<PAGE> 1
UNITED STATES
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)
December 22, 1999
THE TRIZETTO GROUP, INC.
(Exact name of registrant as specified in its charter)
Delaware 000-27501 33-0761159
(State or other jurisdiction (Commission File (IRS Employer
of incorporation) Number) Identification No.)
567 San Nicolas Drive, Suite 360, Newport Beach, California 92660
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (949) 719-2200
<PAGE> 2
ITEM 2. - ACQUISITION OR DISPOSITION OF ASSETS
On December 22, 1999, The TriZetto Group, Inc., a Delaware corporation
(the "Registrant"), acquired all of the issued and outstanding capital stock of
Finserv Health Care Systems, Inc., a New York corporation ("Finserv"), in
accordance with the terms and conditions of the Agreement and Plan of Merger,
dated as of December 22, 1999 (the "Agreement") by and among the Registrant,
Finserv, Finserv Acquisition Corp., a Delaware corporation and a wholly-owned
subsidiary of the Registrant ("Merger Sub"), the Finserv Noteholder described
therein and the Finserv Shareholders described therein (Finserv Noteholder
together with Finserv Shareholders are collectively referred to as the "Finserv
Securityholders"). The acquisition was effected by a merger (the "Merger") of
the Merger Sub with and into Finserv, with Finserv surviving the merger as a
wholly-owned subsidiary of the Registrant.
The 149 issued and outstanding shares of Finserv capital stock were
converted into an aggregate of 48,998 shares of fully paid and non-assessable
shares of common stock, $.001 par value, of the Registrant ("Registrant Common
Stock"), subject to possible adjustments as set forth in the Agreement (the
"Merger Consideration"). The aggregate number of shares of Registrant Common
Stock which the Finserv Securityholders had the right to receive was calculated
by dividing $1,500,000 by the average closing sales prices of the Registrant
Common Stock for the five days immediately preceding December 18, 1999. The
Agreement also provides that an additional amount of shares of Registrant Common
Stock, up to $750,000 in shares (the "Earnout Consideration"), may be issued to
the Finserv Securityholders if certain milestones described in the Agreement are
achieved for the fiscal year ending December 31, 2000 and fiscal year ending
December 31, 2001.
In connection with the Merger, the Registrant purchased from the
Finserv Noteholder and the Finserv Noteholder sold to the Registrant, all of the
issued and outstanding Finserv Notes described in the Agreement (except for
$25,000) for an aggregate purchase price equal to $1,224,592.21 cash, net of
certain debt owed by the Finserv Noteholder to the Registrant (the "Note
Consideration" and together with the Merger Consideration and the Earnout
Consideration, the "Consideration"). Pursuant to the Agreement, a portion of the
Note Consideration was withheld by the Registrant (the "Cash Holdback") and a
portion of the Merger Consideration was deposited into an escrow account (the
"Escrowed Shares"). Each the Cash Holdback and the Escrowed Shares are subject
to possible adjustment as set forth in the Agreement. The source of funds for
the Note Consideration was available cash. The Consideration and all other terms
of the Agreement were determined pursuant to arms-length negotiations between
the parties.
In connection with Agreement, the Registrant entered into a
Registration Rights Agreement dated as of December 22, 1999 ("Registration
Rights Agreement") with those certain holders of Registrant Common Stock party
thereto (the "Holders"). Pursuant to the terms of the Registration Rights
Agreement, the Registrant is required to use its commercially reasonable best
efforts to qualify the shares of Registrant Common Stock issued to the Holders
under the Agreement for
<PAGE> 3
registration on Form S-3.
The foregoing description of the Merger does not purport to be complete
and is qualified in its entirety by reference to the Agreement, which is
incorporated herein by reference.
ITEM 7. - FINANCIAL STATEMENTS AND EXHIBITS
(a) FINANCIAL STATEMENTS OF BUSINESS ACQUIRED
The following financial statements of Finserv are being filed
with this Report.
- Independent Auditors' Reports
- Audited Balance Sheets as of December 31, 1998 and
December 31, 1997
- Audited Statements of Operations for the years ended December
31, 1998 and 1997
- Audited Statement of Stockholders' Equity for the years ended
December 31, 1998 and 1997
- Audited Statements of Cash Flow for the years ended December
31, 1998 and 1997
- Unaudited Balance Sheets as of September 30, 1999
- Unaudited Statements of Operations for the nine months ended
September 30, 1999
- Unaudited Statements of Cash Flow for the nine months ended
September 30, 1999
(b) PRO FORMA FINANCIAL INFORMATION
The following pro forma financial statements of Finserv are
being filed with this Report.
