<PAGE> 1
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): June 28, 1998
-------------
MEDIRISK, INC.
(Exact name of registrant as specified in its charter)
Delaware 000-27056 58-2256400
-------------------------------------------------------------------
(State or other (Commission (I.R.S. Employer
jurisdiction of File Number) Identification No.)
incorporation)
Two Piedmont Center, Suite 400, 3565 Piedmont Rd., Atlanta, Georgia 30305
------------------------------------------------------------------------------
(Address of principal executive officers) (Zip Code)
Registrant's telephone number, including area code: (404) 364-6700
N/A
-------------------------------------------------------------
(Former name of former address, if changed since last report)
-1-
<PAGE> 2
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
On June 25, 1998, Medirisk, Inc. (the "Company") completed the
acquisition of Sweetwater Health Enterprises, Inc. ("Sweetwater"). The
Company hereby amends its Current Report on Form 8-K dated June 30, 1998
with respect to the acquisition of Sweetwater to include the
below-referenced financial statements and pro forma financial information.
(A) FINANCIAL STATEMENTS OF BUSINESSES ACQUIRED.
<TABLE>
<CAPTION>
Sweetwater Health Enterprises, Inc.
Audited:
--------
<S> <C> <C>
Independent Auditor's Report.......................................... F-1
Balance Sheets as of December 31, 1997 and 1996....................... F-2
Statements of Operations for the years ended December 31, 1997
and 1996......................................................... F-4
Statements of Changes in Stockholders' Equity (Deficit) for the
years ended December 31, 1997 and 1996........................... F-5
Statements of Cash Flows for the years ended December 31, 1997
and 1996......................................................... F-6
Notes to Financial Statements......................................... F-7
Unaudited:
----------
Balance Sheet as of June 30, 1998..................................... F-16
Statements of Operations for the six months ended June 30, 1998
and 1997......................................................... F-17
Statements of Cash Flows for the six months ended June 30, 1998
and 1997......................................................... F-18
Notes to Unaudited Financial Statements............................... F-19
</TABLE>
(B) PRO FORMA FINANCIAL INFORMATION.
The following pro forma financial information relating to the Company
and Sweetwater, as well as certain previously-acquired companies, is
included herein:
<TABLE>
<S> <C>
Pro Forma Consolidated Condensed Statements of Operations for
the six-month period ended June 30, 1998......................... F-21
Pro Forma Consolidated Condensed Statements of Operations for
the year ended December 31, 1997................................. F-22
Notes to Unaudited Pro Forma Consolidated Condensed
Financial Statements............................................. F-23
</TABLE>
(C) EXHIBITS.
None.
-2-
<PAGE> 3
INDEPENDENT AUDITOR'S REPORT
To the Stockholders
Sweetwater Health Enterprises, Inc.
Dallas, Texas 75244
We have audited the accompanying balance sheets of Sweetwater Health
Enterprises, Inc. (the Company), as of December 31, 1997 and 1996, and the
related statements of operations, changes in stockholders' equity
(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 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 Sweetwater
Health Enterprises, Inc., at December 31, 1997 and 1996, and the results of
its operations and its cash flows for the years then ended in conformity
with generally accepted accounting principles.
/s/ Ernst & Young LLP
April 30, 1998,
except for Note 12, as to which the date is
June 25, 1998
F-1
<PAGE> 4
SWEETWATER HEALTH ENTERPRISES, INC.
BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
ASSETS
------
1997 1996
------ ------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 236,419 $ 372,203
Investment in corporate joint venture 87,581 43,298
Accounts receivable (net of allowances of
$33,156 and $27,395) 1,172,163 1,847,289
Accounts receivable from corporate joint ventures 226,298 138,172
Unbilled accounts receivable 53,834 91,505
Recoverable income taxes -- 87,564
Prepaid expenses 36,663 39,386
Deposits and other 53,907 111,043
---------- ----------
Total current assets 1,866,865 2,730,460
Equipment and leasehold improvements, net 589,166 749,156
Investment in corporate joint venture 28,015 39,668
Deferred income taxes -- 28,877
Software development costs (net of accumulated amortization
of $131,764 and $33,347) 317,648 310,772
Other -- 15,000
---------- ----------
Total assets $2,801,694 $3,873,933
========== ==========
</TABLE>
See accompanying notes.
F-2
<PAGE> 5
SWEETWATER HEALTH ENTERPRISES, INC.
BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
1997 1996
---------- ----------
<S> <C> <C>
Current liabilities:
Current maturities of notes payable and line of credit $1,318,702 $1,459,481
Trade accounts payable 641,867 473,730
Deferred revenue 647,724 1,295,454
Deferred income taxes 40,592 4,313
Accrued liabilities 475,866 460,943
---------- ----------
Total current liabilities 3,124,751 3,693,921
Notes payable and line of credit, less current portion 3,297 9,499
Deferred rent 31,284 64,471
Commitments and contingencies
Stockholders' equity (deficit)
Common stock, $.01 par value:
Class A:
Authorized shares - 1,000,000
Issued and outstanding shares - 285,000 2,850 2,850
Class B:
Authorized shares - 100,000
Issued and outstanding shares - 15,000 150 150
Class C:
Authorized shares - 100,000
None issued -- --
Additional capital 20,919 20,919
Retained earnings (deficit) (381,557) 82,123
---------- ----------
Total stockholders' equity (deficit) (357,638) 106,042
---------- ----------
Total liabilities and stockholders' equity (deficit) $2,801,694 $3,873,933
========== ==========
</TABLE>
See accompanying notes.
F-3
<PAGE> 6
SWEETWATER HEALTH ENTERPRISES, INC.
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
Revenue:
Revenue $ 9,305,706 $ 7,897,227
Revenue from corporate joint ventures 1,413,481 2,086,238
----------- -----------
Total revenue 10,719,187 9,983,465
Operating expenses:
Cost of revenue 6,586,385 5,996,920
Cost of revenue from corporate joint ventures 1,064,792 1,000,635
Research and development 543,155 397,726
Sales and marketing 1,100,909 1,035,986
General and administrative 1,832,900 1,759,607
----------- -----------
Total operating expenses 11,128,141 10,190,874
----------- -----------
Loss from operations (408,954) (207,409)
Other income, net 81,211 61,428
Interest expense (135,937) (113,236)
----------- -----------
Loss before income taxes (463,680) (259,217)
Income tax benefit -- 83,094
----------- -----------
Net loss $ (463,680) $ (176,123)
=========== ===========
</TABLE>
See accompanying notes.
