<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
--- EXCHANGE ACT OF 1934.
For the quarterly period ended September 30, 1999.
Or
--- TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the transition period from to .
--------------- --------------
Commission file number 000-27056
CAREDATA.COM, INC.
(Exact name of registrant as specified in its charter)
Delaware 58-2256400
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
Two Piedmont Center, Suite 400, 3565 Piedmont Rd., Atlanta, Georgia 30305
- --------------------------------------------------------------------------------
(Address of principal executive office) (Zip code)
Registrant's Telephone Number Including Area Code: (404) 364-6700
-----------------------------
Indicate by check mark whether the registrant: (1) has filed all
reports required to be filed by Section 13 or 15 (d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports); and (2) has been subject to such
filing requirements for the past 90 days. Yes x No
--- ---
The number of shares outstanding of the issuer's only class of Common
Stock, $0.001 par value as, of November 15, 1999 was 8,233,541.
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PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
CAREDATA.COM, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(Amounts in thousands)
<TABLE>
<CAPTION>
(UNAUDITED)
9/30/99 12/31/98
---------- --------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 3,063 $21,365
Accounts receivable, less allowance for
doubtful accounts of $789 and $466 at September 30, 1999
and December 31, 1998, respectively 10,753 8,009
Prepaid expenses 2,266 1,181
Notes receivable from stockholders 97 448
Other current assets 972 399
------- -------
Total current assets 17,151 31,402
------- -------
Property and equipment 7,816 4,951
Less accumulated depreciation and amortization 3,478 2,377
------- -------
Property and equipment, net 4,338 2,574
------- -------
Excess of cost over net assets of businesses acquired, less accumulated
amortization of $3,508 and $1,689 at September 30, 1999 and
December 31, 1998, respectively 43,909 17,761
Other intangible assets, less accumulated amortization of $1,709 and $922 at
September 30, 1999 and December 31, 1998, respectively 5,950 4,337
Software development costs, less accumulated amortization of $728
and $363 at September 30, 1999 and December 31, 1998, respectively 4,725 2,437
Notes receivable from stockholders, excluding current portion 23 45
Other assets 1,942 564
------- -------
Total other assets 56,549 25,144
------- -------
Total assets $78,038 $59,120
======= =======
</TABLE>
See accompanying notes to consolidated condensed financial statements.
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<PAGE> 3
CAREDATA.COM, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(Amounts in thousands, except per share data)
<TABLE>
<CAPTION>
(UNAUDITED)
9/30/99 12/31/98
------- --------
<S> <C> <C>
CURRENT LIABILITIES
Current installments of long-term debt and obligations
under capital leases $ 6,664 $ 62
Accounts payable 838 277
Accrued expenses 2,585 1,117
Income taxes payable 1,107 1,297
Deferred revenue 3,306 2,703
--------- ---------
Total current liabilities 14,500 5,456
Long-term debt and obligations under capital leases,
excluding current installments 255 16
--------- ---------
Total liabilities 14,755 5,472
Series 1998-A preferred stock, $.001 par value, redeemable; 5 shares authorized
and designated; 0.465 shares issued and outstanding with a per-share
liquidation value of $10 at September 30, 1999, none issued or outstanding
at December 31, 1998 4,250 --
STOCKHOLDERS' EQUITY
Preferred stock, $.001 par value; 795 shares authorized;
none issued or outstanding -- --
Series A junior participating preferred stock, $.001 par value; 200 shares
authorized and designated; none issued or outstanding -- --
Common stock, $.001 par value; 20,000 shares authorized;
8,219 and 7,345 shares issued and outstanding at
September 30, 1999 and December 31, 1998, respectively 8 7
Additional paid-in-capital 82,732 76,114
Accumulated deficit (23,707) (22,473)
--------- ---------
Total stockholders' equity 63,283 53,648
--------- ---------
Total liabilities and stockholders' equity $ 78,038 $ 59,120
========= =========
</TABLE>
See accompanying notes to consolidated condensed financial statements.
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<PAGE> 4
CAREDATA.COM, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
(Amounts in thousands, except per share data)
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
------------ -----------
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
------------------- -------------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenue $ 10,377 $ 7,762 $ 27,170 $ 18,354
Salaries, wages and benefits 4,403 3,614 11,958 9,153
Other operating expenses 3,354 2,360 8,810 5,453
Depreciation and amortization 1,754 860 4,134 1,939
Acquired in-process research and development costs,
integration costs and acquisition-related costs 802 992 3,351 13,056
-------- ------- -------- --------
Operating income (loss) 64 (64) (1,083) (11,247)
Interest income (expense), net (53) 298 291 300
-------- ------- -------- --------
Income (loss) before income taxes 11 234 (792) (10,947)
Income tax expense -- -- (442) --
-------- ------- -------- --------
Net income (loss) $ 11 $ 234 $ (1,234) $(10,947)
======== ======= ======== ========
Net income (loss) per share of common stock - basic $ 0.00 $ 0.03 $ (0.16) $ (1.93)
======== ======= ======== ========
Net income (loss) per share of common stock - diluted $ 0.00 $ 0.03 $ (0.16) $ (1.93)
======== ======= ======== ========
Weighted average number of common shares outstanding -
basic 8,215 7,260 7,757 5,677
======== ======= ======== ========
Weighted average number of common shares outstanding -
diluted 8,964 7,531 7,757 5,677
======== ======= ======== ========
</TABLE>
See accompanying notes to consolidated condensed financial statements.
