SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------------------------------------
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of Earliest Event Reported): January 18, 2000
CAREINSITE, INC.
(Exact name of Registrant as specified in its charter)
Delaware 0-26345 22-3630930
(State or other (Commission (I.R.S. Employer
jurisdiction of File Number) Identification No.)
incorporation)
669 River Drive, River Drive Center II,
Elmwood Park, NJ 07407-1361
(Address of principal executive offices) (Zip Code)
Registrants telephone number, including area code: (201) 703-3400
Exhibit Index appears on page 3
<PAGE>
Item 2. Acquisition or Disposition of Assets
In January 2000, CareInsite, Inc ("CareInsite" or the "Company") agreed
to acquire the 80% equity interest in The Health Information Network Connection
("THINC") owned by Empire Blue Cross and Blue Shield, Group Health Incorporated,
HIP Health Plans and Greater New York Hospital Association (the "THINC founding
members") in a stock transaction valued at approximately $45,000,000 (the
"Acquisition"). The acquisition will be accounted for using the purchase method
of accounting. Concurrently with the acquisition, warrants to purchase an
aggregate of 3,247,294 shares of the Company's common stock, which represented
the THINC founding members' interest in the warrants issued by the Company to
THINC in January 1999, were distributed to the THINC founding members.
Immediately following this transaction, the THINC founding members exercised
their warrants in full. All shares including those issued upon the exercise of
the warrants are subject to certain restrictions on transfer. Simultaneously,
the Company acquired Cerner Corporation's ("Cerner") 2% non-voting ownership
interest in THINC for a note payable of $2,735,000. The note bears interest at
5.8% per annum and is repayable on demand after September 2002. As a result of
the exercise by the THINC founding members of their warrants, Cerner has a
warrant to purchase 806,756 shares of Company common stock at an exercise price
of $4.00 per share that expires in January 2003.
2
<PAGE>
The undersigned registrant hereby amends Item 7 of its Current Report 8-K,
originally filed by the registrant with the Securities and Exchange Commission
on February 4, 2000, as follows:
Item 7. Financial Statements and Exhibits.
(a) Financial statements of businesses acquired.
The following historical financial statements and notes thereto are of THINC
prior to the consummation of the Acquisition and are attached hereto at pages
F-1 to F-13.
o Independent Auditors' Report.
o Balance sheet as of December 31, 1999.
o Statements of Operations for the year ended December 31, 1999 and the
cumulative period from Inception (November 12, 1996) to December 31,
1999.
o Statements of Member's Capital for the year ended December 31, 1999 and
for the cumulative period from Inception (November 12, 1996) to
December 31, 1999.
o Statements of Cash Flows for the year ended December 31, 1999 and the
Cumulative period from Inception (November 12, 1996) to December 31,
1999.
o Notes to the Financial Statements.
(b) Pro forma financial information.
The following pro forma financial statements and notes thereto are attached
hereto at pages PF-1 to PF-6:
o Pro Forma Combined Condensed Consolidated Statement of Operations
(unaudited) for the year ended June 30, 1999.
o Pro Forma Combined Condensed Consolidated Statement of Operations
(unaudited) for the six months ended December 31, 1999.
o Pro Forma Combined Condensed Consolidated Balance Sheet (unaudited) as
of December 31, 1999.
o Notes to Pro Forma Combined Condensed Consolidated Financial Statements
(unaudited).
3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
CAREINSITE, INC.
Date: March 23, 2000 By: /s/ James R. Love
----------------------
Name: James R. Love
Title: Executive Vice President and
Chief Financial Officer
(Principal Financial Accounting Officer)
4
<PAGE>
THE HEALTH INFORMATION NETWORK CONNECTION, LLC
(a Development Stage Company)
FINANCIAL STATEMENTS
TABLE OF CONTENTS
Page
----
Independent Auditors' Report.................................................F-2
Balance Sheet at December 31, 1999...........................................F-3
Statements of Operations for the Year
Ended December 31, 1999 and the Cumulative
Period from Inception (November 12, 1996) to
December 31, 1999............................................................F-4
Statements of Members' Capital for the Year
Ended December 31, 1999 and for the Cumulative
Period from Inception (November 12, 1996) to
December 31, 1999............................................................F-5
Statements of Cash Flows for the Year
Ended December 31, 1999 and the Cumulative
Period from Inception (November 12, 1996)
to December 31, 1999 ........................................................F-6
Notes to Financial Statements................................................F-7
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To The Health Information Network Connection, LLC:
We have audited the accompanying balance sheet of The Health
Information Network Connection, LLC (the Company) (a development stage company)
as of December 31, 1999, and the related statements of operations, members'
capital and cash flows for the year then ended and for the cumulative period
from Inception (November 12, 1996) to December 31, 1999. 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 generally accepted auditing
standards. Those standards require that we plan and perform the audit 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. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of The Health
Information Network Connection, LLC as of December 31, 1999 and the results of
its operations and its cash flows for the year then ended and for the cumulative
period from Inception (November 12, 1996) to December 31, 1999 in conformity
with generally accepted accounting principles.