- Pro forma condensed Balance Sheet as of September 30, 1999
- Pro forma condensed Statement of Operations for the year ended
December 31, 1998 and for the nine months ended September 30,
1999
(c) EXHIBITS
EXHIBIT NUMBER DESCRIPTION
2.1 ** Agreement and Plan of Merger dated as of December 22, 1999
2.2 ** Escrow Agreement dated as of December 22, 1999
2.3 ** Form of Non-Competition Agreement dated as of December 22,
1999
2.4 ** Registration Rights Agreement dated as of December 22, 1999
<PAGE> 4
23.1 Consent of Citrin Cooperman & Company, LLP with respect to the
financial statements of Finserv
99.1 Financial Statements of Finserv listed in Item 7(a) above
99.2 Pro Forma Financial Statements listed in Item 7(b) above
- -----------------
** Previously filed by the Registrant in its Current Report on Form 8-K as
filed with the Securities and Exchange Commission on January 6, 2000.
<PAGE> 5
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.
THE TRIZETTO GROUP, INC.
/s/ JEFFREY H. MARGOLIS
March 3, 2000 -------------------------------------------------
Jeffrey H. Margolis
Chief Executive Officer, President and
Chairman of the Board of Directors
<PAGE> 6
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
2.1 ** Agreement and Plan of Merger dated as of December 22, 1999
2.2 ** Escrow Agreement dated as of December 22, 1999
2.3 ** Form of Non-Competition Agreement dated as of December 22,
1999
2.4 ** Registration Rights Agreement dated as of December 22, 1999
23.1 Consent of Citrin Cooperman & Company, LLP with respect to the
financial statements of Finserv
99.1 Financial Statements of Finserv listed in Item 7(a) above
99.2 Pro Forma Financial Statements listed in Item 7(b) above
- -----------------
** Previously filed by the Registrant in its Current Report on Form 8-K as
filed with the Securities and Exchange Commission on January 6, 2000.
<PAGE> 1
EXHIBIT 23.1
[CITRIN COOPERMAN & COMPANY, LLP LETTERHEAD]
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-8 of The TriZetto Group, Inc. of our compilation report for
the nine months ended September 30, 1999 dated February 23, 2000 and our audit
report, for the years ended December 31, 1998 and 1997 dated October 25, 1999
relating to the financial statements of Finserv Health Care Systems, Inc., which
appears in the Current Report on Form 8-K of The TriZetto Group, Inc.
/s/ CITRIN COOPERMAN & COMPANY, LLP
- --------------------------------------
Citrin Cooperman & Company, LLP
Millburn, New Jersey
February 29, 2000
<PAGE> 1
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
Finserv Health Care Systems, Inc.
Albany, New York
We have audited the accompanying balance sheets of Finserv Health Care Systems,
Inc. as of December 31, 1998 and 1997, and the related statements of operations
and retained earnings (accumulated deficit), and cash flows for the years then
ended. 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
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 Finserv Health Care Systems,
Inc. as of December 31, 1998 and 1997 and the results of its operations and its
cash flows for the years then ended, in conformity with generally accepted
accounting principles.
/s/ Citrin Cooperman & Company, LLP
-----------------------------------
CITRIN COOPERMAN & COMPANY, LLP
February 4, 2000
<PAGE> 2
FINSERV HEALTH CARE SYSTEMS, INC.
