<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 5, 1998
REGISTRATION NO. 333-50015
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------------------
AMENDMENT NO. 4
TO
FORM S-3
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
------------------------------------
MEDIRISK, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 58-2256400
(State or other jurisdiction of incorporation) (I.R.S. Employer Identification No.)
</TABLE>
TWO PIEDMONT CENTER, SUITE 400,
3565 PIEDMONT ROAD, N.E.,
ATLANTA, GEORGIA 30305-1502
(404) 364-6700
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
KENNETH M. GOINS, JR.,
MEDIRISK, INC.
TWO PIEDMONT CENTER, SUITE 400,
3565 PIEDMONT ROAD, N.E.,
ATLANTA, GEORGIA 30305-1502
(404) 364-6700
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
COPIES TO:
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<S> <C>
DOUGLAS B. CHAPPELL, ESQ. DONALD J. MURRAY, ESQ.
ALSTON & BIRD LLP DEWEY BALLANTINE LLP
ONE ATLANTIC CENTER 1301 AVENUE OF THE AMERICAS
1201 WEST PEACHTREE STREET NEW YORK, NEW YORK 10019-6092
ATLANTA, GEORGIA 30309-3424 (212) 259-8000
(404) 881-7000
</TABLE>
Approximate date of commencement of proposed sale to the public: As soon as
practicable on or after the effective date of this Registration Statement.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ] __________
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration number of the earlier effective registration statement for the same
offering. [ ] __________
If delivery of this prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
------------------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED JUNE 5, 1998
2,500,000 SHARES
(MEDIRISK LOGO)
COMMON STOCK
------------------------
Of the shares of common stock, par value $0.001 per share (the "Common
Stock"), of Medirisk, Inc. ("Medirisk" or the "Company") offered hereby (the
"Offering"), 2,250,000 shares are being offered by the Company and 250,000
shares are being offered by certain stockholders of the Company (the "Selling
Stockholders"). See "Principal and Selling Stockholders." The Company will not
receive any of the proceeds from the sale of shares by the Selling Stockholders.
The Common Stock is quoted on The Nasdaq Stock Market's National Market (the
"Nasdaq National Market") under the symbol "MDMD." On June 4, 1998, the last
reported sale price of the Common Stock on the Nasdaq National Market was
$20.3125 per share.
------------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 8 FOR CERTAIN FACTORS THAT SHOULD BE
CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK OFFERED HEREBY.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
====================================================================================================================
PRICE TO UNDERWRITING PROCEEDS TO PROCEEDS TO
PUBLIC DISCOUNT(1) COMPANY(2) SELLING STOCKHOLDERS
- --------------------------------------------------------------------------------------------------------------------
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Per Share.............. $ $ $ $
- --------------------------------------------------------------------------------------------------------------------
Total(3)............... $ $ $ $
====================================================================================================================
</TABLE>
(1) See "Underwriting" for a description of the indemnification arrangements
with the Underwriters.
(2) Before deducting expenses of the Offering, payable by the Company, estimated
at $600,000. Excludes the proceeds from the exercise of warrants to be
exercised by a Selling Stockholder in connection with the Offering.
(3) The Company has granted to the Underwriters a 30-day option to purchase up
to an additional 229,410 shares of Common Stock, and the Selling
Stockholders have granted to the Underwriters a 30-day option to purchase up
to 145,590 shares of Common Stock, on the same terms as set forth above,
solely to cover over-allotments, if any. If the options are exercised in
full, the total "Price to Public," "Underwriting Discount," "Proceeds to
Company" and "Proceeds to Selling Stockholders" will be $ ,
$ , $ and $ , respectively. See "Underwriting."
------------------------
The Common Stock is offered by the several Underwriters named herein,
subject to prior sale, when, as and if delivered to and accepted by them and
subject to approval of certain legal matters by counsel for the Underwriters.
The Underwriters reserve the right to reject orders in whole or in part and to
withdraw, to cancel or to modify the offer without notice. It is expected that
delivery of certificates representing the Common Stock will be made on or about
, 1998.
------------------------
SUNTRUST EQUITABLE SECURITIES
J.C. BRADFORD & CO.
JEFFERIES & COMPANY, INC.
------------------------
The date of this Prospectus is , 1998.
<PAGE> 3
[GRAPHICS REGARDING MEDIRISK PRODUCTS AND ACQUISITION HISTORY]
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK,
INCLUDING OVER-ALLOTMENT, STABILIZING TRANSACTIONS, SYNDICATE SHORT COVERING
TRANSACTIONS AND PENALTY BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE
"UNDERWRITING."
IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS AND SELLING GROUP
MEMBERS (IF ANY) OR THEIR RESPECTIVE AFFILIATES MAY ENGAGE IN PASSIVE MARKET
MAKING TRANSACTIONS IN THE COMMON STOCK ON THE NASDAQ NATIONAL MARKET IN
ACCORDANCE WITH RULE 103 OF REGULATION M. SEE "UNDERWRITING."
2
<PAGE> 4
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and the consolidated financial statements and accompanying notes
appearing elsewhere in this Prospectus. Prospective investors should also review
carefully the information set forth under "Risk Factors." Unless otherwise
indicated, all information in this Prospectus assumes no exercise of the
Underwriters' over-allotment option.
THE COMPANY
Medirisk is a provider of proprietary database products, decision-support
software and analytical services to the health care industry. The Company's
products and services enable its customers to make objective comparisons of the
financial costs and clinical outcomes of physician services to customer-specific
and industry benchmarks, assess member satisfaction with specific managed care
plans, and obtain information concerning the background and credentials of
physicians. These capabilities assist health care industry participants in
measuring the performance of health care payors and providers and forecasting
the supply of and demand for health care services.
Applications for Medirisk's products include pricing managed care
contracts, evaluating physician fee schedules and utilization of physician
services, comparing provider outcomes and health plan performance, credentialing
and recruiting physicians, developing health care delivery networks, and
marketing health care services. The Company actively sells its products to over
1,000 major customers, including leading health plans, insurers, hospitals,
large multi-specialty physician groups, physician practice management companies,
employers, equipment suppliers and pharmaceutical companies, as well as to
several hundred smaller customers, including single-specialty physician groups.
Medirisk believes that it is the leading provider of clinical and financial
database products comprised of physician-oriented content and managed care
member satisfaction information in the United States.
Medirisk's health care information products and services consist of market
performance, clinical performance and physician credentials products.
- Market Performance Products. Medirisk's market performance products
provide customers with proprietary data and decision-support software
tools for use in analyzing physician fees, health care utilization
patterns and managed care consumer satisfaction in the United States.
The Company's fee and utilization products enable its customers to
analyze health care cost and utilization data, to project health care
supply and demand, and to compare, by procedure and geographic location,
pricing and utilization trends to customer-specific and industry
benchmarks. The Company's managed care member satisfaction products
assist managed care organizations in determining their competitive
position, enable employers to evaluate and select health plans, and
assist pharmaceutical companies in targeting potential markets for their
products and services.
- Clinical Performance Products. Medirisk's clinical performance products
allow customers to measure outcomes across a full range of care within a
variety of medical specialties. The Company's clinical performance
products, proprietary measurement instruments, comparative databases and
reports enable both payors and providers to measure and evaluate
clinical outcomes, improve the quality of clinical care, attract and
retain managed care contracts, and meet accreditation standards.
- Physician Credentials Products. Medirisk provides databases, software
and services designed to enable customers to access detailed information
concerning the background and credentials of physicians in the United
States. The Company's physician credentials products assist customers in
developing and enhancing credentialing and recruiting programs on a
cost-effective basis, establishing health care networks using
physician-specific data, and marketing the provider component of health
care services more effectively.
Medirisk's databases have been built by collecting, standardizing and
normalizing more than three billion health care transaction records. The
Company's databases include records submitted by customers under an ongoing data
collection plan, data gathered from various regulatory and governmental
agencies, and data generated from the results of periodic proprietary surveys of
health care providers, consumers, managed care
3
<PAGE> 5
organizations and other payors. Medirisk believes that the long-standing
relationships under which it collects data and the data interpretation
methodologies used by the Company represent significant competitive advantages.
Medirisk's databases are regularly updated to reflect changes in the industry
and, in the case of its market performance and clinical performance databases,
to take into consideration secondary factors such as co-morbidity, case mix and
demographics. These attributes permit customers to compare objectively their
financial and clinical performance to industry or customer-specific benchmarks
contained in the Company's databases with specificity and precision.
Medirisk's objective is to become the leading provider of proprietary
database products, decision-support software and analytical services to payors,
providers, employers, pharmaceutical companies and other health care industry
participants. To attain this objective, Medirisk is pursuing the following
strategy: (i) leverage the Company's existing customer base to cross-sell
additional products; (ii) emphasize recurring revenue from existing products and
customers; (iii) develop new database products and decision-support tools; and
(iv) acquire and integrate complementary products and businesses. To capitalize
on the fragmentation in the health care information industry and to support its
acquisition strategy, Medirisk has corporate resources dedicated to identifying,
analyzing and pursuing appropriate acquisition candidates. The Company currently
is tracking a database of more than 300 companies, of which more than 100
currently meet Medirisk's primary acquisition criteria for product type, revenue
and customer base.
RECENT DEVELOPMENTS
Following the completion of its initial public offering in January 1997,
Medirisk significantly expanded its operations by acquiring four companies in
1997 (the "1997 Acquisitions") and two companies in 1998. The acquisition of
businesses with complementary products and services has broadened the Company's
customer base, created additional cross-selling opportunities, increased market
share within existing products and resulted in new product extensions and
enhancements. The following summarizes these recent acquisitions.
- In May 1997, Medirisk acquired substantially all of the assets of
Staff-Link, Inc. ("Staff-Link") of St. Louis, Missouri, a provider of
physician databases and related software utilities designed to assist
health care organizations with their in-house recruiting efforts.
Staff-Link's customer base increased the market share of the Company's
physician credentials products, and the integration of Staff-Link's
database of physicians in private practice, the military and the public
health sector enhanced the Company's physician credentials product line.
- In June 1997, Medirisk acquired CIVS, Inc. ("CIVS") of Rockville,
Maryland, a leading national provider of physician credentialing
services and information products to health care organizations. The
acquisition of CIVS added new customers to the Company's physician
credentials product line and broadened the range of products and
outsourced services offered by the Company.
- In August 1997, Medirisk acquired CareData Reports, Inc. ("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. CareData's products are used by
managed care plans to assess their competitive position and quality of
care, by employers to evaluate health plans and by pharmaceutical
companies to target potential markets for their products.
- In November 1997, Medirisk acquired Medsource, Inc. ("Medsource") of St.
Paul, Minnesota, which licenses databases of physician information for
use in recruiting physicians and developing health care networks. The
acquisition strengthened the Company's physician credentials products
and extended the application of these products to the administrative and
marketing functions of health care organizations.
- In March 1998, Medirisk acquired Healthdemographics of San Diego,
California, which provides databases and decision-support applications
to forecast the supply of and demand for health care services. Health
care delivery organizations, insurers, equipment suppliers, consultants
and other health care industry participants use the proprietary
demographic and market segmentation information and software provided by
Healthdemographics to make more informed business decisions regarding
strategic planning and market planning and analysis. The acquisition of
Healthdemographics resulted in an expansion of the Company's market
performance products and customer base.
4
<PAGE> 6
- In May 1998, Medirisk acquired Successful Solutions, Inc. ("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 in establishing billing and coding
practices that comply with industry requirements. The acquisition
resulted in an expansion of the Company's clinical performance products
and customer base.
RISK FACTORS
An investment in the Common Stock offered hereby involves a high degree of
risk. In addition to the other information presented or referenced in this
Prospectus, prospective investors should carefully consider the risk factors
discussed on pages 8 to 14 of this Prospectus in evaluating an investment in the
Common Stock. The risks associated with an investment in the Company include the
following factors: 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;
Risks Related to Intangible Assets and Acquisition of In-process Research and
Development; Uncertainty and Consolidation in the Health Care Industry; Risks of
Rapid Technological Change; Need for Additional Financing; Competition; Risks of
Customer Concentration; Potential for System Defects; Dependence on Key
Personnel; Variable Quarterly Operating Results and Seasonality; Possible
Volatility of Stock Price; Potential Adverse Effects of Substantial Number of
Shares Eligible for Future Sale; Year 2000 Compliance; Adverse Impact of
Anti-takeover Provisions; Risks Associated with Unspecified Use of Proceeds; and
No Dividends. See "Risk Factors."
5
<PAGE> 7
THE OFFERING
Common Stock offered by the Company......... 2,250,000 shares
Common Stock offered by Selling
Stockholders................................ 250,000 shares
Common Stock to be outstanding after the
Offering.................................... 7,011,557 shares(1)
Use of proceeds............................. To repay indebtedness and for
general corporate purposes,
including acquisitions and the
development of additional
products and services. See "Use
of Proceeds."
Nasdaq National Market symbol............... MDMD
- ---------------
(1) Based on the number of shares outstanding as of May 1, 1998. Includes an
aggregate of 97,440 shares of Common Stock to be issued upon exercise of
outstanding warrants by a Selling Stockholder immediately prior to
consummation of the Offering. Excludes 730,463 shares of Common Stock
issuable upon the exercise of remaining options and warrants to purchase
Common Stock at a weighted average exercise price of $5.34 per share and
190,000 shares of Common Stock issued in the acquisition of Successful
Solutions on May 28, 1998. See "Recent Acquisition," "Capitalization,"
"Principal and Selling Stockholders" and Note 8 of Notes to Consolidated
Financial Statements of the Company.
------------------------
Medirisk, Inc. was incorporated in Florida in June 1983 and was
reincorporated in Delaware in September 1996. The operations of the Company
include the operations of the Company's wholly owned subsidiaries, Medirisk of
Illinois, Inc.; Medirisk of Missouri, Inc.; CIVS; CareData; Medsource and
Healthdemographics, Inc. Unless the context otherwise requires, the terms the
"Company" and "Medirisk" refer collectively to Medirisk, Inc. and its
subsidiaries. The Company's principal executive offices are located at Two
Piedmont Center, Suite 400, 3565 Piedmont Road, N.E., Atlanta, Georgia
30305-1502, and its telephone number is (404) 364-6700.
Unless otherwise indicated, information in this Prospectus (specifically
including information in "Capitalization" and "Dilution"): (i) assumes no
exercise of the Underwriters' option to purchase from the Company up to 229,410,
and from the Selling Stockholders up to 145,590, additional shares of Common
Stock to cover over-allotments, if any; (ii) gives effect to the exercise by a
Selling Stockholder of outstanding warrants to purchase 97,440 shares of Common
Stock at an exercise price of $1.54 per share; and (iii) assumes no exercise of
remaining options and warrants to purchase 730,463 shares of Common Stock at a
weighted average exercise price of $5.34 per share.
This Prospectus contains references to a number of registered and
unregistered trademarks and service marks, including marks owned by Medirisk.
Windows(R) and Excel(R) are registered trademarks of Microsoft Corporation;
Lotus 1-2-3(R) is a registered trademark of Lotus Development Corporation;
FoxPro(R) is a registered trademark of Fox Holdings, Inc.; Quattro Pro(R) is a
registered trademark of Borland International, Inc.; Dbase(R) is a registered
trademark of Ashton-Tate; and Nasdaq National Market(R) is a registered
trademark of The Nasdaq Stock Market, Inc.
6
<PAGE> 8
SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
--------------------------------------- -----------------------------
1995 1996 1997 1997 1998
------- ------- ------------------- ------- -------------------
PRO PRO
ACTUAL FORMA(1) ACTUAL FORMA(2)
------- ------- ------- ------
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STATEMENTS OF OPERATIONS DATA:
Revenue................................................ $ 3,655 $ 8,904 $16,749 $22,823 $ 2,650 $ 5,176 $6,289
Salaries, wages and benefits........................... 2,578 6,093 7,910 11,037 1,762 2,574 3,387
Other operating expenses............................... 956 2,314 4,374 8,017 646 1,522 2,476
Depreciation and amortization.......................... 193 787 1,304 2,188 201 427 541
Acquired in-process research and development costs and
integration costs(3).................................. -- 6,180 4,575 317 -- 5,315 65
------- ------- ------- ------- ------- ------- ------
Operating income (loss)................................ (72) (6,470) (1,414) 1,264 41 (4,662) (180)
Interest income (expense), net......................... (66) (703) 345 (442) 41 36 (209)
Other income (expense)................................. -- (57) -- (2) -- -- --
Provision for income taxes............................. -- -- (707) -- -- -- --
------- ------- ------- ------- ------- ------- ------
Income (loss) before extraordinary item................ (138) (7,230) (1,776) 820 82 (4,626) (389)
Extraordinary item -- loss on early extinguishment of
debt(4)............................................... -- -- (806) -- (806) -- --
------- ------- ------- ------- ------- ------- ------
Net loss............................................... (138) (7,230) (2,582) 820 (724) (4,626) (389)
Accretion of discount on Series A convertible preferred
stock................................................. (92) -- -- -- -- -- --
Convertible preferred stock dividend requirement....... (202) (202) (25) -- (25) -- --
------- ------- ------- ------- ------- ------- ------
Net loss attributable to common stock.................. $ (432) $(7,432) $(2,607) $ 820 $ (749) $(4,626) $ (389)
Net loss per share of common stock -- basic and
diluted(5)............................................ $ (0.30) $ (4.84) $ (0.67) $ 0.19 $ (0.23) $ (1.03) $(0.08)
Weighted average number of common shares used in
calculating net loss per share of common stock --
basic and diluted(5).................................. 1,427 1,536 3,918 4,404 3,265 4,495 4,854
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 1998
------------------------
PRO FORMA
ACTUAL AS ADJUSTED(6)
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BALANCE SHEET DATA:
Working capital (deficit)................................... $(3,082) $44,689
Total assets................................................ 25,291 73,123
Long-term debt and capital lease obligations, excluding
current portion........................................... 41 57
Stockholders' equity........................................ 14,663 64,639
</TABLE>
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(1) Gives effect to the 1997 Acquisitions and the Company's acquisition of
Healthdemographics and Successful Solutions as if the transactions had
occurred on January 1, 1997 and excludes associated non-recurring charges
related to acquired in-process research and development costs and
integration costs of $4.3 million and extraordinary loss of $806,000 in
1997. As a result of the 1997 Acquisitions and the acquisitions of
Healthdemographics and Successful Solutions, the Company's historical
statements of operations are not representative of financial results to be
expected for future periods. See Unaudited Pro Forma Financial Data.
(2) Gives effect to the acquisitions of Healthdemographics and Successful
Solutions as if the transactions had occurred on January 1, 1998 and
excludes associated non-recurring charges related to acquired in-process
research and development of $5.3 million incurred in the first quarter of
1998. Also excludes non-recurring charges associated with the acquisition of
Successful Solutions related to acquired in-process research and development
costs of approximately $4.0 million expected to be incurred in the second
quarter of 1998 and integration costs of $400,000 expected to be incurred
during the remainder of 1998. See Unaudited Pro Forma Financial Data.
(3) During the periods presented the Company recorded non-recurring charges
related to acquired in-process research and development costs in connection
with the 1997 Acquisitions and the acquisition of Healthdemographics, as
well as integration costs associated with the 1997 Acquisitions. Excluding
these charges and, in 1997, the extraordinary item, operating income, net
income and net income per share of common stock -- diluted for the year
ended December 31, 1997 would have been $3.2 million, $2.1 million and
$0.45, respectively, and operating income, net income and net income per
share of common stock -- diluted for the three months ended March 31, 1998
would have been $653,000, $419,000 and $0.08, respectively. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," Note 2 of Notes to Consolidated Financial Statements of the
Company, Unaudited Consolidated Condensed Financial Statements of the
Company and Unaudited Pro Forma Financial Data.
(4) 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 approximately
$806,000 with respect to accelerated amortization of original issue discount
on certain 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. See Note 5 of Notes to Consolidated Financial
Statements of the Company.
(5) Computed on the basis described in Note 1 of Notes to Consolidated Financial
Statements of the Company.
(6) Gives effect to (i) the acquisition of Successful Solutions, (ii) the
exercise by a Selling Stockholder of warrants to purchase 97,440 shares of
Common Stock at an exercise price of $1.54 per share and (iii) the sale of
the shares of Common Stock offered by the Company at an assumed public
offering price of $24.00 per share and the receipt and application of the
net proceeds from such sale as described in "Use of Proceeds."
7
<PAGE> 9
RISK FACTORS
In addition to the other information in this Prospectus, the following risk
factors should be considered carefully in evaluating the Company and its
business before purchasing the shares of Common Stock. This Prospectus contains
certain forward-looking statements which involve risks and uncertainties. The
Company's actual results could differ materially from the results anticipated in
these forward-looking statements as a result of the risk factors set forth below
and other factors described elsewhere in this Prospectus.
HISTORY OF OPERATING LOSSES; UNCERTAIN PROFITABILITY
The Company incurred net losses in the years ended December 31, 1995, 1996
and 1997 and the three months ended March 31, 1998 and had an accumulated
deficit at March 31, 1998 of approximately $17.0 million. In view of the
Company's prior operating history, there can be no assurance that the Company
will be able to achieve profitability on a quarterly or annual basis or that it
will be able to sustain or increase its revenue growth in future periods.
Furthermore, in applying the provisions of Statement of Financial Accounting
Standards No. 109 ("SFAS 109") to the Company, particularly considering the
Company's history of net losses, the Company was unable to support a conclusion
that it is more likely than not that its deferred tax assets will be realized
for purposes of SFAS 109. As a result, the Company has provided a full valuation
allowance against its net deferred tax assets. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and Note 7 of Notes
to Consolidated Financial Statements of the Company.
RISKS RELATED TO GROWTH
The Company's strategy is to grow aggressively, both internally and through
acquisitions. This strategy is likely to place significant demands on the
Company's financial, operational and management resources, and to expose the
Company to a variety of risks, including the risk that the Company will be
unable to retain the personnel or obtain the financial and other resources
necessary to pursue and manage such growth. The Company's growth has resulted in
an increase in the level of responsibility for the Company's key personnel.
Expenses arising from the Company's efforts to complete acquisitions, develop
new products or increase its existing market penetration could have an adverse
impact on the Company's business, results of operations and financial condition.
Furthermore, there can be no assurance that the Company will be able to
identify, acquire or integrate acquisition candidates successfully or to manage
profitably any additional products and services resulting from such
acquisitions. Acquired businesses, products and services may not contribute to
the Company's overall strategy or produce returns that justify the related
investment or implementation by the Company. In addition, the Company's growth
may involve the acquisition of companies or the development of products or
services in areas in which the Company does not currently operate. Such
acquisition or development may require the Company's management to develop
expertise in new areas and to attract a new customer base, and could have a
material adverse effect on the Company's business, results of operations or
financial condition. There can be no assurance that the Company will be able to
implement its growth strategy successfully or, if successful in consummating
acquisitions, that it will be able to manage its expanded operations effectively
and profitably. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations," "Business -- Strategy" and "Management."
RISKS OF INTEGRATION OF ACQUIRED OPERATIONS
The process of integrating management services, administrative
organizations, facilities, management information systems and other operational
aspects of acquired businesses, products or services can be time consuming and
costly, and may distract management from day-to-day operations. The difficulties
of integration may be increased by challenges in coordinating geographically
separated organizations, integrating personnel with disparate business
backgrounds and combining different corporate cultures. If Medirisk is to
realize the anticipated benefits of past and future acquisitions, the operations
of the acquired entities must be combined and integrated successfully. There can
be no assurance that the Company's integration processes will be successful or
that the anticipated benefits of any past or future acquisitions will be
realized. Furthermore, there can be no assurance that there will not be
substantial unanticipated costs or liabilities, or other material adverse
effects associated with past or future acquisitions and integration activities
conducted by the Company. See "Manage-
8
<PAGE> 10
ment's Discussion and Analysis of Financial Condition and Results of Operations"
and "Business -- Acquisitions."
DEPENDENCE ON DATA SOURCES AND AMA LICENSES
The Company incorporates the Physicians' Current Procedural Terminology
("CPT") codes of the American Medical Association (the "AMA") into certain of
its market performance products under a non-exclusive five-year license with the
AMA that expires in February 2000. The CPT code system is considered to be the
current industry standard for identifying physician procedures, and the loss or
non-renewal of the AMA CPT code license would have a material adverse effect on
the Company's business, results of operations or financial condition. The
Company also supplements its physician credentials product line with information
from the AMA under a separate exclusive three-year license agreement with the
AMA that expires in December 1998. The Company is engaged in discussions with
respect to the extension of this agreement, but no assurances can be given that
any such extension will be obtained. Pursuant to this license, the Company
obtains information concerning practicing physicians who may be seeking
positions, which information would be difficult and expensive to obtain from
alternative sources. In addition, the Company relies in large part on data from
outside payor, provider and other sources to develop its proprietary products,
including acquired data and data received from customers under the Company's
data collection program. In general, the Company's data sources are not subject
to exclusive agreements with the Company; therefore, data included in the
Company's data products may also be included in data products of the Company's
competitors. There can be no assurance that the Company's sources will continue
to provide data in the future. If any of the Company's sources of data becomes
unavailable, there can be no assurance that alternative sources of data would be
available or that the Company could purchase such data in a cost-efficient
manner.
DEPENDENCE ON INTELLECTUAL PROPERTY RIGHTS
The Company does not own any patents or federally-registered copyrights
relating to its databases or software applications. The Company relies largely
on copyright law, its license agreements with customers and its own security
systems, confidentiality procedures and employee non-disclosure agreements to
maintain the confidentiality and trade secrecy of its proprietary procedures and
resources. Policing unauthorized use and piracy of the Company's products is
difficult. The Company is aware that from time to time there have been limited
breaches of the confidentiality provisions of customers' agreements with the
Company, and there can be no assurance that the precautions taken by the Company
will be adequate to prevent further breaches or misappropriation of the
Company's proprietary information. In addition, the Company cannot prevent the
independent development or implementation of functionally equivalent or superior
systems, products or methodologies. The misappropriation of the Company's
information or independent development of similar products may have a material
adverse effect on the Company's competitive position. Furthermore, there can be
no assurance that third parties will not assert infringement claims against the
Company or that a license or similar agreement will be available on reasonable
terms in the event of an unfavorable ruling on any such claim.
RISK RELATED TO INTANGIBLE ASSETS; ACQUISITION OF IN-PROCESS RESEARCH AND
DEVELOPMENT
Largely as a result of the Company's various acquisitions, Medirisk had
recorded approximately $15.2 million in intangible assets net of accumulated
amortization as of March 31, 1998. Such intangible assets are being amortized
over periods of five to 15 years. The Company expects the amount allocable to
intangible assets on its balance sheet to increase in connection with future
acquisitions and in connection with future contingent consideration payments for
acquisitions that have been consummated, resulting in increases in the Company's
amortization expense. In the event of any sale or liquidation of the Company or
a portion of its assets, there can be no assurance that the value of the
Company's intangible assets will be realized. In addition, the Company regularly
evaluates whether events and circumstances have occurred indicating that any
portion of the remaining balance of amounts allocable to the Company's
intangible assets may not be recoverable. If factors indicate that the carrying
value of the Company's intangible assets has been impaired, the Company would be
required to reduce the carrying value of such assets. Any future determination
requiring the write-off of a significant portion of the unamortized intangible
assets could have a material adverse effect on the Company's business, results
of operations or financial condition. See Notes 1 and 2 of Notes to Consolidated
Financial Statements of the Company.