KPMG LLP
Melville, New York
March 8, 2000
F-2
<PAGE>
THE HEALTH INFORMATION NETWORK
CONNECTION, LLC
(A Development Stage Company)
BALANCE SHEET
(in thousands)
Assets December 31, 1999
-----------------
Current assets:
Cash and cash equivalents $ 592
Prepaid expenses and other currents assets 98
-----------------
Total current assets 690
Property and equipment:
Purchased software 1,617
Computer equipment 2,599
Office equipment 190
Leasehold improvements 50
-----------------
4,456
Less: accumulated depreciation and amortization (2,614)
-----------------
Property and equipment, net 1,842
Other assets:
Restricted cash 420
Investment - CareInsite warrant 315,718
Other assets 112
-----------------
Total other assets 316,250
-----------------
Total assets $ 318,782
=================
Liabilities and Members' Capital
Current liabilities:
Accounts payable $ 222
Accrued expenses 852
Current portion of long-term debt 1,234
Notes and accounts payable to members 6,444
Deferred revenue 2,599
-----------------
Total current liabilities 11,351
Long-term debt, net of current portion 1,157
Payable to member 456
-----------------
Total liabilities 12,964
-----------------
Commitments and contingencies (Note 6)
Members' capital:
Members' capital contributed 7,723
Due from member (320)
Deficit accumulated during the development stage (15,576)
Accumulated other comprehensive income 313,991
-----------------
Total members' capital 305,818
-----------------
Total liabilities and members' capital $ 318,782
=================
See accompanying notes to financial statements
F-3
<PAGE>
THE HEALTH INFORMATION NETWORK
CONNECTION, LLC
(A Development Stage Company)
STATEMENTS OF OPERATIONS
(in thousands)
<TABLE>
<CAPTION>
Cumulative
period from
inception
Year (November 12,
Ended 1996) to
December 31, December 31,
1999 1999
------------ ------------
<S> <C> <C>
Expenses:
Research and development $ 4,048 $ 7,471
Sales and marketing 832 1,153
General and administrative 1,271 3,344
Interest expense, net 409 880
Depreciation and amortization 1,160 2,663
------------ ------------
Total expenses 7,720 15,511
------------ ------------
Net loss before cumulative effect of accounting $ (7,720) $ (15,511)
change
Cumulative effect of change in accounting for
organizational costs (65) (65)
------------ ------------
Net loss $ (7,785) $ (15,576)
============ ============
</TABLE>
See accompanying notes to financial statements
F-4
<PAGE>
THE HEALTH INFORMATION NETWORK
CONNECTION, LLC
(A Development Stage Company)
STATEMENTS OF MEMBERS' CAPITAL
(in thousands)
<TABLE>
<CAPTION>
Deficit
accumulated Accumulated
Members' Due during other
capital Subscription from development comprehensive
contributed receivables member stage income Total
------------ ------------ --------- ------------ ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Balance at inception (November 12, 1996) $ - $ - $ - $ - $ - $ -
Initial capital subscriptions 3,750 (3,750) - - - -
Payment on subscriptions - 400 - - - 400
Net loss - - - (55) - (55)
------------ ------------ --------- ------------ ------------ -------------
Balance at December 31, 1996 $ 3,750 $ (3,350) $ - $ (55) $ - $ 345
------------ ------------ --------- ------------ ------------ -------------
Payment on subscriptions - 2,100 - - - 2,100
Capital contribution 91 - - - - 91
Net loss - - - (2,899) - (2,899)
------------ ------------ --------- ------------ ------------ -------------
Balance at December 31, 1997 $ 3,841 $ (1,250) $ - $ (2,954) $ - $ (363)
------------ ------------ --------- ------------ ------------ -------------
Payment on subscriptions - 1,000 - - - 1,000
Repurchase of membership interest (500) - - - - (500)
Capital contribution 1,005 - - - - 1,005
Net loss - - - (4,837) - (4,837)
------------ ------------ --------- ------------ ------------ -------------
Balance at December 31, 1998 $ 4,346 $ (250) $ - $ (7,791) $ - $ (3,695)
------------ ------------ --------- ------------ ------------ -------------
Payment on subscriptions - 250 - - - 250
Contribution of warrant 1,727 - - 1,727
Capital contributions 1,775 - (320) - - 1,455
Repurchase of membership interest (125) - - - - (125)
Comprehensive income:
Net loss - - - (7,785) - (7,785)
Unrealized gain on warrant - - - - 313,991 313,991
-------------
Total comprehensive income - - - - - 306,206
------------ ------------ --------- ------------ ------------ -------------
Balance at December 31, 1999 $ 7,723 $ - $ (320) $ (15,576) $ 313,991 $ 305,818
============ ============ ========= ============ ============ ============
</TABLE>
See accompanying notes to financial statements
F-5
<PAGE>
THE HEALTH INFORMATION NETWORK
CONNECTION, LLC
(A Development Stage Company)
STATEMENTS OF CASH FLOW
(in thousands)
<TABLE>
<CAPTION>
Cumulative period
Year from inception
ended (November 12, 1996)
December 31, to December 31,
1999 1999
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (7,785) $ (15,576)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 1,160 2,663