BALANCE SHEETS
DECEMBER 31, 1998 AND 1997,
SEPTEMBER 30, 1999 (unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998 1997
------------- ----------- -----------
(unaudited)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash $ 3,490 $ 59,724 $ 58,397
Accounts receivable, net of allowance for doubtful
accounts of $25,000 (1998), $80,050 (1997), $8,000 (9/30/99) 781,974 818,948 764,167
Inventory -- 9,561 14,348
Employee advances -- -- 590
Prepaid income taxes -- -- 78,391
Prepaid expenses 19,335 30,090 17,673
Deferred income taxes 1,840 10,676 65,400
----------- ----------- -----------
Total current assets 806,639 928,999 998,966
----------- ----------- -----------
Property and equipment 134,845 171,565 216,523
----------- ----------- -----------
Other assets:
Deposits 1,955 1,955 1,955
Deferred income taxes 557,361 553,378 352,612
----------- ----------- -----------
Total other assets 559,316 555,333 354,567
----------- ----------- -----------
TOTAL ASSETS $ 1,500,800 $ 1,655,897 $ 1,570,056
=========== =========== ===========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Note payable - bank $ 170,367 $ 325,833 $ 345,000
Litigation settlement payable 50,000 50,000 --
Notes payable - individual 188,000 138,000 --
Accounts payable 540,090 778,494 131,360
Accrued expenses 107,008 169,466 51,798
Line of credit - bank 79,111 -- --
Notes payable - stockholders 1,899,925 -- --
Interest payable - stockholders 16,627 -- --
----------- ----------- -----------
Total current liabilities 3,051,128 1,461,793 528,158
----------- ----------- -----------
Long-term liabilities:
Notes payable - stockholders -- 1,614,365 1,063,594
Interest payable - stockholders -- 27,380 70,803
Customer deposits and advances 131,117 227,117 172,953
----------- ----------- -----------
Total long-term liabilities 131,117 1,868,862 1,307,350
----------- ----------- -----------
Total liabilities 3,182,245 3,330,655 1,835,508
----------- ----------- -----------
Stockholders' deficit:
Common stock - no par value, 200 shares
authorized, 149 shares issued, 133 shares outstanding 60,000 60,000 60,000
Treasury stock - 16 shares at cost (5,000) (5,000) (5,000)
Accumulated deficit (1,736,445) (1,729,758) (320,452)
----------- ----------- -----------
Total stockholders' deficit (1,681,445) (1,674,758) (265,452)
----------- ----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 1,500,800 $ 1,655,897 $ 1,570,056
=========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
<PAGE> 3
FINSERV HEALTH CARE SYSTEMS, INC.
STATEMENTS OF OPERATIONS AND RETAINED EARNINGS (ACCUMULATED DEFICIT)
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997,
AND FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1999 (unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998 1997
------------- ----------- -----------
(unaudited)
<S> <C> <C> <C>
Revenue $ 2,546,466 $ 2,626,323 $ 3,123,399
Cost of revenue 1,829,175 2,503,949 2,573,312
----------- ----------- -----------
Gross profit 717,291 122,374 550,087
General and administrative expenses 777,739 1,236,365 1,234,316
----------- ----------- -----------
Loss from operations (60,448) (1,113,991) (684,229)
----------- ----------- -----------
Other income (expenses):
Litigation settlement -- (50,000) --
Legal fees - litigation (27,521) (398,865) (58,612)
Forgiveness of shareholder interest -- 70,803 --
Other non-operating income 182,534 -- --
Loss on disposition of equipment (2,904) -- --
Interest expense (92,795) (62,958) (135,377)
Interest income 61 88 1,819
----------- ----------- -----------
Total other income (expenses) 59,375 (440,932) (192,170)
----------- ----------- -----------
Loss before benefit for income taxes (1,073) (1,554,923) (876,399)
Benefit for income taxes 5,614 (145,617) (366,680)
----------- ----------- -----------
Net loss (6,687) (1,409,306) (509,719)
Retained earnings (accumulated deficit) - beginning (1,729,758) (320,452) 189,267
----------- ----------- -----------
ACCUMULATED DEFICIT - ENDING $(1,736,445) $(1,729,758) $ (320,452)
=========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
<PAGE> 4
FINSERV HEALTH CARE SYSTEMS, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997,
AND FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1999 (unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998 1997
------------- ----------- -----------
(unaudited)
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (6,687) $(1,409,306) $ (509,719)
Adjustments to reconcile net loss to net cash provided by (used in)
operating activities:
Depreciation 42,315 62,650 78,207
Loss on disposition of equipment 2,904
Bad debt expense 87,415 (66,169) (22,360)
Net changes in deferred income taxes 4,853 (146,042) (363,762)
Forgiveness of shareholder interest -- (70,803) --
Changes in assets and liabilities:
(Increase) decrease in assets:
Accounts receivable (50,441) 11,388 820,677
Inventory 9,561 4,787 (9,773)
Prepaid income taxes -- 78,391 4,249
Prepaid expenses 10,755 (12,417) 2,742
Increase (decrease) in liabilities:
Litigation settlement payable -- 50,000 --
Accounts payable (238,404) 647,134 50,630
Accrued expenses (62,458) 117,668 (17,818)
Outsourcing payable - Synergy -- -- (171,552)
Customers deposits (96,000) 54,164 106,836
Interest payable - stockholders (10,753) 27,380 72,043
----------- ----------- -----------
Net cash provided by (used in) operating activities (306,940) (651,175) 40,400
----------- ----------- -----------
Cash flows from investing activities:
Acquisition of property and equipment (8,499) (17,692) (82,575)
Advances to employees -- 590 3,547
----------- ----------- -----------
Net cash used in investing activities (8,499) (17,102) (79,028)
----------- ----------- -----------
Cash flows from financing activities:
Receipt of loans from individual 50,000 138,000 --
Receipt of loans from stockholders 683,000 615,814 180,000
Repayment of stockholders loans (397,440) (65,043) (117,127)
Net change in short term bank borrowings (76,355) (19,167) (30,000)
----------- ----------- -----------
Net cash provided by financing activities 259,205 669,604 32,873
----------- ----------- -----------
Net increase (decrease) in cash (56,234) 1,327 (5,755)
Cash - beginning 59,724 58,397 64,152
----------- ----------- -----------
CASH - ENDING $ 3,490 $ 59,724 $ 58,397
=========== =========== ===========
Supplemental disclosure of cash flow information:
Cash paid for interest $ 103,548 $ 33,132 $ 63,334
Cash paid for taxes $ 325 $ -- $ 25,000
</TABLE>
See accompanying notes to financial statements.
<PAGE> 5
FINSERV HEALTH CARE SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE 1 - NATURE OF OPERATIONS
The Company provides data processing services and equipment to clients in the
health care industry using proprietary software packages.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Unaudited interim results
The accompanying interim consolidated financial statements as of and for
the nine months ended September 30,1999 are unaudited. The unaudited interim
financial statements have been prepared on the same basis as the annual
financial statements and, in the opinion of management, reflect all
adjustments, which include only normal recurring adjustments, necessary to
present fairly the Company's financial position at September 30, 1999 and
results of their operations and their cash flows for the nine months ended
September 30, 1999.
Cash and Cash Equivalents
For purposes of financial statement presentation, the Company considers all
highly liquid investments with a maturity of three months or less to be cash
equivalents.
Inventory
Inventory is valued at the lower cost, determined on the first-in, first-out
method, or market.
Property and Equipment
Property and equipment are stated at cost. Depreciation is computed using both
the straight-line and accelerated methods over the estimated useful lives of the
assets.
Software Development Costs
Software development costs are expensed as incurred.
Income Taxes
Deferred income taxes are reported using the liability method. Accordingly,
deferred income tax assets and liabilities are determined based on the
differences between the financial statement basis of assets and liabilities and
their tax basis. Deferred tax assets and liabilities are adjusted for the
effects of changes in tax laws and rates on the date of enactment. Deferred tax
assets are also recognized for net operating loss carryforwards.
Use of Estimates in Preparation of Financial Statements
The preparation of financial statements in conformity with generally accepted
accounting principles require 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 revenues and expenses during the period. Actual results
could differ from those estimates.
NOTE 3 - PROPERTY AND EQUIPMENT
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
The major categories of property and equipment are summarized as follows: $604,003 $586,311
Computer equipment 87,350 87,350
Furniture equipment 56,191 56,191
Transportation equipment 52,910 52,910
-------- --------
Leasehold improvements 800,454 782,762
628,889 566,239
-------- --------
Less: accumulated depreciation
$171,565 $216,523
======== ========
</TABLE>
Net Property and Equipment
NOTE 4 - NOTE PAYABLE - BANK
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Note payable - bank, secured by all assets of the Company and
the personal guarantees, both jointly and severally, of both stockholders
Interest only is due monthly at 1.5% over the bank's prime rate. Principal
due May 31, 1999 and is renewable annually $325,833 $345,000
======== ========
</TABLE>
The bank's prime rate at December 31, 1998 and 1997 was 8.25%.