9
<PAGE> 11
In connection with many of its acquisitions, the Company has recorded
non-recurring charges related to in-process research and development costs. The
amount of each of these non-recurring charges is equal to the estimated current
fair value of specifically identified technologies for which technological
feasibility has not yet been established pursuant to Statement of Financial
Accounting Standards No. 86, "Accounting for Costs of Computer Software to be
Sold, Leased or Otherwise Marketed" and for which future alternative uses did
not exist at the time of acquisition. The Company recorded approximately $4.4
million of these charges in 1997 and $5.3 million in the quarter ended March 31,
1998. Similar charges could result in the future as a result of additional
acquisitions accounted for as purchases. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
UNCERTAINTY AND CONSOLIDATION IN THE HEALTH CARE INDUSTRY
The health care industry is subject to changing political, economic and
regulatory influences that may affect the procurement practices and operation of
health care providers, payors and other industry participants. The Company's
products and services are designed to function within the current structure of
the U.S. health care system; therefore, the commercial value of the Company's
products could be adversely affected if there were material changes in the
current U.S. health care system. Many federal and state legislators have
announced that they intend to propose programs to reform the U.S. health care
system at both the federal and state levels. These programs may contain
proposals to increase governmental involvement in health care, lower
reimbursement rates and otherwise change health care delivery and payment
systems. Participants in the health care market may react to these proposals and
the uncertainty surrounding such proposals by curtailing or deferring
investments, including investments in the Company's products and services. In
addition, in response to this changing environment, many market participants are
consolidating to create larger health care delivery organizations. This
consolidation reduces the number of potential customers for the Company and may
increase the bargaining power of these organizations, which could lead to
reduced prices for Medirisk's products and services. The impact of these
developments on the health care industry is difficult to predict and could have
a material adverse effect on the Company's business, results of operations or
financial condition.
RISKS OF RAPID TECHNOLOGICAL CHANGE
The health care information market is characterized by rapid technological
change, changing customer needs and evolving industry standards. The Company
believes that as the market for its current products matures, its future success
will depend on its ability to enhance its current products and to develop or
acquire and introduce new products to keep pace with technological developments
and emerging industry standards. In addition, the introduction of competing
products embodying new technologies and the emergence of new industry standards
could render the Company's existing products non-competitive or obsolete.
Accordingly, the Company anticipates that significant amounts of future revenue
may be derived from products and product enhancements that do not exist today or
have not been sold in sufficient quantities to measure accurately market
acceptance. There can be no assurance that the Company will not experience
difficulties that could delay or prevent the successful development and
introduction of product enhancements or new products, or that such enhancements
or new products will adequately meet the requirements of the marketplace or
achieve market acceptance. Any failure by the Company to develop and introduce
product enhancements and new products in a timely and cost-efficient manner in
response to changing market conditions or customer requirements could have a
material adverse effect on the Company's business, results of operations or
financial condition.
The Health Insurance Portability and Accountability Act of 1996 ("HIPAA")
added provisions to the Social Security Act governing the electronic
transmission of health information. HIPAA requires the Secretary of the United
States Department of Health and Human Services (the "Secretary") to adopt
national standards for health information transactions and the data elements
used in such transactions. These standards will apply to health plans, health
care claims clearinghouses, and health care providers who transmit any health
information in electronic form in connection with the specified transactions. In
addition, the Secretary is required to adopt safeguards to ensure the integrity
and confidentiality of health information. Violation of the standards is
punishable by fines and, in the case of wrongful disclosure of individually
identifiable health information, imprisonment. The Secretary was required by
HIPAA to issue the standards not later than February 21, 1998. The Secretary has
stated that part of the standards will be published in April 1998; however, no
standards have been
10
<PAGE> 12
issued at this time. Further, HIPAA requires the Secretary to adopt standards
addressing the privacy of individually identifiable health information by the
year 2000, if Congress has not enacted privacy legislation governing these
standards by August 1999. A number of states are also considering the adoption
of rules to protect the privacy of patient records. Any of these requirements,
if adopted, may substantially affect the means used by the Company to collect
data. Such requirements, if adopted, could have a material adverse effect on the
availability of data to the Company or on the Company's use of data. See
"Business -- Products and Services."
NEED FOR ADDITIONAL FINANCING
Implementation of the Company's growth strategy will require significant
capital resources. Capital is needed for both internal growth and the
acquisition and integration of new businesses, products and services. In
addition, many of the Company's acquisition agreements provide for the payment
of contingent consideration based on the performance of the acquired business.
If such acquired businesses exceed the relevant performance goals, the Company
will be required to make additional payments, which could be material. If the
Company does not have sufficient cash resources or if the Common Stock is not
attractive to target businesses, the Company's growth could be limited and its
existing operations impaired, unless it is able to obtain additional capital
through debt or equity financings. Any debt financings could result in the
imposition on the Company of operational or financial restrictions. Any equity
financings could result in dilution to holders of Common Stock. There can be no
assurance that the Company will be able to obtain financing in the future or
that, if available, such financing will be on terms acceptable to the Company.
See "Use of Proceeds" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources."
COMPETITION
The health care information market is intensely competitive and rapidly
changing. The Company believes that the principal competitive factors in its
target markets include the breadth and quality of database and applications
offerings, access to proprietary data, the proprietary nature of methodologies
and technical resources, price, and the effectiveness of marketing and sales
efforts. In each of its target markets, the Company competes with various
competitors, which vary in size, scope and breadth of product and service
offerings. In addition, other information companies not presently offering
health care information services competitive with the Company's products and
services may enter the markets in which the Company competes. Many of the
Company's competitors have, and many of its potential competitors may have,
significantly greater financial, technical, product development and marketing
resources than the Company. The Company also competes with the internal
information resources and systems of certain of its prospective and existing
customers. There can be no assurance that competitive pressures will not have a
material adverse effect on the Company's business, results of operations or
financial condition. See "Business -- Competition."
RISKS OF CUSTOMER CONCENTRATION
The Company derives a substantial portion of its revenue from clinical
performance products provided to HEALTHSOUTH Corporation ("HEALTHSOUTH") under a
three-year contract, the current term of which expires in December 2000.
HEALTHSOUTH accounted for approximately 16% of the Company's revenues for fiscal
1997 (11% of revenues on a pro forma basis giving effect to the acquisitions of
CIVS, CareData, Healthdemographics and Successful Solutions as if such
transactions had occurred on January 1, 1997). HEALTHSOUTH accounted for
approximately 14% of the Company's revenues for the three months ended March 31,
1998. The loss of, or a significant decrease in, business from HEALTHSOUTH could
have a material adverse effect on the Company's business, results of operations
and financial condition. See Note 9 of Notes to Consolidated Financial
Statements of the Company.
POTENTIAL FOR SYSTEM DEFECTS
The information products offered by the Company may contain undetected
errors or failures. Any such errors or failures could result in a loss of, or
delay in, market acceptance of the product and in claims against the Company.
The Company also depends on the accuracy of the data received from its data
sources. If a statistically significant number of medical records, transactions
or physician profiles were found to have been altered or incorrectly entered, or
otherwise contain flawed data, there could be a loss of, or delay in, market
acceptance of
11
<PAGE> 13
the product and possible claims against the Company. Any of the foregoing
results could have a material adverse effect on the Company's business, results
of operations or financial condition.
DEPENDENCE ON KEY PERSONNEL
The Company depends on the services of Mark A. Kaiser, its Chairman of the
Board, Chief Executive Officer and President, Kenneth M. Goins, Jr., its
Executive Vice President and Chief Financial Officer, and on certain other
officers and key personnel. The Company's growth and success will depend in
large part on its ability to attract, motivate and retain qualified management,
technical, sales and marketing personnel. Competition for such personnel is
intense. The loss of the services of one or more of the Company's key personnel
or the inability to attract and retain qualified personnel could have a material
adverse effect on the Company. See "Management."
VARIABLE QUARTERLY OPERATING RESULTS; SEASONALITY
The Company's quarterly revenue and operating results have varied
significantly in the past and are likely to vary substantially from quarter to
quarter in the future. Quarterly results may fluctuate as a result of a variety
of factors including, but not limited to, the Company's sales cycle; demand for
the Company's products; the timing of significant new customer contracts; the
non-renewal of significant customer contracts; the timing of acquisitions;
competitive conditions in the industry; changes in customer budgets; and general
economic factors. The Company has historically recorded a disproportionate
amount of its revenue for each quarter in the final month of the quarter, while
expenses have been incurred more evenly throughout the period. Furthermore, the
Company has experienced a seasonal pattern in its operating results, with a
greater proportion of the Company's revenue and more favorable operating margins
occurring in the second half of the year. Accordingly, results of operations for
any particular quarter may not be indicative of results of operations for future
periods. Additionally, a significant portion of the Company's expenses are
relatively fixed, and the amount and timing of increases in such expenses are
based in large part on the Company's expectations concerning future revenue. If
revenue is below expectations in any given quarter, the adverse effect may be
magnified by the Company's inability to adjust spending quickly enough to
compensate for the revenue shortfall. Accordingly, even a small variation from
expected revenue could have a material adverse effect on the Company's operating
results and financial condition for a given quarter. Fluctuations in the
Company's revenue and operating results could have a material adverse effect on
the market price for the Common Stock. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations."
POSSIBLE VOLATILITY OF STOCK PRICE
The market price of the Common Stock has been, and could in the future be,
subject to fluctuations in response to a variety of events, including
quarter-to-quarter variations in operating results, news announcements, trading
volume, general market trends, new statutes, regulations or changes in the
interpretation of existing statutes affecting the health care industry, and
other factors. Additionally, the stock market recently has experienced
substantial price and volume volatility. As a result, market prices for the
stock of many companies have experienced wide fluctuations, which have not
necessarily been related to their operating performance. These broad market
fluctuations could have a material adverse effect on the market price of the
Common Stock.
POTENTIAL ADVERSE EFFECTS OF SUBSTANTIAL NUMBER OF SHARES ELIGIBLE FOR FUTURE
SALE
Future sales by holders of substantial amounts of Common Stock could
adversely affect the prevailing market price of the Common Stock. The number of
shares of Common Stock available for sale in the public market is limited by
restrictions under the Securities Act of 1933, as amended (the "Securities
Act"), and lock-up agreements under which certain stockholders of the Company
holding in the aggregate 889,267 shares of Common Stock upon consummation of the
Offering (plus up to 247,922 shares of Common Stock issuable upon the exercise
of currently exercisable stock options and warrants), including each of the
Company's executive officers, directors, the Selling Stockholders and certain
other stockholders, have agreed, subject to certain limited exceptions, that
they will not directly or indirectly, offer, pledge, sell, offer to sell,
contract to sell or grant any option to purchase or otherwise sell or dispose
(or announce any offer, pledge, offer of sale, contract of sale, grant of any
option or other sale or disposition) of any shares of Common Stock or other
capital stock or securities exchangeable or exercisable for, or convertible
into, shares of Common Stock or other capital stock for a period
12
<PAGE> 14
of 120 days after the date of this prospectus (the "Lock-Up Period"), without
the prior written consent of SunTrust Equitable Securities. Based on the number
of shares of Common Stock outstanding on May 1, 1998, after completion of the
Offering, the Company will have 7,011,557 shares of Common Stock outstanding. Of
these shares, in addition to the 2,500,000 shares offered hereby plus any
additional shares sold upon exercise of the Underwriters' over-allotment option,
3,271,435 shares of Common Stock held by existing stockholders (plus up to
485,541 shares of Common Stock issuable upon the exercise of currently
exercisable options and warrants) will be eligible for immediate sale without
restriction. In addition, at various times during the Lock-up Period, subject to
the volume restrictions imposed by Rule 144, an additional 143,682 shares of
Common Stock will become eligible for sale without restriction. At the end of
the Lock-Up Period, subject to the volume limitations imposed by Rule 144 ("Rule
144") under the Securities Act, an additional 779,535 shares of Common Stock
(plus up to 150,482 shares of Common Stock issuable upon the exercise of
currently exercisable options and warrants) will be eligible for immediate sale
without restriction. The remaining 316,905 shares of Common Stock held by
existing stockholders (plus up to 97,440 shares of Common Stock issuable upon
the exercise of currently exercisable options and warrants) will become eligible
for sale at various times pursuant to Rule 144. See "Management" and "Principal
and Selling Stockholders."
YEAR 2000 COMPLIANCE
Both the Company's internal operations and products use a significant
number of computer software programs and operating systems. Given the
information known at this time about the Company's systems and products, coupled
with the Company's ongoing efforts to upgrade or maintain systems and products,
as necessary, the Company does not anticipate that the year 2000 issue or
related costs will have a material adverse effect on the Company's business,
results of operations or financial condition. However, the Company is still
analyzing its databases and software applications and those utilized by key
suppliers of data and key customers, and to the extent they are not fully year
2000 compliant, there can be no assurance that the costs necessary to update
databases or software or potential systems interruptions, interruptions in the
supply of data or interruptions in demand for the Company's products would not
have a material adverse effect on the Company's business, results of operations
or financial condition. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Year 2000 Compliance."
ADVERSE IMPACT OF ANTI-TAKEOVER PROVISIONS
Certain provisions of the Company's Certificate of Incorporation and Bylaws
and of Delaware law could have the effect of delaying, deterring or preventing a
change of control involving the Company. Specifically, the Company's Certificate
of Incorporation, as amended, provides for the issuance of up to 995,000 shares
of preferred stock with such rights and preferences as may be determined by the
Board of Directors. Such shares may be issued without further stockholder
approval in circumstances that could have the effect of preventing or delaying a
change of control. The Company's Board of Directors is classified into three
classes, with each class of directors having a staggered three year term. The
Company's Bylaws prohibit action by the stockholders through written consent and
restrict the ability of stockholders to call stockholder meetings and propose
action at meetings. Finally, Section 203 of the Delaware General Corporation Law
restricts transactions between the Company and any "interested stockholders" (as
defined). These provisions could reduce or eliminate any takeover premium in the
market price for the Common Stock or otherwise limit the price certain investors
might be willing to pay for the Common Stock.
RISKS ASSOCIATED WITH UNSPECIFIED USE OF PROCEEDS
Approximately $40.5 million, or 80.5% ($45.7 million, or 82.3%, if the
Underwriters' over-allotment option is exercised in full) of the net proceeds of
the Offering will be available to the Company for general corporate purposes,
including potential future acquisitions of complementary businesses, the payment
of contingent consideration with respect to acquisitions and the development of
additional products and services. The Company's management, subject to approval
by the Board of Directors, will have absolute discretion with respect to the use
of such proceeds of the Offering. See "Use of Proceeds."
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<PAGE> 15
NO DIVIDENDS
It is the policy of the Company's Board of Directors to retain earnings, if
any, to finance the continued growth of the Company rather than to pay
dividends. The Company's existing credit facility contains restrictions on the
Company's payment of dividends. The Company has not paid any cash dividends on
its Common Stock since 1991. See "Dividend Policy."
RECENT ACQUISITION
On May 28, 1998, Medirisk acquired by merger all of the capital stock of
Successful Solutions for 190,000 shares Common Stock and approximately $2.9
million in cash (the "SSI Acquisition"). Contingent consideration in stock and
cash is payable if Successful Solutions achieves certain performance objectives.
Medirisk expects to record a non-recurring charge of approximately $4.0 million
in the second quarter of 1998 relating to acquired in-process research and
development costs and approximately $400,000 during 1998 for planned integration
costs. Medirisk will account for the SSI Acquisition as a purchase transaction.
The SSI Acquisition was made pursuant to an Acquisition Agreement and Plan of
Merger dated as of May 28, 1998 by and among the Company, a newly formed merger
subsidiary of the Company, Successful Solutions and the shareholders of
Successful Solutions (the "Acquisition Agreement"). The Acquisition Agreement
provides for payment of additional contingent consideration upon the achievement
of certain performance objectives. Such additional contingent consideration will
be paid in combinations of cash and Common Stock.
To finance the cash portion of the purchase price, the Company used
borrowings under its existing revolving credit facility with NationsBank. As a
result of these borrowings, at May 28, 1998 the Company had $9.8 million in
borrowings outstanding under its credit facility.
The Company and Successful Solutions also entered into Employment
Agreements with a senior executive of Successful Solutions. The purchase price
and other terms of the SSI Acquisition were determined as a result of arms'
length negotiations between unrelated parties. At the closing date, there was no
material relationship between the Company and Successful Solutions or any of the
Successful Solutions shareholders, or any of their respective affiliates,
officers, directors or associates.
Successful Solutions, of Vidalia, Georgia, provides decision-support tools,
consulting services and training materials to hospitals and physician group
practices to assist them in improving patient outcomes, achieving the efficient
delivery of care and in establishing billing and coding practices that comply
with industry requirements. Successful Solutions collects clinical and billing
data from its customers and profiles the relative performance of individual
physicians using its analytical tools and statistical algorithms. Successful
Solutions implements on-site education through physician consultants and medical
record specialists to influence physician behavior and promote the effective and
efficient delivery of health care. Successful Solutions' analytical tools and
services for bill coding and medical record documentation help its customers
achieve optimal and appropriate reimbursement for services delivered, while
improving the quality of data for future comparative analysis. Except as
specifically set forth in this section and in "Prospectus Summary," "Use of
Proceeds," "Management's Discussion and Analysis of Financial Condition and
Results of Operations," "Experts" and "Documents Incorporated by Reference,"
this Prospectus does not discuss or give effect to the acquisition of Successful
Solutions.
For the year ended December 31, 1997, Successful Solutions reported revenue
of $3.4 million, operating income of $731,000 and net income of $717,000,
compared to revenue of $3.3 million, operating income of $735,000 and net income
of $720,000 for 1996. For the quarter ended March 31, 1998, Successful Solutions
reported revenue of $771,000, operating income of $40,000 and net income of
$39,000, compared to revenue of $697,000, operating income of $42,000 and net
income of $36,000 for the same period in 1997.
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<PAGE> 16
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 2,250,000 shares of
Common Stock offered by the Company, at an assumed public offering price of
$24.00 per share, are estimated to be approximately $50.3 million after
deducting estimated underwriting discounts and offering expenses payable by the
Company (or approximately $55.5 million if the Underwriters' over-allotment
option is exercised in full). The Company intends to use a portion of the net
proceeds from the Offering to repay in full amounts outstanding under its
revolving credit facility with NationsBank, N.A. (the "NationsBank Revolver").
At June 4, 1998, $9.8 million was outstanding under the NationsBank Revolver.
The Company anticipates that the remaining net proceeds will be used
principally for general corporate purposes, including potential future
acquisitions of complementary businesses or products in the health care
information industry, the payment of contingent consideration with respect to
acquisitions and for the development of additional products and services.
Although the Company continually seeks suitable acquisition candidates with
complementary businesses, products and services in the health care information
industry, it is not currently a party to any definitive agreement or letter of
intent regarding any acquisition. The Company is, however, regularly engaged in
discussions with a number of potential acquisition targets, which could result
in acquisition agreements for one or more of such potential targets in the near
future. As a result of these factors, the Company cannot precisely determine the
timing or relative size of any potential acquisition. Management will have
complete discretion as to the use of the remaining net proceeds of the Offering.
Pending the application of the net proceeds as described above, the Company
intends to invest the net proceeds in short-term, interest-bearing,
investment-grade securities.
Amounts outstanding under the NationsBank Revolver were incurred in March
1998 to fund the cash portion of the purchase price of Healthdemographics, in
April 1998 to fund the payment of contingent consideration in connection with
the acquisition of CareData and to fund the Company's working capital needs and
in May 1998 to fund the cash portion of the purchase price of Successful
Solutions. The NationsBank Revolver is a $10.0 million revolving credit facility
available to the Company under a Credit Agreement. The NationsBank Revolver
bears interest at varying rates based on LIBOR and NationsBank's prime rate and
will mature on March 28, 1999. Current borrowings under the NationsBank Revolver
bear interest at the rate of 8.5%. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources" and Note 4 of Notes to Consolidated Financial Statements of the
Company.
In connection with the Offering, a Selling Stockholder is exercising
warrants to purchase 97,440 shares of Common Stock for an aggregate exercise
price of approximately $150,000. Except for such exercise price, the Company
will not receive any proceeds in connection with the sale of Common Stock by the
Selling Stockholders.
DIVIDEND POLICY
It is the policy of the Company's Board of Directors to retain earnings to
support operations and to finance the continued growth of the Company. Payments
of future dividends, if any, will be at the discretion of the Company's Board of
Directors. The NationsBank Revolver contains restrictions on the payment of
dividends. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources" and Note 4 of Notes to
Consolidated Financial Statements of the Company.
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<PAGE> 17
CAPITALIZATION
The following table sets forth as of March 31, 1998, (i) the capitalization
of the Company; and (ii) the capitalization of the Company as adjusted to give
effect to the sale of the 2,250,000 shares of Common Stock offered by the
Company at an assumed public offering price of $24.00 per share, the application
of the net proceeds by the Company as described in "Use of Proceeds," and the
exercise by a Selling Stockholder of outstanding warrants to purchase an
aggregate of 97,440 shares of Common Stock at a price of $1.54 per share
immediately prior to the consummation of the Offering. This table should be read
in conjunction with the more detailed information and consolidated financial
statements and accompanying notes appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
MARCH 31, 1998
----------------------
ACTUAL AS ADJUSTED
-------- -----------
(IN THOUSANDS)
<S> <C> <C>
Short-term debt............................................. $ 2,499 $ 124
======== ========
Long-term debt and capital lease obligations, excluding
current portion........................................... $ 41 $ 41
-------- --------
Redeemable Preferred Stock, Series 1998A, $0.001 par value,
5,000 shares authorized; no shares issued and
outstanding............................................... -- --
Stockholders' equity:
Preferred Stock, $0.001 par value, 995,000 shares
authorized; no shares issued and outstanding........... -- --
Common Stock, $0.001 par value, 20,000,000 shares
authorized; 4,664,117 shares issued and outstanding
actual; and 7,011,557 shares issued and outstanding as
adjusted............................................... 5 7
Additional paid-in capital................................ 31,663 82,133
Accumulated deficit....................................... (17,005) (17,005)
-------- --------
Total stockholders' equity............................. 14,663 $ 65,135
-------- --------
Total capitalization................................... $ 14,704 $ 65,176
======== ========
</TABLE>
DILUTION
The net tangible book value (deficit) of the Company as of March 31, 1998
was approximately $(498,000) or $(0.11) per share. Net tangible book value
(deficit) is determined by dividing net tangible book value (total tangible
assets less total liabilities) of the Company by the number of shares of Common
Stock outstanding. Without taking into account any changes in the net tangible
book value after March 31, 1998, other than to give effect to the sale by the
Company of the 2,250,000 shares of Common Stock at an assumed public offering
price of $24.00 and the application of the net proceeds to the Company and the
exercise by a Selling Stockholder of outstanding warrants to purchase an
aggregate of 97,440 shares of Common Stock at a price of $1.54 per share
immediately prior to the consummation of the Offering, the adjusted net tangible
book value of the Company as of March 31, 1998, would have been approximately
$50.0 million, or $7.13 per share. This represents immediate dilution in net
tangible book value of $16.87 per share to new investors purchasing shares in
the Offering and an immediate increase in net tangible book value of $7.24 per
share to existing stockholders. This table should be read in conjunction with
the more detailed information and consolidated financial statements and
accompanying notes appearing elsewhere in this Prospectus. The following table
illustrates this per share dilution.
<TABLE>
<S> <C> <C>
Assumed public offering price per share..................... $ 24.00
Net tangible book value (deficit) per share as of March
31, 1998............................................... $ (0.11)
Increase per share attributable to new investors.......... 7.24
--------
Net tangible book value per share after the Offering........ 7.13
--------
Dilution per share to new investors......................... $ 16.87
========
</TABLE>
16
<PAGE> 18
SELECTED CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The selected consolidated financial data presented below as of and for the
years ended December 31, 1993, 1994, 1995, 1996 and 1997 have been derived from
the audited consolidated financial statements of the Company and its
subsidiaries. The consolidated financial statements and related notes as of
December 31, 1996 and 1997 and for each of the years in the three-year period
ended December 31, 1997, together with the related report of KPMG Peat Marwick
LLP, independent certified public accountants, are included elsewhere in this
Prospectus. The selected consolidated financial data presented below as of March
31, 1998 and for the three months ended March 31, 1997 and 1998 have been
derived from the unaudited consolidated financial statements of the Company
which, in the opinion of management, include all adjustments (consisting only of
normal recurring adjustments) necessary for a fair presentation of the
information included herein. Operating results for the three months ended March
31, 1998 are not necessarily indicative of results to be obtained for the full
year. As a result of the 1997 Acquisitions and the acquisitions of
Healthdemographics and Successful Solutions, the Company's historical financial
statements are not representative of financial results to be expected for future
periods. The selected consolidated financial data should be read in conjunction
with "Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Consolidated Financial Statements of the Company and Notes;
the Unaudited Consolidated Condensed Financial Statements of the Company and
Notes and the Unaudited Pro Forma Financial Data appearing elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
-------------------------------------------- ----------------
1993 1994 1995 1996 1997 1997 1998
------ ------ ------ ------- ------- ------ -------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Revenue............................................. $2,447 $2,894 $3,655 $ 8,904 $16,749 $2,650 $ 5,176
Salaries, wages and benefits........................ 1,675 1,893 2,578 6,093 7,910 1,762 2,574
Other operating expenses............................ 507 731 956 2,314 4,374 646 1,522
Depreciation and amortization....................... 75 143 193 787 1,304 201 427
Acquired in-process research and development costs
and integration costs(1).......................... -- -- -- 6,180 4,575 -- 5,315
------ ------ ------ ------- ------- ------ -------
Operating income (loss)............................. 190 127 (72) (6,470) (1,414) 41 (4,662)
Interest income (expense), net...................... (41) (54) (66) (703) 345 41 36
Other income (expense).............................. 18 -- -- (57) -- -- --
Provision for income taxes.......................... -- -- -- -- (707) -- --
------ ------ ------ ------- ------- ------ -------
Income (loss) before extraordinary item............. 167 73 (138) (7,230) (1,776) 82 (4,626)
Extraordinary item -- loss on early extinguishment
of debt(2)........................................ -- -- -- -- (806) (806) --
------ ------ ------ ------- ------- ------ -------
Net income (loss)................................... $ 167 $ 73 (138) (7,230) (2,582) (724) (4,626)
====== ======
Accretion of discount on Series A convertible
preferred stock................................... (92) -- -- -- --
Convertible preferred stock dividend requirement.... (202) (202) (25) (25) --
------ ------- ------- ------ -------
Net loss attributable to common stock............... $ (432) $(7,432) $(2,607) $ (749) $(4,626)
====== ======= ======= ====== =======
Loss per common share -- basic and diluted(3):
Income (loss) per share before extraordinary
item............................................ $(0.30) $ (4.84) $ (0.46) $ 0.02 $ (1.03)
Loss per share -- extraordinary item.............. -- -- (0.21) (0.25) --
------ ------- ------- ------ -------
Net loss per share of common stock.......... $(0.30) $ (4.84) $ (0.67) $(0.23) $ (1.03)
====== ======= ======= ====== =======
Weighted average number of common shares used in
calculating net loss per share of common
stock -- basic and diluted(3)..................... 1,427 1,536 3,918 3,265 4,495
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------------- MARCH 31,
1993 1994 1995 1996 1997 1998
------- ------- ------- ------- ------- ---------
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital (deficit).............................. $ 33 $ 321 $ 197 $(2,495) $ 4,181 $(3,082)
Total assets........................................... 1,035 1,111 1,263 8,456 20,658 25,291
Long-term debt and capital lease obligations excluding
current portion...................................... 127 172 151 7,195 165 41
Redeemable preferred stock............................. 1,838 2,210 2,302 -- -- --
Stockholders' equity (deficit)......................... (1,714) (1,928) (2,333) (4,823) 16,184 14,663
</TABLE>
17
<PAGE> 19
- ---------------
(1) In connection with the 1997 Acquisitions, the Company recorded
non-recurring charges related to acquired in-process research and
development and integration costs in 1997. Excluding these charges and the
extraordinary item, operating income, net income, and net income per share
of common stock -- diluted for the year ended December 31, 1997 would have
been $3.2 million, $2.1 million and $0.45 respectively. In the first
quarter of 1998, the Company recorded non-recurring charges related to
acquired in-process research and development costs in connection with the
acquisition of Healthdemographics, as well as integration costs associated
with the 1997 Acquisitions. Excluding these charges, operating income, net
income and net income per share of common stock -- diluted for the three
months ended March 31, 1998 would have been $653,000, $419,000 and $0.08,
respectively. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations," Note 2 of Notes to Consolidated
Financial Statements of the Company and the Unaudited Consolidated
Condensed Financial Statements of the Company.