F-4
<PAGE> 7
SWEETWATER HEALTH ENTERPRISES, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
Common Stock
Class A Class B Retained
--------------- --------------- Additional Earnings
Shares Amount Shares Amount Capital (Deficit) Total
------- ------ ------ ------ ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1995 285,000 $2,850 15,000 $ 150 $ 20,919 $ 258,246 $ 282,165
Net loss - - - - - (176,123) (176,123)
------- ------ ------ ------ ---------- --------- ---------
Balance at December 31, 1996 285,000 2,850 15,000 150 20,919 82,123 106,042
Net loss - - - - - (463,680) (463,680)
------- ------ ------ ------ ---------- --------- ---------
Balance at December 31, 1997 285,000 $2,850 15,000 $ 150 $ 20,919 $(381,557) $(357,638)
======= ====== ====== ====== ========== ========= =========
</TABLE>
See accompanying notes.
F-5
<PAGE> 8
SWEETWATER HEALTH ENTERPRISES, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
----------- ----------
<S> <C> <C>
OPERATING ACTIVITIES
Net Loss $ (463,680) $ (176,123)
Adjustments to reconcile net loss to net cash provided by operating
activities:
Depreciation and amortization 335,289 222,614
Provision for losses for accounts receivable 5,761 11,404
Deferred income taxes 65,156 (49,913)
Income from corporate joint ventures, net of losses of $8,005 (82,630) (47,966)
Distributions from corporate joint venture 50,000 99,875
Changes in operating assets and liabilities:
Accounts receivable 669,365 (491,186)
Accounts receivable from corporate joint ventures (88,126) 111,872
Unbilled accounts receivable 37,671 (74,979)
Recoverable income taxes 87,564 68,662
Prepaid expenses 2,723 33,940
Deposits and other 57,136 (52,442)
Other noncurrent 15,000 (15,000)
Trade accounts payable 168,137 234,897
Deferred revenue (647,731) (655,875)
Accrued liabilities 14,923 154,987
Deferred rent (33,187) 34,999
----------- ----------
Net cash provided by operating activities 193,371 721,516
INVESTING ACTIVITIES
Purchases of equipment and leasehold improvements (43,534) (359,525)
Investment in corporate joint venture - (100,000)
Capitalized software development costs (138,640) (290,721)
----------- ----------
Net cash used in investing activities (182,174) (750,246)
FINANCING ACTIVITIES
Borrowings under notes payable and line of credit 1,200,000 2,340,000
Payments under notes payable and line of credit (1,346,981) (2,168,945)
----------- ----------
Net cash (used in) provided by financing activities (146,981) 171,055
----------- ----------
Net (decrease) increase in cash and cash equivalents (135,784) 142,325
Cash and cash equivalents at beginning of year 372,203 229,878
----------- ----------
Cash and cash equivalents at end of year $ 236,419 $ 372,203
=========== ==========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION
Cash paid during the year for:
Interest $ 135,914 $ 113,442
=========== ==========
Income tax refunds, net $ (156,665) $ (102,480)
=========== ==========
</TABLE>
See accompanying notes.
F-6
<PAGE> 9
SWEETWATER HEALTH ENTERPRISES, INC.
NOTES TO FINANCIAL STATEMENTS
1. DESCRIPTION OF BUSINESS
Sweetwater Health Enterprises, Inc. (Sweetwater or the Company), is a
national leader in providing quality management products and services to
managed care physicians and integrated delivery organizations. Sweetwater's
professional services include managed care consulting, interim management,
and quality management consulting. Sweetwater performs quality management
consulting. Sweetwater performs quality management services, including
credentialing and office surveys, on an outsource basis. Sweetwater is the
developer of SweetPro(TM), SweetQ(TM), and SweetNet(TM), comprehensive
software applications that integrate all quality management tasks,
including credentialing, member satisfaction surveys, office surveys,
medical record reviews, complaints and grievances, network management, and
provider outcomes profiling.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements
and accompanying notes. Actual results could differ from those estimates.
REVENUE RECOGNITION
Sweetwater recognizes revenue from services as the work is performed.
Revenue from license fees is recognized upon delivery of the software.
Deferred maintenance and support revenue is recognized ratably over the
contract term, generally one year with expiration on December 31. Unbilled
accounts receivable represent amounts earned but not yet billed. Amounts
billed but not yet earned are recorded as deferred revenue.
In October 1997, the American Institute of Certified Public Accountants
issued Statement of Position (SOP) 97-2, "Software Revenue Recognition,"
which changes the requirements for revenue recognition effective for
transactions that the Company will enter into beginning January 1, 1998.
The Company has not yet completed its assessment of what the impact of the
SOP will be on its 1998 financial statements.
Amounts for direct expenses and administrative fees which are billed to
customers are included in both revenue and operating costs in the
statements of operations. Such amounts totaled $1,035,333 and $1,024,163 in
1997 and 1996, respectively.
CASH AND CASH EQUIVALENTS
Sweetwater considers all short-term investments with initial maturities of
90 days or less and money market fund investments to be cash equivalents.
DEPRECIATION
Depreciation of equipment is provided using the straight-line method over
the estimated useful lives, which range from three to seven years.
Amortization of leasehold improvements is provided on a straight-line basis
over the term of the lease and is included in depreciation expense.
F-7
<PAGE> 10
SWEETWATER HEALTH ENTERPRISES, INC.
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
SOFTWARE DEVELOPMENT COSTS
Sweetwater capitalizes software development costs in accordance with
Statement of Financial Accounting Standards No. 86, "Accounting for the
Costs of Computer Software to be Sold, Leased, or Otherwise Marketed."
Amortization of capitalized software development costs commences upon
general release of the software. Costs are amortized over the estimated
sales lives of the products (five years or less) using the gross revenue
method. Development costs of $138,640 and $290,721 were capitalized in
1997 and 1996, respectively. Amortization of capitalized software costs
was $131,764 in 1997 and $30,103 in 1996.
CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject Sweetwater to
concentrations of credit risk are accounts receivable. Sweetwater licenses
software and provides services to clients primarily in the health care
industry throughout the United States. Sweetwater performs ongoing credit
evaluations of its customers' financial condition and generally does not
require collateral. At December 31, 1996, no single client accounted for
an amount in excess of 9% of the accounts receivable balance. At December
31, 1997, 15% of the accounts receivable balance was from two corporate
joint ventures (see Note 5).
Receivables are generally due within 30 days. Credit losses from
customers have been within management's expectations and management
believes that the allowance for doubtful accounts adequately provides
for any losses.
STOCK-BASED COMPENSATION
The Company has elected to account for stock-based compensation in its
primary financial statements using Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees," and provide the
supplemental disclosures (see Note 8) required by Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation"
(SFAS 123).
DEFERRED INCOME TAXES
Deferred income taxes are recorded using the liability method and
reflect the tax effects of temporary differences between the carrying
amounts of assets and liabilities for financial reporting purposes and
the amounts used for income tax purposes. Valuation reserves are provided
whenever the realization of deferred tax assets is not reasonably assured.
CORPORATE JOINT VENTURES
Sweetwater's equity in the income or loss of its corporate joint
ventures (see Note 5) is included in other income in the statements of
operations. Revenues related to services provided to corporate joint
ventures are included in revenue in the statements of operations.
F-8
<PAGE> 11
SWEETWATER HEALTH ENTERPRISES, INC.
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
3. EQUIPMENT AND LEASEHOLD IMPROVEMENTS
The major classes of equipment and leasehold improvements, at cost, at
December 31 are as follows:
<TABLE>
<CAPTION>
Estimated Useful
Lives-Years 1997 1996
---------------- ---------- ----------
<S> <C> <C> <C>
Equipment 5 $ 730,315 $ 704,561
Furniture 7 248,539 249,922
Vehicles 3-4 60,558 56,105
Leasehold improvements 5-7 33,512 41,488
Purchased Software 5 53,017 42,209
---------- ----------
1,125,941 1,094,285
Less accumulated depreciation
and amortization 536,775 345,129
---------- ----------
$ 589,166 $ 749,156
========== ==========
</TABLE>
Depreciation expense amounted to $203,525 and $192,511 in 1997 and
1996, respectively.
4. NOTES PAYABLE AND LINE OF CREDIT
Sweetwater has a revolving line of credit and a term loan with a bank
which are collateralized by all business assets including, but not limited
to, accounts receivable, property, equipment, intellectual property, and
general intangibles, as well as by personal guarantees of the majority
stockholders. The revolving line of credit has a limit of $850,000. The
revolving line of credit was fully drawn at December 31, 1997. The debt
agreements also require Sweetwater to maintain a minimum debt service
coverage ratio and a minimum borrowing base to serve as collateral. At
December 31, 1997, Sweetwater was not in compliance with the minimum debt
service coverage ratio and the minimum borrowing base covenant. Subsequent
to December 31, 1997, the bank issued a waiver to both requirements through
June 15, 1998 (see Note 12).
At December 31, notes payable and advances under the line of credit
consist of the following:
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
Term Loan - Plano Bank & Trust; monthly principal payments of
$12,500 plus interest at prime plus 2.00% (10.50% at
December 31, 1997); maturing June 15, 1998 $ 462,500 $ 600,000
Revolving Line of Credit - Plano Bank & Trust; monthly payments
of interest at prime plus 2.00% (10.50% at December 31, 1997);
maturing June 15, 1998 850,000 850,000
Vehicle Loan - NationsBank; monthly payments of principal and
interest of $562 at 8.10%; maturing June 1, 1999 9,499 15,213
Other -- 3,767
------------ ------------
1,321,999 1,468,980
Less current maturities (1,318,702) (1,459,481)
------------ ------------
$ 3,297 $ 9,499
============ ============
</TABLE>
F-9
<PAGE> 12
SWEETWATER HEALTH ENTERPRISES, INC.
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
The scheduled aggregate maturities of debt at December 31, 1997, are
as follows:
<TABLE>
<S> <C>
1998 $ 1,318,702
1999 3,297
-----------
$ 1,321,999
</TABLE>
5. RELATED PARTY TRANSACTIONS
Sweetwater has entered into a long-term operating lease to sublease
office space in Dallas, Texas. The sublessor is a minority corporate
shareholder and co-investor in a limited liability corporation as more
fully discussed below (see Note 6).
Sweetwater has formed a limited liability corporation, Integration
Consultants of the Southwest, L.L.C., with its minority corporate
shareholder to provide managed care consulting services to clients in
a limited geographic area. Sweetwater owns 50% of the joint venture
and uses the equity method of accounting for its investment.
Sweetwater's investment in the joint venture is $87,581 and $43,298 at
December 31, 1997 and 1996, respectively, which represents
Sweetwater's earnings from the joint venture less distributions
received, and is recorded as a current asset since net proceeds of the
joint venture are distributed periodically. Revenue of $789,845 and
$1,058,289 was recognized by Sweetwater during 1997 and 1996,
respectively, for services provided to the joint venture. Accounts
receivable from corporate joint ventures at December 31 includes
$64,745 and $29,461 due from this joint venture for 1997 and 1996,
respectively.
During 1996, Sweetwater formed a limited liability corporation,
Gateway Manager Care Resources, L.L.C., with four corporate
shareholders to provide managed care consulting services to clients in
a limited geographic area. Sweetwater owns 45% of the joint venture
and uses the equity method of accounting for its investment.
Sweetwater's investment in the joint venture is $28,015 and $39,668 at
December 31, 1997 and 1996, respectively, which represents
Sweetwater's initial $100,000 contribution, net of its share of losses
from the joint venture. Revenue of $623,636 and $1,027,949 was
recognized by Sweetwater during 1997 and 1996, respectively, for
services provided to the joint venture. Accounts receivable from
corporate joint ventures at December 31 include $161,553 and $108,711
due from this joint venture for 1997 and 1996, respectively.