<PAGE> 6
FINSERV HEALTH CARE SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE 5 - NOTES PAYABLE - INDIVIDUAL
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Notes payable - individual are comprised of unsecured demand notes. Interest
only due monthly at the rate of 10% per annum $138,000 $ --
======== ========
</TABLE>
NOTE 6 - NOTES PAYABLE - STOCKHOLDERS
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Stuart Schloss - interest only due monthly at the rate of 10% per annum, secured
by all assets of the Company subordinate to the security interest of the bank.
Interest of $27,380 was incurred on this loan during 1998 and is unpaid and
included in interest payable - stockholders. It is not anticipated that this
interest will be paid within the next year $ 494,000 $ --
Stuart Schloss - non-interest bearing, secured by all assets of the Company
subordinate to the security interest of the bank 135,000 --
Stuart Schloss - unsecured, converted to non-interest bearing in 1998. 583,186 692,815
Steven Kramer - unsecured, converted to non-interest bearing in 1998. 402,179 370,779
---------- ----------
Total notes payable - stockholders $1,614,365 $1,063,594
========== ==========
</TABLE>
During 1998, the shareholders agreed to forgive all prior unpaid interest on all
of the loans which were converted to non-interest bearing status.
NOTE 7 - COMMITMENTS
The Company rents office and other space under leases expiring periodically
through November 30, 1999. Rent expense for the years ended December 31, 1998
and 1997 was $133,852 and $141,158, respectively.
Future minimum annual payments required under these leases are as follows:
<TABLE>
<S> <C>
1999 $107,492
========
</TABLE>
NOTE 8 - RETIREMENT PLAN
The Company maintains a 401(k) Retirement Plan. The Company matches a portion of
the employee's salary reduction contributions. All employees with at least six
months of continuous service are eligible for the Plan commencing the first
month following their six month anniversary. Company contributions vest at 20%
per year, beginning after a participant has been employed for two years.
Retirement Plan contributions for the years ended December 31, 1998, 1997 were
$20,443 and $33,840 respectively.
NOTE 9 - INCOME TAXES
Deferred tax assets and liabilities arising primarily from net operating loss
carryforwards, differences in computing depreciation and bad debts, and interest
on shareholder loans, include the following components:
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
Deferred tax assets:
Net operating loss $ 554,266 $ 354,128
Bad debts 10,676 34,422
Interest on loans -- 30,978
Deferred tax liabilities:
Depreciation (888) (1,516)
--------- ---------
Net deferred tax assets $ 564,054 $ 418,012
========= =========
Current $ 10,676 $ 65,400
Long-term 557,378 352,612
--------- ---------
Total $ 568,054 $ 418,012
========= =========
</TABLE>
<PAGE> 7
NOTE 9 - INCOME TAXES (CONTINUED)
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
The benefit for income taxes consists of the following components:
Current:
Federal $ -- $ 1,523
State 425 (4,441)
--------- ---------
425 (2,918)
--------- ---------
Deferred:
Federal (39,620) (287,987)
State (106,422) (75,775)
--------- ---------
(146,042) (363,762)
--------- ---------
$(145,617) $(366,680)
========= =========
</TABLE>
The Company also has unused net operating loss carryforwards which may be used
to offset future federal and state income taxes of approximately $2,500,000
which expire periodically through 2015. It is anticipated that the net operating
loss carryforwards of the Company will be fully utilized in consolidation by the
new Parent Company; therefore no valuation reserve is required.
NOTE 10 - CONCENTRATIONS OF RISK
Cash
The Company had cash deposited with a financial institution which exceeded the
Federal Deposit Insurance Corporation's insurable limits by $-0- and $59,715 at
December 31, 1998 and 1997, respectively.
Accounts Receivable
Two customers accounted for 43% of the total accounts receivable at December 31,
1998 and 1997.
Sales
During the years ended December 31, 1998 and 1997, sales to two customers
accounted for 26% and 49%, respectively, of total of sales.
NOTE 11 - OFFICERS' SALARIES
The Company did not pay any salaries to the officers during 1998, and the
officers' have agreed to waive their rights to all compensation for 1998.
Compensation for 1997 was $212,500.
NOTE 12 - SUBSEQUENT EVENTS
During 1999, the Company settled a lawsuit with Mt. Sinai Hospital (the
Hospital) concerning services provided under certain contractual agreements. The
Company is required to pay the Hospital $50,000 under the Hospital's suit and
the Company's countersuit was dismissed.