(2) 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 approximately
$806,000 with respect to accelerated amortization of original issue
discount on certain 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. See Note 5 of Notes to
Consolidated Financial Statements of the Company.
(3) Computed on the basis described in Note 1 of Notes to Consolidated
Financial Statements of the Company.
18
<PAGE> 20
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the more
detailed information and consolidated financial statements and accompanying
notes, as well as the other financial information appearing elsewhere in this
Prospectus. Except for historical information, the following discussion contains
forward-looking statements that involve risks and uncertainties. The Company's
actual results could differ materially from those discussed herein. Factors that
could cause or contribute to such differences include, but are not limited to,
those discussed in "Risk Factors," as well as those discussed elsewhere in this
Prospectus.
OVERVIEW
Medirisk is a provider of proprietary database products, decision-support
software and analytical services to the health care industry. The Company's
products and services enable its customers to make objective comparisons of the
financial costs and clinical outcomes of physician services to customer-specific
and industry benchmarks, assess member satisfaction with specific managed care
plans, and obtain information concerning the background and credentials of
physicians. These capabilities assist health care industry participants in
measuring the performance of health care payors and providers and forecasting
the supply of and demand for health care services.
Applications of Medirisk's products include pricing managed care contracts,
evaluating physician fee schedules and utilization of physician services,
comparing provider outcomes and health plan performance, credentialing and
recruiting physicians, developing health care delivery networks, and marketing
health care services. The Company actively sells its products to over 1,000
major customers, including leading health plans, insurers, hospitals, large
multi-specialty physician groups, physician practice management companies,
employers, equipment suppliers and pharmaceutical companies, as well as several
hundred smaller customers, including single-specialty physician groups. Medirisk
believes that it is the leading provider of clinical and financial database
products comprised of physician-oriented content and managed care member
satisfaction information in the United States.
ACQUISITIONS
Following the completion of its initial public offering in January 1997,
Medirisk significantly expanded its operations by acquiring six companies. The
acquisition of businesses with complementary products and services has broadened
the Company's customer base, created additional cross-selling opportunities,
increased market share within existing products and resulted in new product
extensions and enhancements. The following summarizes these recent transactions.
- In May 1997, Medirisk acquired substantially all of the assets of
Staff-Link of St. Louis, Missouri, a provider of a physician database
and related software utilities designed to assist health care
organizations with their in-house recruiting efforts. Staff-Link's
customer base increased the market share of the Company's physician
credentials products.
- In June 1997, Medirisk acquired CIVS of Rockville, Maryland, a leading
national provider of physician credentialing services and information
products to health care organizations. The acquisition of CIVS added new
customers to the Company's physician credentials product line and
broadened the range of products and outsourced services offered by the
Company.
- In August 1997, Medirisk acquired 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. CareData's products are used by managed care plans to
assess their competitive position and quality of care, by employers to
evaluate health plans and by pharmaceutical companies to target
potential markets for their products.
- In November 1997, Medirisk acquired Medsource of St. Paul, Minnesota,
which licenses databases of physician information for use in recruiting
physicians and developing health care networks. The
19
<PAGE> 21
acquisition strengthened the Company's physician credentials product
line and extended the application of these products to the
administrative and the marketing functions of health care organizations.
- In March 1998, Medirisk acquired Healthdemographics of San Diego,
California, which provides databases and decision-support applications
to forecast the supply of and demand for health care services. Health
care delivery organizations, insurers, equipment suppliers, consultants
and other health care industry participants use the proprietary
demographic and market segmentation information and software provided by
Healthdemographics to make more informed business decisions regarding
strategic planning and market planning and analysis. The acquisition of
Healthdemographics resulted in an expansion of the Company's market
performance products and customer base.
- In May 1998, Medirisk acquired 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 in establishing billing and coding practices that comply with
industry requirements. The acquisition resulted in an expansion of the
Company's clinical performance products and customer base.
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.
Also in connection with the 1997 Acquisitions and the acquisition of
Healthdemographics, the Company recorded non-recurring charges related to
in-process research and development costs of $3.1 million for CIVS, $975,000 for
CareData, $300,000 for Medsource and $5.3 million for Healthdemographics. 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 24% for CIVS and CareData, 28% for
Healthdemographics and 29% for Medsource), 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. Similar charges could result in the
future as a result of additional acquisitions accounted for as purchases. The
Company incurred approximately $200,000 of integration costs during 1997, and
approximately $65,000 of such costs during the first quarter of 1998, for the
1997 Acquisitions. The Company estimates that it will incur integration costs of
approximately $400,000 in 1998 in connection with the acquisition of
Healthdemographics. The Company also estimates that it will record a
non-recurring change related to in-process research and development costs of
$4.0 million in the second quarter of 1998 in connection with the SSI
Acquisition and that it will incur integration costs of approximately $400,000
in 1998 in connection with the SSI Acquisition.
As a result of the 1997 Acquisitions and the acquisitions of
Healthdemographics and Successful Solutions, the Company's historical financial
statements are not representative of financial results to be expected for future
periods. See Note 2 of Notes to Consolidated Financial Statements of the
Company.
SOURCES OF REVENUE
The Company provides services and licenses its products primarily pursuant
to single- and multi-year contracts that provide for the payment of
non-refundable annual fees, often in advance of use or shipment, or of quarterly
fees that are generally billed in advance of service delivery. The products are
segregated into three types: market performance, clinical performance and
physician credentials products. The market performance products provide
customers with information from the Company's market performance product
databases. Revenue on these sales is recognized upon the delivery of the data.
The Company also licenses the exclusive right to market the results of its
managed care consumer satisfaction surveys. Revenue from the licenses of
disease-specific customized surveys to the pharmaceutical industry is recognized
as the related costs of producing the survey are incurred, and revenue from
non-customized data licensing is recognized upon delivery. The clinical
performance products revenues relate to the delivery of services and are
recognized over the contract terms as the services are provided. The physician
credentials products consist of (i) data and services provided to customers over
time, for which revenue is recognized ratably over the life of the contract, and
(ii) credentials reports that
20
<PAGE> 22
validate physicians' education, training and other matters, for which revenue is
recognized upon delivery of the completed reports. Customer service revenues are
recognized ratably over the service contract period. All other revenue,
including fees for training, consulting and other miscellaneous services, is
recognized upon the performance of the applicable services.
The Company's three groups of products contribute varying percentages of
the Company's total revenue from quarter to quarter based on a variety of
factors, including, without limitation, the timing and size of acquisitions and
the differences in seasonality among the groups of products. Of its total
revenue for the year ended December 31, 1997, the Company derived approximately
37% from market performance products, approximately 20% from clinical
performance products and approximately 43% from physician credentials products.
Of its total revenue for the quarter ended March 31, 1998, the Company derived
approximately 47% from market performance products, approximately 14% from
clinical performance products and approximately 39% from physician credentials
products.
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 acquisitions 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 has been in excess of 70% for each of the
last four years and for the first quarter of 1998.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, the percentage
of revenue represented by the respective items.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------- -------------
1995 1996 1997 1997 1998
----- ----- ----- ---- ----
<S> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS:
Revenue............................................... 100% 100% 100% 100% 100%
Salaries, wages and benefits.......................... 71 69 47 66 50
Other operating expenses.............................. 26 26 26 24 29
Depreciation and amortization......................... 5 9 8 8 8
Acquired in-process research and development costs and
integration costs................................... -- 69 27 -- 103
--- --- --- --- ---
Operating loss........................................ (2) (73) (8) 2 (90)
Interest income (expense), net........................ (2) (8) 2 1 1
Other expense......................................... -- -- -- -- --
Provision for income taxes............................ -- -- (4) -- --
Extraordinary item -- loss on early extinguishment of
debt................................................ -- -- (5) (30) --
--- --- --- --- ---
Net loss.............................................. (4)% (81)% (15)% (27)% (89)%
=== === === === ===
</TABLE>
QUARTER ENDED MARCH 31, 1998 COMPARED TO QUARTER ENDED MARCH 31, 1997
Revenue. Revenue for the three months ended March 31, 1998 was $5.2
million, an increase of $2.5 million or 95% over the same period in the prior
year. The increase was primarily attributable to internal growth and to the 1997
Acquisitions and the acquisition of Healthdemographics. Revenue associated with
the 1997 Acquisitions and the acquisition of Healthdemographics represented $1.1
million or 47% of the total increase. The Company's revenue without the impact
of these acquisitions increased 53% for the first quarter of 1998 over
21
<PAGE> 23
the first quarter of 1997 as a result of a combination of factors including
increases in license revenue from new customers, the impact of the Company's
initial cross-selling efforts, and the effect of the Company's base of recurring
revenue.
Salaries, wages and benefits. Salaries, wages and benefits for the three
months ended March 31, 1998 were $2.6 million, an increase of $812,000 or 46%
over the same period in the prior year. The increase was primarily the result of
the 1997 Acquisitions and incremental expenses associated with internal growth.
Salaries, wages and benefits as a percentage of revenue decreased to 50% from
66% in the same period in the prior year. This decrease resulted primarily from
leveraging personnel investments made during 1997 as revenue increased through
internal growth and acquisitions.
Other operating expenses. Other operating expenses for the three months
ended March 31, 1998 were $1.5 million, an increase of $876,000 or 136% over the
same period in the prior year. This increase is primarily related to costs
associated with the 1997 Acquisitions. Other operating expenses increased as a
percentage of revenue to 29% as compared to 24% in the same period in the prior
year primarily as a result of differences in expense structures of the companies
acquired in the 1997 Acquisitions compared to the Company.
Depreciation and amortization. Depreciation and amortization expenses for
the three months ended March 31, 1998 were $427,000, an increase of $226,000 or
112% over the same period in the prior year. The increase was primarily the
result of the amortization of intangible assets acquired in the 1997
Acquisitions. Depreciation and amortization as a percentage of revenue remained
constant at 8% of revenue in both periods.
Acquired in-process research and development costs and integration
costs. Acquired in-process research and development costs for the three months
ended March 31, 1998 were $5.3 million as compared to $0 in the same period in
the prior year. In connection with the acquisition of Healthdemographics in
1998, the Company acquired Healthdemographics' ongoing research and development
activities. At the effective date of the acquisition, the Company recorded a
non-recurring charge resulting from expensing the acquired in-process research
and development costs. Integration costs for the three months ended March 31,
1998 were $65,000 as compared to $0 in the same period in the prior year. These
integration charges were associated with the 1997 Acquisitions.
Interest income (expense), net. Net interest income for the three months
ended March 31, 1998 was $36,000, compared to $41,000 for the same period in the
prior year.
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996
Revenue. Revenue in 1997 was $16.7 million, an increase of $7.8 million or
88% over 1996. The increase was primarily attributable to the acquisitions of
CIVS and CareData, effective in June 1997 and August 1997, respectively. Revenue
recognized by CIVS, CareData and the other 1997 Acquisitions represented
approximately $4.7 million, or 60% of the total increase. The Company's revenue
without the impact of the revenue from the 1997 Acquisitions increased 35% for
1997 over 1996 as a result of a combination of factors, including significant
increases in the volume of patient discharges with the Company's largest
customer, HealthSouth, the revenue of PracticeMatch, which was acquired in March
1996, whose revenues were not included in the Company's revenues for the entire
year in 1996, and increases in the volume of products licensed attributable to
an increase in the Company's sales and marketing personnel. The volume increase
was principally attributable to licenses to new and existing customers for
existing products and product extensions.
Salaries, wages and benefits. Salaries, wages and benefits in 1997 were
$7.9 million, an increase of $1.8 million or 30% over 1996. This increase was
primarily the result of the acquisitions of CIVS and CareData and growth in the
revenues of the Company's other business units. Salaries, wages and benefits
decreased as a percentage of revenue during 1997 to 47% as compared to 69% in
1996. This decrease resulted primarily from leveraging the Company's existing
administrative, sales and marketing personnel as revenue increased through both
acquisitions and internal growth.
Other operating expenses. Other operating expenses in 1997 were $4.4
million, an increase of $2.1 million or 89% over 1996, principally as a result
of the acquisitions of CIVS and CareData. Other operating expenses remained
generally consistent at approximately 26% of revenue in 1997 and 1996.
22
<PAGE> 24
Depreciation and amortization. Depreciation and amortization in 1997 was
$1.3 million, an increase of $517,000 or 66% over 1996. This increase resulted
primarily from the 1997 Acquisitions. As a percentage of revenue, depreciation
and amortization for 1997 and 1996 was 8% and 9%, respectively.
Acquired in-process research and development costs and integration
costs. In connection with the 1997 Acquisitions, the Company acquired the
ongoing research and development activities of each entity and incurred certain
integration expenses. At the effective date of each acquisition the Company
recorded non-recurring charges resulting from expensing acquired in-process
research and development costs. In 1997, the acquired in-process research and
development costs and integration costs totaled $4.6 million, or 27% of revenue.
Interest income (expense), net. Net interest income in 1997 was $345,000,
an increase of $1.0 million over 1996. The increase was a result of the
extinguishment of debt with the proceeds of the Company's initial public
offering and the interest income earned on the net proceeds of that offering.
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
Revenue. Revenue in 1996 was $8.9 million, an increase of $5.2 million or
144% over 1995. The increase was primarily attributable to the acquisitions of
Formations in Health Care, Inc. ("Formations") and PracticeMatch, Inc.
("PracticeMatch") effective in January and March 1996, respectively. Revenue
recognized by these acquired companies represented approximately $4.9 million,
or 93% of the total increase. The Company's revenue without the impact of the
revenue from the acquired companies increased 9% for 1996 over 1995 as a result
of a combination of factors, including increases in the volume of financial
products licensed and revenue attributable to an increase in the Company's sales
and marketing personnel. The volume increase was principally attributable to
licenses to new and existing customers as a result of product enhancements and
extensions.
Salaries, wages and benefits. Salaries, wages and benefits in 1996 were
$6.1 million, an increase of $3.5 million or 136% over 1995. This increase was
primarily the result of the acquisitions of Formations and PracticeMatch and, to
a lesser extent, growth in the Company's administrative, sales and marketing
infrastructure. Salaries, wages and benefits decreased as a percentage of
revenue in 1996 to 69% as compared to 71% in 1995. This decrease resulted
primarily from leveraging the Company's administrative, sales and marketing
personnel as revenue increased through both acquisitions and internal growth.
Other operating expenses. Other operating expenses in 1996 were $2.3
million, an increase of $1.4 million or 142% over 1995, principally as a result
of the acquisition of Formations and PracticeMatch. Other operating expenses
remained constant at approximately 26% of revenue in 1996 and in 1995.
Depreciation and amortization. Depreciation and amortization in 1996 was
$787,000, an increase of $593,000 or 307% over 1995. This increase resulted from
the acquisitions of Formations and PracticeMatch. As a percentage of revenue,
depreciation and amortization for 1996 and 1995 was 9% and 5%, respectively.
Acquired in-process research and development costs. In connection with the
acquisition of Formations and PracticeMatch, the Company acquired the ongoing
research and development activities of each entity. At the effective date of
each acquisition the Company recorded non-recurring charges resulting from
expensing acquired in-process research and development costs. These charges
totaled $6.2 million, or 69% of revenue, in 1996.
Interest income (expense), net. Net interest expense in 1996 was $703,000,
an increase of $638,000 or 975% over 1995. The increase was a result of interest
due on senior subordinated notes issued during 1996 to finance the acquisition
of PracticeMatch as well as interest expense on the acquisition notes issued to
the sellers of PracticeMatch.
23
<PAGE> 25
QUARTERLY RESULTS OF OPERATIONS
The following table sets forth, for the fiscal periods indicated, certain
items from the statements of operations of the Company. In the opinion of the
Company's management this unaudited information has been prepared on the same
basis as the audited information and includes all adjustments necessary to
present fairly the information set forth therein. The operating results for any
quarter are not necessarily indicative of results for any future period:
<TABLE>
<CAPTION>
1998
1996 QUARTER ENDED 1997 QUARTER ENDED QUARTER
-------------------------------------- -------------------------------------- ENDED
MAR. 31 JUN. 30 SEPT. 30 DEC. 31 MAR. 31 JUN. 30 SEPT. 30 DEC. 31 MAR. 31
------- ------- -------- ------- ------- ------- -------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS:
Revenue............................. $1,577 $2,297 $ 2,380 $2,650 $2,650 $3,243 $ 4,677 $6,179 $ 5,176
Salaries, wages and benefits........ 1,121 1,637 1,630 1,705 1,762 1,718 2,036 2,394 2,574
Other operating expenses............ 356 650 579 729 646 894 1,309 1,525 1,522
Depreciation and amortization....... 96 226 228 237 201 249 352 502 427
Acquired in-process research and
development costs and integration
costs............................. 6,180 -- -- -- -- 3,100 1,064 411 5,315
------- ------- -------- ------- ------- ------- -------- ------- -------
Operating income (loss)............. (6,176) (216) (57) (21) 41 (2,718) (84) 1,347 (4,662)
Interest income (expense), net...... (52) (214) (216) (221) 41 157 103 44 36
Other expense....................... -- (37) (3) (17) -- -- -- -- --
Provision for income taxes.......... -- -- -- -- -- -- -- (707) --
------- ------- -------- ------- ------- ------- -------- ------- -------
Income (loss) before extraordinary
item.............................. (6,228) (467) (276) (259) 82 (2,561) 19 684 (4,626)
Extraordinary item.................. -- -- -- -- (806) -- -- -- --
------- ------- -------- ------- ------- ------- -------- ------- -------
Net income (loss)................... $(6,228) $ (467) $ (276) $ (259) $ (724) $(2,561) $ 19 $ 684 $(4,626)
======= ======= ======== ======= ======= ======= ======== ======= =======
</TABLE>
The Company's quarterly revenues and operating results have varied
significantly in the past. Quarterly results have fluctuated as a result of a
variety of factors including but not limited to the following: the Company's
sales cycle; staffing changes in the Company's sales and marketing organization;
changes in the Company's resources; demand for the Company's products; the
timing of significant new customer contracts; the non-renewal of significant
customer contracts; the timing of acquisitions; competitive conditions in the
industry; changes in customer budgets; and general economic factors. The Company
has historically recorded a disproportionate amount of its revenue for each
quarter in the final month of the quarter, while expenses have been incurred
more evenly throughout the period. Furthermore, the Company has experienced a
seasonal pattern in its operating results, with a greater proportion of the
Company's revenue and operating profitability occurring in the second half of
the year. The Company attributes this seasonality to a combination of factors
including budgeting and other factors affecting the health care industry
generally, the compounding effect of historical renewal schedules (which
typically results in greater license renewals in the third and fourth quarters),
and internal staffing and growth issues. The Company believes the licensing and
subsequent renewal pattern of its market performance products are more seasonal
than its other products and expects the addition of new products, including
those from acquisitions, to moderate, but not end, this seasonal effect.
A significant portion of the Company's expenses are relatively fixed, and
the amount and timing of increases in such expenses are based in large part on
the Company's expectations concerning future revenue. If revenues are below
expectations in any given quarter, the adverse effect may be magnified by the
Company's inability to adjust spending quickly enough to compensate for the
revenue shortfall. Accordingly, even a small variation from expected revenue
could have a material adverse effect on the Company's results of operations for
a given quarter.
SOFTWARE CAPITALIZATION
In addition to acquisitions, the Company seeks to expand its product
offerings through internal product development. Prior to 1996, the Company
expensed internal development costs due to the nominal costs incurred between
technological feasibility and product release. In 1996 the Company began
capitalizing internal product development costs which were incurred after
technological feasibility had been established and prior to general
24
<PAGE> 26
product release. Capitalized software development costs net of accumulated
amortization totaled approximately $1.4 million at March 31, 1998.
INCOME TAXES
The Company recorded income tax expense of $707,000 during 1997 due to
limitations on the utilization of net operating loss carryforwards and the
non-deductibility of certain acquired in-process research and development costs
to offset taxable income. At December 31, 1997, the Company had net operating
loss carryforwards of approximately $1.9 million for federal income tax
purposes. The net operating loss carryforwards expire beginning in 2006 through
2011. The total gross deferred tax asset was approximately $3.5 million as of
December 31, 1997 and has been reduced to zero by a valuation allowance and
offsetting deferred income tax liabilities of approximately $1.0 million.
Deferred tax assets and liabilities are determined based on differences
between the financial reporting and the tax bases of assets and liabilities and
are measured using the enacted tax rates and laws that will be in effect when
the differences are expected to reverse. Applying the provisions of SFAS 109 to
the Company, particularly considering the Company's history of net losses, the
Company was unable to support a conclusion consistent with SFAS 109 that it is
more likely than not that it will generate future taxable income during the loss
carryforward periods; therefore, the Company has provided a full valuation
allowance against its net deferred tax assets. In determining that a valuation
allowance was required, management primarily considered such factors as the
Company's history of operating losses and expected near-term future losses and
earnings, the nature of the Company's deferred tax assets, the absence of
significant excess of appreciated asset value over the tax basis of the
Company's net assets, the absence of significant taxable income in prior
carryback years and the potential for deferred tax assets resulting from future
business acquisitions. Although management's operating plans assume taxable and
operating income in future periods, historical performance has produced an
accumulated deficit of approximately $17.0 million at March 31, 1998.
Consequently, the Company has provided a full valuation allowance against its
net deferred tax assets until such time as the Company produces sufficient
taxable and operating income to support a lower valuation allowance.
At December 31, 1997, the Company had net operating loss carryforwards of
approximately $1.9 million, which expire beginning in 2006 through 2011. Under
Internal Revenue Code Section 382, the Company's use of net operating loss
carryforwards is limited to approximately $1.1 million per year as a result of
the Company's initial public offering completed in January 1997 (see Note 8(h)
of Notes to Consolidated Financial Statements). Approximately $1.0 million of
the net operating loss at December 31, 1997 relates to loss carryforwards
acquired in connection with the 1997 Acquisitions. Accordingly, such losses are
limited to income generated by the acquired entity as well as substantial annual
limitations.
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. In 1997 and 1998, the Company has used the remaining net proceeds
of its initial public offering for working capital and general corporate
purposes, including the funding of the 1997 Acquisitions, the acquisition of
Healthdemographics and the development of new products and services.
In March 1997, NationsBank and the Company entered into a Credit Agreement
under which 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, new product development and acquisitions. The Credit
Agreement for the NationsBank Revolver provides for 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
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in excess of certain amounts, and consummation of certain mergers and
acquisitions without the consent of NationsBank. 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 NationsBank Revolver during 1997. At March
31, 1998, $2.4 million was outstanding under the NationsBank Revolver, and at
June 4, 1998, $9.8 million was outstanding under the NationsBank Revolver. In
connection with the acquisition of Healthdemographics, the Company borrowed
approximately $2.4 million under the NationsBank Revolver. In connection with
the acquisition of Successful Solutions, the Company borrowed approximately $2.9
million under the NationsBank Revolver. See "Use of Proceeds."
In April 1998, the Company and NationsBank entered into a commitment letter
providing for an increase in the maximum amount available under the NationsBank
Revolver from $10.0 million to $25.0 million. While the Company and NationsBank
have executed the commitment letter, the increase in the NationsBank Revolver is
subject to a number of conditions. As a result no assurances can be given that
the NationsBank Revolver will be increased and, if increased, what the final
terms of the Credit Agreement, as amended, will be.
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 for $0.015 per share. 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. In February 1998, these warrants
were exercised. 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 $5.5 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 principal amount of $1.1
million. The HPSC senior subordinated notes, 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 had a working capital deficit of $3.1 million as of March 31,
1998 as compared to working capital of $4.2 million at December 31, 1997. The
decrease was due primarily to the use of working capital for the
Healthdemographics acquisition in March 1998 and the accrual of $3.0 million of
additional contingent consideration payable in connection with the acquisition
of CareData, and the accrued amount was paid in April 1998.
Net cash used by operating activities totaled $858,000 for the three months
ended March 31, 1998 as compared to cash provided by operating activities of
$146,000 for the same period in the prior year. The decrease in cash provided of
$1.0 million was primarily due to the increase in accounts receivable.
Net cash used in investing activities was approximately $3.6 million for
the three months ended March 31, 1998 as compared to $103,000 in the same period
in the prior year. In March 1998, the Company used $2.7 million to partially
fund the acquisition of Healthdemographics. The remaining $901,000 of net cash
used in investing activities for the three months ended March 31, 1998 was used
to fund fixed asset purchases and software development.
Net cash provided by financing activities was $2.2 million for the three
months ended March 31, 1998 as compared to $13.5 million for the same period in
the prior year. As previously discussed, in 1997 the Company retained $13.5
million of the net proceeds from its initial public offering, and the cash
provided in 1998 was primarily due to borrowings on the revolving line of credit
with NationsBank. At March 31, 1998, the Company had $7.6 million in borrowing
availability remaining on the revolving line of credit.
Net cash used by operating activities totaled $697,000 for the year ended
December 31, 1997, as compared to $762,000 for the prior year. The decrease in
cash used of $66,000 was primarily the result of the timing of customer
payments.
Net cash used in investing activities was approximately $9.3 million for
the year ended December 31, 1997, as compared to $7.3 million for the prior
year. In 1996, $7.0 million was used to fund the acquisitions of Formations and
PracticeMatch, while, in 1997, $7.4 million was used to fund the 1997
Acquisitions. The
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remaining $1.9 million of net cash used in investing activities in the year
ended December 31, 1997 was used to fund fixed asset purchases and software
development.
Net cash provided by financing activities was $13.1 million for the year
ended December 31, 1997, as compared to $8.2 million for the same period in the
prior year. As previously discussed, in 1997 the Company retained $13.5 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 repayment of indebtedness incurred under the NationsBank Revolver,
the Company currently has no specific plans with respect to the use of the
remaining net proceeds of this Offering or the NationsBank Revolver. The
Company's cash flow from operations has generally been sufficient to fund the
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 this Offering will be used
principally for working capital and general corporate purposes, including
potential acquisitions of complementary businesses or products in the health
care information industry, payments of contingent consideration in connection
with previously consummated acquisitions and for the development of additional
products and services. Pending the application of the remaining net proceeds of
this Offering, the Company will invest such proceeds in short-term, interest-
bearing, investment-grade securities.
The Company believes that the remaining proceeds of this Offering,
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 costs
associated with development of 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. In addition, many of the Company's
acquisition agreements provide for the payment of contingent consideration based
on the performance of the acquired business over a prescribed period. If such
acquired businesses exceed the relevant performance goals, the Company will be
required to make additional payments, which could be material. If the remaining
proceeds of this Offering, borrowings under the NationsBank Revolver and cash
flow from operations are not sufficient to fund such acquisitions or contingent
payments, the Company will be required to seek additional financing, and there
can be no assurance that such financing will be available in amounts and on
terms acceptable to the Company.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130 ("SFAS 130"), "Reporting Comprehensive
Income" and Statement of Financial Accounting Standards No. 131 ("SFAS 131"),
"Disclosures About Segments of an Enterprise and Related Information." SFAS 130
established standards for reporting and display of comprehensive income and its
components. Comprehensive income generally includes all changes in equity during
a period except those resulting from investments by owners and distribution to
owners. There was no impact on the Company's consolidated financial statements
with the adoption of SFAS 130. SFAS 131 established standards for reporting
information about operating segments in annual financial statements and in
interim financial reports to shareholders. The Company adopted both statements
in the first quarter of 1998; however, the provisions of SFAS 131 need not be
applied to interim periods in the initial year of application.
