<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- --- EXCHANGE ACT OF 1934.
For the quarterly period ended September 30, 1997.
Or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- --- EXCHANGE ACT OF 1934.
For the transition period from to .
--------------- --------------
Commission file number 000-27056
Medirisk, Inc.
(Exact name of registrant as specified in its charter)
Delaware 58-2256400
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(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
Two Piedmont Center, Suite 400, 3565 Piedmont Rd., Atlanta, Georgia 30305
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(Address of principal executive office) (Zip code)
Registrant's Telephone Number Including Area Code: (404) 364-6700
-----------------------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes x No
--- ---
The number of shares outstanding of the issuer's only class of Common
Stock, $.001 par value as of November 11, 1997 was 4,180,355.
<PAGE> 2
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
MEDIRISK, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(Amounts in thousands)
<TABLE>
<CAPTION>
(UNAUDITED) (AUDITED)
9/30/97 12/31/96
----------- ---------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 5,337 $ 447
Accounts receivable, less allowance for
doubtful accounts of $215 and $97 at
September 30, 1997 and December 31, 1996,
respectively 1,898 1,428
Prepaid expenses 686 921
Other current assets 709 175
------- ------
Total current assets 8,630 2,971
Property and equipment 2,579 1,736
Less accumulated depreciation and amortization 1,271 893
------- ------
Property and equipment, net 1,308 843
Excess of cost over net assets of businesses
acquired, less accumulated amortization
of $410 and $180 at September 30, 1997
and December 31, 1996, respectively 7,124 3,128
Intangible assets, less accumulated amortization
of $249 and $89 at September 30, 1997
and December 31, 1996, respectively 1,414 431
Software development costs, less accumulated
amortization of $55 and $20 at September 30,
1997 and December 31, 1996, respectively 734 101
Other assets 146 982
------- ------
Total other assets 9,418 4,642
Total assets $19,356 $8,456
======= ======
</TABLE>
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MEDIRISK, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(Amounts in thousands, except per share data)
<TABLE>
<CAPTION>
(UNAUDITED) (AUDITED)
9/30/97 12/31/96
----------- ---------
<S> <C> <C>
CURRENT LIABILITIES
Accounts payable $ 401 $ 639
Accrued expenses 1,129 449
Current installments of long-term debt and
obligations under capital leases 195 1,842
Deferred revenue 2,056 2,536
-------- --------
Total current liabilities 3,781 5,466
Long-term debt and obligations under capital leases,
excluding current installments 164 7,195
Dividends payable -- 618
Other liabilities 10 --
-------- --------
Total liabilities 3,955 13,279
STOCKHOLDERS' EQUITY (DEFICIT):
Series A convertible preferred stock, $.001 par value,
3,000 shares authorized; 1,292 issued and
outstanding shares at December 31, 1996 -- 1
Series B convertible preferred stock, $.001 par value;
400 shares authorized; 281 issued and
outstanding shares at December 31, 1996 -- --
Common stock - $.001 par value; 20,000 shares
authorized; 4,180 and 710 shares issued and outstanding
at September 30, 1997 and December 31, 1996, respectively 4 1
Additional paid in capital 28,460 4,972
Accumulated deficit (13,063) (9,797)
-------- --------
Total stockholders' equity (deficit) 15,401 (4,823)
Total liabilities and stockholders' equity (deficit) $ 19,356 $ 8,456
======== ========
</TABLE>
See accompanying notes to consolidated condensed financial statements.
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<PAGE> 4
MEDIRISK, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
(Amounts in thousands, except per share data)
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
----------------------- -----------------------
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
------------------------ -----------------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenue $ 4,677 $ 2,380 $ 10,570 $ 6,254
Salaries, wages and benefits 2,036 1,630 5,517 4,388
Other operating expenses 1,309 579 2,848 1,585
Depreciation and amortization 352 228 802 550
Acquired in-process research
and development costs and integration costs 1,064 -- 4,164 6,180
-------- -------- -------- --------
Operating loss (84) (57) (2,761) (6,449)
Interest income (expense), net 103 (216) 301 (482)
Other expense -- (3) -- (40)
Income taxes -- -- -- --
-------- -------- -------- --------
Net income (loss) before extraordinary item 19 (276) (2,460) (6,971)
-------- -------- -------- --------
Extraordinary item - Loss on early extinguishment of debt -- -- (806) --
-------- -------- -------- --------
Net income (loss) 19 (276) (3,266) (6,971)
Series A and Series B convertible preferred stock dividend
requirement -- 51 25 151
-------- -------- -------- --------
Net income (loss) applicable to common stock $ 19 $ (327) $ (3,291) $ (7,122)
======== ======== ======== ========
Net income (loss) per share:
Income (loss) before extraordinary item $ 0.00 $ (0.15) $ (0.65) $ (3.25)
Extraordinary loss on early extinguishment of debt -- -- $ (0.21) --
-------- -------- -------- --------
Net income (loss) per share of common stock $ 0.00 $ (0.15) $ (0.86) $ (3.25)
======== ======== ======== ========
Weighted average number of common shares outstanding 4,964 2,191 3,829 2,191
======== ======== ======== ========
</TABLE>
See accompanying notes to consolidated condensed financial statements.