In December 1999, the shareholders sold all of their stock in the Company to the
TriZetto Group, Inc. ("TriZetto") After the sale, TriZetto contributed capital
to the Company sufficient to satisfy, among others, the shareholder and bank
loans and delinquent accounts payable. The Company will operate as a wholly
owned subsidiary of TriZetto.
NOTE 13 - RECLASSIFICATIONS
Certain amounts in the 1997 financial statements have been reclassified to
conform to the current year's presentation. The results of operations have not
been affected by these changes.
<PAGE> 1
EXHIBIT 99.2
UNAUDITED PRO FORMA COMBINED CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS
Effective December 22, 1999, The TriZetto Group, Inc. (the "Company" or
"TriZetto") acquired all of the outstanding shares of Finserv Corporation
("Finserv"). The acquisition was accounted for using the purchase method of
accounting and accordingly, the purchase price was allocated to the tangible and
intangible assets acquired and liabilities assumed on the basis of their fair
market values on the acquisition date.
The purchase price of approximately $4.8 million consisted of cash in the
amount of approximately $1.8 million, 48,998 shares of common stock with a value
of $30.61 per share, assumed liabilities of $1.1 million, and acquisition costs
of approximately $0.4 million. The agreement also provides that an additional
amount of shares of Registrant Common Stock, up to $750,000 in shares (the
"Earnout Consideration"), may be issued to the Finserv Securityholders if
certain milestones described in the Agreement are achieved for the fiscal year
ending December 31, 2000 and fiscal year ending December 31, 2001. Of the 48,998
shares of common stock which have been issued in connection with this
acquisition, 20,000 shares of common stock have been held in escrow until the
resolution of certain pre-acquisition contingencies. The purchase price has been
allocated to the assets acquired and liabilities assumed and the remainder has
been allocated to unidentifiable goodwill.
The following unaudited pro forma balance sheet is based on the
consolidated balance of the Company and Finserv at September 30, 1999, assuming
the transaction was consummated on September 30, 1999. The unaudited pro forma
combined condensed consolidated statements of operations are derived from the
historical consolidated financial statements of the Company and Finserv. The
unaudited pro forma combined condensed statements of operations for the year
ended December 31, 1998 and for the nine months ended September 30, 1999, give
effect to the acquisition of Finserv as if it occurred on January 1, 1998. For
purposes of the unaudited pro forma combined condensed consolidated statements
of operations for the year ended December 31, 1998 and nine months ended
September 30, 1999, the Company's results of operations have been combined with
Finserv's results of operations for such respective periods.
The unaudited pro forma combined condensed consolidated financial
statements have been prepared in accordance with the rules and regulations of
the Securities and Exchange Commission and do not purport to represent what the
Company's results of operations would have been or what operations would be if
the transactions that give rise to the pro forma adjustments had occurred on the
dates assumed and are not necessarily indicative of future results. The
unaudited pro forma combined condensed consolidated statements of operations
should be read in conjunction with the historical consolidated financial
statements and related notes of TriZetto and Finserv.
<PAGE> 2
The TriZetto Group, Inc.
Unaudited Pro Forma Combined Condensed
Consolidated Balance Sheet
As of September 30, 1999
(in thousands)
<TABLE>
<CAPTION> Historical
------------------------
ASSETS TriZetto Finserv Adjustments Total
------------ --------- ----------- --------
<S> <C> <C> <C> <C>
Current assets
Cash and cash equivalents $ 1,834 $ 4 $ 1,838
Accounts receivable, net 4,984 782 5,766
Prepaid expenses and other current assets 1,697 21 1,718
-------- -------- -------- --------
Total current assets 8,515 807 -- 9,322
Property and equipment, net 6,025 135 6,160
Other Assets 87 559 646
Goodwill and other intangible assets, net 4,592 -- 3,381 (A) 7,973
-------- -------- -------- --------
Total assets $ 19,219 $ 1,501 $ 3,381 $ 24,101
======== ======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable $ 1,235 $ 540 $ 1,775
Accrued expenses 4,676 174 200 (B) 5,050
Short term obligations 1,537 2,337 3,874
Taxes payable 77 -- 77
-------- -------- -------- --------
Total current liabilities 7,525 3,051 200 10,776
Long term obligations 1,544 131 1,675
Deferred taxes 362 -- 362
Notes payable - related parties 390 -- 390
-------- -------- -------- --------
Total liabilities 9,821 3,182 200 13,203
-------- -------- -------- --------
Mandatorily redeemable convertible preferred stock 10,932 10,932
Stockholders' equity (deficit):
Preferred stock -- -- -- --
Common stock 10 -- -- 10
Paid-in capital 8,791 55 1,445 (C), (D) 10,291
Notes receivable from stockholders (41) -- (41)
Deferred stock compensation (6,213) -- (6,213)
Accumulated deficit (4,081) (1,736) 1,736 (C) (4,081)
-------- -------- -------- --------
(1,534) (1,681) 3,181 (34)
-------- -------- -------- --------
Total liabilities and stockholders' equity (deficit) $ 19,219 $ 1,501 $ 3,381 $ 24,101
======== ======== ======== ========
</TABLE>
<PAGE> 3
The TriZetto Group, Inc.