Cumulative effect of change in accounting for organizational costs 65 65
Loss on sale of equipment 5 5
Changes in assets and liabilities:
Due from member 60 -
Prepaid expenses and other current assets (98) (211)
Accounts payable and accrued expenses (808) 949
Deferred revenue 1,752 2,599
----------- -----------
Net cash used in operating activities (5,649) (9,506)
----------- -----------
Cash from investing activities:
Purchase of property and equipment (244) (1,255)
Proceeds from sale of equipment 7 7
Organizational costs - (108)
----------- -----------
Net cash used in investing activities (237) (1,356)
----------- -----------
Cash from financing activities:
Payments on capital lease obligations (448) (1,286)
Advance from member 13 456
Increase in restricted cash - (420)
Capital contributions and cash received from payment of subscriptions, net 1,705 6,301
Proceeds from notes and amounts payable to members 5,462 6,662
Repayments of notes payable to members (217) (217)
Repayments of note payable (42) (42)
----------- -----------
Net cash provided by financing activities 6,473 11,454
----------- -----------
Increase in cash and cash equivalents 587 592
Cash and cash equivalents at beginning of period 5 -
----------- -----------
Cash and cash equivalents at end of period $ 592 $ 592
=========== ===========
Supplemental disclosures of cash flow information:
Cash paid during period for interest $ 253 $ 794
=========== ===========
Supplemental schedule of noncash investing and financing activities:
Capital lease obligations incurred for the purchase of equipment $ 478 $ 3,497
=========== ===========
Repurchase of membership interest in exchange for note payable $ 125 $ 625
=========== ===========
Equity contribution of CareInsite warrant $ 1,727 $ 1,727
=========== ===========
Due from member for additional capital contribution $ 320 $ 320
=========== ===========
</TABLE>
See accompanying notes to financial statements
F-6
<PAGE>
THE HEALTH INFORMATION NETWORK
CONNECTION LLC
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
(1) Summary of Significant Accounting Policies and Practices
(a) Description of Business and Basis of Presentation
The Health Information Network Connection, LLC ("THINC") was
established as a New York Limited Liability Company (LLC) on November 12, 1996.
THINC was organized for the development of a community health information
network for the metropolitan New York, New Jersey and Connecticut region. THINC
intended to provide software and technical support to facilitate the exchange of
healthcare information in the metropolitan New York area, allowing providers and
payers to access their patients' clinical and insurance-related information
through their desktop computers. It was designed to allow hospitals, continuing
care facilities, physicians, laboratories, and third party payers to exchange
business and patient care data through a private electronic "intranet" system.
THINC was originally formed as a joint venture owned by: Greater New
York Hospital Association (GNYHA), Group Health Incorporated (GHI), Health
Insurance Plan of Greater New York (HIP), Empire Blue Cross and Blue Shield
(Empire), and BRC Health Care of Dallas, Texas (BRC). On June 22, 1998, THINC
and BRC agreed to terminate their relationship and THINC repurchased BRC's
membership interest (See Note 5 (a)).
In January 1999, CareInsite, Inc., ("CareInsite"), formerly known as
Synetic Healthcare Communications, Inc., THINC, and GYNHA, GHI, HIP, and Empire,
entered into definitive agreements and consummated a transaction for a broad
strategic alliance. Under this arrangement, among other things, CareInsite (i)
acquired a 20% ownership interest in THINC in exchange for $1,500,000 in cash
and a warrant to purchase 4,059,118 shares of CareInsite common stock, (ii)
agreed to provide senior working capital loans to THINC of up to $2,000,000 and
$1,500,000, (iii) entered into a Management Services Agreement with THINC
pursuant to which CareInsite agreed to manage all operations of THINC, including
providing THINC with certain content and messaging services, (iv) licensed to
THINC content and messaging services for use over the THINC network and (v)
entered into Clinical Transaction Agreements with each of Empire, GHI and HIP
(the "THINC Payers") to provide online prescription and laboratory transaction
services, subject to certain limitations. The $2,000,000 working capital loan
has a due date of July 1, 2001 and the $1,500,000 working capital loan has a due
date of July 1, 2002. Both working capital loans are contingent on the
continuation of the Management Services Agreement. The first working capital
loan of $2,000,000 was advanced to THINC by CareInsite in 1999. No amounts have
been advanced to THINC by CareInsite under the $1,500,000 working capital loan
in 1999. During 1999, CareInsite also advanced THINC an additional $3,378,000
for working capital purposes of which $3,100,000 was in the form of a senior
promissory note and $278,000 was a non-interest bearing advance.