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<PAGE> 5
MEDIRISK, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(Amounts in thousands)
<TABLE>
<CAPTION>
NINE MONTHS
----------------------
ENDED SEPTEMBER 30,
----------------------
1997 1996
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<S> <C> <C>
Cash flows from operating activities:
Net loss $ (3,266) $ (6,972)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Acquired in-process research and development costs 4,075 6,180
Depreciation and amortization 811 550
Other -- 136
Loss on early extinguishment of debt 806 --
Increase in:
Accounts receivable (108) (213)
Other assets (230) (578)
Increase (decrease) in:
Accounts payable (394) (129)
Accrued expenses and other liabilities (510) 528
Deferred revenue (1,160) (108)
-------- --------
Net cash provided by (used in) operating activities 24 (606)
-------- --------
Cash flows from investing activities:
Acquisition of businesses, net of cash acquired (7,114) (6,925)
Purchases of property and equipment (552) (114)
Additions to software development costs (675) (114)
Loan to Officer -- (113)
-------- --------
Net cash used in investing activities (8,341) (7,266)
-------- --------
Cash flows from financing activities:
Proceeds from issuance of common stock 22,614 9
Proceeds from issuance of Series B conv. pref. stock -- 2,000
Payments for Series B conv. pref. stock issuance costs -- (221)
Payments of dividends (643) --
Proceeds from issuance of long-term debt, related party -- 6,900
Payments of debt issuance costs -- (345)
Payments on long-term debt and obl. under capital leases (8,787) (242)
Repayment of note receivable from stockholder 23 14
-------- --------
Net cash provided by financing activities 13,207 8,115
-------- --------
Net increase in cash and cash equivalents 4,890 243
Cash and cash equivalents at beginning of period 447 289
-------- --------
Cash and cash equivalents at end of period $ 5,337 $ 532
======== ========
</TABLE>
See accompanying notes to consolidated condensed financial statements
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<PAGE> 6
MEDIRISK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
1. GENERAL:
The consolidated condensed financial statements as of September 30, 1997
and for the nine months ended September 30, 1997 and 1996 are unaudited. In
the opinion of management, all adjustments, consisting of normal recurring
accruals, necessary for the fair presentation of the consolidated financial
position and results of operations and cash flows for the periods presented
have been included. Results for the interim period are not necessarily
indicative of results that may be expected for the full year.
These consolidated condensed financial statements should be read in
conjunction with the consolidated financial statements and notes included in the
Annual Report on Form 10-K of Medirisk, Inc. for the year ended December 31,
1996.
2. MAJOR CUSTOMERS:
One customer accounted for 14% and 13% of the Company's revenue for the
nine months ended September 30, 1997 and 1996, respectively.
3. INCOME (LOSS) PER SHARE OF COMMON STOCK:
Income (loss) per share of Common Stock for all periods presented are based
on the weighted average shares of Common Stock outstanding. Loss per share does
not include the effect of outstanding Common Stock equivalents because the
effect is antidilutive. For the three and nine months ended September 30, 1996,
weighted average shares outstanding assumes the conversion of the Company's
Series A and Series B Convertible Preferred Stock into Common Stock.
4. EXTRAORDINARY ITEM:
As a result of the application of a portion of the net proceeds of the
Company's initial public offering to repay indebtedness, the Company incurred a
one-time, non-recurring, non-cash charge of $806,000 with respect to accelerated
amortization of original issue discount on Senior Subordinated Notes and related
deferred financing costs. Due to the Company's losses no income tax benefit was
applied to the extraordinary loss presented.
5. LINE OF CREDIT:
In March 1997 the Company entered into a Credit Agreement with NationsBank
under which a $10 million revolving credit facility (the "NationsBank Revolver")
is made available to the Company. The NationsBank Revolver is available to fund
working capital needs as well as new product development and acquisitions.