Unaudited Pro Forma Combined Condensed
Consolidated Statement of Operations
Twelve Months Ended December 31, 1998
(in thousands)
<TABLE>
<CAPTION>
Historical
------------------------
TriZetto Finserv Adjustments Totals
-------- -------- ----------- --------
<S> <C> <C> <C> <C>
Revenues:
Recurring revenue $ 5,300 $ 1,943 $ 7,243
Consulting revenue 6,131 683 6,814
-------- -------- --------
Total revenues 11,431 2,626 14,057
-------- -------- --------
Cost of revenues:
Recurring revenue 3,967 1,853 5,820
Consulting revenue 3,490 651 4,141
-------- -------- --------
Total cost of revenues 7,457 2,504 9,961
-------- -------- --------
Gross profit 3,974 122 4,096
-------- -------- --------
Operating expenses:
Research and development 1,083 -- 1,083
Selling, general and administrative 2,885 1,236 676 (E) 4,797
Amortization of deferred stock compensation 22 -- 22
-------- -------- -------- --------
Total operating expenses 3,990 1,236 676 5,902
-------- -------- -------- --------
Income (loss) from operations (16) (1,114) (676) (1,806)
-------- -------- -------- --------
Other expense, net -- 378 378
Interest income 210 -- 210
Interest expense 52 63 115
-------- -------- -------- --------
Income (loss) before provision for
(benefit of) income taxes 142 (1,555) (676) (2,089)
Provision for (benefit of) income taxes 82 (146) (64)
-------- -------- -------- --------
Net income (loss) $ 60 $ (1,409) $ (676) $ (2,025)
======== ======== ======== ========
Net income (loss) per share:
Basic $ 0.01 $ (0.41)
======== ========
Diluted $ -- $ (0.41)
======== ========
Shares used in computing net income (loss) per share:
Basic 4,937 4,937
======== ========
Diluted 12,783 4,937
======== ========
Pro forma net income (loss) per share:
Basic $ 0.01 $ (0.41)
======== ========
Diluted $ -- $ (0.41)
======== ========
Shares used in computing pro forma net income
(loss) per share:
Basic 4,966 4,966
======== ========
Diluted 12,812 4,966
======== ========
</TABLE>
<PAGE> 4
THE TRIZETTO GROUP, INC.
