,126)
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) (222,000) (4) (2,427,552)
------------ ------------ ------------
Income (loss) before income taxes 817,042 (822,000) (4,958)
Income tax benefit 775,561 77,700 (5) 853,261
------------ ------------ ------------
Net income $ 1,592,603 $ (744,300) $ 848,303
============ ============ ============
Net income per common share (basic) $ 0.11 $ 0.06
============ ============
Weighted average number of common
shares used in computation (basic) 14,817,837 14,817,837
============ ============
Net income per common share (diluted) $ 0.10 $ 0.05
============ ============
Weighted average number of common
shares used in computation (diluted) 15,637,817 15,637,817
============ ============
</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. Reflects the cash payment by the Company to effect the Minority Interest
Purchase of $4,000,000 and the Officer Notes of $3,550,000 entered into
between the Company and certain officers of the Company.
2. Represents the excess of the Minority Interest Purchase Price over the net
book value of the assets acquired.
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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 Minority Interest Purchase. The goodwill
amount of $4,000,000 is amortized using an estimated life of five years.
4. Represents the increase in interest expense due to the Officer Notes issued
in connection with the Minority Interest Purchase.
5. Reflects adjustment of the income tax benefit using a combined federal and
state effective tax rate of 35%.
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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: January 18, 2000
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