6. INITIAL PUBLIC OFFERING:
In January 1997, the Company sold 2,300,000 shares of its Common Stock in
an initial public offering in which it received approximately $22,626,000, net
of offering costs of approximately $903,000. As a result of the consummation of
the offering, the Company's Series A and Series B Convertible Preferred Stock
were converted into 1,021,809 shares of Common Stock. In addition, all of the
Company's accrued dividends and debt, excluding obligations under capital
leases, were repaid.
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<PAGE> 7
7. ACQUISITIONS:
Effective June 1, 1997 the Company acquired all of the shares of CIVS,
Inc., a Rockville, Maryland-based provider of credentialling services to
hospitals and managed care organizations, for $3.5 million in cash and 129,166
shares of the Company's Common Stock. The Company recorded the acquisition
using the purchase method of accounting with $3.1 million of the purchase price
allocated to acquired in-process research and development costs and charged to
the consolidated statement of operations during the second quarter ended June
30, 1997.
Effective August 1, 1997 the Company acquired all of the shares of CareData
Reports, Inc. ("CareData"), a New York City-based healthcare data company which
provides information concerning members' satisfaction with managed care to
health plans, employers and pharmaceutical companies. The Company purchased
CareData for $4.1 million in cash and 14,516 shares of Medirisk common stock.
The Company recorded the acquisition using the purchase method of accounting
with $975,000 of the purchase price allocated to acquired in-process research
and development costs and charged to the consolidated statement of operations
during the third quarter ended September 30, 1997.
The unaudited pro forma results of operations of the Company for the nine
months ended September 30, 1997 and 1996 as if the acquisitions described above
had been effective January 1, 1996 is summarized as follows:
<TABLE>
<CAPTION>
NINE MONTHS
-----------
ENDED SEPTEMBER 30,
-------------------
1997 1996
<S> <C> <C>
Revenue $ 12,300 $ 8,927
Income (loss) before extraordinary item 494 (7,422)
Extraordinary item - Loss on early extinguishment of debt (806) --
-------- --------
Net loss (312) (7,422)
Series A and Series B convertible preferred stock
dividend requirement 25 151
-------- --------
Net loss attributable to common stock (337) (7,573)
======== ========
Net loss per share:
Income (loss) before extraordinary item $ 0.12 $ (3.14)
Extraordinary item - Loss on early extinguishment of debt $ (0.20) --
Series A and Series B convertible preferred stock
dividend requirement $ (0.01) $ (0.06)
-------- --------
Net loss per share of common stock $ (0.09) $ (3.20)
======== ========
Weighted average number of common shares outstanding 3,954 2,365
======== ========
</TABLE>
The unaudited proforma results do not reflect the charges for acquired
in-process research and development costs discussed above or integration costs
totalling $89,000 for the nine months ended September 30, 1997. The unaudited
pro forma results do not necessarily represent results which would have occurred
if the acquisition had taken place on the date indicated nor are they
necessarily indicative of the results of future operations.
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<PAGE> 8
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
Medirisk is a leading provider of proprietary databases and related
decision-support software and analytical services to the healthcare industry.
The Company's products and services enable payers and providers to make
objective comparisons of the market and clinical performance of
physician-mediated services to customer specific and industry benchmarks and to
access information concerning the background and credentials of physicians. The
Company's healthcare information products and services consist of market
performance products, clinical performance products and physician credentials
products. Prior to 1996, the Company provided only market performance products
consisting of comprehensive, objective physician-related information regarding
medical fees and healthcare utilization patterns to both payers and providers.
In 1996, the Company undertook an acquisition strategy to expand its
product offerings. The Company acquired Formations in Health Care, Inc.
("Formations") and PracticeMatch, Inc. ("PracticeMatch") in January and March
1996, respectively. Formations offers clinical performance products that allow
customers to measure treatment outcomes across a range of care within a variety
of medical specialties. PracticeMatch offers Physician credentials products to
assist customers in cost-effective in-house physician recruiting.
The Company acquired Staff-Link, Inc. ("Staff-Link") and CIVS, Inc.
("CIVS") in May and June of 1997, respectively. The acquisition of Staff-Link
was accounted for as an asset purchase and provided the Company with an
additional customer base for the physician credentials products. CIVS provides
cost-effective and efficient services for the verification of healthcare
provider credentials. The Company acquired CareData Reports, Inc. ("CareData")
in August of 1997. CareData provides information concerning members'
satisfaction with managed care to health plans, employers and pharmaceutical
companies. As a result of these various acquisitions, the Company's historical
financial statements are not representative of financial results to be expected
for future periods.