In October 1997, the Accounting Standards Executive Committee issued
Statement of Position 97-2, Software Revenue Recognition ("SOP 97-2"). SOP 97-2
is effective for financial statements for fiscal years beginning after December
15, 1997. The Company does not expect that adoption of SOP 97-2 will
significantly affect its results of operations.
In March 1998, the Accounting Standards Executive Committee issued
Statement of Position 98-1, Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use ("SOP 98-1"). SOP 98-1 is effective for
financial statements for fiscal years beginning after December 15, 1998. The
Company does not expect that adoption of SOP 98-1 will significantly affect its
results of operations.
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YEAR 2000 COMPLIANCE
Both the Company's internal operations and products use a significant
number of computer software programs and operating systems. Given the
information known at this time about the Company's systems and products, coupled
with the Company's ongoing efforts to maintain systems and products as
necessary, the Company does not anticipate that the year 2000 issue or related
costs will have a material adverse effect on the Company's business, results of
operations or financial condition. The Company has conducted an analysis of the
databases and software applications it licenses to customers as well as those
used in its internal operations and believes that the costs related to
addressing the year 2000 issue will not be material. The Company continues to
analyze its databases and software applications and analyzes year 2000
compliance issues before acquiring companies.
The Company is analyzing year 2000 issues as they relate to its key
suppliers of data and key customers. If a supplier of data encounters year 2000
issues that it is unable to address, such supplier's data could be unavailable
to the Company. If a customer encounters year 2000 issues that it is unable to
address, such customer may determine not to license the Company's databases or
software applications.
The Company's analysis of year 2000 issues, particularly as they relate to
its key suppliers of data and key customers, is ongoing, and to the extent the
databases or systems of the Company, key suppliers of data or key customers are
not fully year 2000 compliant, there can be no assurance that the costs
necessary to update databases or software or potential systems interruptions,
interruptions in the supply of data or interruptions in demand for the Company's
products would not have a material adverse effect on the Company's business,
results of operations or financial condition.
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's business, results of operations or
financial condition.
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BUSINESS
Medirisk is a provider of proprietary database products, decision-support
software and analytical services to the health care industry. The Company's
products and services enable its customers to make objective comparisons of the
financial costs and clinical outcomes of physician services to customer-specific
and industry benchmarks, assess member satisfaction with specific managed care
plans, and obtain information concerning the background and credentials of
physicians. These capabilities assist health care industry participants in
measuring the performance of health care payors and providers and forecasting
the supply of and demand for health care services.
Medirisk's databases have been built by collecting, standardizing and
normalizing more than three billion health care transaction records. The
Company's databases include records submitted by customers under an ongoing data
collection plan, data gathered from various regulatory and governmental
agencies, and data generated from the results of periodic proprietary surveys of
health care providers, consumers, managed care organizations and other payors.
Medirisk believes the long-standing relationships under which it collects data
and the data interpretation methodologies used by the Company represent
significant competitive advantages. Medirisk's databases are regularly updated
to reflect changes in the industry and, in the case of its market performance
and clinical performance databases, to take into consideration secondary factors
such as co-morbidity, case mix and demographics. These attributes permit
customers to compare objectively their financial and clinical performance to
industry or customer-specific benchmarks contained in the Company's databases
with specificity and precision.
INDUSTRY OVERVIEW
The U.S. health care industry has grown dramatically in recent years.
According to the Health Care Financing Administration ("HCFA"), health care
expenditures have increased from less than $250 billion, or approximately 9% of
the gross domestic product, in 1980 to in excess of $1.0 trillion, or
approximately 14% of the gross domestic product, in 1996. Payors are responding
to escalating costs by seeking to transfer the financial risk associated with
the delivery of health care to providers under capitated or other managed care
arrangements. As managed care arrangements become increasingly prevalent, both
payors and providers are under intense pressure to deliver health care at the
lowest total cost while ensuring high quality results. To achieve this goal,
payors and providers must understand procedure cost and utilization rates as
well as demonstrate improved outcomes. The evolving impact of managed care has
also increased physicians' receptivity to a variety of practice affiliation and
employment structures and, consequently, the need for data that can be used to
verify physician qualifications.
Traditional health care information systems have focused on the
administrative aspects of health care (i.e., accounting, billing, patient
scheduling). The Company believes there is an increasing trend toward
reimbursement structures for health care services which require sophisticated
financial information management and a growing awareness that most health care
costs are related to clinical, rather than administrative, aspects of the
delivery of care. The result has been a growing demand for databases
incorporating financial, clinical and analytical tools that leverage this data
in order to assess managed care contracts, analyze outcomes, evaluate managed
care member satisfaction, verify the qualifications of providers and meet
ongoing accreditation requirements. While some payors and providers have
recently adopted new information systems that allow them to capture cost,
utilization and clinical outcomes data regarding their own businesses, the
Company believes they generally have not been able to use such data effectively.
To gain perspective on the marketplace and to analyze the potential impact of
managed care contracts, payors and providers need benchmark data against which
they can compare the data they have collected regarding their own businesses, as
well as information relating to statistical differences in health care costs,
projected utilization and outcomes among urban, suburban and rural markets.
While broad, public-sector data have previously been available, payors and
providers increasingly seek more in-depth, region-specific health care
information, which requires access to both private- and public-sector data.
The health care information industry is highly fragmented and undergoing
consolidation, as vendors and service providers seek to build market share and
compete more effectively. Many existing health care information businesses have
been created by entrepreneurs who are knowledgeable in the areas of data
products and
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technology, but these businesses typically lack the sophisticated marketing
organizations, sales effort, capital and general management skills and processes
that are required to generate sustainable revenue expansion. Combined with the
burdens associated with product development and rapid technological change,
these issues pose significant challenges to health care information companies
that lack breadth of management experience, economies of scale and access to
capital. As a result of these factors, many smaller health care information
companies with technologically sophisticated products and a reputation for
quality service have become attractive acquisition candidates for vendors and
service providers seeking to reach critical mass.
STRATEGY
Medirisk's objective is to become the leading provider of proprietary
database products, decision-support software and analytical services to payors,
providers, employers, pharmaceutical companies and other health care industry
participants. To attain this objective, Medirisk is pursuing the following
strategy:
- Leverage the Company's Existing Customer Base. Medirisk believes the
increasing demand for health care information, coupled with its broad
customer base, provides a substantial opportunity for internal growth.
The Company has long-standing relationships with its customers and
believes it has developed a reputation for providing objective,
value-added information products. The Company intends to leverage these
relationships by cross-selling additional products and services to
existing customers and increasing product penetration through sales to
other operating units, departments or divisions of existing customers.
- Emphasize Recurring Revenue. Medirisk seeks to maximize recurring
revenue by emphasizing multi-year contracts and contract renewals. A
substantial portion of Medirisk's revenue is generated by the licensing
of products on an annual or multi-year basis. The Company believes that
its high rate of recurring revenue results principally from significant
revenue enhancements or cost savings achieved by Medirisk's customers
when they use the Company's products, as well as from the customer's
ongoing need for current information due to the rapid pace of change
within the health care industry. The Company's recurring revenue
percentage has been in excess of 70% for each of the last four years.
- Develop New Database Products and Decision-Support Tools. Medirisk
actively develops new products, product enhancements and
decision-support tools and, in 1997, introduced several new products and
product enhancements. The Company expects to introduce additional new
products and product enhancements during 1998, including new clinical
performance products in one or more additional medical specialties and
enhanced versions of certain of its existing clinical performance
products and market performance products (including Avenir(R)).
Ultimately, the Company intends to cross-correlate existing and future
databases in an effort to develop integrated product offerings. For
example, Medirisk believes that by linking its market performance,
clinical performance and physician credentials products, cost and
quality can be evaluated together with outcomes for specific physicians,
thus permitting true management of care by allowing customers to compare
the financial costs and expected outcomes of competing treatment
regimens or providers, and to measure health care consumer satisfaction.
- Acquire and Integrate Complementary Products and Businesses. Medirisk
intends to acquire additional companies, products, databases and other
resources to expand into related areas and to increase market share
within the Company's existing product lines. Medirisk believes that the
acquisition of new products and customers creates compelling
cross-selling opportunities, enhances the development of new products by
facilitating cross-correlation of existing and acquired products, and
provides significant operating leverage. See "Acquisitions."
ACQUISITIONS
Medirisk believes the selective acquisition of complementary businesses
results in a more rapid expansion of its product line and customer base, and
enables it to leverage its sales and marketing organization. As a result,
Medirisk has invested significant resources to build the business platform
necessary to be a consolidator in the fragmented health care information
technology and services industry. Since its initial public offering in January
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1997 and through May 27, 1998, Medirisk has acquired five companies that provide
complementary products and services. The Company believes the acquisition of
these entities created significant cross-selling opportunities among its
respective product offerings, increased its market share within existing product
lines and provided product and customer expansion opportunities.
As part of a systematic approach to implementing its acquisition strategy,
Medirisk has corporate resources dedicated to identifying, analyzing and
pursuing targeted acquisition candidates. The Company currently is tracking a
database of more than 300 companies, of which more than 100 meet its primary
acquisition criteria for product type, revenue and customer base. Of primary
interest to Medirisk are: (i) health care information products focused on
benchmark and outcomes data; (ii) software products that assist in data
collection and analysis; (iii) health care consulting firms; and (iv) products
that assist in the delivery and use of Medirisk's databases.
Medirisk believes that its existing infrastructure, in combination with
management's experience in acquiring and integrating new companies and products,
will facilitate the continued successful implementation of its acquisition
strategy.
PRODUCTS AND SERVICES
Medirisk provides products and services designed to enable its customers to
measure and assess the performance of health care services in the United States
and to forecast the supply of and demand for health care services. At the core
of the Company's products and services are several proprietary databases. The
detailed nature of Medirisk's databases provides precise data that customers can
use to address specific decision-making needs and offers the Company's customers
competitive advantages. Medirisk also provides decision-support software tools
that enhance the utility of its database products, as well as customized
analytical services. The Company's flexible product design enables customers to
license the specific information they need based on variables such as geographic
region, medical specialty, clinical procedure and timeframe.
Medirisk has developed its databases and decision-support software for ease
of use and frequently updates its databases to ensure that its products are as
accurate and current as possible. All of the Company's decision-support software
is Microsoft Windows(R)-based and is compatible with a variety of hardware and
software applications. The Company's databases can be imported into standard
software programs including Microsoft Excel(R), Lotus 1-2-3(R), FoxPro(R),
Quattro Pro(R), Dbase(R) and others, and can be imported and exported to
separate decision-support and practice administration programs provided by
companies such as HBO & Company, Medic Computer Systems, Inc., Shared Medical
Systems Corporation, IDX Systems Corporation, Medical Manager Corporation and
Transition Systems, Inc.
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MARKET PERFORMANCE PRODUCTS
Medirisk's market performance products provide customers with comprehensive
proprietary data and decision support tools for use in analyzing physician fees,
health care utilization patterns and member satisfaction with managed care plans
in the United States. The following is a description of the Company's primary
market performance products:
CareData Reports(TM). CareData Reports are reports that are created
utilizing information accumulated and analyzed by the Company regarding consumer
satisfaction with managed health care. Based on this data, CareData Reports rank
specific health plans. Comparative market analysis is available for 26
geographic markets and 170 health plans. To collect data used in CareData
Reports, the Company conducts health care consumer surveys that are sponsored by
approximately 400 major employers and measure member satisfaction with
approximately 150 aspects of managed health care. The Company's CareData Reports
product line is utilized by health plans to assess their competitive position
and quality of care, by employers to evaluate health plans and by pharmaceutical
companies to target potential markets for their products.
HealthPac(R). HealthPac is a database that includes current year estimates
and five-year forecasts of health care utilization, supply and demand in
specific geographic markets across the United States. HealthPacs data sets
include demographic information concerning 369 separate geographic areas,
population-based models of the incidence or prevalence of diseases by category,
estimates of the demand for health care services by treatment setting and
estimates of the supply of local providers able to meet the identified demand.
Avenir(R). Avenir is a Windows(R)-based decision-support application that
integrates HealthPacs data sets with reporting, mapping and graphics software.
Avenir allows hospitals, health plans and other health care industry
participants to conduct detailed market analysis, forecasting and strategic
planning.
Medirisk(SM) Physician Fee Database. The Physician Fee Database reports
reimbursement rates for medical procedures for various types of payors and
specific geographic markets across the United States. The Physician Fee Database
provides data concerning reimbursement levels that providers are accepting from
managed care plans and other payors, rather than fees charged by those
providers, a distinction critical to an accurate understanding of market
conditions. Fee data in the Physician Fee Database are tracked by the AMA's CPT
codes, which define all current medical procedures, and are segregated into 287
separate market areas in the United States (compared to 89 market areas that
were tracked by HCFA in 1997). Medirisk believes that the Physician Fee Database
divides the United States into more geographic markets than most competing
products, thereby allowing customers to make more precise fee decisions. A
customer can license data for a specific market, state or region or for the
entire United States.
Medirisk(SM) Procedure Utilization Database. The Procedure Utilization
Database provides frequently updated utilization data for all medical procedures
included in the Company's Physician Fee Database. This database can be used to
model the anticipated utilization of a specific service for a certain population
profile. The database is offered on a state-specific basis and can be adjusted
for age and gender.
Medirisk(TM) Capitation Manager. Capitation Manager is a Windows(R)-based
decision-support application that integrates Medirisk's Physician Fee Database
and Procedure Utilization Database and calculates capitation rates based on
customer-provided pricing and demographic assumptions. Using Capitation Manager,
the customer enters the demographic profile of a group proposed to be covered in
a capitated arrangement, the services to be provided and proposed capitated
pricing for those services. Using these assumptions in combination with the
Company's databases, Capitation Manager calculates the expected utilization of
the services to be provided and compares the proposed capitated pricing to
managed care, fee-for-service, Medicare and other fee benchmarks tracked by the
Company within a specific market.
CLINICAL PERFORMANCE PRODUCTS
Medirisk offers clinical performance products that enable customers to
measure clinical outcomes across a full range of care within a variety of
medical specialties. Clinical outcomes are generally defined as the change in a
patient's health status as a result of therapy or care delivered by a health
care professional. Clinical outcomes are measured empirically using standard
health status scales to assess the patient prior to the delivery of therapy
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or care, while such care is being delivered and after treatment is terminated.
The data included in these products are gathered by Company-certified
clinicians, automated patient information systems and Medirisk's patient
interview staff using the Company's standardized outcomes scales. Comparing
customer data with norms derived from Medirisk's database, Medirisk prepares
reports detailing customers' clinical performance based on a number of
independent measures including patient acuity, medical and functional
improvement, resource utilization, length of stay/duration of treatment, cost of
treatment and patient satisfaction. Medirisk's clinical performance products
assist both payors and providers with (i) measuring and predicting outcomes of
treatment regimens; (ii) making normalized comparisons of facilities and
providers; (iii) establishing benchmarks for clinical quality improvement; (iv)
developing standards for clinical practice; (v) generating analytical reports
for communicating with customers and their constituents; and (vi) substantiating
quality for managed care contracting and accreditation needs.
Medirisk markets its clinical performance products primarily to health care
providers, and its products are currently available to track clinical outcomes
in rehabilitation, ambulatory surgery, orthopaedics, occupational health, pain
management, neurological care, wound care, respiratory care, nutrition and
infection therapy.
In March 1997, Medirisk's clinical performance products were listed on the
Joint Commission on Accreditation of HealthCare Organizations' ("JCAHO") roster
of vendors who have acceptable clinical performance measurement systems to
support ORYX, JCAHO's new accreditation initiative. The ORYX initiative requires
health care organizations to select an outcomes measurement standard from
JCAHO's list of acceptable performance measurement systems in order to receive
JCAHO accreditation. The ORYX initiative currently covers hospitals, long-term
care organizations, integrated delivery networks, health plans and provider-
sponsored organizations.
PHYSICIAN CREDENTIALS PRODUCTS
Medirisk provides database products, software and outsourced services
designed to enable its customers to access detailed information concerning the
background and credentials of physicians in the United States. The Company's
physician credentials products facilitate its customers' ability to establish or
improve physician recruiting efforts on a cost-effective basis, develop health
care networks and market the provider component of health care services.
Medirisk's physician credentials products also aid hospital and managed care
customers in verifying the credentials of physicians and other providers with
whom they work. Hospitals, managed care organizations and other health care
industry participants are required to verify and periodically re-verify such
credentials in order to maintain accreditation by organizations such as the
National Committee for Quality Assurance ("NCQA") and JCAHO. The Company's
credentials service has successfully completed all 10 of the audits of
credentialing processes conducted by NCQA. The Company's physician database is
comprised in part of physician data from the AMA's Physician MasterFile. All
physician information is further validated and enhanced by personal telephone
interviews with the physicians that are conducted by members of Medirisk's
staff. Current products include:
Provider Credential Verification Report(TM). The Provider Credential
Verification Report is a report that provides customers with an efficient and
cost-effective means to verify electronically the key professional credentials
of participating health care practitioners using primary source data. When
joined with the Company's electronic processing of a National Practitioner
Database and/or Federation of State Medical Boards query, and written
verification of a practitioner's hospital privileges, malpractice insurance
coverage and claims history, the Provider Credential Verification Report becomes
the central component of the Company's credential and verification service.
PrimeSource(TM). PrimeSource is a credential verification database
provided in CD-ROM format. This database is an accurate, cost-effective way to
verify a physician's credentials. PrimeSource includes records for the
following: state licenses and sanctions; Drug Enforcement Agency registrations
and sanctions; US medical school education records from 1979 to the present; US
residency program training records from 1983 to the present; board
certifications from the American Board of Medical Specialties; Medicare
Universal Provider Identification Numbers; and Medicare and Medicaid sanctions.
PrimeSource is updated quarterly, and customers are billed only for the reports
they generate.
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<PAGE> 35
PracticeMatch(TM). PracticeMatch is a Windows(R)-based decision-support
software system that provides in-house physician recruiters with on-line access
to the Company's physician database. By establishing a series of search and
selection criteria, customers obtain information about physicians who satisfy
specified criteria. The customer can then print or download the information for
use in building in-house databases, generating recruiting status reports and
tracking recruiting expenses associated with specific candidates. The
PracticeMatch product is constructed from proprietary records of approximately
135,000 physicians developed in part from data in the AMA's Physician
MasterFile.
DATA ACQUISITION METHODOLOGY
In designing its products and services, Medirisk emphasizes quality and
ease of use. Medirisk uses proprietary data engineering methodologies to
standardize and interpret data in order to ensure that its products are as
comprehensive, accurate and current as possible. The detailed nature of the
Company's databases provides precise data that customers can use to address
their specific decision-making needs. Furthermore, Medirisk's data engineering
methodologies are designed to ensure that its databases are free of bias. The
resulting objectivity of Medirisk's products and services allows the Company to
market its products to a broad range of health care industry participants and
improves the credibility of its databases as benchmarking tools.
The Company collects data for inclusion in its databases and related
products in a variety of ways, including its customer data collection program
and its regular surveys of managed care organizations, providers, employers and
consumers. To encourage customers to participate in some components of its data
collection program, Medirisk offers price discounts in return for access to
customers' raw claims data and other health care transaction records. Medirisk's
surveys are conducted on a regular basis, with special surveys conducted from
time to time to address new issues and emerging trends. Once the data are
collected, Medirisk's database personnel clean and analyze the data before they
are included in the Company's databases. Medirisk uses proprietary processes to
validate data by standardizing, normalizing and formatting the submitted data
and then applies its database methodologies to segment the data.
Medirisk's databases are regularly updated to reflect changes in the
industry and, in the case of its market performance and clinical performance
databases, to take into consideration secondary factors such as co-morbidity,
case mix and demographics. These attributes permit customers to compare
objectively their financial and clinical performance to industry or
customer-specific benchmarks contained in the Company's databases with
specificity and precision.
Market Performance Products. The data used in Medirisk's market
performance products have been collected through (i) Medirisk's customer data
collection program, whereby customers provide their medical claims or other
health care transaction data to the Company on a regular basis, (ii) surveys of
more than 1,600 managed care organizations, (iii) purchases of certain data
sets, and (iv) maintenance of a customer-support database. Included in the
Physician Fee Database and Procedure Utilization Database are approximately
three billion private sector transaction records, including actual managed care
transaction data and negotiated fee schedules. While Medirisk's market
performance databases include public-sector data, they focus primarily on
private-sector data derived from transaction data and clinical records
contributed by Medirisk's customers and obtained from other sources. These
private- and public-sector data are not commingled, thus permitting more precise
benchmarking of data relevant to the private health care marketplace. The
Company believes that private-sector data are more useful for comparative
purposes than public-sector data and that Medirisk's comprehensive compilation
of private-sector data represents a competitive advantage for the Company. For
the Company's CareData Reports products, Medirisk conducts annual patient
surveys regarding consumer satisfaction with managed care. These surveys are
sponsored by approximately 400 major employers and measure member satisfaction
with approximately 150 aspects of managed care including satisfaction with
provider panels, pharmacy benefit management and overall health plan design. For
the Company's HealthPac database, Medirisk collects demographic, market supply
and utilization data from publicly available sources or purchases or licenses
data from their source.
Clinical Performance Products. Medirisk obtains data for its clinical
outcomes databases from its clinical outcomes customers and other
Company-certified sources. To facilitate collection of outcomes measurements,
the
34
<PAGE> 36
Company provides its customers with data-collection tools that are tailored to
the customer's clinical record-keeping environment. Medirisk collects the data
through customer submission, automated patient information systems and direct
patient interviews conducted by the Company's clinical interview staff. Data
collection software or optical scan forms are used to collect data directly from
the clinician in the absence of automated patient systems. To enhance the
reliability and integrity of customer-submitted data, Medirisk will include in
its outcomes database only information received from customer-affiliated
clinicians who are trained and certified by Medirisk in rating patient
performance and in data-collection protocols.
Physician Credentials Products. The data included in Medirisk's physician
credentials credentialing products are obtained from publicly available sources
or are licensed, leased or purchased from the source of the data. Sources of
data for credentialing products include state medical boards, the Drug
Enforcement Agency, HCFA, the American Board of Medical Specialties, the
American Association of Medical Colleges and the National Association of Social
Workers. The data used in Medirisk's physician credentials recruiting products
are collected from publicly available sources and the AMA Physician MasterFile,
and are verified by personal telephone interviews with each physician. Medirisk
employs professional interview personnel who contact physicians directly, gather
the required information, record the information in the automated database and
send a hard copy to each physician for verification. The Company believes that
the fact that each physician profiled in the Company's recruiting database has
personally verified the information and knows that he or she is tracked in the
database ensures the highest quality profile and offers a significant
competitive advantage over unverified databases. In addition, the Company is the
exclusive licensee of the AMA to share and enhance portions of the AMA's
Physician MasterFile. This relationship greatly enhances the quality and
availability of information about practicing physicians.
CUSTOMERS
The unbiased nature of Medirisk's databases enables the Company to market
its products to a wide range of health care industry participants, including
managed care plans, indemnity insurers, integrated delivery systems, hospitals,
specialty health care providers, physician practice management companies,
physician practices, consulting firms, equipment suppliers and pharmaceutical
firms. None of the Company's customers, other than HEALTHSOUTH Corporation
accounted for a material amount of the Company's revenues in 1997. Most of
Medirisk's major customers, which are defined as generating annualized revenue
of more than $5,000, license products in only one of the product areas offered
by the Company. Medirisk has approximately 1,000 major customers that in the
aggregate account for more than 90% of the Company's revenue.
PRODUCT DELIVERY
The Company's products are delivered to customers on CD-ROM, diskette,
magnetic tape, on-line access or hard copy depending upon customer preference.
Medirisk believes that there are readily available alternative sources of supply
for all of the media on which its products are delivered.
COMPETITION
Medirisk faces intense competition in providing health care information
products and services. Competitors vary in size, scope and breadth of product
and service offerings. The Company competes with different competitors in each
of its target markets, and certain of such competitors have substantially
greater resources than those of the Company. In addition, several large
horizontally integrated information services companies, including Dow Jones, IMS
Healthcare, First Data Corporation, National Data Corporation, United Healthcare
and Thomson Publishing, have developed and are marketing information products
and services to the health care industry. The Company believes that it is likely
that one or more of such companies may become more direct competitors of the
Company either by acquiring existing competitors or by developing and marketing
their own products. Many of these larger companies are engaged in the processing
of health care claims and, thus, have access to substantial claims- and
cost-related data from which they could build competing databases or which they
could license to other competitors of the Company. The Company also competes
with the internal information resources and systems of certain of its
prospective and existing customers. The Company believes that the principal
competitive factors in its target markets include the breadth and quality of
database and
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<PAGE> 37
applications offerings, access to proprietary data, the proprietary nature of
methodologies and technical resources, price and the effectiveness of marketing
and sales efforts.
EMPLOYEES
On May 1, 1998, the Company had 237 full-time employees. Of these, 23 were
corporate personnel, 45 were sales and marketing personnel and 169 were involved
in operations and product development. None of the Company's employees is
covered by a collective bargaining agreement. The Company considers relations
with its employees to be good.
PROPERTIES
Medirisk's corporate headquarters occupy approximately 16,000 square feet
of an office building located in Atlanta, Georgia, under a lease expiring in
March 1999, with one optional five-year renewal term. Medirisk also leases
office space in Chicago, Illinois; Nashville, Tennessee; New York, New York;
Rockville, Maryland; San Diego, California; St. Louis, Missouri; and St. Paul,
Minnesota. The Company believes that such offices are adequate for the Company's
current requirements.
LEGAL PROCEEDINGS
The Company is involved in various claims arising in the normal course of
business. In the opinion of management of the Company, although the outcomes of
these claims are uncertain, in the aggregate they are not likely to have a
material adverse effect on the Company's business, results of operations or
financial condition.
36
<PAGE> 38
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth certain information with respect to the
executive officers and directors of the Company.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Mark A. Kaiser............................ 40 Chairman of the Board, Chief Executive
Officer and President
Kenneth M. Goins, Jr. .................... 39 Executive Vice President and Chief
Financial Officer
Thomas C. Kuhn III........................ 35 Vice President -- Finance and
Administration and Controller
O. B. Rawls, IV........................... 47 Senior Vice President and Group General
Manager
Keith O. Cowan(2)......................... 42 Director
Michael J. Finn(1)........................ 48 Director
William M. McClatchey, M.D.(1)............ 50 Director
James K. Murray, III(1)................... 35 Director
Robert P. Pinkas(2)....................... 44 Director
</TABLE>
- ---------------
(1) Member of the Audit Committee of the Board of Directors.
(2) Member of the Compensation Committee of the Board of Directors.
Mark A. Kaiser joined the Company in 1991 and has served as Chairman of the
Board, Chief Executive Officer and President of the Company. Mr. Kaiser has been
a director of the Company since 1991. Prior to being recruited to Medirisk, Mr.
Kaiser's experience included senior and executive management positions in sales
and marketing for health care and technology companies. Before joining Medirisk,
Mr. Kaiser was Vice President of Sales and Marketing for Charter Medical
Corporation, the nation's largest chain of psychiatric hospitals. Mr. Kaiser was
Senior Vice President of Marketing at TelecomUSA, where he worked from the early
stages of the company until its acquisition by MCI Communications Corporation.
Mr. Kaiser was involved in TelecomUSA's acquisition and consolidation of more
than 50 companies, and he co-managed the consolidation of the TelecomUSA
customer base onto standard MCI products. Mr. Kaiser holds Bachelor of Science
degrees in Computer Science and Mathematics from Furman University.