Unaudited Pro Forma Combined Condensed
Consolidated Statement of Operations
Nine Months Ended September 30, 1999
(in thousands)
<TABLE>
<CAPTION>
TRIZETTO FINSERV ADJUSTMENTS TOTALS
-------- -------- ----------- --------
<S> <C>
Revenues:
Recurring revenue $ 11,841 $ 1,808 $ 13,649
Consulting revenue 9,894 738 10,632
-------- -------- --------
Total revenues 21,735 2,546 24,281
-------- -------- --------
Cost of revenues:
Recurring revenue 10,366 1,299 11,665
Consulting revenue 6,723 530 7,253
-------- -------- --------
Total cost of revenues 17,089 1,829 18,918
-------- -------- --------
Gross profit 4,646 717 5,363
-------- -------- --------
Operating expenses:
Research and development 1,181 -- 1,181
Selling, general and administrative 5,373 778 507 (E) 6,658
Amortization of deferred stock compensation 627 -- 627
Write-off of acquired in-process technology 484 -- 0
-------- -------- -------- --------
Total operating expenses 7,665 778 507 8,466
-------- -------- -------- --------
Income (loss) from operations (3,019) 91 (507) (2,951)
-------- -------- -------- --------
Other income, net 153 153
Interest income 120 -- 120
Interest expense 177 93 270
-------- -------- -------- --------
Loss before provision for (benefit of) income taxes (3,076) (1) (507) (3,100)
Provision for (benefit of) income taxes (181) 6 (175)
-------- -------- -------- --------
Net loss $ (2,895) $ (7) $ (507) $ (2,925)
======== ======== ======== ========
Net loss per share:
Basic $ (0.42) $ (0.43)
========
========
Diluted $ (0.42) $ (0.43)
======== ========
Shares used in computing net loss per share:
Basic 6,848 6,848
======== ========
Diluted 6,848 6,848
======== ========
Pro forma net loss per share:
Basic $(0.42) $ (0.43)
======== ========
Diluted $(0.42) $ (0.43)
======== ========
Shares used in computing pro forma net loss per share:
Basic 6,877 6,877
======== ========
Diluted 6,877 6,877
======== ========
</TABLE>
<PAGE> 5
THE TRIZETTO GROUP, INC.
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED
CONSOLIDATED STATEMENTS OF INCOME
NOTE 1 SUMMARY OF TRANSACTION
In connection with TriZetto's acquisition of Finserv, TriZetto exchanged
approximately $1.8 million of cash, 48,998 shares of common stock, and assumed
liabilities of $1.1 million for all of the outstanding shares of Finserv and
incurred acquisition related expense of approximately $0.2 million.
The allocation of the purchase price was as follows (in thousands):
<TABLE>
<S> <C>
Allocation of purchase price:
Total current assets...................................... $ 827
Property and equipment and other noncurrent assets........ 276
Goodwill(a)............................................... 3,656
------
Total purchase price...................................... $4,759
======
</TABLE>
- ---------------
(a) Goodwill represents the excess of the purchase price over the fair
value of the net assets acquired and will be amortized over 5 years.
NOTE 2 -- UNAUDITED PRO FORMA COMBINED NET LOSS PER SHARE:
Basic net loss per share and shares used in computing the net loss per
share for the year ended December 31, 1998 and the nine months ended September
30, 1999 are based upon the historical weighted average common shares
outstanding. Dilutive net loss per share reflects the potential dilution that
could occur from common shares issuable through stock options, warrants and
other convertible securities. Potential common stock has been excluded from
the computation of net loss per share as their effect would be anti-dilutive.
There were 48,998 shares of common stock issued in connection with the
acquisition. Of these shares, 28,998 shares of common stock were issued to the
shareholders and the remaining 20,000 shares of common stock has been held in
escrow until the resolution of certain pre-acquisition contingencies. In
accordance with FAS128, the company has not included the contingent shares in
its basic or diluted calculation.
<TABLE>
<CAPTION>
Nine Months
Year Ended Ended
December 31, September 30,
1998 1999
------------------- ------------------
Basic Diluted Basic Diluted
------ -------- ------ --------
<S> <C> <C> <C> <C>
Pro Forma net loss......................... $(2,025) $(2,025) $(2,925) $(2,925)
======= ======= ======= =======
Shares used in computing basic and diluted
net loss per share....................... 4,937 4,937 6,848 6,848
Adjustment to reflect common stock issued
in acquisitions.......................... 29 29 29 29
------- ------- ------- -------
Shares used in computing pro forma basic
and diluted net loss per share
attributable to common stockholders...... 4,966 4,966 6,877 6,877
======= ======= ======= =======
Pro Forma net loss per share .............. $(0.41) $(0.41) $(0.43) $(0.43)
======= ======= ======= =======
</TABLE>
<PAGE> 6
NOTE 3 -- PRO FORMA ADJUSTMENTS:
The following pro forma adjustments are based upon management's
preliminary estimates of the value of the tangible and intangible assets
acquired. These estimates are subject to finalization.
(A) Represents $3,381 of unidentifiable goodwill.
(B) Represents accrued transaction costs associated with the acquisitions.
(C) Represents the elimination of equity accounts of the acquired
companies.
(D) Represents the common stock issued in connection with the
acquisitions.
(E) Represents amortization of goodwill and other intangible assets over
two to five years.