In connection with these acquisitions, the Company acquired intangible
assets which are being amortized over various useful lives. The amortization
periods are based on, among other things, the nature of the products and
markets, the competitive position of the acquired companies and the adaptability
to changing market conditions of the acquired companies. The Company recorded
amortization expense relative to intangible assets of $190,000 and $70,000 for
the three months ended and $389,000 and $189,000 for the nine months ended
September 30, 1997 and 1996, respectively.
Also in connection with these acquisitions, the Company recorded
non-recurring charges related to in-process research and development costs of
approximately $1.0 million for Formations, $5.1 million for PracticeMatch, $3.1
million for CIVS and $975,000 for CareData. The amount of each of these
non-recurring charges was equal to the estimated current fair value, based on
the adjusted cash flows (discounted by a risk adjusted weighted average cost of
capital of 19% for Formations, 20% for PracticeMatch, 25% for CIVS and 29% for
CareData), of specifically identified technologies for which technological
feasibility had not yet been established pursuant to Statement of Financial
Accounting Standards No. 86, "Accounting for the Costs of Computer Software to
be Sold, Leased or Otherwise Marketed," and for which future alternative uses
did not exist.
Medirisk's products are licensed pursuant to single-year and multi-year
agreements. Revenue from the sale of data is generally recognized upon delivery
of the data. Revenue from licenses that provide for routine data shipments or
access to data over a period of time are typically recognized over the life of
the contract. Revenue from some licenses that provide exclusive rights over
certain uses of data are recognized according to the cost to assimilate the
data. All other revenue, including training, consulting fees and other
miscellaneous services, is recognized upon the performance of the applicable
services. Because a higher proportion of market performance products
historically have been licensed in the second half of the year, the Company may
experience sequentially higher revenue in the third and fourth calendar
quarters and, consequently, sequentially lower revenues in the first and second
calendar quarters.
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<PAGE> 9
The Company's revenue is composed of both recurring revenue from the
Company's current customer base as well as revenue from new customers. The
Company defines its recurring revenue percentage with respect to any particular
period as the quotient, expressed as a percentage, of (i) revenue recognized
during such period from a sale of a product to a customer who purchased a
similar product in the prior period, divided by (ii) the Company's total revenue
in the prior period. In determining its recurring revenue percentage, the
Company includes in its revenue the revenue of entities acquired during the
period as if such acquisition had occurred at the beginning of the prior period.
The Company does not include revenue in its recurring revenue percentage to the
extent that such revenue exceeds total revenue in the prior period. The
Company's recurring revenue percentage for the three months ended September 30,
1997 was approximately 78% and approximately 79% for the nine months ended
September 30, 1997.
In addition to acquisitions, the Company seeks to expand its product
offerings through internal product development. The Company capitalizes internal
product development costs incurred after technological feasibility has been
established and prior to general product release. Capitalized development costs
totaled $734,000, net of accumulated amortization, at September 30, 1997.
RESULTS OF OPERATIONS
The following table sets forth, for the fiscal periods indicated, certain
items from the statements of operations of the Company expressed as a percentage
of revenue:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------ -----------------
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS: 1997 1996 1997 1996
----- ----- ----- -----
Revenue 100% 100% 100% 100%
Salaries, wages and benefits 43 69 52 70
Other operating expenses 28 24 27 25
Depreciation and amortization 8 10 8 9
Acquired in-process research and
development costs and integration costs 23 -- 39 99
---- ----- ----- -----
Operating loss (2) (3) (26) (103)
Interest and other income (expense), net 2 (9) 3 (8)
---- ----- ----- -----
Income (loss) before extraordinary item 0% (12) (23) (111)
Extraordinary item -- -- (8) --
---- ----- ----- -----
Net income (loss) 0% (12)% (31)% (111)%
---- ----- ----- -----
</TABLE>
QUARTER ENDED SEPTEMBER 30, 1997 COMPARED TO QUARTER ENDED SEPTEMBER 30, 1996
Revenue. Revenue for the three months ended September 30, 1997 was $4.7
million, an increase of $2.3 million or 97% over the same period in the prior
year. The increase was primarily the result of incremental revenue attributable
to the CIVS and CareData acquisitions and internal growth.
Salaries, wages and benefits. Salaries, wages and benefits for the three
months ended September 30, 1997 were $2.0 million, an increase of $406,000 or
25% over the same period in the prior year. Salaries, wages and benefits as a
percentage of revenue decreased to 43% from 69% in the same period in the prior
year. This decrease resulted primarily from leveraging the personnel investments
made during 1996 as revenue increased through both acquisitions and internal
growth.