Kenneth M. Goins, Jr., served as Vice President, Finance and Administration
and Chief Financial Officer of the Company from joining Medirisk in April 1996
until December 1996 when he was elected Executive Vice President and Chief
Financial Officer. Prior to joining the Company from 1985 until April 1996, Mr.
Goins served in various capacities with First Data Corporation ("FDC") and its
predecessors, First Financial Management Corporation ("FFMC") and MicroBilt
Corporation ("MBC"). From 1995 until April 1996, Mr. Goins was Vice President of
Financial Planning and Analysis for FDC, a major financial information services
company based in Atlanta. FDC acquired FFMC in October of 1995, where Mr. Goins
served as Vice President of Financial Planning and Analysis from June 1994 until
October 1995. During the last half of his tenure at FFMC and FDC, Mr. Goins also
served as Chief Financial Officer for Unified Merchant Services, a credit card
processing joint venture with NationsBank. From 1985 until June 1994, when it
was acquired by FFMC, Mr. Goins was an officer of MBC. He served at various
times as the Executive Vice President, Chief Financial Officer and Controller of
MBC, an Atlanta-based computer software services company, from 1985 through its
initial public offering and until MBC was acquired by FFMC. While at MBC and
FFMC, Mr. Goins was involved in a number of acquisitions in the information and
software industries. Prior to his employment with MBC, Mr. Goins was employed in
various capacities by Colonial Life and Accident Insurance Company, based in
Columbia, South Carolina. Mr. Goins holds a Bachelor of Science degree in
Business Administration from the University of South Carolina and is a Licensed
Certified Public Accountant.
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<PAGE> 39
Thomas C. Kuhn III has been Controller of the Company since he joined the
Company in 1996. Mr. Kuhn was appointed principal accounting officer of the
Company in March 1998, after having been appointed Vice President -- Finance and
Administration of the Company in August 1997. Prior to joining the Company, from
1992 to 1996, Mr. Kuhn served in various capacities with FDC and its
predecessors FFMC and MBC. From May 1995 until joining the Company in May 1996,
Mr. Kuhn was Vice President of Working Capital Management for FFMC as well as
having additional financial planning and analysis responsibilities with FDC.
From March 1992 until May of 1995, Mr. Kuhn served as Controller of MBC. Prior
to his employment at MBC, Mr. Kuhn was in public accounting with Clayton, Miller
and Company in Atlanta, Georgia, from August 1987 until March 1992, and with
Arthur Young and Company in Atlanta, Georgia, from September 1984 until August
1987. Mr. Kuhn holds a Bachelor of Science degree in Business Administration
from the University of South Carolina and is a Licensed Certified Public
Accountant.
O.B. Rawls, IV has been Senior Vice President and Group General Manager of
the Company since he joined Medirisk in December 1997. Prior to joining the
Company, from April 1995 to December 1997, Mr. Rawls held several positions with
First Data Corporation; his most recent being from June 1997 until December 1997
as General Manager International Partnership in which he negotiated and
implemented an international merchant processing joint venture. From 1995 to
1997, Mr. Rawls served as President of Unified Merchant Services, a credit card
processing joint venture with NationsBank. From 1983 until 1995, Mr. Rawls was
an executive with NationsBank and its predecessor NCNB National Bank, most
recently as Senior Vice President/Division Executive of Merchant Card Services
for NationsBank from 1993 until 1995. Mr. Rawls holds a Bachelor of Science
Degree from East Carolina University and an Executive Masters of Business
Administration from Queens College.
Keith O. Cowan has been a Director of the Company since 1997. Mr. Cowan has
served as Vice President -- Corporate Development for BellSouth Corporation
since May 1996. He is responsible for managing the merger and acquisition
activities of BellSouth and its subsidiaries, including the identification of
acquisition candidates, and the structuring and negotiation of transactions.
Prior to joining BellSouth, Mr. Cowan was associated with Alston & Bird, a law
firm based in Atlanta, Georgia, for 14 years, becoming a partner in the firm in
1990. His experience included the representation of public and private clients
in corporate and securities transactions. During his last five years at Alston &
Bird, Mr. Cowan specialized in the health care and insurance industries. Alston
& Bird is the Company's legal counsel. Mr. Cowan holds a Bachelor of Arts degree
from the University of North Carolina and a Juris Doctor degree from the
University of Virginia.
Michael J. Finn has been a Director of the Company since 1991. Mr. Finn is
President and a Director of Brantley Capital Corporation, a publicly-traded
closed-end investment company ("BCC"), and is President and a director of
Brantley Capital Management, Ltd., investment advisor to BCC ("BCM"). Since
1995, Mr. Finn has also served as a general partner of the general partners of
Brantley Venture Partners II, L.P. ("BVP II") and Brantley Venture Partners III,
L.P. ("BVP III"), venture capital firms located in Cleveland, Ohio. From 1987 to
1995, Mr. Finn was Vice President of the Venture Capital Group of Sears
Investment Management Co. in Chicago, Illinois. Mr. Finn is also a director of
Rhomas Group, Inc., Silvon Software, and Pediatric Services of America, Inc. Mr.
Finn has been an active investor in small businesses since 1976 and holds a
Bachelor of Science degree in Urban Planning and Master of Science degrees in
Land Economics and Finance from Michigan State University.
William M. McClatchey, M.D., F.A.C.P., F.A.C.R. has been a Director of the
Company since 1997. Dr. McClatchey is a physician practicing in Atlanta,
Georgia, specializing in primary care internal medicine and rheumatology. Dr.
McClatchey has practiced medicine at the Piedmont Clinic in Atlanta since 1979.
Dr. McClatchey was a member of the Board of Directors of BankSouth Corporation,
N.A., and served as Chairman of its Community Development Committee. He is a
member of the American College of Physicians, serving on its Committee on
Medical Informatics from 1986 until 1992 and as Chairman of that committee from
1990 to 1992. Dr. McClatchey was a member of the Health Policy Advisory
Committee of the Center for Strategic and International Studies in 1993 and
served as Chairman of the Study Group on Preventive Health and Infrastructure in
1993. Dr. McClatchey is President and serves on the Board of Trustees of Georgia
Health Decisions, Inc. a community-based not-for-profit organization working for
comprehensive health care reform in Georgia. Dr. McClatchey is a member of the
Georgia Coalition for Health, a 32-member group charged by
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<PAGE> 40
Governor Zell Miller to devise a proposal to reform Georgia's Medicaid program.
In addition, Dr. McClatchey is a member of the Board of Directors and Executive
Committee of the Georgia Health Policy Center at Georgia State University and a
member of the Information Systems Steering Committee for Promina Health System,
Atlanta, Georgia.
James K. Murray, III, has been a Director of the Company since January
1996. Since December 1997, Mr. Murray has been Executive Vice President and
Chief Financial Officer of Sykes HealthPlan Services, Inc. ("SHPS"), a joint
venture between HealthPlan Services Corporation and Sykes Enterprises,
Incorporated. SHPS is an information technology company that provides a full
complement of benefits outsourcing services to companies worldwide. From 1995
until 1997, Mr. Murray was Executive Vice President and Chief Financial Officer
of HealthPlan Services Corporation, a Tampa, Florida-based health care services
company providing marketing, distribution, administrative and cost containment
services on behalf of health care payors. Prior to joining HealthPlan Services
from 1990 until October 1995, Mr. Murray was President and Chief Executive
Officer of Plant State Bank, a federally-insured commercial bank in Hillsborough
County, Florida. From 1985 to 1990, Mr. Murray was an accountant with Arthur
Andersen & Co. in Atlanta, Georgia. Mr. Murray is also on the board of directors
of DynaBit U.S.A., Inc., an international value added distributor of computer
parts and components. Mr. Murray holds a Bachelor of Science degree in
Accounting and a Master of Science degree in Finance from the University of
Virginia. Mr. Murray is a Licensed Certified Public Accountant.
Robert P. Pinkas has been a Director of the Company since 1991. Mr. Pinkas
is currently Chairman of the Board, Chief Executive Officer, Treasurer and a
director of Brantley Capital Corporation. Mr. Pinkas was the founding partner of
Brantley Venture Partners, L.P., a venture capital fund started in 1987 ("BVP
I"). Mr. Pinkas also led the formation of BVP II and BVP III. He serves as a
general partner of the general partners of BVP I, BVP II, and BVP III and has
worked with these and related investment partnerships since 1981. Mr. Pinkas
currently serves as Chairman of the Board of Gliatech, Inc., as well as a
director of Quad Systems Corporation, Pediatric Services of America, Inc. and
Waterlink, Inc. Mr. Pinkas holds Bachelor of Arts degree in Government and a
Master of Science degree in History from Harvard University and a Juris Doctor
degree from the University of Pennsylvania.
Under the terms of the Company's Bylaws, the members of the Board of
Directors are divided into three classes, each of which serves a term of three
years. Each class is to consist, as nearly as possible, of one-third of the
total number of directors. The terms of Messrs. Finn and Murray will expire in
1998, the terms of Messrs. Kaiser and Pinkas will expire in 1999, and the terms
of Mr. Cowan and Dr. McClatchey will expire in 2000.
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<PAGE> 41
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock as of May 1, 1998 and as adjusted to
reflect the issuance of 97,440 shares of Common Stock upon the exercise of
warrants in connection with the Offering and the sale of the Common Stock
offered hereby: (i) by each person known to the Company to beneficially own more
than five percent of the outstanding Common Stock; (ii) by each Selling
Stockholder; (iii) by each executive officer and director of the Company; and
(iv) by all executive officers and directors of the Company as a group. Unless
otherwise indicated, the business address of each person listed below is care of
Medirisk, Inc., Two Piedmont Center, Suite 400, 3565 Piedmont Road, N.E.,
Atlanta, Georgia 30305.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP PRIOR BENEFICIAL OWNERSHIP AFTER
TO OFFERING NUMBER OF OFFERING
-------------------------- SHARES BEING --------------------------
NAME NUMBER PERCENT(1) OFFERED NUMBER PERCENT(1)
- ---- ---------- ----------- ------------ ---------- -----------
<S> <C> <C> <C> <C> <C>
Brantley Venture Partners II,
L.P. ........................... 522,745(2) 11.1% -- 522,745 7.4%
20600 Chagrin Boulevard
Suite 1150 Tower East
Cleveland, Ohio 44122
HealthPlan Services Corporation... 298,150 6.5 188,418(12) 109,732 1.6
3501 Frontage Road
Tampa, Florida 33607
Mark A. Kaiser.................... 314,406(3) 6.8 -- 314,406 4.4
Kenneth M. Goins, Jr. ............ 49,120(4) 1.0 -- 49,120 *
Thomas C. Kuhn III................ 4,498(5) * -- 4,498 *
O.B. Rawls........................ -- * -- -- *
Keith O. Cowan.................... 4,333(6) * -- 4,333 *
Michael J. Finn................... 527,578(7) 11.2 -- 527,578 7.4
William M. McClatchey, M.D. ...... 45,333(8) 1.0 -- 45,333 *
James K. Murray, III.............. 301,483(9) 6.5 188,418(13) 113,065 1.6
Robert P. Pinkas.................. 531,078(10) 11.2 -- 531,078 7.5
Laurence H. Powell................ 270,921 5.8 -- 270,921 3.9
P.O. Box 501085
Atlanta, Georgia 31150
Sears Pension Trust............... 97,440 2.1 61,582(14) 35,858 *
c/o Chase Manhattan Bank, N.A.,
Trustee
4 Chase Metro Tech Center,
18th Floor
Brooklyn, New York 11245
Robert Fleming Inc. .............. 287,600 6.2 -- 287,600 4.1
320 Park Avenue, 11th Floor
New York, New York 10022
All directors and executive
officers as a group (9
members)........................ 1,255,084(11) 26.5 188,418(13) 1,066,666 14.9
</TABLE>
- ---------------
*Less than one percent.
(1) Applicable percentages of ownership prior to the Offering are based on
4,664,117 shares of Common Stock outstanding on May 1, 1998, adjusted as
required by rules promulgated by the Securities and Exchange Commission
(the "Commission"). Applicable percentages of ownership after the offering
are based on 7,011,557 shares of Common Stock outstanding. This table is
based upon information supplied by officers, directors and principal
stockholders, and Schedules 13D and 13G (if any) filed with the
Commission. Unless otherwise indicated in the footnotes to this table and
subject to community property laws where applicable, the Company believes
that each of the stockholders named in this table has sole voting and
investment power with respect to the shares indicated as beneficially
owned. Any security that any person
40
<PAGE> 42
named above has the right to acquire within 60 days is deemed to be
outstanding for purposes of calculating the percentage ownership of such
person, but is not deemed to be outstanding for purposes of calculating
the ownership percentage of any other person.
(2) Includes warrants to purchase 97,440 shares of Common Stock.
(3) Includes options to purchase 139,014 shares of Common Stock.
(4) Includes (i) options to purchase 16,240 shares of Common Stock; and (ii)
200 shares held by Mr. Goins' minor children.
(5) Includes options to purchase 2,598 shares of Common Stock.
(6) Includes options to purchase 3,333 shares of Common Stock.
(7) Includes (i) options to purchase 3,333 shares of Common Stock; and (ii)
522,745 shares owned by BVP II. Mr. Finn is a partner of a partnership
which is itself a general partner of Brantley and, as such, may be deemed
to share voting and investment power with respect to the shares owned by
Brantley. See Note 2 above.
(8) Includes (i) options to purchase 3,333 shares of Common Stock; (ii) 10,000
shares owned by Dr. McClatchey's wife; (iii) 4,000 shares owned by a trust
for the benefit of Dr. McClatchey's adult child, of which Dr. McClatchey
is trustee; and (iv) 2,000 shares owned by a trust for the benefit of Dr.
McClatchey's minor child, of which Dr. McClatchey is trustee.
(9) Consists of (i) options to purchase 3,333 shares of Common Stock; and (ii)
298,150 shares owned by HPSC. Mr. Murray was an executive officer of HPSC
during a portion of 1997 and is currently an executive officer of an
affiliate of HPSC and, as such, may be deemed to share voting and
investment power with respect to the shares owned by HPSC.
(10) Includes (i) options to purchase 3,333 shares of Common Stock; and (ii)
522,745 shares owned by BVP II. Mr. Pinkas is a partner of a partnership
which is itself a general partner of Brantley and, as such, may be deemed
to share voting and investment power with respect to the shares owned by
Brantley. See Note 2 above.
(11) Includes an aggregate of 271,957 shares of Common Stock issuable upon
exercise of outstanding options and warrants.
(12) HPSC has granted the Underwriters an option to purchase all of its
remaining 109,732 shares solely to cover over-allotments in connection
with the Offering. If the over-allotment option is exercised in full, HPSC
will own no shares.
(13) Consists of the 188,418 shares offered by HPSC. See Note 12 above.
(14) Consists of warrants to purchase 97,440 shares of Common Stock, all of
which will be exercised immediately prior to the consummation of the
Offering. Sears Pension Trust has granted the Underwriters an option to
purchase all of its remaining 35,858 shares of Common Stock solely to
cover over-allotments in connection with the Offering. If the
over-allotment option is exercised in full, Sears Pension Trust will own
no shares.
41
<PAGE> 43
UNDERWRITING
The Underwriters named below (the "Underwriters"), for whom SunTrust
Equitable Securities, J.C. Bradford & Co. and Jefferies & Company, Inc. are
acting as representatives (the "Representatives"), have severally agreed,
subject to the terms and conditions of the Underwriting Agreement, to purchase
from the Company and the Selling Stockholders the number of shares of Common
Stock set forth opposite their respective names below.
<TABLE>
<CAPTION>
UNDERWRITERS NUMBER OF SHARES
- ------------ ----------------
<S> <C>
SunTrust Equitable Securities...............................
J.C. Bradford & Co..........................................
Jefferies & Company, Inc....................................
-----------
Total.................................................. 2,500,000
===========
</TABLE>
The Company and the Selling Stockholders are obligated to sell 2,250,000
and 250,000 shares, respectively, and the Underwriters are obligated to purchase
all of the 2,500,000 shares offered hereby, if any are purchased. The Common
Stock is offered subject to receipt and acceptance by the Underwriters and to
certain other conditions, including the right to reject orders in whole or in
part.
The Underwriters, through the Representatives, have advised the Company and
the Selling Stockholders that the Underwriters propose to offer the shares of
Common Stock to the public initially at the public offering price set forth on
the cover page of this Prospectus and to selected dealers at such public
offering price less a concession not to exceed $ per share. The
selected dealers may reallow a concession to certain other dealers not to exceed
$ per share. After the initial offering to the public, the public
offering price, the concession to selected dealers and the reallowance to other
dealers may be changed by the Representatives.
The Company and the Selling Stockholders have granted the Underwriters an
option, exercisable for 30 days from the date of this Prospectus, to purchase an
aggregate of 375,000 shares of Common Stock at the public offering price less
the underwriting discount as set forth on the cover page of this Prospectus. The
Company has granted the Underwriters an option to purchase 229,410 shares of
Common Stock, and the Selling Stockholders have granted the Underwriters and
option to purchase 145,590 shares of Common Stock. See "Principal and Selling
Stockholders." If the Underwriters exercise their option to purchase any of the
additional shares of Common Stock, each of the Underwriters will have a firm
commitment, subject to certain conditions, to purchase approximately the same
percentage thereof which the number of shares of Common Stock to be purchased by
each of them as shown in the above table bears to the Underwriters' initial
commitment. The Underwriters may exercise such option solely to cover
over-allotments, if any, in connection with the sale of the Common Stock offered
hereby. The Underwriters, should they exercise their over-allotment option, will
purchase such additional shares on a pro rata basis.
In order to facilitate the Offering, the Underwriters may engage in
transactions that stabilize, maintain or otherwise affect the price of the
Common Stock during and after the Offering. Specifically, the Underwriters may
over-allot or otherwise create a short position in the Common Stock for their
own account by selling more shares of Common Stock than have been sold to them
by the Company and the Selling Stockholders. The Underwriters may elect to cover
any such short position by purchasing shares of Common Stock in the open market
or by exercising the over-allotment option granted to the Underwriters. In
addition, the Underwriters may stabilize or maintain the price of the Common
Stock by bidding for or purchasing shares of Common Stock in the open market and
may impose penalty bids, under which selling concessions allowed to syndicate
members or other broker-dealers participating in the Offering are reclaimed if
shares of Common Stock previously distributed in the Offering are repurchased in
connection with stabilization transactions or otherwise. The effect of these
transactions may be to stabilize or maintain the market price of the Common
Stock at a level above that which might otherwise prevail in the open market.
The imposition of a penalty bid may also affect the price of the Common Stock to
the extent that it discourages resales thereof. No representation is made as to
the magnitude or effect of any such stabilization or other transactions. Such
transactions may be effected on the Nasdaq National Market or otherwise and, if
commenced, may be discontinued at any time.
In connection with the Offering, certain Underwriters (and selling group
members) may also engage in passive market making transactions in the Common
Stock on the Nasdaq National Market. Passive market
42
<PAGE> 44
making consists of displaying bids on the Nasdaq National Market limited by the
prices of independent market makers and effecting purchases limited by such
prices and in response to order flow. Rule 103 of Regulation M promulgated by
the Commission limits the amount of net purchases that each passive market maker
may make and the displayed size of each bid. Passive market making may stabilize
the market price of the Common Stock at a level above that which might otherwise
prevail in the open market and, if commenced, may be discontinued at any time.
In connection with the Offering, the Company and stockholders of the
Company holding in the aggregate 889,267 shares of Common Stock upon
consummation of the Offering, including each of the Company's officers and
directors, the Selling Stockholders and certain other stockholders, have agreed,
subject to certain limited exceptions, that they will not directly or
indirectly, offer, pledge, sell, offer to sell, contract to sell or grant any
option to purchase or otherwise sell or dispose (or announce any offer, pledge,
offer of sale, contract of sale, grant of any option or other sale or
disposition), of any shares of Common Stock or other capital stock of the
Company for a period of 120 days after the date of this Prospectus without the
prior written consent of SunTrust Equitable Securities.
The Underwriting Agreement provides that the Company and the Selling
Stockholders will indemnify the Underwriters against certain liabilities,
including civil liabilities under the Securities Act, or will contribute to
payments which the Underwriters may be required to make in respect thereof.
During 1995 and early 1996, SunTrust Equitable Securities, one of the
Underwriters of the Offering, acted as financial advisor for the Company in
connection with the proposed private placement of securities of the Company,
which culminated in the sale to HPSC of 280,623 shares of Series B Convertible
Preferred Stock for $2.0 million and HPSC's agreement to purchase up to $10.0
million in Senior Subordinated Notes. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations -- Liquidity and Capital
Resources." For its services, SunTrust Equitable Securities received customary
compensation and reimbursement of its related expenses.
LEGAL MATTERS
Certain legal matters with respect to the shares of Common Stock offered
hereby will be passed upon for the Company by Alston & Bird LLP, Atlanta,
Georgia and for the Underwriters by Dewey Ballantine LLP, New York, New York.
EXPERTS
The Consolidated Financial Statements and schedule of the Company and
subsidiaries as of December 31, 1997 and 1996, and for each of the years in the
three-year period ended December 31, 1997 have been included and incorporated by
reference herein and in the registration statement in reliance upon the reports
of KPMG Peat Marwick LLP, independent certified public accountants, appearing
elsewhere herein and incorporated by reference herein, and upon the authority of
said firm as experts in accounting and auditing.
The financial statements of Healthdemographics as of December 31, 1997 and
1996, and for each of the years in the two-year period ended December 31, 1997,
have been incorporated herein in reliance upon the report of KPMG Peat Marwick
LLP, independent certified public accountants, incorporated by reference herein,
and upon the authority of said firm as experts in accounting and auditing.
The financial statements of CIVS (formerly Credential Information and
Verification Services, Inc.) at December 31, 1996 and 1995, and for the years
then ended, included in the Form 8-K/A of Medirisk, Inc. dated September 5,
1997, and incorporated by reference in this Prospectus and Registration
Statement of Medirisk, Inc. have been audited by Ernst & Young LLP, independent
auditors, as set forth in their report thereon and incorporated herein by
reference. Such financial statements referred to above are incorporated herein
by reference in reliance upon such report given upon the authority of such firm
as experts in accounting and auditing.
The financial statements of CareData as of December 31, 1996 and 1995, and
for each of the years in the two-year period ended December 31, 1996, have been
incorporated herein in reliance upon the report of KPMG
43
<PAGE> 45
Peat Marwick LLP, independent certified public accountants, incorporated by
reference herein, and upon the authority of said firm as experts in accounting
and auditing.
The financial statements of Successful Solutions as of December 31, 1997
and 1996, and for each of the years in the two-year period ended December 31,
1997, have been incorporated herein in reliance upon the report of Lovins, Clark
& Company, P.C., independent certified public accountants, incorporated by
reference herein, and upon the authority of said firm as experts in accounting
and auditing.
ADDITIONAL INFORMATION
The Company has filed with the Commission a Registration Statement on Form
S-3 (herein, together with all exhibits and amendments thereto, called the
"Registration Statement") under the Securities Act, with respect to the shares
of Common Stock offered hereby. This Prospectus does not contain all of the
information set forth in the Registration Statement. For further information
with respect to the Company and the Common Stock offered hereby, reference is
made to the Registration Statement, including the exhibits thereto, copies of
which may be inspected, without charge, at the principal office of the
Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington,
D.C. 20549, and at the Commission's Regional Offices: 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661 and 7 World Trade Center, New York, New York
10048. Copies of such material may also be obtained from the Public Reference
Section of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, at
prescribed rates. The Registration Statement, including the exhibits and
schedules thereto, is also available on the Commission's Web site at
http://www.sec.gov. Statements contained in the Prospectus concerning the
provisions of certain documents filed as exhibits to the Registration Statement
describe the material elements of such documents as they relate to the Offering
but do not purport to be complete and are subject to, and qualified in their
entirety by, reference to the full text of such document.
DOCUMENTS INCORPORATED BY REFERENCE
The following documents filed by the Company with the Commission are
incorporated herein by reference:
(1) The Company's Quarterly Report on Form 10-Q for its fiscal quarter
ended March 31, 1998, filed with the Commission on May 6, 1998;
(2) The Company's Annual Report on Form 10-K for its fiscal year ended
December 31, 1997, filed with the Commission on March 30, 1998, as amended
by Amendment No. 1 on Form 10-K/A, filed with the Commission on April 29,
1998, and as amended by Amendment No. 2 on Form 10-K/A, filed with the
Commission on May 20, 1998;
(3) The Company's Current Report on Form 8-K regarding the Company's
acquisition of Successful Solutions, filed with the Commission on May 29,
1998, as amended by Form 8-K/A filed with the Commission on June 5, 1998;
(4) The Company's Current Report on Form 8-K regarding the Company's
acquisition of Healthdemographics, filed with the Commission on April 13,
1998;
(5) The Company's Current Report on Form 8-K regarding the Company's
acquisition of CareData, filed with the Commission on September 15, 1997,
as amended by Form 8-K/A, filed with the Commission on November 14, 1997;
(6) The Company's Current Report on Form 8-K regarding the Company's
acquisition of CIVS, filed with the Commission on July 9, 1997, as amended
by Form 8-K/A, filed with the Commission on September 5, 1997; and
(7) The description of the Common Stock contained in the Company's
Form 8-A, filed with the Commission on January 17, 1997.
44
<PAGE> 46
All documents subsequently filed by the Company pursuant to Sections 13(a),
13(c), 14 or 15(d) of the Securities Exchange Act of 1934, as amended, prior to
the termination of the Offering shall be deemed incorporated herein by
reference.
Any statement contained herein or in a document incorporated or deemed to
be incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained herein
or in any other subsequently filed document which also is or is deemed to be
incorporated by reference herein modifies or supersedes such statement. Any such
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of this Prospectus.
This Prospectus incorporates documents by reference which are not presented
herein or delivered herewith. These documents (not including exhibits to the
documents incorporated by reference unless such exhibits are specifically
incorporated by reference into the information that the Prospectus incorporates)
are available without charge to each person to whom a Prospectus is delivered
upon written or oral request. Requests should be directed to Medirisk, Inc., Two
Piedmont Center, Suite 400, 3565 Piedmont Road, N.E., Atlanta, Georgia 30305,
Attention: Corporate Secretary (telephone number (404) 364-6700).
45
<PAGE> 47
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Medirisk, Inc. and Subsidiaries
AUDITED CONSOLIDATED FINANCIAL STATEMENTS:
Independent Auditors' Report.............................. F-2
Consolidated Balance Sheets as of December 31, 1997 and
1996................................................... F-3
Consolidated Statements of Operations for the years ended
December 31, 1997, 1996 and 1995....................... F-4
Consolidated Statements of Stockholders' Equity (Deficit)
for the years ended
December 31, 1997, 1996 and 1995....................... F-5
Consolidated Statements of Cash Flows for the years ended
December 31, 1997, 1996 and 1995....................... F-6
Notes to Consolidated Financial Statements................ F-7
UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS:
Consolidated Condensed Balance Sheets as of March 31, 1998
and December 31, 1997.................................. F-20
Consolidated Condensed Statements of Operations for the
three months ended March 31, 1998 and 1997............. F-22
Consolidated Condensed Statements of Cash Flows for the
three months ended March 31, 1998 and 1997............. F-23
Notes to Consolidated Condensed Financial Statements...... F-24
UNAUDITED PRO FORMA FINANCIAL DATA:
Unaudited Pro Forma Consolidated Condensed Statement of
Operations for the three months ended March 31, 1998... F-27
Unaudited Pro Forma Consolidated Condensed Statement of
Operations for the Year ended December 31, 1997........ F-28
Notes to Unaudited Pro Forma Financial Data............... F-29
</TABLE>
F-1
<PAGE> 48
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Medirisk, Inc.:
We have audited the accompanying consolidated balance sheets of Medirisk,
Inc. and subsidiaries as of December 31, 1997 and 1996, and the related
consolidated statements of operations, stockholders' equity (deficit), and cash
flows for each of the years in the three-year period ended December 31, 1997.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
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 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Medirisk,
Inc. and subsidiaries as of December 31, 1997 and 1996, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1997, in conformity with generally accepted accounting
principles.