As part of this arrangement, THINC entered into Managed Care
Transaction Agreements with each of the THINC Payers whereby the THINC Payers
agreed to use the THINC network for their online medical claims submission,
eligibility, benefit plan detail, roster distribution, remittance advice
distribution, claims inquiry, referral/pre-certification and authorization, and
encounter submission transactions.
The exercise price of the warrant issued by CareInsite to THINC is
$4.00 per share of CareInsite common stock. The warrant expires on January 1,
2006, subject to certain exceptions.
F-7
<PAGE>
THE HEALTH INFORMATION NETWORK
CONNECTION LLC
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
The warrant and the shares of CareInsite's common stock issuable upon the
exercise of the warrant are subject to certain restrictions on transfer. In
accordance with its terms, the warrant became exercisable in December 1999. The
estimated fair value of the warrant on January 1, 1999, the date issued, was
approximately $1,727,000, as determined using the Black-Scholes option pricing
model. On December 31, 1999, the fair value of the warrant was approximately
$315,718,000, as determined using the Black-Scholes option pricing model and is
reflected as Investment - CareInsite warrant in the accompanying balance sheet.
THINC has classified this investment as available-for-sale. Accordingly, the
change in the carrying value of the investment is reported as other
comprehensive income.
In January 2000, CareInsite agreed to acquire the 80% equity interest
in THINC owned by Empire, GHI, HIP and GYNHA (the "THINC's founding members") in
a stock transaction valued at approximately $45,000,000. Concurrently with the
acquisition, warrants to purchase an aggregate of 3,247,294 shares of CareInsite
common stock, which represented the THINC founding members' interest in the
warrants issued by CareInsite to THINC in January 1999, were distributed to the
THINC founding members. Immediately following this transaction, the THINC
founding members exercised their warrants in full. All shares including those
issued upon the exercise of the warrants, are subject to certain restrictions on
transfer.
(b) Change In Accounting For Organizational Costs
In April 1998, the AICPA Accounting Standards Executive Committee
issued Statement of Position 98-5, "Reporting on the Costs of Start-Up
Activities" (SOP 98-5). SOP 98-5 requires that costs incurred during start-up
activities, including organizational costs, be expensed as incurred. SOP 98-5 is
effective for annual financial statements issued for fiscal years beginning
after December 15, 1998. The implementation of SOP 98-5 resulted in the
write-off of the unamortized balance of capitalized organizational costs,
amounting to $65,000, in the year ended December 31, 1999. The write-off has
been reflected as a cumulative change in accounting as required by SOP 98-5.
(c) Use of Estimates
The preparation of the financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the reporting
period. Actual results could differ from those estimates.
(d) Cash and Cash Equivalents
THINC considers all investment instruments with an original maturity of
three months or less to be the equivalent of cash for purposes of balance sheet
presentation and for the statements of cash flow. These short-term investments
are stated at cost, which approximates market.
Included in restricted cash at December 31, 1999 is a certificate of
deposit for $420,000, which collateralizes a capital lease.
F-8
<PAGE>
THE HEALTH INFORMATION NETWORK
CONNECTION LLC
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
(e) Property and Equipment
Property and equipment, including purchased software costs, are stated
at cost. Equipment under capital leases are stated at the present value of
minimum lease payments.
Depreciation of property and equipment is calculated on the
straight-line method over the estimated useful lives of the assets. Equipment
held under capital leases and leasehold improvements are amortized on a
straight-line basis over the shorter of the lease term or the estimated useful
life of the asset. THINC periodically reviews its long-lived assets to assess
recoverability and to ensure the carrying values of such long-lived assets have
not been impaired.
(f) Product Development Costs
All costs in the software development process, which are classified as
research and development, are expensed as incurred until technological
feasibility has been established. THINC defines technological feasibility as the
completion of a working model. Through December 31, 1999, THINC has not
completed or fully installed a working model and accordingly, all development
costs have been expensed as incurred and all advances received from customers
through December 31, 1999 have been recorded as deferred revenue.