6. LEASE COMMITMENTS
Sweetwater leases certain office equipment under operating leases,
generally with terms of 36 months. At the expiration of the leases,
Sweetwater has the option to purchase the equipment at the then fair
value.
Sweetwater leases office space in Texas and New Mexico under operating
leases, generally with terms of 60 months. The leases for Texas office
space, one of which is subleased from a minority shareholder, include
scheduled base rent increases throughout the terms. The total amount
of the base rent payments is being charged to expense using the
straight-line method over the terms of the leases. Sweetwater has
recorded a deferred credit to reflect the excess of rent expense over
cash payments since inception of the leases.
F-10
<PAGE> 13
SWEETWATER HEALTH ENTERPRISES, INC.
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
Future minimum operating lease commitments at December 31, 1997, for
leases with a remaining term greater than one year, are as follows:
<TABLE>
<S> <C>
1998 $ 608,339
1999 520,773
2000 427,214
2001 184,118
2002 184,118
Thereafter 132,309
----------
$2,056,871
==========
</TABLE>
Rental expense under operating leases was approximately $671,560 and
$623,136 in 1997 and 1996, respectively.
7. EMPLOYEE BENEFIT PLANS
Sweetwater has established the Sweet Savings Plan (the Savings Plan)
for the benefit of all eligible employees. The Savings Plan is a
defined contribution plan pursuant to which Sweetwater may elect to make
discretionary contributions. No discretionary contributions were made
during 1997 or 1996. The Plan includes 401(k) provisions to allow
participants to contribute up to 20% of eligible annual compensation.
Sweetwater matches a portion of employee contributions to the Savings
Plan. Total contributions to the Savings Plan by Sweetwater during 1997
and 1996 were $50,308 and $36,067 respectively.
8. COMMON STOCK
Authorized common stock includes 1,000,000 shares of Class A and
100,000 shares each of Class B and Class C stock. Issued and outstanding
shares include 285,000 shares of Class A and 15,000 shares of Class B
stock. Class A and Class B shares both have voting rights. Class A share-
holders, as a group, may elect two members of the Board of Directors and
Class B shareholders, as a group, may elect one member of the Board of
Directors. Class C shares are nonvoting and may be utilized only for stock
issued pursuant to the Sweetwater Health Enterprises, Inc. Omnibus
Securities Plan (the Securities Plan).
On July 16, 1996, the Company adopted the Securities Plan which
permits awards of stock options, stock appreciation rights and restricted
stock and performance, and other types of awards. The Board of Directors
has reserved 100,000 shares of the Class C common stock for future
issuances pursuant to awards under the Securities Plan. All awards granted
have been incentive stock options with ten-year terms. Exercise prices of
the options granted are at not less than the fair value of the underlying
stock on the date of grant, as determined by the Board of Directors;
therefore, no compensation expense has been recognized.
F-11
<PAGE> 14
SWEETWATER HEALTH ENTERPRISES, INC.
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
A summary of the Company's stock option activity and related
information for the years ended December 31, 1997 and 1996, follows:
<TABLE>
<CAPTION>
1997 1996
--------------------- ---------------------
Weighted Weighted
Average Average
Number of Exercise Number of Exercise
Options Price Options Price
--------- -------- --------- --------
<S> <C> <C> <C> <C>
Outstanding at beginning of year 30,550 $40 -- $--
Granted 41,200 15 30,850 40
Canceled (36,200) 20 (300) 40
--------- --------
Outstanding at end of year 35,550 $11 30,550 $40
========= ========
Exercisable at end of year -- -- -- --
Weighted-average fair value
of options granted during
the year $ 4.80 $ 14.09
</TABLE>
On December 1, 1997, the Board of Directors approved a plan to reprice
the Company's outstanding stock options. As a result, 24,600 options with
an exercise price of $40 per share were repriced at $11 per share, the fair
market value at the date of the repricing as determined by the Board of
Directors. This repricing has been reflected in the table above as part of
the options granted and canceled during 1997.
At December 31, 1997, the exercise price of outstanding options was
$11 per share. Options for 27,600 and 7,950 shares vest on January 1, 2000
and January 1, 2001, respectively. The remaining contractual life of such
options was 9.9 years.
In connection with the outstanding options to purchase Class C shares,
Sweetwater has entered into Stock Redemption Agreements with the holders of
the options. The Stock Redemption Agreements provide restrictions on the
transfer or sale of the Class C shares; require shareholders to offer to
sell the shares back to Sweetwater in the event of termination of employ-
ment; and set the redemption price per share at fair value as determined by
the Board of Directors as of the latest valuation date.
Information regarding pro forma net loss is required by SFAS No. 123,
and has been determined as if the Company had accounted for its employee
stock options under the fair value method of SFAS No. 123. The fair value
for these options was estimated at the date of grant using the minimum
value method of option pricing which excludes stock price volatility and
includes the following weighted-average assumptions for 1996 and 1997,
respectively: risk-free interest rate of 6.68% and 5.71%, dividend yields
of 0%; and a weighted-average expected life of the options of 6.5 years.
F-12
<PAGE> 15
SWEETWATER HEALTH ENTERPRISES, INC.
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The
Company's pro forma information follows:
<TABLE>
<CAPTION>
Year ended December 31,
-----------------------
1997 1996
---- ----
<S> <C> <C>
Net loss:
As reported $(463,680) $(176,123)
Pro forma (522,561) (218,349)
</TABLE>
The minimum value method of option pricing requires the input of highly
subjective assumptions. Because changes in the subjective input assumptions
can materially affect the fair value estimate, management recognizes the
minimum value method does not necessarily provide a reliable single measure
of the fair value of its employee stock options.
9. INCOME TAXES
Deferred tax assets and liabilities at December 31 are as follows:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Total deferred tax assets:
Net operating loss and tax credit carryforward $ 300,925 $ 45,824
Accrued expenses 27,594 --
Allowance for bad debts 12,281 10,390
Other 2,398 1,064
--------- --------
Total deferred tax asset before valuation allowance 343,198 57,278
Valuation allowance (169,650) --
--------- --------
Total deferred tax assets 173,548 57,278
--------- --------
Total deferred tax liabilities:
Software development costs (105,446) --
Excess of tax over book depreciation (52,348) (16,948)
Investment in corporate joint ventures (15,754) (15,766)
Other (40,592) --
--------- --------
Total deferred tax liabilities (214,140) (32,714)
--------- --------
Net deferred tax assets (liabilities) $ (40,592) $ 24,564
========= ========
</TABLE>
F-13
<PAGE> 16
SWEETWATER HEALTH ENTERPRISES, INC.