Other operating expenses. Other operating expenses for the three months
ended September 30, 1997 were $1.3 million, an increase of $732,000 or 127% over
the same period in the prior year. The acquisitions of CIVS and CareData
accounted for the majority of the increase and the remainder was primarily
related to costs associated with being
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<PAGE> 10
a public company. Other operating expenses increased as a percentage of revenue
to 28% as compared to 24% in the same period in the prior year.
Depreciation and amortization. Depreciation and amortization expenses for
the three months ended September 30, 1997 were $352,000, an increase of $124,000
or 55% over the same period in the prior year. The increase was primarily the
result of the goodwill amortization associated with the acquisitions of CIVS,
Staff-Link and CareData. Depreciation and amortization as a percentage of
revenue decreased to 8% as compared to 10% in the same period in the prior year.
Acquired in-process research and development costs and integration costs.
Acquired in-process research and development costs for the three months ended
September 30, 1997 were $975,000 as compared to $0 in the same period in the
prior year. Integration costs for the three months ended September 30, 1997 were
$89,000 as compared to $0 in the same period in the prior year. As discussed
above, in connection with the acquisition of CareData the Company acquired the
ongoing research and development activities of the entity. At the effective date
of the acquisition the Company recorded non-recurring charges resulting from
expensing acquired in-process research and development costs.
Interest income (expense), net. Net interest income for the three months
ended September 30, 1997 was $103,000, compared to net interest expense of
$216,000 for the same period in the prior year. The improvement is primarily due
to the income earned on the net proceeds from the Company's initial public
offering and the decrease in interest expense resulting from the repayment of
debt with proceeds from the initial public offering.
NINE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO NINE MONTHS ENDED
SEPTEMBER 30, 1996
Revenue. Revenue for the nine months ended September 30, 1997 was $10.6
million, an increase of $4.3 million or 69% over the same period in the prior
year. The increase was primarily the result of the Company's March 1996
acquisition of PracticeMatch, the June 1997 acquisition of CIVS and the August
1997 acquisition of CareData. PracticeMatch was included for the full nine
months in 1997 compared to a partial nine months in the prior year. The
remainder of the revenue increase was attributable to internal growth.
Salaries, wages and benefits. Salaries, wages and benefits for the nine
months ended September 30, 1997 were $5.5 million, an increase of $1.1 million
or 26% over the same period in the prior year. This increase was primarily the
result of the Company's acquisitions of PracticeMatch, CIVS and CareData, as
well as increased expenses related to new sales, marketing and administrative
personnel hired to enhance the Company's corporate infrastructure. Salaries,
wages and benefits decreased as a percentage of revenue to 52% for the nine
months ended September 30, 1997 as compared to 70% for the same period in the
prior year. This decrease resulted primarily from leveraging the personnel
investments made during 1996 as revenue increased through both acquisitions and
internal growth.
Other operating expenses. Other operating expenses for the nine months
ended September 30, 1997 were $2.8 million, an increase of $1.3 million or 80%
over the same period in the prior year. This increase was primarily the result
of the Company's acquisitions of PracticeMatch, CIVS and CareData. Other
operating expenses as a percentage of revenue increased to 27% for the nine
months ended September 30, 1997 as compared to 25% for the same period in the
prior year.
Depreciation and amortization. Depreciation and amortization expenses for
the nine months ended September 30, 1997 were $802,000, an increase of $253,000
or 46% over the same period in the prior year. This increase was primarily the
result of the Company's acquisitions of PracticeMatch, CIVS and CareData and
technology investments made in 1996. As a percentage of revenue, depreciation
and amortization decreased to 8% for the nine months ended September 30, 1997 as
compared to 9% for the same period in the prior year.
Acquired in-process research and development costs and integration costs.
Acquired in-process research and development costs for the nine months ended
September 30, 1997 were $4.2 million, a decrease of $2.0 million, or 33% from
the same period in the prior year. Included in these
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<PAGE> 11
amounts are integration costs of $89,000 for the nine months ended September 30,
1997 and $0 for the same period in the prior year. As discussed above, in
connection with the acquisitions of CIVS and CareData, the Company acquired the
ongoing research and development activities of each entity. At the effective
date of the acquisition the Company recorded non-recurring charges resulting
from expensing acquired in-process research and development costs.
Interest income(expense), net. Net interest income for the nine months
ended September 30, 1997 was $301,000, compared to net interest expense of
$482,000 for the same period in the prior year. The improvement was a result of
the interest income earned on the net proceeds from the Company's initial public
offering and the decrease in interest expense resulting from the repayment of
debt with proceeds from the initial public offering.