(g) Income Taxes
THINC has elected to be treated as a partnership for income tax
purposes and as such the tax liability on all income earned or the tax benefit
of operating losses accrue to the THINC members as owners of THINC.
(h) Revenue Recognition
THINC recognizes revenue in accordance with AICPA Statement of Position
97-2, "Software Revenue Recognition." Accordingly, revenue from the license of
software will be recognized when the software is delivered, installed and
accepted by the customer, the fee is fixed and determinable and collection of
the resulting receivable is deemed probable. Software maintenance and network
access fees will be deferred and recognized as revenue ratably over the term of
the applicable contract. Service revenue and training fees are recognized when
the services and training, respectively, are performed. Deferred revenue
represents payments received upon signing of the software license and network
services agreements but for which the software has not yet been accepted by the
customer. Such amounts are subject to refund if the product is not ultimately
accepted by the customer. THINC has recorded $2,599,000 in deferred revenue
under three contracts at December 31, 1999.
(i) Fair Value of Financial Instruments
The fair value of the THINC's capital lease obligations and note
payable to BRC are estimated using discounted cash flow analyses, based upon the
THINC's estimated current incremental borrowing rate for similar types of
securities. For all other financial instruments, the carrying value approximates
fair value due to the short maturity applicable to such instruments.
F-9
<PAGE>
THE HEALTH INFORMATION NETWORK
CONNECTION LLC
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
(j) Comprehensive Income
THINC adopted SFAS No. 130, Report Comprehensive Income, effective
January 1, 1999. SFAS No. 130 establishes standards for reporting and display of
comprehensive income and its components in the financial statements.
Comprehensive income is the total of net income and all other nonowner changes
in equity including items such as unrealized holding gains/losses on securities
classified as available-for-sale, foreign currency translation adjustments and
minimum pension liability adjustments.
(k) Reclassifications
Certain reclassifications have been made to prior year amounts to
conform to the current year presentation.
(2) Members' Capital
In connection with the January 1999 investment by CareInsite, the THINC
operating agreement was amended. The agreement provides for, among other things,
that GNYHA will receive credits against future capital contributions to the
extent THINC meets certain projections as to hospital revenue. During 1999,
GYNHA executed a promissory note for $320,000 in lieu of capital contributions.
The repayment terms of the note are governed by certain distribution events. In
addition, the operating agreement was amended to eliminate units of interest and
to state members' interest as a percentage of ownership. The description of the
members' capital contribution in the balance sheet and statements of members'
capital have been revised to reflect this change. GYNHA, GHI, HIP, Empire and
CareInsite each have a 20% ownership interest in THINC at December 31, 1999.
(3) Software Agreement
In 1996 THINC entered into a five-year software license agreement with
Health Network Ventures, Inc. (HNV) to license the HNV software and use such
software to create and maintain an on-line healthcare information exchange
network in the THINC market region. The initial $1,500,000 cost of the software
is being amortized over the life of the agreement. THINC also contracted for a
five-year maintenance contract with HNV in 1997 for $680,000, payable in four
equal installments. The initial installment of the maintenance contract was paid
on signing with the next three subsequent installments due annually on the
anniversary dates thereof. In addition to the fees stated above, THINC will pay
HNV a specified fee per user based upon the terms as set forth in the software
license agreement.
(4) Related Party Transactions
In the course of its operations, THINC has entered into various loan
arrangements with the members. At December 31, 1999 THINC's obligations to
members included in current liabilities is $6,444,000 and included in
non-current liabilities is $456,000. Obligations included in current liabilities
relate to amounts loaned to THINC by members under promissory notes, working
capital agreements, and a senior promissory note. The current obligations have
original maturities ranging from October 1998 to February 2000 and interest
rates ranging from 8.0% to 8.5% at December 31, 1999. All amounts included as
current liabilities have been repaid as a
F-10
<PAGE>
THE HEALTH INFORMATION NETWORK
CONNECTION LLC
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
result of CareInsite's acquisition of the remaining ownership interest of THINC
in January 2000. The obligation in non-current liabilities relates to an advance
of funds to facilitate a THINC capital lease arrangement, which accrues interest
at 3% annually with a due date of May 2002.
Pursuant to the management services agreement with CareInsite, THINC
has incurred expenses during 1999 of approximately $2,680,000.
(5) Long-Term Debt
Long-term debt at December 31, 1999 includes the following (in
thousands):
Note payable (a) $ 459
Capital lease obligations (b) 1,932
------------
2,391
Less current installments (1,234)
-------------
$ 1,157
=============
(a) On June 1, 1998, THINC issued a $500,000 note payable to BRC for the
repurchase of its original investment in THINC. Principal payments and
accrued interest are being paid in 36 equal monthly installments of
$17,005, commencing July 1, 1999 and additional installments being due
and payable on the first of each month through June 1, 2002. Interest
accrues at a rate of 8 1/2% per annum. Principal payments on the note
payable to BRC for the next three years are as follows: $171,592 in
2000; $186,867 in 2001; and $99,764 in 2002. The carrying value of the
note payable approximates fair value at December 31, 1999.