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
The components of the benefit for income taxes at December 31 are as
follows:
<TABLE>
<CAPTION>
1997 1996
-------- -------
<S> <C> <C>
Current:
Federal benefit $ 67,361 $35,191
State expense (2,205) (2,010)
-------- -------
65,156 33,181
Deferred benefit (expense) (65,156) 49,913
-------- -------
Total benefit for income taxes $ - $83,094
======== =======
</TABLE>
The items accounting for the difference between income taxes computed at the
federal statutory rate and the income tax benefit on the statement of
operations are as follows:
<TABLE>
<CAPTION>
1997 1996
--------- --------
<S> <C> <C>
Benefit based on federal statutory rate $(162,288) $(90,726)
Nondeductible meals and entertainment 7,940 11,039
State tax expense (24,653) (7,582)
Change in valuation allowance 169,650 -
Other 9,351 4,175
--------- --------
Income tax benefit $ - $(83,094)
========= ========
</TABLE>
Sweetwater has a state net operating loss carryforward of approximately
$943,000 which begins to expire in 2001, a federal net operating loss
carryforward of approximately $641,000 which begins to expire in 2011 and an
Alternative Minimum Tax Credit carryforward of $35,000 which can be carried
forward indefinitely.
10. COMMITMENTS AND CONTINGENCIES
The Company has entered into negotiations to settle a software license and
patent infringement claim. While negotiations continue, the Company has
accrued $70,000 as the probable estimate of the contingent loss which is
included in accrued liabilities.
The Company entered into a joint development and marketing agreement with
Erisco, Inc. (Erisco), on October 29, 1997. The term of the agreement is
four years with an automatic renewal for one additional year. Under the
agreement, Erisco will provide $750,000, payable in installments based on
milestones, to fund the development of SweetQ Enterprise, a client server
application for credentialing, site services, and network management. It is
anticipated by the agreement that the development will be complete prior to
February 1, 1999. If the Company fails to meet its contractual obligations,
as defined, and Erisco has provided at least $500,000 to the Company, Erisco
may, at its option, obtain a license and right to use the source code of
SweetQ Enterprise and SweetQ for Erisco's own credentialing development and
resale as a component of Erisco's software products. At December 31, 1997,
the Company had received $150,000 from Erisco. Based on the estimated
percentage completion of the development, the Company has recorded $110,000
as an offset to research and development expenses with the balance in
accrued liabilities.
F-14
<PAGE> 17
SWEETWATER HEALTH ENTERPRISES, INC.
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
SweetQ Enterprise license sales to mutual customers will be shared 60% to
the Company and 40% to Erisco. The Company will support Erisco's recovery
of development expenses by allowing Erisco to retain 85% of the Company's
60% portion of the license fee relating to such sales, if any, until the
full amount of the development expense advanced by Erisco has been repaid.
11. YEAR 2000 ISSUE (UNAUDITED)
The Company has a plan under development to upgrade or replace its
internal information technology by 1999. The Company expects this upgrade
to also enable the Company to be ready for the year 2000. Costs
specifically related to becoming Year 2000 compliant are not to be
significant. The Company believes its software products are currently Year
2000 compliant.
12. SUBSEQUENT EVENTS
VHA Southwest held an option to purchase an additional 5% of Class B
common stock until March 31, 1998. The option expired unexercised.
On June 25, 1998, the Company was sold to Medirisk, Inc.
F-15
<PAGE> 18
SWEETWATER HEALTH ENTERPRISES, INC.
UNAUDITED BALANCE SHEET
JUNE 30, 1998
(amounts in thousands)
<TABLE>
<S> <C>
Current assets:
Cash and cash equivalents $ (55)
Accounts receivable, less allowance for doubtful
accounts of $173 at June 30, 1998 534
Prepaid expenses 134
Other current assets 128
-------
Total current assets 741
Property and equipment 531
Less accumulated depreciation and amortization 4
-------
Property and equipment, net 527
Excess of cost over net assets of businesses
acquired, less accumulated amortization of $4
at June 30, 1998 4,227
Intangible assets, less accumulated amortization
of $1 at June 30, 1998 249
Software development costs, less accumulated
amortization of $2 at June 30, 1998 249
Other assets 33
-------
Total other assets 4,758
-------
Total assets $ 6,026
=======
Current liabilities:
Accounts payable $ 324
Accrued expenses 975
Income taxes payable 41
Current installments of long-term debt and
obligations under capital leases 30
Deferred revenue 526
-------
Total current liabilities 1,896
Due to parent 8,300
-------
Total liabilities 10,196
-------
Stockholders' equity
Accumulated deficit (4,170)
-------
Total stockholders' equity (4,170)
-------
Total liabilities and stockholders' equity $ 6,026
=======
</TABLE>
F-16
<PAGE> 19
SWEETWATER HEALTH ENTERPRISES, INC.
UNAUDITED STATEMENTS OF INCOME
(amounts in thousands)
<TABLE>
<CAPTION>
Six Months
ended June 30,
1998 1997
------- ------
<S> <C> <C>
Revenue $ 2,849 $5,621
Salaries, wages and benefits 2,261 3,750
Other operating expenses 2,415 2,187
Depreciation and amortization 188 111
Acquired in-process research and development costs
and integration costs 4,250 -
------- ------
Operating loss (6,265) (427)
Interest income (expense), net (21) 3
------- ------
Net loss $(6,286) $ (424)
======= ======
</TABLE>
F-17
<PAGE> 20
SWEETWATER HEALTH ENTERPRISES, INC.