/s/ KPMG PEAT MARWICK LLP
Atlanta, Georgia
February 6, 1998
F-2
<PAGE> 49
MEDIRISK, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1997 1996
------------ -----------
<S> <C> <C>
ASSETS (NOTE 4)
Current assets:
Cash and cash equivalents................................. $ 3,515,931 $ 447,257
Accounts receivable, less allowances for doubtful accounts
of $147,557 and $97,439, at December 31, 1997 and 1996,
respectively............................................ 3,802,241 1,428,191
Prepaid expenses.......................................... 697,485 920,727
Note receivable from officer (note 10).................... 22,500 22,500
Other current assets...................................... 451,513 152,184
------------ -----------
Total current assets................................ 8,489,670 2,970,859
------------ -----------
Property and equipment (note 3)............................. 3,083,466 1,736,408
Less accumulated depreciation and amortization............ 1,444,489 893,601
------------ -----------
Property and equipment, net............................. 1,638,977 842,807
------------ -----------
Excess of cost over net assets of businesses acquired, less
accumulated amortization of $537,218 and $180,493 at
December 31, 1997 and 1996, respectively (note 2)......... 7,555,902 3,128,347
Other intangible assets, less accumulated amortization of
$409,362 and $89,417 at December 31, 1997 and 1996,
respectively (note 2)..................................... 1,793,680 430,583
Software development costs, less accumulated amortization of
$96,508 and $19,911 at December 31, 1997 and 1996,
respectively.............................................. 1,008,398 101,058
Note receivable from officer, excluding current portion
(note 10)................................................. 67,500 90,000
Other assets................................................ 104,139 892,307
------------ -----------
$ 20,658,266 $ 8,455,961
============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Current installments of long-term debt and obligations
under capital leases (notes 4, 5, and 6)................ $ 168,493 $ 1,842,074
Accounts payable.......................................... 257,723 639,002
Accrued expenses.......................................... 757,975 448,749
Income taxes payable (note 7)............................. 815,791 --
Deferred revenue.......................................... 2,308,610 2,536,283
------------ -----------
Total current liabilities........................... 4,308,592 5,466,108
------------ -----------
Long-term debt and obligations under capital leases,
excluding current installments, principally related party
debt at December 31, 1996 (notes 4, 5, and 6)............. 165,251 7,194,897
Dividends payable (notes 8(b) and 8(d))..................... -- 618,010
------------ -----------
Total liabilities................................... 4,473,843 13,279,015
------------ -----------
Stockholders' equity (deficit) -- (note 8):
Preferred stock, $0.001 par value; 1,000,000 shares
authorized; none outstanding............................ -- --
Series A convertible preferred stock, $0.001 par value
(estimated unaccrued aggregate involuntary liquidation
preference $3,461,000 at December 31, 1996); no shares
authorized, issued, or outstanding at December 31, 1997;
3,000,000 shares authorized; 1,292,359 issued and
outstanding shares at December 31, 1996................. -- 1,292
Series B convertible preferred stock, $0.001 par value
(estimated unaccrued aggregate involuntary liquidation
preference $1,967,000 at December 31, 1996); no shares
authorized, issued, or outstanding at December 31, 1997;
400,000 shares authorized; 280,623 issued and
outstanding shares at December 31, 1996 (note 5)........ -- 281
Common stock, $0.001 par value; 20,000,000 shares
authorized; 4,193,346 and 709,943 issued and outstanding
shares at December 31, 1997 and 1996, respectively...... 4,193 710
Additional paid-in capital................................ 28,559,279 4,971,644
Accumulated deficit....................................... (12,379,049) (9,796,981)
------------ -----------
16,184,423 (4,823,054)
Commitments and contingencies (notes 6 and 8)............... -- --
------------ -----------
$ 20,658,266 $ 8,455,961
============ ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE> 50
MEDIRISK, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------
1997 1996 1995
----------- ----------- ----------
<S> <C> <C> <C>
Revenue (note 9)......................................... $16,748,839 $ 8,904,133 $3,654,692
Salaries, wages, and benefits............................ 7,909,600 6,092,792 2,577,416
Other operating expenses................................. 4,373,954 2,314,654 956,097
Depreciation and amortization............................ 1,304,155 786,849 193,399
Acquired in-process research and development costs and
integration costs (note 2)............................. 4,575,025 6,180,000 --
----------- ----------- ----------
Operating loss................................. (1,413,895) (6,470,162) (72,220)
Interest income (expense), net........................... 344,973 (703,542) (65,433)
Other expense, net....................................... -- (57,073) --
----------- ----------- ----------
Loss before income taxes and extraordinary
item......................................... (1,068,922) (7,230,777) (137,653)
Provision for income taxes (note 7)...................... (707,000) -- --
----------- ----------- ----------
Loss before extraordinary item................. (1,775,922) (7,230,777) (137,653)
Extraordinary item -- loss on early extinguishment of
debt (note 5).......................................... (806,146) -- --
----------- ----------- ----------
Net loss....................................... (2,582,068) (7,230,777) (137,653)
Accretion of discount on Series A convertible preferred
stock.................................................. -- -- (92,580)
Convertible preferred stock dividend requirement......... (24,673) (201,608) (201,608)
----------- ----------- ----------
Net loss attributable to common stock.......... $(2,606,741) $(7,432,385) $ (431,841)
=========== =========== ==========
Net loss per share of common stock -- basic and
diluted:...............................................
Loss per share before extraordinary item............... $ (0.46) $ (4.84) $ (0.30)
Loss per share -- extraordinary item................... (0.21) -- --
----------- ----------- ----------
Net loss per share of common stock............. $ (0.67) $ (4.84) $ (0.30)
=========== =========== ==========
Weighted average number of common shares used in
calculating net loss per share of common stock -- basic
and diluted............................................ 3,918,347 1,536,159 1,427,080
=========== =========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE> 51
MEDIRISK, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995
<TABLE>
<CAPTION>
SERIES B
SERIES A CONVERTIBLE CONVERTIBLE
PREFERRED STOCK PREFERRED STOCK COMMON STOCK ADDITIONAL
-------------------- ----------------- ------------------ PAID-IN ACCUMULATED
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT
---------- ------- -------- ------ --------- ------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1994.................. -- $ -- -- $ -- 649,730 $ 650 $ 492,330 $ (2,335,971)
Accretion of discount
on Series A
convertible preferred
stock (note 8(b))..... -- -- -- -- -- -- -- (92,580)
Issuance of common
stock................. -- -- -- -- 6,496 6 1,944 --
Repayment of note
receivable from
stockholder (note
8(e))................. -- -- -- -- -- -- -- --
Accrued dividend
payable (note 8(b))... -- -- -- -- -- -- (201,608) --
Net loss............... -- -- -- -- -- -- -- (137,653)
---------- ------- -------- ----- --------- ------ ----------- ------------
Balance at December 31,
1995.................. -- -- -- -- 656,226 656 292,666 (2,566,204)
Issuance of Series B
convertible preferred
stock, net of issuance
costs of $220,556
(notes 5 and 8)....... -- -- 280,623 281 -- -- 1,779,163 --
Conversion of Series A
convertible preferred
stock from redeemable
to nonredeemable (note
8(b))................. 1,292,359 1,292 -- -- -- -- 2,301,179 --
Issuance of common
stock, primarily in
acquisitions (note
2).................... -- -- -- -- 118,677 119 137,283 --
Repayment of note
receivable from
stockholder (note
8(e))................. -- -- -- -- -- -- -- --
Forgiveness of note
receivable from
stockholder (note
8(c))................. -- -- -- -- -- -- -- --
Discount on issuance of
debt arising from
stock purchase
warrants (note 5)..... -- -- -- -- -- -- 573,111 --
Stock option
compensation
expense............... -- -- -- -- -- -- 99,585 --
Accrued dividend
payable (note 8(b))... -- -- -- -- -- -- (201,608) --
Cancellation of
treasury stock........ -- -- -- -- (64,960) (65) (9,735) --
Net loss............... -- -- -- -- -- -- -- (7,230,777)
---------- ------- -------- ----- --------- ------ ----------- ------------
Balance at December 31,
1996.................. 1,292,359 1,292 280,623 281 709,943 710 4,971,644 (9,796,981)
Common stock issued in
initial public
offering (note
8(h))................. -- -- -- -- 2,300,000 2,300 22,623,371 --
Conversion of Series A
and Series B
convertible preferred
stock into common
stock (note 8(h))..... (1,292,359) (1,292) (280,623) (281) 1,021,800 1,022 551 --
Dividends paid on
Series A and Series B
convertible preferred
stock (note 8(h))..... -- -- -- -- -- -- (24,673) --
Issuance of common
stock in acquisitions
(note 2).............. -- -- -- -- 143,682 144 901,023 --
Stock option
exercises............. -- -- -- -- 20,243 20 101,929 --
Common stock
repurchased and
canceled.............. -- -- -- -- (2,331) (3) (14,566) --
Net loss............... -- -- -- -- -- -- -- (2,582,068)
---------- ------- -------- ----- --------- ------ ----------- ------------
Balance at December 31,
1997.................. -- $ -- -- $ -- 4,193,346 $4,193 $28,559,279 $(12,379,049)
========== ======= ======== ===== ========= ====== =========== ============
<CAPTION>
NOTE TOTAL
TREASURY STOCK RECEIVABLE STOCKHOLDERS'
----------------- FROM EQUITY
SHARES AMOUNT STOCKHOLDER (DEFICIT)
------- ------- ----------- -------------
<S> <C> <C> <C> <C>
Balance at December 31,
1994.................. 64,960 $(9,800) $(75,000) $(1,927,791)
Accretion of discount
on Series A
convertible preferred
stock (note 8(b))..... -- -- -- (92,580)
Issuance of common
stock................. -- -- -- 1,950
Repayment of note
receivable from
stockholder (note
8(e))................. -- -- 25,000 25,000
Accrued dividend
payable (note 8(b))... -- -- -- (201,608)
Net loss............... -- -- -- (137,653)
------- ------- -------- -----------
Balance at December 31,
1995.................. 64,960 (9,800) (50,000) (2,332,682)
Issuance of Series B
convertible preferred
stock, net of issuance
costs of $220,556
(notes 5 and 8)....... -- -- -- 1,779,444
Conversion of Series A
convertible preferred
stock from redeemable
to nonredeemable (note
8(b))................. -- -- -- 2,302,471
Issuance of common
stock, primarily in
acquisitions (note
2).................... -- -- -- 137,402
Repayment of note
receivable from
stockholder (note
8(e))................. -- -- 14,000 14,000
Forgiveness of note
receivable from
stockholder (note
8(c))................. -- -- 36,000 36,000
Discount on issuance of
debt arising from
stock purchase
warrants (note 5)..... -- -- -- 573,111
Stock option
compensation
expense............... -- -- -- 99,585
Accrued dividend
payable (note 8(b))... -- -- -- (201,608)
Cancellation of
treasury stock........ (64,960) 9,800 -- --
Net loss............... -- -- -- (7,230,777)
------- ------- -------- -----------
Balance at December 31,
1996.................. -- -- -- (4,823,054)
Common stock issued in
initial public
offering (note
8(h))................. -- -- -- 22,625,671
Conversion of Series A
and Series B
convertible preferred
stock into common
stock (note 8(h))..... -- -- -- --
Dividends paid on
Series A and Series B
convertible preferred
stock (note 8(h))..... -- -- -- (24,673)
Issuance of common
stock in acquisitions
(note 2).............. -- -- -- 901,167
Stock option
exercises............. -- -- -- 101,949
Common stock
repurchased and
canceled.............. -- -- -- (14,569)
Net loss............... -- -- -- (2,582,068)
------- ------- -------- -----------
Balance at December 31,
1997.................. -- $ -- $ -- $16,184,423
======= ======= ======== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE> 52
MEDIRISK, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------
1997 1996 1995
----------- ----------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss.................................................. $(2,582,068) $(7,230,777) $(137,653)
Adjustments to reconcile net loss to net cash (used in)
provided by operating activities:
Acquired in-process research and development costs...... 4,375,000 6,180,000 --
Depreciation and amortization........................... 1,304,155 786,849 193,399
Loss due to early extinguishment of debt................ 806,146 -- --
Other................................................... -- 135,585 --
Decrease (increase) in:
Accounts receivable................................... (1,925,277) (447,120) (273,620)
Other assets.......................................... 137,848 (846,014) (5,339)
Increase (decrease) in:
Accounts payable...................................... (870,028) 353,520 83,456
Accrued expenses and other liabilities................ (175,425) 151,405 78,152
Deferred revenue...................................... (1,766,992) 154,158 76,921
----------- ----------- ---------
Net cash (used in) provided by operating
activities........................................ (696,641) (762,394) 15,316
----------- ----------- ---------
Cash flows from investing activities:
Acquisition of businesses, net of cash acquired........... (7,386,208) (6,925,393) --
Purchases of property and equipment....................... (948,833) (138,792) --
Additions to software development costs................... (983,937) (120,969) --
Repayment of (loan to) officer............................ 22,500 (112,500) --
----------- ----------- ---------
Net cash used in investing activities............... (9,296,478) (7,297,654) --
----------- ----------- ---------
Cash flows from financing activities:
Proceeds from issuance of common stock and stock option
exercises............................................... 22,727,620 15,084 1,950
Common stock repurchased and canceled..................... (14,569) -- --
Proceeds from issuance of Series B convertible preferred
stock................................................... -- 2,000,000 --
Payments for Series B convertible preferred stock issuance
costs................................................... -- (220,556) --
Payment of preferred stock dividends...................... (642,683) -- --
Proceeds from issuance of long-term debt, principally
related party........................................... -- 7,407,086 --
Payments for debt issuance costs.......................... -- (345,000) --
Payments on long-term debt and obligations under capital
leases.................................................. (9,008,575) (652,147) (167,053)
Repayment of note receivable from stockholder............. -- 14,000 25,000
----------- ----------- ---------
Net cash provided by (used in) financing
activities........................................ 13,061,793 8,218,467 (140,103)
----------- ----------- ---------
Net increase (decrease) in cash and cash
equivalents....................................... $ 3,068,674 $ 158,419 $(124,787)
Cash and cash equivalents at beginning of period............ 447,257 288,838 413,625
----------- ----------- ---------
Cash and cash equivalents at end of period.................. $ 3,515,931 $ 447,257 $ 288,838
=========== =========== =========
Supplemental disclosure of cash flow information -- cash
paid during the period for interest....................... $ 129,771 $ 736,432 $ 65,433
=========== =========== =========
Supplemental disclosures of noncash activities:
Purchase of computer and office equipment under capital
lease arrangements...................................... $ -- $ 332,035 $ 191,563
=========== =========== =========
Discount on issuance of debt arising from stock purchase
warrants................................................ $ -- $ 573,111 $ --
=========== =========== =========
Accrual of dividend payable on Series A convertible
preferred stock......................................... $ -- $ 201,608 $ 201,608
=========== =========== =========
Acquisitions of businesses:
Fair value of assets acquired............................. $ 8,249,588 $ 4,909,167 $ --
Acquired in-process research and development costs........ 4,375,000 6,180,000 --
Fair value of liabilities assumed......................... (3,600,535) (2,961,849) --
Common stock issued....................................... (901,167) (122,318) --
Debt issued............................................... -- (1,076,000) --
----------- ----------- ---------
Total cash paid for acquisitions.................... 8,122,886 6,929,000 --
Cash acquired............................................... (736,678) (3,607) --
----------- ----------- ---------
Net cash paid for acquisitions...................... $ 7,386,208 $ 6,925,393 $ --
=========== =========== =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE> 53
MEDIRISK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1996, AND 1995
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Description of Business
Medirisk, Inc. (the "Company") is a provider of proprietary database
products, decision-support software and analytical services to the health care
industry. The Company's products and services enable its customers to make
objective comparisons of the financial costs and clinical outcomes of physician
services to customer-specific and industry benchmarks, assess patient
satisfaction with specific managed care plans, and obtain information concerning
the background and credentials of physicians. These capabilities assist health
care industry participants in measuring the performance of health care payors
and providers.
Applications of Medirisk's products include pricing managed care contracts,
evaluating physician fee schedules and utilization of physician services,
comparing provider outcomes and health plan performance, credentialing and
recruiting physicians, developing health care delivery networks, and marketing
health care services. The Company actively sells its products to leading health
plans, insurers, hospitals, large multi-specialty physician groups, physician
practice management companies, employers, and pharmaceutical companies, as well
as smaller customers, including single-specialty physician groups.
(b) Basis of Financial Statement Presentation
The consolidated financial statements have been prepared in conformity with
generally accepted accounting principles. In preparing the consolidated
financial statements, management is required to make estimates and assumptions
that affect the reported amounts of assets and liabilities as of the date of the
balance sheet, income and expenses for the period, and disclosure of contingent
assets and liabilities. Actual results could differ from those estimates.
The consolidated financial statements include the accounts of Medirisk,
Inc. and its subsidiaries. All significant intercompany balances and
transactions have been eliminated in consolidation.
(c) Cash Equivalents
Cash equivalents at December 31, 1997 and 1996 included amounts of
$2,106,963 and $145,897, respectively, invested in money market accounts with a
major brokerage firm. For purposes of the statement of cash flows, the Company
considers all highly liquid debt instruments with original maturities of three
months or less to be cash equivalents.
(d) Revenue Recognition
The Company provides services and licenses its products primarily pursuant
to single- and multi-year contracts that provide for the payment of
nonrefundable annual fees, often in advance of use or shipment, or of quarterly
fees generally billed in advance of service delivery. The products are
segregated into three types: market performance, clinical performance, and
physician credentials products. The market performance products provide
customers with information from the Company's market performance product
databases. Revenue on these sales is recognized upon the delivery of the data.
The Company also licenses the exclusive rights to market the results of its
managed care consumer satisfaction surveys. Revenue from the licenses of
disease-specific customized surveys to the pharmaceutical industry is recognized
as the related costs of producing the survey are incurred, and revenues from
noncustomized data licensing is recognized upon delivery. The clinical
performance products revenues relate to the delivery of services and are
recognized over the contract terms as the services are provided. The physician
credentials products consist of (i) data and services provided to customers over
time, for which revenue is recognized ratably over the life of the contract, and
(ii) credentials reports that validate physicians' education, training, and
other matters, for which revenue is recognized upon delivery of the completed
reports. Customer service revenues are recognized ratably over the service
contract period. All other revenue, including
F-7
<PAGE> 54
fees for training, consulting fees, and other miscellaneous services, is
recognized upon the performance of the applicable services.
(e) Deferred Revenue
Deferred revenue represents accounts receivable and payments to the Company
by customers in advance of revenue recognition.
(f) Accounts Receivable
The Company enters into multi-year, non-cancelable subscription contracts,
for which the associated receivables are recorded as accounts receivable and
deferred revenue when they become due. The contract balances are due at the
beginning of their respective annual anniversary dates.
(g) Property and Equipment
Property and equipment are stated at cost, less accumulated depreciation
and amortization. Depreciation is provided on the straight-line method over the
estimated useful lives of the assets ranging from three to seven years.
Amortization of assets acquired under capital lease arrangements not
transferring ownership or without a bargain purchase option is recorded using
the straight-line method over the estimated useful lives of the assets or the
lease term, whichever is shorter.
(h) Excess of Cost Over Net Assets of Businesses Acquired
The excess of cost over net assets of businesses acquired (goodwill) is
being amortized using the straightline method over a period of 15 years. The
amortization period is 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. At each
balance sheet date, the Company assesses the recoverability of this intangible
asset by determining whether the amortization of the goodwill balance over its
remaining life can be recovered through undiscounted future operating cash flows
of the acquired operation. The amount of goodwill impairment, if any, is
measured based on projected discounted future operating cash flows using a
discount rate equal to the rate of return that would be required by the Company
for a similar investment with like risks.
(i) Other Intangible Assets
Other intangible assets are comprised mainly of acquired products and
acquired customer contracts. The costs of acquired products and acquired
customer contracts from business acquisitions are derived using a fair value
method of allocation. Other intangible assets are being amortized using the
straight-line method over five years. The Company makes an ongoing assessment of
the recoverability of its intangible assets by comparing the amount capitalized
for each asset to the estimated future cash flows expected to result from the
use of the asset and its eventual disposition. If the sum of the future cash
flows, is less than the amount capitalized, a write-down to fair value is
recorded.
(j) Research and Development Costs and Software Development Costs
Research and development costs are expensed as incurred. Amounts expensed
for research and development for the years ended December 31, 1997, 1996, and
1995, were $2,149,155, $951,645, and $221,943, respectively.
The Company capitalizes software development costs by project, commencing
when technological feasibility for the respective product is established and
concluding when the product is ready for general release to customers. The
Company makes an ongoing assessment of the recoverability of its capitalized
software projects by comparing the amount capitalized for each product to the
estimated NRV of the product. If the NRV is less than the amount capitalized, a
write-down to NRV is recorded. The Company capitalized computer software
development costs of $983,937 and $120,969 for the years ended December 31, 1997
and 1996, respectively. Capitalized computer software development costs are
being amortized ratably based on the projected revenue
F-8
<PAGE> 55
associated with the software products or the straight-line method over five
years, whichever method results in a higher level of amortization. Amortization
expense was $76,597 and $19,911 for the years ended December 31, 1997 and 1996,
respectively.
(k) Stock Option Plans
Prior to January 1, 1996, the Company accounted for its stock option plans
in accordance with the provisions of Accounting Principles Board ("APB") Opinion
No. 25, Accounting for Stock Issued to Employees, and related interpretations.
As such, compensation expense to be recognized over the related vesting period
would generally be determined on the date of grant only if the current market
price of the underlying stock exceeded the exercise price. On January 1, 1996,
the Company adopted Statement of Financial Accounting Standards No. 123,
Accounting for Stock-Based Compensation ("SFAS 123"), which permits entities to
recognize as expense over the vesting period the fair value of all stock-based
awards on the date of grant. Alternatively, SFAS 123 also allows entities to
continue to apply the provisions of APB Opinion No. 25 and provide pro forma net
income (loss) and pro forma income (loss) per share disclosures for employee
stock option grants made in 1995 and future years as if the fair-value-based
method defined in SFAS 123 had been applied. The Company has elected to continue
to apply the provisions of APB Opinion No. 25. The pro forma effects of SFAS 123
for 1997 and 1996 are presented in footnote 8(c). The effects of SFAS 123 for
1995 are not material to the Company's consolidated financial statements and,
therefore, the pro forma and other disclosure requirements have not been
presented.
(l) Net Loss Per Share of Common Stock
On December 31, 1997, the Company adopted Statement of Financial Accounting
Standards No. 128, Earnings Per Share ("SFAS 128"), which prescribes the
calculation methodology and financial reporting requirements for basic and
diluted earnings per share. Basic earnings (loss) per common share available to
common shareholders is based on the weighted-average number of common shares
outstanding. Diluted earnings (loss) per common share available to common
shareholders is based on the weighted-average number of common shares
outstanding and dilutive potential common shares, such as dilutive stock
options.
Retroactive restatement has been made to share and per share amounts for
the reverse stock split (see note 8(g)) and conversion of all of the Company's
Series A convertible preferred stock and Series B convertible preferred stock
into common stock which occurred upon consummation of the Company's initial
public offering in January 1997 (see note 8(h)). Weighted average number of
shares of common stock outstanding through December 31, 1996 has been calculated
pursuant to Securities and Exchange Commission Staff Accounting Bulletin No. 98
("SAB 98") whereby common stock, options, warrants, or other potentially
dilutive instruments that are issued for nominal consideration ("nominal
issuances") during the periods covered by statements of operations included in
the Registration Statement for an initial public offering are reflected in
earnings per share calculations in a manner similar to a stock split or stock
dividend for which retroactive restatement is required. The Company had nominal
issuances in the periods covered by its Registration Statement for its initial
public offering. The computation of diluted net loss per share of common stock
was antidilutive in each of the periods presented; therefore, the amounts
reported for basic and diluted net loss per share are the same.
All prior period net loss per share data presented in these consolidated
financial statements have been restated to conform to the provisions of SFAS 128
and SAB 98.
(m) Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
of
The Company adopted the provisions of SFAS No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of, on
January 1, 1996. This statement requires that long-lived assets be reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Recoverability of assets to
be held and used is measured by a comparison of the carrying amount of an asset
to future net cash flows expected to be generated by the asset. If such assets
are considered to be impaired, the impairment to be recognized is measured by
the amount by which the carrying amount of the assets exceed the fair value of
the assets. Assets to be disposed of are reported at the lower of the carrying
amount or fair value less costs to sell.
F-9
<PAGE> 56
(n) Income Taxes
Deferred income tax assets and liabilities are recognized for the future
tax consequences attributable to differences between financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss carryforwards. Deferred income tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred income tax assets and liabilities
of a change in tax rates is recognized in income in the period that includes the
enactment date.
(2) BUSINESS ACQUISITIONS
1997 ACQUISITIONS
Staff-Link, Inc. ("Staff-Link")
In May 1997, the Company acquired substantially all of the assets of
Staff-Link of St. Louis, Missouri, a provider of a physician database and
related software utilities designed to assist health care organizations with
their in-house recruiting efforts. The Company purchased Staff-Link, Inc. for
$300,000 in cash and the assumption of net assets of $251,000. The total
purchase price paid to the sellers in the transaction was $300,000. 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 acquired customer contracts of
approximately $527,000 and excess of cost over net assets acquired of
approximately $49,000.
CIVS, Inc. ("CIVS")
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
$3,500,000 in cash and 129,166 shares of the Company's common stock (valued at
$792,000) and the assumption of net assets of $76,000. The total purchase price
paid to the sellers in the transaction was $4,300,000. 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 $3,100,000, acquired products of
approximately $415,000, and excess of cost over net assets acquired of
approximately $1,100,000. If the acquired business exceeds certain performance
goals, contingent consideration will be paid by the Company based upon a
multiple of CIVS's operating income over a predetermined amount through 1999.
These payments could be significant. Contingent consideration ultimately paid
will be added to excess cost over net assets acquired and amortized
prospectively.
CareData Reports, Inc. ("CareData")
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. CareData's products are used by
managed care plans to assess their competitive position and quality of care, by
employers to evaluate health plans and by pharmaceutical companies to target
potential markets for their products. The Company purchased CareData for
approximately $4,100,000 in cash and 14,516 shares of Medirisk common stock
(valued at $109,379) and the assumption of net assets of $376,000. The total
purchase price paid to the sellers in the transaction was $4,200,000. 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 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
$2,900,000. If the acquired business exceeds certain performance goals,
contingent consideration will be paid by the Company based upon a multiple of
CareData's operating income over a predetermined amount through 1999. These
payments could be significant. Contingent consideration ultimately paid will be
added to excess cost over net assets acquired and amortized prospectively.
F-10
<PAGE> 57
Medsource, Inc. ("Medsource")
In November 1997, the Company acquired all of the outstanding shares of
Medsource of St. Paul, Minnesota, which licenses databases of physician
information for use in recruiting physicians, developing health care networks,
and marketing hospitals. The Company purchased Medsource for $250,000 in cash
and the assumption of net liabilities of $805,000. The total purchase price paid
to the sellers in the transaction was $250,000. 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 $300,000, acquired products of approximately $125,000, and excess
of cost over net assets acquired of approximately $755,000. If the acquired
business exceeds certain performance goals, contingent consideration will be
paid by the Company based upon a multiple of Medsource's operating income over a
predetermined amount through 1999. These payments could be significant.