Extraordinary items. The Company recorded an extraordinary loss for the
nine months ended September 30, 1997 of $806,000 related to a one-time,
non-recurring, non-cash charge for bond discount and debt issue cost associated
with the early extinguishment of debt.
LIQUIDITY AND CAPITAL RESOURCES
The Company completed its initial public offering of Common Stock in
January 1997 and received approximately $22.6 million in net proceeds.
Approximately $9.1 million of these net proceeds were used to repay a senior
subordinated note and certain notes issued in connection with the Company's
acquisition of PracticeMatch, to pay accrued dividends on the Company's Series A
and Series B Convertible Preferred Stock and to repay a bridge loan provided by
NationsBank. The Company intends to use the balance of the net proceeds of its
initial public offering for working capital and general corporate purposes,
including potential acquisitions of healthcare information businesses and
development of new products.
In addition, in March 1997, NationsBank and the Company entered into a
Credit Agreement under which a $10.0 million revolving credit facility (the
"NationsBank Revolver") is available to the Company. The NationsBank Revolver is
secured by substantially all of the Company's assets. Under the terms of the
NationsBank Revolver the Company may, subject to customary terms, conditions and
covenants, borrow up to $10.0 million to fund working capital needs as well as
new product development and acquisitions. The Credit Agreement for the
NationsBank Revolver provides that the NationsBank Revolver will bear interest
at varying rates based on LIBOR and NationsBank's prime rate and will mature on
March 28, 1999. Under the terms of the NationsBank Revolver, the Company is
subject to various restrictive covenants regarding, among other things, payment
of any dividends, capital expenditures limitations, incurrence of indebtedness
from others in excess of certain amounts, and consummation of certain mergers
and acquisitions without the consent of the lender. Financial covenants include,
but are not limited to, maintaining debt to capitalization ratios, minimum net
worth ratios, debt service coverage ratios and cash flow leverage ratios. No
amounts were outstanding under the Credit Agreement at September 30, 1997.
In June of 1997 the Company acquired CIVS for $3.5 million in cash and
129,166 shares of the Company's Common Stock. The Company also anticipates that
direct deal costs of $53,000 and integration costs of $211,000 will be incurred
through the balance of the year with respect to the acquisition of CIVS.
In August of 1997 the Company acquired CareData for $4.1 million in cash
and 14,516 shares of the Company's common stock. The Company also anticipates
that direct deal costs of $125,000 and integration costs of $100,000 will be
incurred through the balance of the year with respect to the acquisition of
CareData.
The Company currently has no specific plans with respect to the use of the
remaining $4.3 million of the net proceeds of its initial public offering or the
NationsBank Revolver, and the Company's cash flow from operations has generally
been sufficient to fund liquidity needs of the Company other than acquisitions
and new product development. The Company anticipates that borrowings under the
NationsBank Revolver and the remaining net proceeds of the initial public
offering will be used principally for working capital and general corporate
purposes, for potential acquisitions of complementary businesses or products in
the healthcare information industry and for the development of additional
products. Although the Company continually seeks suitable acquisition candidates
with complementary businesses and products in the healthcare information
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<PAGE> 12
industry, it is not currently a party to any definitive agreement or letter of
intent regarding any material acquisition. Pending the application of the net
proceeds as described above, the Company has invested the remaining net
proceeds of its initial public offering in short-term, interest-bearing,
investment-grade securities.
In January 1996, the Company and HealthPlan Services Corporation ("HPSC")
entered into a Securities Purchase Agreement, under which HPSC purchased 280,623
shares of Series B Convertible Preferred Stock for $2.0 million and agreed to
purchase up to $10.0 million in original principal amount of Senior Subordinated
Notes. In connection with the issuance of the Senior Subordinated Notes, the
Company agreed to issue warrants to purchase up to 432,101 shares of Common
Stock. In March 1996, the Company issued $6.9 million in original principal
amount of the Senior Subordinated Notes to HPSC and warrants to purchase 298,150
shares of Common Stock. The Company used $1.5 million of the proceeds from the
sale of Series B Convertible Preferred Stock to complete the acquisition of
Formations. Medirisk used approximately $5.4 million of the proceeds from the
issuance of the Senior Subordinated Notes to complete the acquisition of
PracticeMatch. In addition, in connection with the PracticeMatch acquisition,
the Company issued acquisition notes to the sellers in an aggregate amount of
$1.1 million. The HPSC Senior Subordinated Note, a NationsBank bridge loan and
the acquisition notes were repaid in full upon the completion of the Company's
initial public offering in January 1997. Upon such repayment, HPSC's obligation
to purchase additional Senior Subordinated Notes terminated.