In addition, THINC will make a payment to BRC of $125,000 not less than
ten days prior to the time that THINC shall make any distribution or
pay any dividend with respect to any membership units or any other
equity interests issued by THINC or repurchase any membership units or
other equity interest issued by THINC. As a result of the CareInsite
acquisition of THINC in January 2000, the additional payment has been
accrued and reflected as a reduction of additional paid-in capital as
of December 31, 1999.
(b) THINC entered into five capital lease agreements during 1999, 1998 and
1997 to finance the licensing of software packages and the purchase of
computer equipment. Two leases are for 36 months, two leases for 60
months and another lease for 19 months. The repayment of one lease with
a balance of $1,096,000 at December 31, 1999 is guaranteed by the
members of THINC.
At December 31, 1999, the gross amount of property and equipment and
related accumulated depreciation recorded under capital leases were as
follows (in thousands):
Computer equipment $ 2,081
Office equipment 85
------------
2,166
Less accumulated depreciation (651)
=============
$ 1,515
F-11
<PAGE>
THE HEALTH INFORMATION NETWORK
CONNECTION LLC
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
Future obligations under capital leases are as follows (in thousands):
Years ending
December 31,
------------
2000 $ 1,193
2001 627
2002 306
-------------
2,126
Less amount representing interest
under capital lease obligations (194)
-------------
$ 1,932
=============
(6) Commitments and Contingencies
(a) Leases
At December 31, 1999, THINC is obligated through the year 2000 under
several non-cancelable operating lease agreements for office space and office
equipment. Rent expense in 1999 was approximately $354,000. Future minimum lease
payments for 2000 are $151,000.
(b) Litigation
On February 18, 1999, Merck & Co., Inc. ("Merck") and Merck-Medco
Managed Care, L.L.C. ("Merck-Medco") filed a complaint in the Superior Court of
New Jersey against CareInsite, Martin J. Wygod, Chairman of CareInsite and
Medical Manager Corporation, the publicly traded company that owns 69% of
CareInsite, and three officers and/or directors of CareInsite and Medical
Manager, Paul C. Suthern, Roger C. Holstein and Charles A. Mele. The plaintiffs
assert that CareInsite and the individual defendants are in violation of certain
non-competition, non-solicitation and other agreements with Merck and
Merck-Medco, and seek to enjoin CareInsite and them from conducting CareInsite's
healthcare e-commerce business and from soliciting Merck-Medco's customers. Mr.
Wygod's agreements expired on May 24, 1999 and Mr. Suthern's agreement expired
in December 1999, Mr. Mele's and Mr. Holstein's agreements expire in March 2000
and September 2002, respectively.
A hearing was held on March 22, 1999 on an application for preliminary
injunction filed by Merck and Merck-Medco. On April 15, 1999, the Superior Court
denied this application. CareInsite believes that Merck's and Merck-Medco's
positions in relation to it and the individual defendants are without merit and
CareInsite intends to vigorously defend the litigation. However, the outcome of
complex litigation is uncertain and cannot be predicted at this time. Any
unanticipated adverse result could have a material adverse effect on THINC's
financial condition and results of operations.
F-12
<PAGE>
THE HEALTH INFORMATION NETWORK
CONNECTION LLC
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
(7) Subsequent Event
Healtheon/WebMD Corp. has signed definitive agreements to acquire
Medical Manager Corporation, and its publicly traded subsidiary, CareInsite.
Under the terms of the agreement, Healtheon/WebMD will pay 1.65 shares of
Healtheon/WebMD common stock for each share of Medical Manager and 1.3 shares of
each share of CareInsite common stock not owned by Medical Manager. Completion
of the acquisitions, which will be accounted for as a purchase transaction, is
subject to regulatory and shareholder approvals.
F-13
<PAGE>
UNAUDITED PRO FORMA COMBINED CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
In the table below, we attempt to illustrate the financial results that
might have occurred if CareInsite's acquisition of THINC had been completed
previously. Presented is the Unaudited Pro Forma Combined Condensed Consolidated
Statements of Operations for the fiscal year ended June 30, 1999 and the six
months ended December 31, 1999 as if the Acquisition had been consummated at the
beginning of the earliest period presented. Also presented is the Unaudited Pro
Forma Combined Condensed Consolidated Balance Sheet as of December 31, 1999 as
if the Acquisition had been completed on December 31, 1999. These unaudited pro
forma combined condensed consolidated financial statements should be read in
conjunction with the historical consolidated financial statements of CareInsite
and related notes and "Management's Discussion and Analysis of Results of
Operations and Financial Condition" contained therein, with respect to
CareInsite, in the Registrant's Annual Report on Form 10-K, as amended, for the
year ended June 30, 1999 and the Quarterly Report on Form 10-Q for the three and
six months ended December 31, 1999 and, with respect to THINC, in the
accompanying audited financial statements, for a more detailed explanation.