Contingent consideration ultimately paid will be added to excess cost over net
assets acquired and amortized prospectively.
Integration Activities
The Company incurred approximately $200,000 of integration costs during
1997 for these 1997 acquisitions.
1996 ACQUISITIONS
Formations in HealthCare, Inc. ("Formations")
In January 1996, the Company acquired Formations of Chicago, Illinois for
approximately $1,475,000 in cash, 99,466 shares of the Company's common stock,
and options to purchase 28,947 shares of the Company's common stock at an
exercise price of $0.64 per share. Formations provides clinical performance
products that allow customers to measure outcomes across a range of care within
a variety of medical specialties. These products also enable both payers and
providers to measure clinical outcomes and apply that information to attract and
retain managed care arrangements and to improve quality of clinical care. 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 $1,040,000, acquired products of
approximately $170,000, and excess of cost over net assets acquired of
approximately $422,000.
PracticeMatch, Inc. ("PracticeMatch")
In March 1996, the Company acquired PracticeMatch of St. Louis, Missouri
for approximately $5,454,000 in cash and $1,076,000 in promissory notes and
assumed net liabilities of $1,897,002. PracticeMatch offers a database
containing detailed information concerning physicians who are candidates for new
practice affiliations. The Company licenses its physician database products to
assist customers in cost-effective in-house recruiting of physicians. 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 $5,140,000, acquired products of
approximately $350,000, and excess of cost over net assets acquired of
approximately $2,887,000.
PRO FORMA RESULTS
Unaudited pro forma results of operations as if the above acquisitions
occurred on January 1, 1996 are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
1997 1996
----------- -----------
<S> <C> <C>
Revenues.................................................... $19,767,000 $15,167,000
=========== ===========
Net income (loss)........................................... $ 134,000 $(2,216,000)
=========== ===========
Net income (loss) per share................................. $ 0.03 $ (1.32)
=========== ===========
</TABLE>
F-11
<PAGE> 58
The pro forma results include the historical accounts of the Company and
the acquired entities adjusted to reflect the effects of the depreciation and
amortization of the acquired identifiable tangible and intangible assets based
on the new cost basis of the assets acquired, additional interest expense
related to notes payable issued in connection with the acquisitions, and the
reversal of the nonrecurring acquired in-process research and development costs
recorded in connection with the acquisitions. The pro forma results are not
necessarily indicative of actual results which might have occurred had the
operations and management of the Company and the acquired entities been combined
in 1997 and 1996.
(3) PROPERTY AND EQUIPMENT
Property and equipment are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1997 1996
---------- ----------
<S> <C> <C>
Furniture and fixtures...................................... $ 354,744 $ 344,365
Computer and office equipment............................... 2,523,240 1,329,294
Leasehold improvements...................................... 205,482 62,749
---------- ----------
$3,083,466 $1,736,408
========== ==========
</TABLE>
Included in property and equipment is equipment under capital lease
arrangements with a cost of $967,929 and $937,020 and accumulated amortization
of $671,563 and $533,983 at December 31, 1997 and 1996, respectively.
Amortization of equipment held under capital lease arrangements is included
in depreciation expense.
(4) LONG-TERM DEBT AND OBLIGATIONS UNDER CAPITAL LEASES
Long-term debt and obligations under capital leases are summarized as
follows:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1997 1996
-------- ----------
<S> <C> <C>
10% unsecured senior subordinated note payable; paid off in
1997 (see note 5)......................................... $ -- $6,900,000
10% unsecured notes payable resulting from PracticeMatch
acquisition; paid off in 1997............................. -- 1,076,000
Unsecured line of credit payable to bank; paid off in
1997...................................................... -- 507,086
9% unsecured note payable to related party; paid off in
1997...................................................... -- 137,228
Obligations under capital leases, due in monthly
installments expiring at various dates through February
2001, at varying interest rates, secured by property and
equipment (note 6(a))..................................... 214,631 416,657
Other debt assumed in an acquisition with varying interest
rates and maturity dates.................................. 119,113 --
-------- ----------
333,744 9,036,971
Less current installments................................... 168,493 1,842,074
-------- ----------
Total long-term debt and obligations under capital
leases, excluding current installments.......... $165,251 $7,194,897
======== ==========
</TABLE>
F-12
<PAGE> 59
Future minimum debt payments and obligations under capital leases are as
follows:
<TABLE>
<CAPTION>
YEARS ENDING DECEMBER 31,
- -------------------------
<S> <C>
1998........................................................ $168,493
1999........................................................ 153,081
2000........................................................ 10,483
2001........................................................ 1,687
--------
$333,744
========
</TABLE>
Based on the borrowing rates currently available to the Company for debt
with similar terms and average maturities, the fair value of long-term debt
approximates its carrying value.
On March 28, 1997, the Company entered into a two-year $10,000,000 line of
credit agreement (the "Credit Agreement") with a commercial bank. Borrowings
under the Credit Agreement accrue interest at either prime or LIBOR plus 1.65%
to 2.25%, depending on interest rate elections made by the Company and certain
financial ratio positions as defined in the Credit Agreement. Interest on
borrowings is payable monthly and principal is due at expiration of the Credit
Agreement, March 28, 1999. Borrowings under the Credit Agreement are subject to
certain customary financial covenants and dividend restrictions and are secured
by substantially all of the Company's assets. There were no borrowings under the
Credit Agreement during 1997.
(5) HEALTHPLAN SERVICES SECURITIES PURCHASE AGREEMENT (SEE NOTE 8(H))
On January 8, 1996, for the purpose of financing the Company's ongoing
acquisition program and working capital needs, the Company and HealthPlan
Services Corporation ("HPSC"), entered into a Securities Purchase Agreement (the
"Agreement"). Under the Agreement, HPSC purchased 280,623 shares of the
Company's Series B convertible preferred stock for $2,000,000 (see note 8) and
agreed to purchase up to $10,000,000 in original principal amount of senior
subordinated notes. In addition, HPSC would be issued warrants to purchase up to
432,101 shares of the Company's common stock for $0.015 per share, based upon
the amount of senior subordinated debt purchased. HPSC's obligation to purchase
senior subordinated notes under the Agreement terminated upon the earliest to
occur of (i) an initial public offering of the Company; (ii) a change of control
of the Company; (iii) an event of default; (iv) January 8, 1999; or (v) the
death or termination of employment of the Company's Chairman and Chief Executive
Officer.
On March 13, 1996, the Company sold a $6,900,000 senior subordinated note
to HPSC. The note bore interest at 10% payable quarterly and was due upon the
earliest to occur of (i) an initial public offering by the Company; (ii) a
change of control of the Company; or (iii) at maturity on January 8, 2003.
Warrants to purchase 298,150 shares of the Company's common stock were issued to
HPSC in connection with issuance of this note. The proceeds received were
allocated to the notes and the warrants based on their relative fair values
resulting in a discount of $573,111 on the note, which was being amortized over
the life of the note.
On January 31, 1997, the Company consummated an initial public offering
(see note 8(h)). As a result, the Agreement was terminated and the $6,900,000
note payable to HPSC was repaid. The Company recorded a charge of $806,146 for
early extinguishment of debt relating to the unamortized note discount and
related deferred financing costs.
F-13
<PAGE> 60
(6) COMMITMENTS
(a) Leases
The Company has entered into noncancelable capital and operating lease
agreements for office space, furniture and fixtures, and computer and office
equipment. Future minimum payments under all such noncancelable capital and
operating leases as of December 31, 1997 are as follows:
<TABLE>
<CAPTION>
CAPITAL
YEAR ENDING DECEMBER 31, OPERATING (NOTE 4)
- ------------------------ ---------- ---------------
<S> <C> <C>
1998........................................................ $ 932,949 $170,403
1999........................................................ 631,256 58,305
2000........................................................ 538,818 11,558
2001........................................................ 402,299 1,925
2002 and thereafter......................................... 24,150 --
---------- --------
$2,529,472 $242,191
==========
Less amount representing interest and sales taxes........... 27,560
--------
$214,631
========
</TABLE>
Rental expense for noncancelable operating leases was $661,302, $412,407,
and $212,547 for the years ended December 31, 1997, 1996, and 1995,
respectively.
(b) Employment Agreement
The Company has entered into an Employment Agreement (the "Employment
Agreement") with the Company's Chairman and Chief Executive Officer (the "CEO").
The Employment Agreement provides for a base salary subject to annual increases
at the discretion of the compensation committee, annual performance bonuses
based upon attaining certain goals established by the compensation committee,
minimum annual stock option grants, and certain severance benefits in the event
of termination. The Employment Agreement expires on May 31, 1999 and is
automatically renewable for one-year terms thereafter, subject to termination by
the Company or the CEO upon 60 days' notice.
(c) Employee Benefit Plan
The Company maintains a 401(k) plan (the "Plan") for the benefit of all
eligible employees. The Plan provides for employer matching contributions at the
discretion of the Company's management. The Company has not paid or accrued an
amount for matching contributions since the inception of the Plan.
(7) INCOME TAXES
Income tax expense for the year ended December 31, 1997 was $707,000. All
of the $707,000 is current; $640,000 is federal and $67,000 is state tax
expense.
Because of operating losses, net operating loss carryforwards, and other
factors, the Company did not provide any income tax expense for the years ended
December 31, 1996, and 1995. A reconciliation of the
F-14
<PAGE> 61
expected income tax (benefit) expense (based on a U.S. Federal statutory tax
rate of 34%) to the actual income taxes is as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------
1997 1996 1995
---------- ----------- --------
<S> <C> <C> <C>
Computed "expected" tax (benefit) expense........... $ (363,433) $(2,458,464) $(46,802)
In-process research and development costs expensed
for financial accounting purposes, not deductible
for tax purposes.................................. 1,706,250 -- --
Benefit of operating loss carryforward.............. (429,000) -- --
Increase (decrease) in the valuation allowance for
deferred income taxes, excluding benefit of
operating loss carryforward....................... (139,217) 2,774,215 43,101
State income taxes, net of Federal income tax
effect............................................ (93,753) (361,539) (6,883)
Other............................................... 26,153 45,788 10,584
---------- ----------- --------
Actual income taxes................................. $ 707,000 $ -- $ --
========== =========== ========
</TABLE>
The tax effects of temporary differences and carryforwards which give rise
to deferred income tax assets and liabilities are presented below:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1997 1996
---------- ----------
<S> <C> <C>
Deferred income tax assets:
Acquired in-process research and development costs........ $2,116,682 $2,277,362
Net operating loss carryforwards.......................... 737,990 1,049,990
Deferred revenue.......................................... 99,510 201,276
Property and equipment depreciation differences........... 182,845 97,006
Other..................................................... 392,685 29,766
---------- ----------
Total gross deferred income tax assets............ 3,529,712 3,655,400
Less valuation allowance.................................... 2,540,121 3,108,338
---------- ----------
Deferred income tax assets, net of valuation
allowance....................................... 989,591 547,062
---------- ----------
Deferred income tax liabilities:
Intangible assets......................................... 462,186 547,062
Capitalized software costs................................ 527,405 --
---------- ----------
Net deferred income tax asset and liability....... $ -- $ --
========== ==========
</TABLE>
The net change in the valuation allowance for the years ended December 31,
1997 and 1996 was a (decrease) increase of $(568,217) and $2,774,215,
respectively. Deferred income tax assets and liabilities are initially
recognized for differences between the financial statement carrying amount and
the tax bases of assets and liabilities which will result in future deductible
or taxable amounts and operating loss and tax credit carryforwards. A valuation
allowance is then established to reduce the deferred income tax asset to the
level at which it is "more likely than not" that the tax benefits will be
realized. Realization of tax benefits of deductible temporary differences and
operating loss or credit carryforwards depends on having sufficient taxable
income of an appropriate character within the carryback and carryforward
periods. Sources of taxable income that may allow for the realization of tax
benefits include: (1) taxable income in the current year or prior years that is
available through carryback; (2) future taxable income that will result from the
reversal of existing taxable temporary differences; and (3) taxable income
generated by future operations.
The valuation allowance at December 31, 1997 includes approximately $1.0
million that will reduce goodwill if and when the tax benefits from an acquired
net operating loss are subsequently recognized.
At December 31, 1997, the Company had net operating loss carryforwards of
approximately $1.9 million, which expire beginning in 2006 through 2011. Under
Internal Revenue Code Section 382, the Company's use of
F-15
<PAGE> 62
net operating loss carryforwards is limited to approximately $1,100,000 per year
as a result of the Company's initial public offering completed in January 1997
(see note 8(h)). Approximately $1.0 million of the net operating loss at
December 31, 1997 relates to loss carryforwards acquired in connection with the
1997 Acquisitions. Accordingly, such losses are limited to income generated by
the acquired entity as well as substantial annual limitations.
(8) STOCKHOLDERS' EQUITY (DEFICIT)
(a) Articles of Incorporation
On January 8, 1996, the Company's articles of incorporation were amended to
increase the number of authorized shares of common stock from 5,000,000 shares
to 20,000,000 shares and to establish 400,000 authorized shares of Series B
convertible preferred stock. On that same date, the Company's articles of
incorporation were amended to remove the redeemable feature from the Company's
Series A convertible preferred stock.
In September 1996, the Company was reincorporated in Delaware, and in
connection with such reincorporation, the Company's treasury stock was canceled
and an additional 1,000,000 shares of preferred stock were authorized. In
addition, the Company's articles of incorporation were amended such that the
Company's Series A and Series B convertible preferred stock would be canceled
and no longer authorized upon completion of an initial public offering (see note
8(h)).
(b) Series A and Series B Convertible Preferred Stock (see note 8(h))
Until January 1996, the Series A convertible preferred stock (Series A
"CPS") carried a mandatory redemption feature pursuant to a Stockholders'
Agreement which required the Company to redeem all outstanding shares of Series
A CPS on the seventh anniversary of the original issue date (April 5, 1998) at a
price equivalent to the liquidation price of $1.95. In January 1996, the
redemption feature was eliminated and the balance related to this security was
reclassified to stockholders' equity.
The holders of the Company's Series A CPS were entitled to dividends on a
cumulative basis at 8% which began on April 5, 1994. The holders of the
Company's Series B convertible preferred stock (Series B "CPS") were entitled to
dividends on a cumulative basis at 8% beginning on January 8, 1997. The Series A
CPS and Series B CPS were convertible at the option of the holder at any time
into common stock at a ratio of 0.6496 share for one share, subject to
adjustment in certain circumstances, and the holders of the Series A CPS and
Series B CPS carried voting power equivalent to the number of common shares into
which their preferred shares could be converted. Furthermore, the Company was
restricted from paying dividends on the Company's common stock until all unpaid
dividends on the Series A CPS and Series B CPS were paid. In no event could the
Series A CPS and Series B CPS dividends be paid until payment in full of the
senior subordinated note payable. These dividends payable were classified as
noncurrent at December 31, 1996 (see note 8(h)).
In the event of liquidation, holders of the Series A CPS and Series B CPS
were entitled to the sum of (a) $1.95 per preferred share for Series A CPS and
$7.13 per preferred share for Series B CPS, (b) all accrued and unpaid
dividends, and (c) the portion of the fair market value of the assets and
liabilities of the Company attributable to the Series A CPS and Series B CPS
holders determined by the number of common shares that would be held by the
Series A CPS and Series B CPS holders upon conversion to common stock.
Additionally, the Series A CPS and Series B CPS would automatically convert upon
the occurrence of certain future events such as an initial public offering, as
defined, and the Company was required to obtain prior approval of the holders of
the Series A CPS and Series B CPS to effect certain transactions. The holders of
the Series A CPS and Series B CPS also carried certain other rights and
privileges, as further defined in the agreements.
During 1994 notes payable of $300,000 and accrued interest of $18,000 were
converted into 318,000 shares of the Company's Series A CPS at a conversion
price of $1.00 per share. Until January 1996, the discount of $302,100 resulting
from the 1994 conversion, and the discount associated with the original issuance
of the Series A CPS of $96,450, representing the difference between the recorded
value of the Series A CPS and the redemption value, were being accreted using
the straight-line method from issuance date through April 5, 1998, the first
date that the holders could have required redemption.
F-16
<PAGE> 63
As a result of the Company's initial public offering in January 1997, the
Series A CPS and Series B CPS were converted into 1,021,809 shares of common
stock of the Company.
(c) Stock Options
The Company periodically grants stock options to encourage stock ownership
by, and retain the services of, certain key employees. Options granted are
determined at the discretion of the Board of Directors. All options granted are
earned over a five-year vesting period at 20% per year, and expire at the
earlier of three months after termination of employment or ten years from date
of grant.
In October 1996, the Board of Directors of the Company adopted the
Medirisk, Inc. 1996 Stock Incentive Plan (the "Incentive Plan") and the
Medirisk, Inc. Non-Management Directors' Stock Option Plan (the "Directors'
Plan"). A total of 580,645 shares of common stock have been reserved for
issuance under the Incentive Plan and 100,000 shares of common stock have been
reserved for issuance under the Directors' Plan.
The Company has elected to follow APB Opinion No. 25 and related
interpretations in accounting for its stock options. Under APB Opinion No. 25,
because the exercise price of the Company's employee stock options equals the
market price of the underlying stock on the date of grant, no compensation
expense is recognized. However, SFAS 123 requires presentation of pro forma net
earnings (loss) and pro forma earnings (loss) per share as if the Company had
accounted for its employee stock options granted subsequent to December 31, 1994
under the fair value method of that statement. The pro forma effect for 1995 is
not material. For purposes of pro forma disclosure, the estimated fair value of
the options is amortized to expense over the vesting period. Under the fair
value method, the Company's net loss and loss per share would have been
increased as follows:
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Net loss.................................................. $(3,062,437) $(7,239,628)
Loss per share............................................ $ (0.78) $ (4.71)
</TABLE>
Because SFAS 123 is applicable only to options granted subsequent to
December 31, 1994, and the options generally have a five-year vesting period,
the pro forma effect will not be fully reflected until 1999.
The per share weighted-average fair values of stock options granted during
1997 and 1996 were $7.02 and $0.25, respectively, on the date of grant using the
Black-Scholes option-pricing model with the following assumptions:
<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
Expected volatility......................................... 66% 0%
Expected dividend yield..................................... none none
Risk-free interest rate..................................... 6% 6%
Expected life of options.................................... 7 years 7 years
</TABLE>
F-17
<PAGE> 64
The following table summarizes option plan activity for the years ended
December 31, 1997, 1996, and 1995:
<TABLE>
<CAPTION>
OPTION PRICE PER SHARE
--------------------------
WEIGHTED
SHARES RANGE AVERAGE
------- --------------- --------
<S> <C> <C> <C>
Options outstanding at December 31, 1994......... 197,382 $0.30 - 0.64143 $0.33428
Granted.......................................... 63,661 0.64143 0.64143
Exercised........................................ (6,496) 0.30 0.30
Canceled......................................... (37,027) 0.30 - 0.64143 0.36068
-------
Options outstanding at December 31, 1995......... 217,520 0.30 - 0.64143 0.42070
Granted.......................................... 176,731 0.64143 0.64143
Exercised........................................ (11,693) 0.30 - 0.64143 0.58452
Canceled......................................... (63,630) 0.30 - 0.64143 0.57471
-------
Options outstanding at December 31, 1996......... 318,928 0.30 - 0.64143 0.50628
Granted.......................................... 335,877 7.625-11.00 9.45027
Exercised........................................ (20,243) 0.30 - 7.625 5.03626
Canceled......................................... (60,240) 0.30 - 7.625 6.66576
-------
Options outstanding at December 31, 1997......... 574,322 0.30 - 11.00 4.93386
=======
Options exercisable at December 31, 1997......... 160,196 $0.30 - 0.64143 $0.39429
======= =============== ========
</TABLE>
The following table summarizes information about options outstanding and
exercisable at December 31, 1997:
<TABLE>
<CAPTION>
OPTIONS EXERCISABLE
OPTIONS OUTSTANDING -------------------------------
------------------------------------------------- NUMBER
NUMBER WEIGHTED- EXERCISABLE AT
OUTSTANDING AT AVERAGE WEIGHTED- DECEMBER WEIGHTED-
RANGE OF DECEMBER 31, REMAINING AVERAGE 31, AVERAGE
EXERCISE PRICES 1997 CONTRACTUAL LIFE EXERCISE PRICE 1997 EXERCISE PRICE
- --------------- -------------- ---------------- -------------- -------------- --------------
<C> <C> <S> <C> <C> <C>
$ 0.30 - 5.00 303,405 78 months $ 0.51019 160,196 $0.39429
5.00 - 10.00 64,960 113 7.56250 -- --
10.00 - 15.00 205,957 118 10.62138 -- --
------- ---------------- --------- ------- --------
574,322 96 months $ 4.93386 160,196 $0.39429
======= ================ ========= ======= ========
</TABLE>
(d) Stockholders' Agreement (see note 8(h))
The Company is party to a Stockholders' Agreement (the "Stockholders'
Agreement") among all preferred and common stockholders of the Company which
includes restrictions and requirements, certain of which are disclosed below.
The Stockholders' Agreement establishes the composition of the Company's Board
of Directors and provides for restrictions on the transfer of the Company's
shares. Additionally, the Stockholders' Agreement provided for a one-time
dividend to Series A CPS holders equivalent to 4% of the original purchase price
of the Series A CPS. The dividend was cumulative and accrued from April 5, 1993
to April 5, 1994. In no event could the Series A CPS onetime dividend be paid
until payment in full of the senior subordinated note payable. This dividend
payable was classified as noncurrent at December 31, 1996.
The Company was required to reserve at all times common shares sufficient
to satisfy the exercise of all outstanding stock options and warrants, and to
satisfy the conversion of all Series A CPS and Series B CPS.
As a result of the Company's initial public offering in January 1997, the
Stockholders' Agreement was terminated and the dividend payable was paid (see
note 8(h)).
F-18
<PAGE> 65
(e) Certain Common Stock Transactions
In July 1994, 116,928 shares of common stock held in treasury were issued
to a stockholder in exchange for an unsecured promissory note of $75,000. The
note bore interest at 8.25% and was payable in three annual installments of
$25,000 each through 1997. A total of $39,000 was repaid on the note and the
remaining balance of $36,000 was forgiven in 1996 as consideration for entering
into a new employment agreement.
(f) Warrants
In 1993, the Company obtained $300,000 in financing through the issuance of
6% convertible unsecured promissory notes with attached warrants to acquire the
Company's common stock. Because the exercise price of the attached warrants
exceeded the fair value of the common stock, the Company allocated the $300,000
of proceeds to notes payable. The notes were convertible into the Company's
Series A CPS at a conversion price of $1.00 per share. In 1994, the notes
payable of $300,000 and accrued interest of $18,000 were converted into 318,000
shares of the Company's Series A CPS. The common stock purchase warrants give
the holders the right to acquire 194,880 shares of the Company's common stock at
an exercise price of $1.54 per share. The common stock purchase warrants expire
on June 23, 1998.
Also, as discussed in note 5, in March 1996, the Company issued to HPSC
warrants to purchase 298,150 shares of the Company's common stock at an exercise
price of $.015 per share. The common stock purchase warrants were exercised
subsequent to December 31,1997.
(g) Common Stock Reverse Split
In December 1996, the Company's Board of Directors approved an amendment to
its certificate of incorporation which effected a 0.6496-for-one reverse stock
split. All references to common stock, stock options, and warrants in these
consolidated financial statements have been adjusted to reflect this amendment
as if it had occurred prior to January 1, 1995.
(h) Initial Public Offering
On January 31, 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 expenses of approximately $750,000. As a result of the
consummation of the offering, the Series A CPS and Series B CPS were converted
into 1,021,809 shares of common stock of the Company, the HPSC Agreement was
terminated, and the Stockholders' Agreement was terminated. In addition, all of
the Company's dividends payable and debt, excluding obligations under capital
leases, were repaid.
(9) MAJOR CUSTOMER
For the years ended December 31, 1997, 1996 and 1995, one customer
accounted for approximately 16%, 15%, and 9%, respectively, of total revenues.
(10) NOTE RECEIVABLE FROM OFFICER
In June 1996, the Company loaned $112,500 to an officer of the Company in
the form of an unsecured promissory note. The note is to be repaid in five equal
annual installments of $22,500 each, due and payable on the first through fifth
anniversaries of the date of the note. Interest accrues at a rate of 8.25% per
annum and is due and payable by the officer on the date each principal payment
is due. The first annual installment of $22,500 was paid in June 1997.
F-19
<PAGE> 66
MEDIRISK, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1998 1997
----------- ------------
(UNAUDITED) (AUDITED)
<S> <C> <C>
Current assets
Cash and cash equivalents................................. $ 1,280 $ 3,516
Accounts receivable, less allowance for doubtful accounts
of $209 and $148 at March 31, 1998 and December 31,
1997, respectively..................................... 4,749 3,802
Prepaid expenses.......................................... 977 697
Other current assets...................................... 499 475
------- -------
Total current assets.............................. 7,505 8,490
Property and equipment...................................... 3,604 3,083
Less accumulated depreciation and amortization............ 1,642 1,444
------- -------
Property and equipment, net............................... 1,962 1,639
Excess of cost over net assets of businesses acquired, less
accumulated amortization of $674 and $537 at March 31,
1998 and December 31, 1997, respectively.................. 11,471 7,556
Other intangible assets, less accumulated amortization of
$493 and $409 at March 31, 1998 and December 31, 1997,
respectively.............................................. 2,295 1,794
Software development costs, less accumulated amortization of
$105 and $97 at March 31, 1998 and December 31, 1997,
respectively.............................................. 1,395 1,008
Other assets................................................ 663 171
------- -------
Total other assets................................ 15,824 10,529
Total assets...................................... $25,291 $20,658
======= =======
</TABLE>
F-20
<PAGE> 67
MEDIRISK, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1998 1997
----------- ------------
(UNAUDITED) (AUDITED)
<S> <C> <C>
Current liabilities
Accounts payable.......................................... $ 398 $ 258
Accrued expenses.......................................... 1,370 758
Accrued contingent consideration relating to acquired
business............................................... 2,975 --
Income taxes payable...................................... 730 816
Current installments of long-term debt and obligations
under capital leases................................... 2,499 168
Deferred revenue.......................................... 2,615 2,309
-------- --------
Total current liabilities......................... 10,587 4,309
Long-term debt and obligations under capital leases,
excluding current installments......................... 41 165
-------- --------
Total liabilities................................. 10,628 4,474
Redeemable preferred stock, Series 1998A, $0.001 par value;
5 shares authorized; none outstanding..................... -- --
Stockholders' equity
Preferred stock, $0.001 par value; 995 shares authorized;
none outstanding....................................... -- --
Common stock -- $0.001 par value; 20,000 shares
authorized; 4,664 and 4,193 shares issued and
outstanding at March 31, 1998 and December 31, 1997,
respectively........................................... 5 4
Additional paid in capital................................ 31,663 28,559
Accumulated deficit....................................... (17,005) (12,379)
-------- --------
Total stockholders' equity........................ 14,663 16,184
Total liabilities and stockholders' equity........ $ 25,291 $ 20,658
======== ========
</TABLE>
See accompanying notes to consolidated condensed financial statements.