UNAUDITED STATEMENTS OF CASH FLOWS
(amounts in thousands)
<TABLE>
<CAPTION>
Six Months
ended June 30,
1998 1997
-------- -------
<S> <C> <C>
Cash flows from operating activities:
Net loss $(6,286) $ (424)
Adjustments to reconcile net loss to net cash used
in operating activities:
Acquired in-process research and development costs 4,250 -
Depreciation and amortization 188 105
Decrease (increase) in:
Accounts receivable 919 (249)
Other assets (89) 94
Increase (decrease) in:
Accounts payable (318) (42)
Accrued expenses and other liabilities 468 97
Deferred revenue (122) 151
------- ------
Net cash used in operating activities (990) (268)
------- ------
Cash flows from investing activities:
Purchases of property and equipment (41) (10)
Additions to software development costs (11) 25
------- ------
Net cash provided by (used in) investing activities (52) 15
------- ------
Cash flows from financing activities:
Borrowings from Shareholder 100 --
Borrowings from Parent 1,943 --
Payments on long-term debt and obligations under capital leases (1,292) (69)
------- ------
Net cash provided by (used in) financial activities 751 (69)
------- ------
Net decrease in cash and cash equivalents (291) (322)
Cash and cash equivalents at beginning of period 236 372
------- ------
Cash and cash equivalents at end of period $ (55) $ 50
======= ======
</TABLE>
F-18
<PAGE> 21
SWEETWATER HEALTH ENTERPRISES, INC.
NOTES TO UNAUDITED FINANCIAL STATEMENTS
1. Basis of Presentation
These unaudited financial statements include the financial position and
results of operations of Sweetwater Health Enterprises, Inc. as of June 30,
1998 and for the six months ended June 30, 1998 and 1997.
In the opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for the fair presentation of the
unaudited financial statements of Sweetwater Health Enterprises, Inc. as
of June 30, 1998 and for the six months ended June 30, 1998 and 1997 have
been included. Operating results for the six-month period ended June 30,
1998 are not necessarily indicative of the results that may be expected
for the year ended December 31, 1998.
F-19
<PAGE> 22
UNAUDITED PRO FORMA FINANCIAL DATA
The unaudited pro forma consolidated condensed statement of operations for
the six months ended June 30, 1998 set forth below gives effect to the
Company's acquisitions of Sweetwater on June 25, 1998. Successful Solutions,
Inc. ("Successful Solutions") on May 28, 1998 and Healthdemographics on March
31, 1998 as if they had occurred on January 1, 1998. The unaudited pro forma
consolidated condensed statement of operations set forth below for the year
ended December 31, 1997 gives effect to the Company's acquisition of (i)
Sweetwater on June 25, 1998; (ii) Successful Solutions on May 28, 1998, (iii)
Healthdemographics on March 31, 1998, (iv) CareData Reports, Inc. ("CareData")
on August 28, 1997, and (v) CIVS, Inc. ("CIVS") on June 24, 1997, as if they
had occurred on January 1, 1997. The Sweetwater, Successful Solutions,
Healthdemographics, CIVS and CareData acquisitions have each been accounted for
using the purchase method of accounting. The pro forma financial data should be
read in conjunction with the historical consolidated financial statements and
notes of the Company, included in the Company's Annual Report on Form 10-K, as
amended, originally filed with the Securities and Exchange Commission (THE
"Commission") on March 30, 1998, and the historical financial statements and
notes of: (i) Sweetwater, included in this report on Form 8-K/A; (ii)
Successful Solutions, included in the Company's Current Report on Form 8-K/A,
filed with the Commission on June 5, 1998; (iii) Healthdemographics, included
in the Company's Current Report on Form 8-K, filed with the Commission on April
13, 1998; (iv) CIVS included in the Company's Current Report on Form 8-K/A,
filed with the Commission on September 5, 1997; and (v) CareData included in
the Company's Current Report on Form 8-K/A, filed with the Commission on
November 14, 1997. The pro forma combined results are not necessarily
indicative of the results that would have been achieved had the acquisitions of
Sweetwater, Successful Solutions, Healthdemographics, CIVS and CareData
occurred on January 1, 1997 or of future operations.
F-20
<PAGE> 23
MEDIRISK, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, 1998
-------------------------------------------------------------------------------
HISTORICAL
----------------------------------------------------
SUCCESSFUL HEALTHDEMO- PRO FORMA PRO FORMA
MEDIRISK SWEETWATER(1) SOLUTIONS(2) GRAPHICS(3) ADJUSTMENTS CONSOLIDATED
-------- ------------ --------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Revenue $ 10,592 $ 2,631 $ 1,207 $ 342 $ -- $ 14,772
Salaries, wages and benefits 5,539 2,175 1,218 613 -- 9,545
Other operating expenses 3,094 2,373 1,400 437 -- 7,304
Depreciation and amortization 1,079 177 24 11 331(4) 1,622
Acquired in-process research and
development costs and integrations costs 13,914 -- -- -- (13,636)(5) 278
-------- --------- ------- ------- --------- --------
Operating income (loss) (13,034) (2,094) (1,435) (719) 13,305 (3,977)
Interest income (expense), net 3 (22) (1) (138) (382)(6) (540)
Other income (expense) -- -- -- -- -- --
Provision for income taxes -- -- -- -- -- --
-------- --------- ------- ------- --------- --------
(13,031) (2,116) (1,436) (857) 12,923 4,517)
Income (loss) before extraordinary item
Unaudited pro forma loss per common share
before extraordinary item - basic and
diluted $ (2.61) $ (0.88)
======== ========
Unaudited pro form weighted average
number of common shares used in
calculating unaudited net loss per
common share before extraordinary
item - basic and diluted 4,885 5,124(7)
</TABLE>
See accompanying notes to unaudited pro forma financial data.