It is important to remember that this information is hypothetical, and
does not necessarily reflect the financial performance that would have actually
resulted if the Acquisition had been completed on that date. It is also
important to remember that this information does not necessarily reflect future
financial performance.
PF-1
<PAGE>
<TABLE>
<CAPTION>
Pro Forma Combined Condensed Consolidated Statement of Operations
For the Year Ended June 30, 1999
(unaudited)
(in thousands, except per share data)
CareInsite THINC Pro Forma Pro Forma
Historical Historical Adjustments Combined
------------ ------------ ------------- ------------
<S> <C> <C> <C> <C>
Net revenue $ 371 $ - $ - $ 371
Service revenue to affiliates 993 - (993)(1) -
------------ ------------ ----------- -----------
Total revenues 1,364 - (993) 371
Costs and Expenses:
Cost of revenues 69 - 69
Cost of services to affiliates 993 - (993)(1) -
Research and development 11,253 2,803 14,056
Sales and marketing 1,910 225 2,135
General and administrative 4,205 1,353 (596)(2) 4,962
Litigation costs 4,300 - 4,300
Depreciation and amortization 1,695 1,188 19,798 (3) 22,681
------------ ------------ ----------- -----------
Total costs and expenses 24,425 5,569 18,209 48,203
------------ ------------ ----------- -----------
Loss from operations (23,061) (5,569) (19,202) (47,832)
Other income (expense), net 263 (345) (203)(4) (285)
------------ ------------ ----------- -----------
Net loss $ (22,798) $ (5,914) $ (19,405) $ (48,117)
============ ============ =========== ===========
Net loss per share, basic and diluted $ (0.40) $ (0.80)
============ ===========
Weighted average shares outstanding,
basic and diluted 56,371 3,673 (5) 60,044
============ =========== ===========
</TABLE>
PF-2
<PAGE>
<TABLE>
<CAPTION>
Pro Forma Combined Condensed Consolidated Statement of Operations
Six months ending December 31, 1999
(unaudited)
(in thousands, except per share data)
CareInsite THINC Pro Forma Pro Forma
Historical Historical Adjustments Combined
------------ ------------ ------------- ------------
<S> <C> <C> <C> <C>
Net revenue $ 1,585 $ - $ - $ 1,585
Service revenue to affiliates 1,573 - (1,573)(1) -
------------ ------------ ----------- -----------
Total revenues 3,158 - (1,573) 1,585
Costs and Expenses:
Cost of revenues 526 - - 526
Cost of services to affiliates 1,573 - (1,573)(1) -
Research and development 7,901 2,415 - 10,316
Sales and marketing 6,511 619 - 7,130
General and administrative 6,354 615 (895)(2) 6,074
Litigation costs 1,100 - - 1,100
Depreciation and amortization 2,685 593 9,827 (3) 13,105
------------ ------------ ----------- -----------
Total costs and expenses 26,650 4,242 7,359 38,251
------------ ------------ ----------- -----------
Loss from operations (23,492) (4,242) (8,932) (36,666)
Other income (expense), net 3,267 (237) (101)(4) 2,929
Gain on sale of investment 25,511 - - 25,511
------------ ------------ ----------- -----------
Net income (loss) 5,286 (4,479) (9,033) (8,226)
Accretion on Series A Preferred Stock (433) - - (433)
------------ ------------ ----------- -----------
Net income (loss) available to common
stockholders $ 4,853 $ (4,479) $ (9,033) $ (8,659)
============ ============ =========== ===========
Net income (loss) per share available
to common stockholders:
Basic $ 0.07 $ (0.12)
============ ===========
Diluted $ 0.06 $ (0.12)
============ ===========
Weighted average shares outstanding:
Basic 70,410 3,673(5) 74,083
============ =========== ===========
Diluted 78,776 74,083
============ ===========
</TABLE>
PF-3
<PAGE>
<TABLE>
<CAPTION>
Pro Forma Combined Condensed Consolidated Balance Sheet
as of December 31, 1999
(unaudited)
(in thousands)
CareInsite THINC Pro Forma Pro Forma
Historical Historical Adjustments Combined
------------ ------------ ------------- ------------
<S> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash and Cash Equivalents $ 21,861 $ 592 $ - $ 22,453
Marketable Securities 44,596 - - 44,596
Other Current Assets 18,067 98 (4,626)(6) 13,859
320 (7)
------------ ------------ ----------- -----------
Total Current Assets 84,524 690 (4,306) 80,908
Property and Equipment, Net 9,001 1,842 - 10,843
Capitalized Software Development Costs, Net 30,807 - - 30,807
Other Assets:
Intangible Assets, Net 20,102 - 59,827 (8) 78,828
(1,101)(9)
Non-current marketable securities 49,594 - - 49,594
Investments and Other Assets 3,782 316,250 (315,718)(10) 4,314