F-21
<PAGE> 68
MEDIRISK, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-------------------
1998 1997
-------- -------
<S> <C> <C>
Revenue..................................................... $ 5,176 $2,650
Salaries, wages and benefits................................ 2,574 1,762
Other operating expenses.................................... 1,522 646
Depreciation and amortization............................... 427 201
Acquired in-process research and development costs and
integration costs......................................... 5,315 --
------- ------
Operating income (loss)................................ (4,662) 41
Interest income, net........................................ 36 41
------- ------
Income (loss) before extraordinary item................ (4,626) 82
------- ------
Extraordinary item -- loss on early extinguishment of
debt...................................................... -- (806)
------- ------
Net loss............................................... (4,626) (724)
Convertible preferred stock dividend requirement............ -- (25)
------- ------
Net loss attributable to common stock....................... $(4,626) $ (749)
======= ======
Net loss per share of common stock -- basic and diluted:
Income (loss) per share before extraordinary item......... $ (1.03) $ 0.02
Loss per share -- extraordinary item...................... -- (0.25)
------- ------
Net loss per share of common stock................ $ (1.03) $(0.23)
======= ======
Weighted average number of common shares outstanding --basic
and diluted............................................... 4,495 3,265
</TABLE>
See accompanying notes to consolidated condensed financial statements.
F-22
<PAGE> 69
MEDIRISK, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
MARCH 31,
-----------------
1998 1997
------- -------
<S> <C> <C>
Cash flows from operating activities:
Net loss.................................................. $(4,626) $ (724)
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities:
Acquired in-process research and development costs..... 5,250 --
Depreciation and amortization.......................... 427 201
Loss on early extinguishment of debt................... -- 806
(Increase) decrease in:
Accounts receivable.................................. (873) 454
Other assets......................................... (771) 294
Increase (decrease) in:
Accounts payable..................................... (78) (340)
Accrued expenses and other liabilities............... (318) (218)
Deferred revenue..................................... 131 (327)
------- -------
Net cash provided by (used in) operating
activities....................................... (858) 146
------- -------
Cash flows from investing activities:
Acquisition of businesses, net of cash acquired........... (2,689) --
Purchases of property and equipment....................... (505) (76)
Additions to software development costs................... (396) (27)
------- -------
Net cash used in investing activities............. (3,590) (103)
------- -------
Cash flows from financing activities:
Proceeds from issuance of common stock.................... 5 22,779
Payments of dividends..................................... -- (643)
Proceeds from draw on revolving credit facility........... 2,375 --
Payments on long-term debt and obligations under capital
leases................................................. (168) (8,679)
------- -------
Net cash provided by financing activities......... 2,212 13,457
------- -------
Net increase (decrease) in cash and cash
equivalents...................................... (2,236) 13,500
Cash and cash equivalents at beginning of period............ 3,516 447
------- -------
Cash and cash equivalents at end of period.................. $ 1,280 $13,947
======= =======
Supplemental disclosure of non-cash activities:
Accrual of contingent consideration....................... $ 2,975 $ --
======= =======
Acquisitions of businesses:
Fair value of assets acquired............................. $ 1,784 $ --
Acquired in-process research and development costs........ 5,250 --
Fair value of liabilities assumed......................... (1,238) --
Common stock issued....................................... (3,099) --
------- -------
Total cash paid for acquisitions.................. 2,697 --
Cash acquired............................................. 8 --
------- -------
Net cash paid for acquisitions.................... $ 2,689 $ --
======= =======
</TABLE>
See accompanying notes to consolidated condensed financial statements.
F-23
<PAGE> 70
MEDIRISK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
1. GENERAL.
The consolidated condensed financial statements as of March 31, 1998 and
for the three months ended March 31, 1998 and 1997 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,
1997.
2. MAJOR CUSTOMERS.
One customer accounted for 14% and 13% of the Company's revenue for the
three months ended March 31, 1998 and 1997, respectively. In addition, another
customer accounted for 14% of the Company's revenue for the three months ended
March 31, 1998.
3. LOSS PER SHARE OF COMMON STOCK.
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.
4. 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 ($7.6
million available at March 31, 1998) to fund working capital needs as well as
new product development and acquisitions. In April of 1998, the Company received
a commitment from NationsBank to increase the facility to $25 million
conditioned upon successful completion of the Company's proposed secondary stock
offering and the satisfaction of other customary conditions.
5. SECONDARY OFFERING.
In April of 1998, the Company filed a Registration Statement for an
offering of 2,500,000 shares of Common Stock, with 2,250,000 shares being
offered by the Company and 250,000 shares being offered by certain selling
stockholders.
6. ACQUISITIONS.
Effective March 23, 1998, the Company acquired all of the outstanding
shares of Healthdemographics of San Diego, California, which provides databases
and decision-support applications to forecast the supply and demand for health
care services, for $2.7 million in cash, 171,315 shares of the Company's common
stock (valued at $3.1 million) and the assumption of net liabilities of
$532,000. The total purchase price paid to the sellers in the transaction was
$5.8 million. 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 $5.3 million, estimated acquired products of $500,000, and
estimated excess of cost over net assets acquired of $1.1 million. Contingent
consideration will be paid by the Company based upon a multiple of
Healthdemographics operating income over a predetermined amount through the year
2000. These payments
F-24
<PAGE> 71
MEDIRISK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
could be significant. Contingent consideration ultimately paid will be added to
excess of cost over net assets acquired and amortized prospectively.
The unaudited pro forma results of operations of the Company for the three
months ended March 31, 1998 and the year ended December 31, 1997 as if the
acquisition described above and the Company's acquisitions in 1997 of CIVS and
CareData had been effective January 1, 1997 is summarized as follows:
<TABLE>
<CAPTION>
THREE
MONTHS
ENDED YEAR ENDED
MARCH 31, DECEMBER 31,
1998 1997
--------- ------------
(IN THOUSANDS)
<S> <C> <C>
Revenue..................................................... $ 5,518 $19,384
======= =======
Income (loss) before extraordinary item..................... $ (320) $ 537
Extraordinary item - Loss on early extinguishment of debt... -- (806)
------- -------
Net loss.................................................... (320) (269)
Convertible preferred stock dividend requirement............ -- 25
------- -------
Net loss attributable to common stock....................... $ (320) $ (294)
======= =======
Net loss per share of common stock - basic and diluted:
Income (loss) per share before extraordinary item........... $ (0.07) $ 0.12
Loss per share - extraordinary item......................... -- (0.19)
------- -------
Net loss per share of common stock.......................... $ (0.07) $ (0.07)
======= =======
Weighted average number of common shares outstanding........ 4,664 4,214
</TABLE>
The unaudited pro forma results do not reflect the charges for acquired
in-process research and development costs discussed above. The unaudited pro
forma results do not necessarily represent results which would have occurred if
the acquisitions had taken place on the dates indicated nor are they necessarily
indicative of the results of future operations.
Many of the Company's acquisition agreements provide for the payment of
contingent consideration based upon the performance of the acquired businesses
over a prescribed period of time. If such acquired businesses exceed the
relevant performance goals, the Company will be required to make additional
payments, which could be material. In connection with the CareData acquisition,
additional consideration of $3.0 million has been accrued as of March 31, 1998.
This amount was paid in April 1998.
F-25
<PAGE> 72
UNAUDITED PRO FORMA FINANCIAL DATA
The unaudited pro forma consolidated condensed balance sheet as of March
31, 1998 set forth below gives effect to the Company's acquisition of Successful
Solutions as if it had occurred on March 31, 1998. The unaudited pro forma
consolidated condensed statement of operations for the three months ended March
31, 1998 set forth below give effect to the Company's acquisitions of 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) Successful Solutions on May 28,
1998, (ii) Healthdemographics on March 31, 1998, (iii) CareData Reports, Inc.
("CareData") on August 28, 1997, and (iv) CIVS, Inc. ("CIVS") on June 24, 1997,
as if they had occurred on January 1, 1997. The 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 filed
with the Securities and Exchange Commission (the "Commission") on March 30,
1998, and the historical financial statements and notes of: (i) Successful
Solutions, included in this report on Form 8-K/A; (ii) Healthdemographics,
included in the Company's Current Report on Form 8-K, filed with the Commission
on April 13, 1998; (iii) CIVS included in the Company's Current Report on Form
8-K/A, filed with the Commission on September 5, 1997; and (iv) 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 Successful Solutions, Healthdemographics, CIVS and CareData
occurred on January 1, 1997 or of future operations.
F-26
<PAGE> 73
SUCCESSFUL SOLUTIONS, INC.
MEDIRISK, INC AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED CONDENSED BALANCE SHEET
MARCH 31, 1998
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
SUCCESSFUL PRO FORMA PRO FORMA
MEDIRISK SOLUTIONS ADJUSTMENTS CONSOLIDATED
-------- ---------- ----------- ------------
<S> <C> <C> <C> <C>
Current assets
Cash and cash equivalents...................... $ 1,280 $274 $ -- $ 1,554
Accounts receivable, net....................... 4,749 146 -- 4,895
Prepaid expenses............................... 977 13 -- 990
Other current assets........................... 499 1 -- 500
------- ---- ------- --------
Total current assets................... 7,505 434 -- 7,939
Property and equipment........................... 3,604 380 -- 3,984
Less accumulated depreciation and
amortization................................ 1,642 209 -- 1,851
------- ---- ------- --------
Property and equipment, net............ 1,962 171 -- 2,133
Excess of cost over net assets of businesses
acquired, less accumulated amortization........ 11,471 -- 1,800(1) 13,271
Intangible assets, less accumulated
amortization................................... 2,295 -- 250(2) 2,545
Software development costs, less accumulated
amortization................................... 1,395 -- -- 1,395
Other assets..................................... 663 -- -- 663
------- ---- ------- --------
Total other assets..................... 15,824 -- 2,050 17,874
Total assets........................... $25,291 $605 $ 2,050 $ 27,946
======= ==== ======= ========
Current liabilities
Current installments of long-term debt and
obligations under capital leases............ $ 2,499 $ 22 $ 2,920(4) $ 5,441
Accounts payable............................... 398 -- -- 398
Accrued expenses............................... 1,370 43 150(3) 1,563
Income taxes payable........................... 730 -- -- 730
Accrued contingent consideration relating to
acquired business........................... 2,975 -- -- 2,975
Deferred revenue............................... 2,615 -- -- 2,615
------- ---- ------- --------
Total current liabilities.............. 10,587 65 150 13,722
Long-term debt and obligations under capital
leases, excluding current installments......... 41 16 -- 57
------- ---- ------- --------
Total liabilities...................... 10,628 81 3,070 13,779
Shareholders' equity (deficit):
Common stock................................... 5 -- --(5) 5
Additional paid in capital..................... 31,663 -- 3,504(5) 35,167
Accumulated deficit............................ (17,005) 524 (524)(6) (21,005)
(4,000)(7)
------- ---- ------- --------
Total stockholders' equity............. 14,663 524 (1,020) 14,167
Total liabilities and shareholders'
equity (deficit)..................... $25,291 $605 $ 2,050 $ 27,946
======= ==== ======= ========
</TABLE>
See accompanying notes to unaudited pro forma consolidated condensed financial
statements.
F-27
<PAGE> 74
MEDIRISK, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, 1998
--------------------------------------------------------------------
HISTORICAL
-------------------------------------
SUCCESSFUL HEALTHDEMO- PRO FORMA PRO FORMA
MEDIRISK SOLUTIONS(8) GRAPHICS(9) ADJUSTMENTS CONSOLIDATED
-------- ------------ ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Revenue............................... $5,176 $771 $ 342 $ -- $6,289
Salaries, wages and benefits.......... 2,574 200 613 -- 3,387
Other operating expenses.............. 1,522 517 437 -- 2,476
Depreciation and amortization......... 427 14 11 89(10) 541
Acquired in-process research and
development costs and integration
costs............................... 5,315 -- -- (5,250)(11) 65
------ ---- ----- ------- ------
Operating income (loss)..... (4,662) 40 (719) 5,161 (180)
Interest income (expense), net........ 36 (1) (138) (106)(12) (209)
Other income (expense)................ -- -- -- -- --
Provision for income taxes............ -- -- -- -- --
------ ---- ----- ------- ------
Income (loss) before
extraordinary item........ (4,626) 39 (857) 5,055 (389)
Unaudited pro forma loss per common
share before extraordinary
item -- basic and diluted........... $(1.03) $(0.08)
====== ======
Unaudited pro forma weighted average
number of common shares used in
calculating unaudited net loss per
common share before extraordinary
item -- basic and diluted........... 4,495 4,854(13)
</TABLE>
See accompanying notes to unaudited pro forma financial data.
F-28
<PAGE> 75
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 PRO FORMA PRO FORMA
MEDIRISK SOLUTIONS(14) GRAPHICS(15) ACQUISITIONS(16) ADJUSTMENTS CONSOLIDATED
-------- ------------- ------------ ---------------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Revenue..................... $16,749 $3,439 $ 905 $1,730 $ -- $22,823
Salaries, wages and
benefits.................. 7,910 860 971 1,296 -- 11,037
Other operating expenses.... 4,374 1,792 752 1,099 -- 8,017
Depreciation and
amortization.............. 1,304 56 18 47 763(17) 2,188
Acquired in-process research
and development costs and
integration costs......... 4,575 -- -- -- (4,258)(18) 317
------- ------ ----- ------ ------- -------
Operating income
(loss)........... (1,414) 731 (836) (712) 3,495 1,264
Interest income (expense),
net....................... 345 (12) (26) 8 (757)(19) (442)
Loss on disposal of asset... -- (2) -- -- -- (2)
Provision for income
taxes..................... (707) -- -- -- 707(20) --
------- ------ ----- ------ ------- -------
Income (loss)
before
extraordinary
item............. $(1,776) 717 $(862) $ (704) $ 3,445 $ 820
======== ============
Unaudited pro forma income
(loss) per common share
before extraordinary
item -- basic and
diluted................... $ (0.45) $ 0.19
======== ============
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 4,404(21)
</TABLE>
See accompanying notes to unaudited pro forma financial data.
F-29
<PAGE> 76
MEDIRISK, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA FINANCIAL DATA
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 March
31, 1998 illustrates the estimated effects of the 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 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, Successful Solutions, and
Healthdemographics as of and for the three months ended March 31, 1998, the
audited
F-30
<PAGE> 77
financial statements of the Company, Successful Solutions, and
Healthdemographics as of and 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, Successful Solutions, Healthdemographics, CIVS and CareData
referred to above. The unaudited pro forma financial data reflect the following
adjustments:
(1) Reflects $1.8 million of goodwill recorded as a result of the
allocation of the Successful Solutions purchase price.
(2) Reflects the technological know-how recorded as a result of the
allocation of the Successful Solutions purchase price.
(3) Reflects the accrual of direct acquisition costs recorded as a
result of the allocation of the Successful Solutions purchase price.
(4) Reflects the cash payment and borrowings against the Company's
line of credit to fund the cash portion of the Successful Solutions
acquisition.
(5) Reflects the value of the Company common stock issued in
connection with the acquisition of Successful Solutions.
(6) Reflects the elimination of the historical equity accounts of
Successful Solutions.
(7) Reflects the non-recurring write-off of acquired in-process
research and development costs recorded as a result of the allocation of
the Successful Solutions purchase price.
(8) Reflects the historical operating results of Successful Solutions
for the period from January 1, 1998 to March 31, 1998.
(9) Reflects the historical operating results of Healthdemographics
for the period from January 1, 1998 to March 22, 1998.
(10) Reflects the additional amortization of intangible assets
recorded as a result of the allocation of the Successful Solutions and
Healthdemographics purchase prices.
<TABLE>
<CAPTION>
PERIOD ENDED
MARCH 31, 1998
--------------
(AMOUNTS IN
THOUSANDS)
<S> <C>
Successful Solutions........................................ $50
Healthdemographics.......................................... 39
---
$89
===
</TABLE>
(11) Removes the impact of the non-recurring acquired in-process
research and development costs recorded as a result of the allocation of
the Healthdemographics purchase price. This charge was included in the
March 31, 1998 historical statements of operations and is being excluded
from the quarter ended March 31, 1998 unaudited pro forma consolidated
condensed statements of operations.
F-31
<PAGE> 78
(12) Reflects the additional interest expense on the cash used to fund
the acquisitions of Successful Solutions and Healthdemographics.
<TABLE>
<CAPTION>
PERIOD ENDED
MARCH 31, 1998
--------------
(AMOUNTS IN
THOUSANDS)
<S> <C>
Successful Solutions........................................ $ 58
Healthdemographics.......................................... 48
----
$106
====
</TABLE>
(13) Reflects the increased shares of common stock outstanding
resulting from the acquisitions of Successful Solutions and
Healthdemographics.
<TABLE>
<CAPTION>
PERIOD ENDED
MARCH 31, 1998
--------------
(AMOUNTS IN
THOUSANDS)
<S> <C>
Successful Solutions........................................ 190
Healthdemographics.......................................... 169
----
359
====
</TABLE>
(14) 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.
(15) 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.
(16) 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.
(17) 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>
Successful Solutions........................................ $200
Healthdemographics........................................ 164
CIVS...................................................... 64
CareData.................................................. 335
----
Total............................................. $763
====
</TABLE>
F-32
<PAGE> 79
(18) 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>
(19) 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>
Successful Solutions...................................... $234
Healthdemographics........................................ 216
CIVS...................................................... 115
CareData.................................................. 192
----
Total............................................. $757
====
</TABLE>
(20) Reflects decrease in income tax expense due to pro forma losses
incurred.
(21) Reflects the increased shares of common stock outstanding
resulting from the acquisitions. These shares were as follows:
<TABLE>
<CAPTION>
1997
--------------
(IN THOUSANDS)
<S> <C>
Successful Solutions...................................... 190
Healthdemographics........................................ 171
CIVS...................................................... 115
CareData.................................................. 10
---
Total............................................. 486
===
</TABLE>
F-33
<PAGE> 80
The graphics appearing on the following page are samples of the Company's
products. The two maps are sample screens from the Company's Avenir(R) product,
showing current and projected future demand for newborn deliveries in San Diego
County, California. The bar chart is derived from the Company's Physician Fee
Database and shows the variations in currently accepted fees for newborn
deliveries in San Diego County, California.
<PAGE> 81
======================================================
NO PERSON HAS BEEN AUTHORIZED IN CONNECTION WITH THE OFFERING MADE HEREBY
TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS
PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION SHOULD NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY UNDERWRITER. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO
BUY ANY OF THE SECURITIES OFFERED HEREBY TO ANY PERSON OR BY ANYONE IN ANY
JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER
THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS
CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE HEREOF.
------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary..................... 3
Risk Factors........................... 7
Recent Acquisition..................... 13
Use of Proceeds........................ 14
Dividend Policy........................ 14
Capitalization......................... 15
Dilution............................... 15
Selected Consolidated Financial Data... 16
Management's Discussion and Analysis of
Financial Condition and Results of
Operations........................... 18
Business............................... 28
Management............................. 36
Principal and Selling Stockholders..... 39
Underwriting........................... 41
Legal Matters.......................... 42
Experts................................ 42
Additional Information................. 43
Documents Incorporated by Reference.... 43
Index to Financial Statements.......... F-1
</TABLE>
======================================================
======================================================
2,500,000 SHARES
(MEDIRISK LOGO)
COMMON STOCK
----------------
PROSPECTUS
----------------
SUNTRUST EQUITABLE SECURITIES
J.C. BRADFORD & CO.
JEFFERIES & COMPANY, INC.
, 1998
======================================================
<PAGE> 82
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the estimated expenses to be borne by the
Registrant in connection with the issuance and distribution of the securities
being registered hereby, other than underwriting discounts and commissions. The
Registrant is paying all of these expenses as required by applicable
Registration Rights Agreements; the Selling Stockholders will pay only
underwriting discounts in connection with the Offering.
<TABLE>
<CAPTION>
PAYABLE BY
THE REGISTRANT
--------------
<S> <C>
SEC registration fee........................................ $ 18,606
NASD filing fee............................................. 6,808
Nasdaq listing fee.......................................... 17,500
Accountants' fee and expense................................ 200,000
Legal fees and expenses..................................... 150,000
Printing and engraving costs................................ 100,000
Blue Sky fees and expenses.................................. 10,000
Transfer Agent and registrar fees........................... 10,000
Miscellaneous............................................... 87,086
--------
Total..................................................... $600,000
========
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Article VI of the Certificate of Incorporation of the Registrant sets forth
the extent to which the Registrant's directors and officers may be indemnified
against liabilities they may incur while serving in such capacities. Such
indemnification will be provided to the fullest extent allowed by the Delaware
General Corporation Law, as amended from time to time. Under these
indemnification provisions, the Registrant is required to indemnify any of its
directors and officers against any reasonable expenses (including attorneys'
fees) incurred by him in the defense of any action, suit or proceeding, whether
civil, criminal, administrative or investigative, to which he was made a party,
or in defense of any claim, issue or matter therein, by reason of the fact that
he is or was a director or officer of the Registrant or who, while a director or
officer of the Registrant, is or was serving at the Registrant's request as a
director, officer, partner, trustee, employee or agent of another corporation,
partnership, joint venture, trust, employee benefit plan or other enterprise to
the extent that such director or officer has been successful, on the merits or
otherwise, in such defense. The Registrant is also required to indemnify any of
its directors or officers against any liability incurred in connection with any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (other than an action by or in the
right of the Registrant, in which event, additional determinations must be made
before indemnification is provided) by reason of the fact that he is or was a
director or officer of the Registrant who, while a director or officer of the
Registrant, is or was serving at the Registrant's request as a director,
officer, partner, trustee, employee or agent of another corporation,
partnership, joint venture, trust, employee benefit plan or other enterprise, if
such director or officer acted in a manner he believed in good faith to be in,
or not opposed to, the best interests of the Registrant, and with respect to any
criminal proceeding, had no reasonable cause to believe his conduct was
unlawful. The Registrant may also provide advances of expenses incurred by a
director or officer in defending any such action, suit or proceeding upon
receipt of a written affirmation of such officer or director that he has met
certain standards of conduct and an understanding by or on behalf of such
officer or director to repay such advances unless it is ultimately determined
that he is entitled to indemnification by the Registrant.
II-1
<PAGE> 83
The Registrant's Certificate of Incorporation contains a provision which
eliminates, to the fullest extent permitted by law, director liability for
monetary damages for breaches of the fiduciary duty of care or any other duty as
a director.
The Registrant has entered into an Indemnification Agreement (the
"Indemnification Agreement") with each of its directors and officers. The
Indemnification Agreement sets forth certain procedural matters relating to
indemnification, including the manner in which an indemnified party may make a
claim and the right of an indemnified party to court adjudication of his or her
claim if indemnification is denied by the Registrant.
The Registrant maintains an insurance policy insuring the Registrant and
directors and officers of the Registrant against certain liabilities including
liabilities under the Securities Act of 1933.
Reference is hereby made to Section 9 of the Underwriting Agreement, the
form of which is filed as Exhibit 1.1 hereto, in which the Registrant agrees to
indemnify the Underwriters and certain other persons against certain civil
liabilities.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
A. EXHIBITS
The exhibits listed below are filed with or incorporated by reference into
this Registration Statement on Form S-3.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
- ------- -----------------------
<S> <C>
1.1 Form of Underwriting Agreement.*
4.1 See Articles IV, VI, VII and IX of the Certificate of
Incorporation filed as Exhibit 3.1 to the Company's
Registration Statement on Form S-1 (No.12311) filed with the
Commission on September 19, 1996 and declared effective on
January 28, 1997 and Articles I, II, III, VI and VII of the
Bylaws filed as Exhibit 3.2 to the Company's Annual Report
on Form 10-K filed with the Commission on March 30, 1998,
and the Certificate of Designation of Series 1998-A
Preferred Stock filed as Exhibit 3.1.1 to the Company's
Current Report on Form 8-K filed with the Commission on
April 13, 1998.
5.1 Opinion of Alston & Bird (including consent).*
23.1 Consent of KPMG Peat Marwick LLP.
23.2 Consent of KPMG Peat Marwick LLP.
23.3 Consent of KPMG Peat Marwick LLP.
23.4 Consent of Ernst & Young LLP, independent auditors.
23.5 Consent of Alston & Bird LLP (contained in Exhibit 5.1).
23.6 Consent of Lovins, Clark & Company, P.C.
24.1 Powers of Attorney.*
</TABLE>
- ---------------
* Previously filed.
B. FINANCIAL STATEMENT SCHEDULES
Incorporated by reference from the Company's Annual Report on Form 10-K
filed with the Commission on March 30, 1998.
ITEM 17. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification
II-2
<PAGE> 84
is against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this Registration Statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-3
<PAGE> 85
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all the
requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Atlanta, State of Georgia, on June 5, 1998.
MEDIRISK, INC.
By: /s/ KENNETH M. GOINS, JR.
------------------------------------
Kenneth M. Goins, Jr.
Title: Executive Vice President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities indicated on June 5, 1998.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<C> <S>
* Chairman of the Board, Chief Executive Officer,
- --------------------------------------------- President and Director (principal executive officer)
Mark A. Kaiser
/s/ KENNETH M. GOINS, JR. Executive Vice President and Chief Financial Officer
- --------------------------------------------- (principal financial officer)
Kenneth M. Goins, Jr.
/s/ THOMAS C. KUHN III Vice President -- Finance and Administration and
- --------------------------------------------- Controller (principal accounting officer)
Thomas C. Kuhn III
* Director
- ---------------------------------------------
Keith O. Cowan
* Director
- ---------------------------------------------
Michael J. Finn
* Director
- ---------------------------------------------
William M. McClatchey, M.D.
* Director
- ---------------------------------------------
James K. Murray, III
* Director
- ---------------------------------------------
Robert P. Pinkas
*By: /s/ KENNETH M. GOINS, JR.
---------------------------------------
Kenneth M. Goins, Jr.
Attorney-in-Fact
</TABLE>
II-4
<PAGE> 1
EXHIBIT 23.1
ACCOUNTANTS' CONSENT
The Board of Directors
Medirisk, Inc.
We consent to the use of our reports included and incorporated herein by
reference and to the references to our firm under the headings "Selected
Consolidated Financial Data" and "Experts" in the prospectus.
/s/ KPMG PEAT MARWICK LLP
Atlanta, Georgia
June 4, 1998
<PAGE> 1
EXHIBIT 23.2
ACCOUNTANTS' CONSENT
The Board of Directors
Healthdemographics
We consent to the use of our report incorporated herein by reference and to the
reference to our firm under the heading "Experts" in the prospectus.
/s/ KPMG PEAT MARWICK LLP
Atlanta, Georgia
June 4, 1998
<PAGE> 1
EXHIBIT 23.3
ACCOUNTANTS' CONSENT
The Board of Directors
CareData Reports, Inc.
We consent to the use of our report incorporated herein by reference and to the
reference to our firm under the heading "Experts" in the prospectus.
/s/ KPMG PEAT MARWICK LLP
Atlanta, Georgia
June 4, 1998
<PAGE> 1
EXHIBIT 23.4
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in Amendment
Number 4 to the Registration Statement on Form S-3 and related Prospectus of
Medirisk, Inc. for the registration of 2,500,000 shares of its common stock and
to the incorporation by reference therein of our report dated March 7, 1997,
with respect to the financial statements of CIVS, Inc. (formerly Credential
Information and Verification Services, Inc.) included in the Current Report on
Form 8-K/A of Medirisk, Inc. dated September 5, 1997, filed with the Securities
and Exchange Commission.
/s/ Ernst & Young LLP
Vienna, Virginia
June 4, 1998
<PAGE> 1
EXHIBIT 23.6
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference of our firm under the caption "Experts" in
Amendment No. 4 to the Registration Statement on Form S-3 and related
Prospectus of Medirisk, Inc. for the registration of 2,500,000 shares of its
common stock and to the incorporation by reference therein of our report dated
June 4, 1998, with respect to the financial statements of Successful Solutions,
Inc. included in the Current Report on Form 8-K/A of Medirisk, Inc. dated June
5, 1998, filed with the Securities and Exchange Commission.
Lovins Clark and Company
Vidalia, Georgia
June 4, 1998