F-21
<PAGE> 24
MEDIRISK, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997
-------------------------------------------------------------------------------
HISTORICAL
----------------------------------------------------
SUCCESSFUL HEALTHDEMO- 1997
MEDIRISK SWEETWATER(8) SOLUTIONS(9) GRAPHICS(10) ACQUISITIONS(11)
-------- ------------- ------------ ------------- -----------------
<S> <C> <C> <C> <C> <C>
Revenue $ 16,749 $ 10,719 $ 3,349 $ 905 $ 1,730
Salaries, wages and benefits 7,910 6,917 860 971 1,296
Other operating expenses 4,374 3,989 1,792 752 1,099
Depreciation and amortization 1,304 222 56 18 47
Acquired in-process research and
development costs and integrations costs 4,575 -- -- -- --
-------- --------- ------- ------- ---------
Operating income (loss) (1,414) (409) 731 (836) (712)
Interest income (expense), net 345 (55) (12) (26) 8
Loss on disposal of asset -- -- 2 -- --
Provision for income taxes (707) -- -- -- --
-------- --------- ------- ------- ---------
Income (loss) before extraordinary item (1,776) $ (464) $ 717 $ (862) $ (704)
======== ======== ======= ====== =========
Unaudited pro forma loss per common share
before extraordinary item - basic and
diluted $ (0.45)
========
Unaudited pro forma weighted average
number of common shares used in
calculating unaudited income (loss) per
common share before extraordinary
item - basic and diluted 3,918
<CAPTION>
YEAR ENDED DECEMBER 31, 1997
--------------------------------------
PRO FORMA PRO FORMA
ADJUSTMENTS CONSOLIDATED
------------ ---------------
<C> <C>
Revenue $ -- $ 33,542
Salaries, wages and benefits -- 17,594
Other operating expenses -- 12,006
Depreciation and amortization 1,915(12) 2,842
Acquired in-process research and
development costs and integrations costs (4,258)(13) 317
--------- ---------
Operating income (loss) (3,063) 423
Interest income (expense), net (1,154)(14) (994)
Loss on disposal of asset -- (2)
Provision for income taxes 707(15) --
--------- ---------
Income (loss) before extraordinary item $ 2,516 $ (573)
========= =========
Unaudited pro forma loss per common share
before extraordinary item - basic and
diluted $ (0.12)
=========
Unaudited pro forma weighted average
number of common shares used in
calculating unaudited income (loss) per
common share before extraordinary
item - basic and diluted 4,404(16)
</TABLE>
See accompanying notes to unaudited to pro forma financial data.
F-22
<PAGE> 25
MEDIRISK, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA FINANCIAL DATA
Effective June 25, 1998, the Company acquired all of the outstanding shares
of Sweetwater Health Enterprises, Inc. of Dallas, Texas, which provides a
comprehensive selection of physician credentialing services to hospitals and
managed care organizations to evaluate professional relationships with
physicians and secure accreditation by industry associations. In addition,
Sweetwater provides a suite of quality management software used by health care
organizations to facilitate in-house credentialing and network management, as
well as track perceptions of care and individual physician performance.
Sweetwater also provides managed care and interim management services for
health care organizations throughout the country. Medirisk purchased Sweetwater
for $6.2 million in cash. The acquisition was accounted for using the purchase
method of accounting with the results of operations of the business acquired
included in the Company's results of operations from the effective date of the
acquisition. The acquisition resulted in estimated purchased in-process
research and development costs of $4.3 million, estimated acquired products of
$250,000 and estimated excess of cost over net assets acquired of $4.2 million.
Effective May 28, 1998, the Company acquired all of the outstanding shares
of Successful Solutions of Vidalia, Georgia, which provides decision support
tools, consulting services and training materials to hospitals and physician
groups to assist them in improving patient outcomes, achieving the efficient
delivery of care and establishing billing and coding practices that comply with
industry requirements. The Company purchased Successful Solutions for
approximately $2.9 million in cash and 189,811 shares of common stock. The
acquisition was accounted for using the purchase method of accounting with the
results of operations of the business acquired included from the effective date
of the acquisition. The acquisition resulted in in-process research and
development costs estimated to be approximately $4.0 million, acquired products
of approximately $250,000, and excess of cost over assets acquired estimated to
be approximately $1.8 million.
Effective March 23, 1998, the Company acquired all of the outstanding
shares of Healthdemographics of San Diego, California, which provides databases
and decision-support tools that allow customers to forecast the supply of and
demand for health care services. The Company purchased Healthdemographics for
approximately $2.7 million in cash and 171,315 shares of common stock. The
acquisition was accounted for using the purchase method of accounting with the
results of operations of the business acquired included from the effective date
of the acquisition. The acquisition resulted in in-process research and
development costs estimated to be approximately $5.3 million, acquired products
estimated to be approximately $500,000, and excess of cost over net assets
acquired estimated to be approximately $1.0 million.
Effective June 1, 1997, the Company acquired all of the outstanding shares
of CIVS of Rockville, Maryland, a leading national provider of credentialing
services to hospitals and managed care organizations for approximately $3.5
million in cash and 129,166 shares of the Company's common stock and the
assumption of net assets of $76,000. The acquisition was accounted for using the
purchase method of accounting with the results of operations of the business
acquired included from the effective date of the acquisition. The acquisition
resulted in purchased in-process research and development costs of
approximately $3.1 million, acquired products of approximately $415,000, and
excess of cost over net assets acquired of approximately $1.1 million.
Effective August 1, 1997, the Company acquired all of the outstanding shares
of CareData of New York, New York, which creates reports analyzing consumer
satisfaction with more than 150 aspects of managed health care plans and ranks
specific health plans accordingly. The Company purchased CareData for
approximately $4.1 million in cash and 14,516 shares of Medirisk common stock.
The acquisition was accounted for using the purchase method of accounting with
the results of operations of the business acquired included from the effective
date of the acquisition. The acquisition resulted in in-process research and
development costs of approximately $975,000, acquired products of approximately
$200,000, and excess of cost over net assets acquired of approximately $2.9
million. Approximately $3.0 million of contingent consideration resulting from
the CareData acquisition was paid at the end of April 1998. This payment was
treated as an increase in excess of cost over net assets acquired.
The unaudited pro forma consolidated statement of operations as of June 30,
1998 illustrates the estimated effects of the Sweetwater, Successful Solutions
and Healthdemographics acquisitions as if the acquisitions had occurred on
January 1, 1998. The unaudited pro forma consolidated condensed statement of
operations for the year
F-23
<PAGE> 26
ended December 31, 1997 illustrates the estimated effects of all these
acquisitions had they occurred on January 1, 1997.
The unaudited pro forma financial data have been prepared using the
purchase method of accounting, whereby the total cost of the acquisition is
allocated to the tangible and intangible assets acquired and liabilities
assumed based upon their respective fair values at the effective date of such
acquisition. For purposes of the unaudited pro forma financial data, such
allocations have been made based upon currently available information and
management's estimates.