The Company has working capital of $4.8 million as of September 30, 1997 as
compared to a working capital deficit of $2.5 million as of December 31, 1996.
This increase is due primarily to the receipt of the net proceeds of the
Company's initial public offering.
Net cash provided by operating activities totaled $24,000 for the nine
months ended September 30, 1997 as compared to cash used by operating activities
of $606,000 for the same period in the prior year. The increase in cash provided
of $630,000 was primarily the result of a decrease in the Company's net loss.
Net cash used in investing activities was approximately $8.3 million for
the nine months ended September 30, 1997 as compared to $7.3 million for the
same period in the prior year. In 1996, $7.0 million was used to fund the
acquisitions of Formations and PracticeMatch, while $7.1 million was used to
fund the acquisitions of CIVS, Staff-Link and CareData in the same period in
1997. The remaining $1.2 million of net cash used in investing activities for
the nine months ended September 30, 1997 was used to fund fixed asset purchases
and software development.
Net cash provided by financing activities was $13.2 million for the nine
months ended September 30, 1997 as compared to $8.1 million for the same period
in the prior year. As previously discussed, in 1997 the Company retained $13.7
million of the net proceeds from its initial public offering, and the cash
provided in 1996 resulted from the net proceeds under the HPSC Securities
Purchase Agreement.
After the application of the net proceeds from its initial public offering,
the Company believes that the remaining proceeds, borrowings under the
NationsBank Revolver and cash generated from operations will be sufficient to
meet the capital expenditure and working capital needs for the Company's
operations for the near term. The Company's future liquidity and cash
requirements will depend on a wide range of factors, including development costs
associated with new products, enhancements of existing products, and
acquisitions. Although the Company has no present commitments or agreements
regarding acquisitions, the Company's strategy is to acquire additional
complementary products and businesses. If the proceeds of the Offering,
borrowings under the NationsBank Revolver and cash flow from operations are not
sufficient to fund such acquisitions, the Company will be required to seek
additional financing, and there can be no assurance that such financing will be
available in amounts and at terms acceptable to the Company.
- 12 -
<PAGE> 13
EFFECTS OF INFLATION
Management does not believe that inflation has had a material impact on
results of operations for the periods presented. Substantial increases in costs,
particularly the cost of labor for product development, marketing and sales,
could have an adverse impact on the Company and the healthcare information
industry.
FORWARD-LOOKING STATEMENTS
The Company may from time to time make written or oral forward-looking
statements contained in the Company's filings with the Securities and Exchange
Commission (the "Commission") and its reports to stockholders. Statements made
in this Quarterly Report on Form 10-Q, other than those concerning historical
information, should be considered forward-looking and subject to various risks
and uncertainties. Such forward-looking statements are made based on
management's belief, as well as on assumptions made by, and information
currently available to, management, and are made pursuant to, and in reliance
upon, the "safe harbor" provisions of the Private Securities Litigation Reform
Act of 1995. The Company's actual results may differ materially from the results
anticipated in these forward-looking statements due to numerous factors,
including the following: History of Operating Losses and Uncertain
Profitability; Risks Related to Growth; Risks of Integration of Acquired
Operations; Dependence on Data Sources and AMA Licenses; Dependence on
Intellectual Property Rights; Uncertainty and Consolidation in the Health Care
Industry; Risks of Rapid Technological Change; Intense Competition; Risks of
Customer Concentration; Potential for System Defects; Concentration of
Ownership; Dependence on Key Personnel; Variable Quarterly Operating Results and
Seasonality; No Prior Public Market and Possible Volatility of Stock Price;
Potential Adverse Effects of Substantial Number of Shares Eligible for Future
Sale; Adverse Impact of Anti-takeover Provisions; No Dividends; and Risks
Associated with Unspecified Use of Proceeds. For a more complete discussion of
these factors, please see the section entitled "Risk Factors" in the Company's
Registration Statement on Form S-1, as amended, as originally filed with the
Commission on September 28, 1996, Registration Number 333-12311.
ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The Registrant currently maintains all cash in United States dollars in
highly liquid, interest-bearing, investment-grade instruments with maturities of
less than three months, which the Company considers cash equivalents; therefore,
the Registrant has no "market risk sensitive instruments," and no disclosure is
required under this Item.
- 13 -
<PAGE> 14
PART II - OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
(c) On January 28, 1997, the Company's Registration Statement on Form S-1,
Registration Number 333-12311, was declared effective. The offering of the
Company's Common Stock under such Registration Statement commenced on January
28, 1997 and was completed on January 31, 1997. The managing underwriters for
the offering were Equitable Securities Corporation and Jeffries & Company, Inc.