------------ ------------ ----------- -----------
Total Other Assets 73,478 316,250 (256,992) 132,736
------------ ------------ ----------- -----------
Total Assets $ 197,810 $ 318,782 $ (261,298) $ 255,294
============ ============ =========== ===========
LIABILITIES, STOCKHOLKERS' EQUITY AND
MEMBERS' CAPITAL:
Current Liabilities $ 8,167 $ 11,351 $ (4,626)(6) $ 18,427
800 (11)
2,735(12)
Long-Term Liabilities - 1,613 - 1,613
------------ ------------ ----------- -----------
Total Liabilities 8,167 12,964 (1,091) 20,040
------------ ------------ ----------- -----------
Convertible Redeemable Preferred Stock 5,166 - - 5,166
------------ ------------ ----------- -----------
Stockholders' Equity and Members' Capital 184,477 305,818 320 (7) 230,088
(268,380)(10)
7,853 (13)
------------ ------------ ----------- -----------
Total Stockholders' Equity and
Members' Capital 184,477 305,818 (260,207) 230,088
------------ ------------ ----------- -----------
Total Liabilities and Stockholders' Equity $ 197,810 $ 318,782 $ (261,298) $ 255,294
============ ============ =========== ===========
</TABLE>
PF-4
<PAGE>
Notes to Pro Forma Combined Condensed Consolidated
Financial Statements
(unaudited)
The Unaudited Pro Forma Combined Condensed Consolidated Statements of
Operations have been prepared to reflect the Acquisition as if the Acquisition
occurred at the beginning of the period presented. The Acquisition has been
accounted for under the purchase method of accounting. The purchase price plus
the fair value of the net liabilities assumed representing goodwill is being
amortized over three years.
The following is a summary of the adjustments reflected in the
Unaudited Pro Forma Combined Condensed Consolidated Statements of Operations.
1. Represents the elimination of service revenue from CareInsite
to THINC. The elimination amounts represent the management
services charged by CareInsite to THINC.
2. Represents the elimination of CareInsite's share of THINC's
loss.
3. Represents the amortization of the goodwill on the THINC
acquisition and the elimination of historical amortization of
goodwill on CareInsite's original investment in THINC.
4. Represents the amount of interest expense on the note issued
by CareInsite to Cerner for Cerner's 2% non-voting interest in
THINC and the decrease in interest income to reflect the
reduction in Cash and Cash equivalents due to the payment of
the expenses associated with the Acquisition.
5. Represents the increase in the number of outstanding shares of
CareInsite common stock to reflect the Acquisition and the
exercise of the original THINC warrant distributed to the
THINC members concurrent with the Acquisition.
The Unaudited Pro Forma Combined Condensed Consolidated Balance Sheet
was prepared to reflect the Acquisition as of December 31, 1999.
The following is a summary of the adjustments reflected in the
Unaudited Pro Forma Combined Condensed Consolidated Balance Sheet:
6. Represents the elimination of intercompany balances.
7. Represents the reclass of a receivable from member in members'
capital to other current assets.
8. Represents the preliminary estimate of the goodwill as
follows:
Purchase Price (including the note issued to Cerner
and acquisition related expenses) $ 49,222
Net liabilities assumed 9,504
CareInsite 12/31/99 investment in THINC 1,101
--------
Goodwill $ 59,827
========
PF-5
<PAGE>
The company believes that the final allocation will not vary materially
from the preliminary estimate.
Subsequent to the acquisition, the Company will review the carrying
values assigned to goodwill to determine whether later events or circumstances
have occurred that indicate that the balance of goodwill may be impaired. The
Company's principal consideration in determining the impairment of goodwill
include the strategic benefit to the Company of the particular business as
measured by undiscounted current and expected future operating income and
expected undiscounted future cash flows.
9. Represents the elimination of CareInsite's original THINC
investment.
10. Represents the distribution and exercise of the CareInsite
warrant held by THINC, and the equity issued to acquire THINC.
11. Represents the amount of estimated costs for legal and
accounting services and other expenses associated with the
Acquisition.
12. Represents a note issued to Cerner to purchase their 2%
non-voting interest in THINC.
13. Represents the elimination of THINC's historical members'
capital.
PF-6