The historical financial statements are derived from the unaudited
financial statements of the Company, Sweetwater, Successful Solutions, and
Healthdemographics for the six months ended June 30, 1998, the audited
financial statements of the Company, Successful Solutions, and
Healthdemographics for the year ended December 31, 1997, and the unaudited
financial statements of CIVS and CareData for the periods beginning January 1,
1997 and ending on the effective dates of the respective acquisitions.
The unaudited pro forma financial data do not purport to represent what the
results of operations of the Company would actually have been if the
acquisitions had occurred on such dates or to project the results of operations
of the Company for any future date or period. The unaudited pro forma financial
data should be read together with the Financial Statements and Notes thereto of
the Company, Sweetwater, Successful Solutions, Healthdemographics, CIVS and
CareData referred to above. The unaudited pro forma financial data reflect the
following adjustments:
(1) Reflects the historical operating results of Sweetwater for the
period from January 1, 1998 to June 25, 1998.
(2) Reflects the historical operating results of Successful Solutions for
the period from January 1, 1998 to May 28, 1998.
(3) Reflects the historical operating results of Healthdemographics for
the period from January 1, 1998 to March 22, 1998.
(4) Reflects the additional amortization of intangible assets recorded as
a result of the allocation of the Sweetwater, Successful Solutions and
Healthdemographics purchase prices.
<TABLE>
<CAPTION>
Period ended
June 30, 1998
-------------
(Amounts in
thousands)
<S> <C>
Sweetwater $210
Successful Solutions 88
Healthdemographics 39
----
$337
====
</TABLE>
(5) Removes the impact of the non-recurring acquired in-process research
and development costs and integration costs recorded as a result of
the allocation of the Sweetwater, Successful Solutions and Healthdemo-
graphics purchase prices. This charge was included in the June 30,
1998 historical statements of operations and is being excluded from
the six months ended June 30, 1998 unaudited pro forma consolidated
condensed statements of operations.
<TABLE>
<CAPTION>
Period ended
June 30, 1998
-------------
(Amounts in
thousands)
<S> <C>
Sweetwater $ 4,250
Successful Solutions 4,000
Healthdemographics 5,292
CIVS 89
CareData 4
-------
$13,636
=======
</TABLE>
F-24
<PAGE> 27
(6) Reflects the additional interest expense on the cash used to fund the
acquisitions of Sweetwater, Successful Solutions and Healthdemographics.
<TABLE>
<CAPTION>
Period ended
June 30, 1998
-------------
(Amounts in
thousands)
<S> <C>
Sweetwater $ 238
Successful Solutions 96
Healthdemographics 48
-----
$ 382
=====
</TABLE>
(7) Reflects the increased shares of common stock outstanding resulting from
the acquisitions of Successful Solutions and Healthdemographics.
<TABLE>
<CAPTION>
Period ended
June 30, 1998
-------------
(Amounts in
thousands)
<S> <C>
Successful Solutions 155
Healthdemographics 84
-----
239
=====
</TABLE>
(8) Reflects the historical operating results of Sweetwater for the year ended
December 31, 1997. An estimated $4.3 million charge for in-process
research and development costs was recorded by the Company on June 25,
1998. This charge is being excluded from the year ended December 31, 1997
unaudited pro forma consolidated condensed statement of operations.
(9) Reflects the historical operating results of Successful Solutions for the
year ended December 31, 1997. An estimated $4.0 million charge for
in-process research and development costs was recorded by the Company on
May 28, 1998. This charge is being excluded from the year ended December
31, 1997 unaudited pro forma consolidated condensed statement of
operations.
(10) Reflects the historical operating results of Healthdemographics for the
year ended December 31, 1997. An estimated $5.3 million charge for
in-process research and development costs was recorded by the Company on
March 23, 1998. This charge is being excluded from the year ended December
31, 1997 unaudited pro forma consolidated condensed statement of
operations.
(11) Reflects the historical operating results of CIVS for the five months
ended May 31, 1997 and CareData for seven months ended July 31, 1997. The
operating results of these entities subsequent to their acquisition
effective dates through December 31, 1997 are included in the Company's
operating results.
(12) Reflects the additional amortization of intangible assets recorded as a
result of the allocation of the respective purchase prices. These amounts
were as follows:
<TABLE>
<CAPTION>
1997
-----------
(Amounts in
thousands)
<S> <C>
Sweetwater $ 432
Successful Solutions 200
Healthdemographics 164
CIVS 64
CareData 335
-----
Total $1,195
=====
</TABLE>
F-25
<PAGE> 28
(13) Reflects the reversal of the non-recurring acquired in-process research
and development costs and integration costs associated with the
acquisitions of CIVS and CareData. These charges were included in the
Company's December 31, 1997 historical statements of operations and are
being excluded from the year ended December 31, 1997 unaudited pro forma
consolidated condensed statement of operations. These amounts were as
follows:
<TABLE>
<CAPTION>
1997
-------------
(Amounts in
thousands)
<S> <C>
CIVS $3,280
CareData 978
------
Total $4,258
======
</TABLE>
(14) Reflects the additional interest expense on the cash borrowings used to
fund the acquisitions. These amounts were as follows:
<TABLE>
<CAPTION>
1997
-------------
(Amounts in
thousands)
<S> <C>
Sweetwater $ 497
Successful Solutions 234
Healthdemographics 216
CIVS 115
CareData 192
------
Total $1,254
======
</TABLE>
(15) Reflects decrease in income tax expense due to pro forma losses incurred.
(16) Reflects the increased shares of common stock outstanding resulting from
the acquisitions. These shares were as follows:
<TABLE>
<CAPTION>
1997
-------------
(Amounts in
thousands)
<S> <C>
Successful Solutions 190
Healthdemographics 171
CIVS 115
CareData 10
------
Total 486
======
</TABLE>
F-26
<PAGE> 29
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.
MEDIRISK, INC.
By: /s/ Kenneth M. Goins, Jr.
Kenneth M. Goins, Jr.
Executive Vice President
Chief Financial Officer
Dated: August 31, 1998