In such offering an aggregate of 2,300,000 shares were registered and sold by
the Company for an aggregate offering price of $25,300,000.
In connection with such offering, (i) underwriting fees and discounts of
$1,771,000 were incurred by the Company and (ii) other expenses of $903,328 were
incurred by the Company resulting in (iii) total expenses of $2,674,328 and net
offering proceeds of $22,625,672. Of such net proceeds, the following payments
were made to persons owning 10% or more of the Company's equity securities: (i)
$6,900,000 in repayment of certain indebtedness; and (ii) $642,681, in payment
of accrued dividends. Of such net proceeds, the following other uses have been
made: (i) $1,717,675, in repayment of certain indebtedness; (ii) $7,114,011, to
acquire other businesses; (iii) $1,227,847 for fixed asset purchases and
software development; and (iv) $725,701 for general working capital purposes.
The remaining net proceeds of $4,298,117 are in an institutional money market
fund. The above-described uses of proceeds do not represent a material change in
the uses of proceeds described in the prospectus.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
11 - Statements of Computation of Per Share Loss.
27 - Financial Data Schedule (for SEC use only).
(b) Reports on Form 8-K
During the quarter ended September 30, 1997, the Company filed the
following reports on Form 8-K:
(i) On July 9, 1997, the Company filed a report on Form 8-K to report the
acquisition of all of the capital stock of CIVS, Inc., which acquisition was
consummated June 24, 1997. On September 5, 1997, the Company filed Form 8-K/A
amending such Form 8-K to include required financial statements and pro forma
financial information.
(ii) On September 15, 1997, the Company filed a report on Form 8-K to
report the acquisition of all of the capital stock of CareData Reports, Inc.,
which acquisition was consummated August 28, 1997.
- 14 -
<PAGE> 15
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 thereunto duly authorized.
Medirisk, Inc.
November 14, 1997 By: /s/ Kenneth M. Goins, Jr.
-------------------------------------------
Kenneth M. Goins, Jr.
Executive Vice President
Chief Financial Officer
November 14, 1997 By: /s/ Thomas C. Kuhn III
-------------------------------------------
Thomas C. Kuhn III
Vice President and Corporate Controller
Chief Accounting Officer
- 15 -
<PAGE> 16
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------ -----------
<S> <C>
11 Statements of Computation of Per Share Loss
27 Financial Data Schedule (for SEC use only)
</TABLE>
- 16 -
<PAGE> 1
EXHIBIT 11
MEDIRISK, INC. AND SUBSIDIARIES
STATEMENTS OF COMPUTATION OF PER SHARE LOSS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
------------------- -------------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net income (loss) attributable to common stock $ 19 $ (327) $(3,291) $(7,122)
====== ====== ======= =======
Net income (loss) per share:
Income (loss) before extraordinary item $ 0.00 $(0.15) $ (0.65) $ (3.25)
Extraordinary loss on early extinguishment of debt -- -- $ (0.21) --
------ ------ ------- -------
Net income (loss) per share of common stock $ 0.00 $(0.15) $ (0.86) $ (3.25)
====== ====== ======= =======
Weighed average number of common shares outstanding 4,964 2,191 3,829 2,191
====== ====== ======= =======
</TABLE>
- 17 -
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM THE MEDIRISK, INC.
CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1997 AND THE MEDIRISK, INC. CONSOLIDATED CONDENSED BALANCE SHEET
AS OF SEPTEMBER 30, 1997 IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
CONSOLIDATED CONDENSED FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 5,337
<SECURITIES> 0
<RECEIVABLES> 2,113
<ALLOWANCES> 215
<INVENTORY> 0
<CURRENT-ASSETS> 8,630
<PP&E> 2,579
<DEPRECIATION> 1,271
<TOTAL-ASSETS> 19,356
<CURRENT-LIABILITIES> 3,781
<BONDS> 0
0
0
<COMMON> 4
<OTHER-SE> 15,397
<TOTAL-LIABILITY-AND-EQUITY> 19,356
<SALES> 10,570
<TOTAL-REVENUES> 10,570
<CGS> 0
<TOTAL-COSTS> 13,331
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 301
<INCOME-PRETAX> (2,460)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,460)
<DISCONTINUED> 0
<EXTRAORDINARY> (806)
<CHANGES> 0
<NET-INCOME> (3,266)
<EPS-PRIMARY> (0.86)
<EPS-DILUTED> (0.86)
</TABLE>