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<PAGE> 5
CAREDATA.COM, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(Amounts in thousands)
<TABLE>
<CAPTION>
NINE MONTHS
-----------
ENDED SEPTEMBER 30,
-------------------
1999 1998
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (1,234) $(10,947)
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities:
Acquired in-process research and development costs 2,000 11,650
Depreciation and amortization 4,134 1,939
Increase in:
Accounts receivable (2,625) (1,606)
Other assets (1,680) (1,985)
Increase (decrease) in:
Accounts payable 278 (455)
Accrued expenses and other liabilities (619) (1,917)
Deferred revenue (48) (200)
-------- --------
Net cash provided by (used in) operating activities 206 (3,521)
-------- --------
Cash flows from investing activities:
Acquisition of businesses, net of cash acquired (19,440) (14,362)
Purchases of property and equipment (2,590) (1,225)
Additions to software development costs (2,408) (1,229)
Other investments (1,240) --
Repayment of note receivable from stockholder 373 (402)
-------- --------
Net cash used in investing activities (25,305) (17,218)
-------- --------
Cash flows from financing activities:
Proceeds from issuance of common stock 214 40,890
Proceeds from draw on revolving credit facility 6,652 --
Payments on long-term debt and obligations under capital leases (69) (1,898)
-------- --------
Net cash provided by financing activities 6,797 38,992
-------- --------
Net increase (decrease) in cash and cash equivalents $(18,302) $ 18,253
Cash and cash equivalents at beginning of period 21,365 3,516
-------- --------
Cash and cash equivalents at end of period $ 3,063 $ 21,769
======== ========
Supplemental disclosure of non-cash activities:
Issuance of restricted stock awards $ 145 $ --
======== ========
Acquisitions of businesses:
Fair value of assets acquired $ 15,531 $ 13,322
Acquired in-process research and development costs 2,000 11,650
Fair value of liabilities assumed (1,982) (6,492)
Common stock issued (6,260) (6,603)
Preferred stock issued (4,250) --
Contingent consideration paid 14,431 3,000
-------- --------
Total cash paid for acquisitions 19,470 14,877
Cash acquired (30) (515)
-------- --------
Net cash paid for acquisitions $ 19,440 $ 14,362
======== ========
</TABLE>
See accompanying notes to consolidated condensed financial statements.
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<PAGE> 6
CAREDATA.COM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
1. GENERAL:
The consolidated condensed financial statements as of September 30,
1999 and for the nine-month and three-month periods ended September 30, 1999 and
1998 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. ("Caredata.com" or the "Company")
for the year ended December 31, 1998.
2. INCOME (LOSS) PER SHARE:
Basic earnings (loss) per common share available to common stockholders
is based on the weighted-average number of common shares outstanding. Diluted
earnings (loss) per common share available to common stockholders is based on
the weighted-average number of common shares outstanding and dilutive potential
common shares, such as dilutive stock options. All of the Company's potential
common shares are excluded from the loss per share calculation for the nine
months ended September 30, 1999 and 1998 since their effect is antidilutive.
3. LINE OF CREDIT:
In June 1998, the Company entered into an Amended and Restated Credit
Agreement with Bank of America under which a $25 million revolving credit
facility (the "Bank of America Revolver") was made available to the Company. The
Bank of America Revolver is available to fund working capital needs as well as
new product development and acquisitions. As of September 30, 1999, the Company
had approximately $18 million of borrowing availability under the Bank of
America Revolver.
4. ACQUISITIONS:
Effective March 11, 1999, the Company acquired Patient Care Analyst
("PCA"), an Internet-based software product that provides online evaluation of
patient-level hospital discharge data. PCA was acquired from the Center for
Performance Improvement, a subsidiary of the Maryland Hospital Association, for
$289,000 in cash. The acquisition was accounted for using the purchase method of
accounting with the results of operations of the business acquired included in
the Company's results of operations from the effective date of the acquisition.
The acquisition resulted in excess of cost over net assets acquired of $162,000.
.
Effective March 31, 1999, the Company acquired certain assets,
including two Internet-based physician credentialing products, of Healthcare
Credentials Management Services, Inc. ("HCMS"), a leading credentials
verification organization, for $4.0 million in cash. The acquisition resulted in
excess of cost over net assets acquired of $1.9 million. If the acquired
business exceeds certain revenue goals, potential contingent consideration will
be paid by the Company based upon a multiple of certain HCMS product revenues
over a predetermined amount through March 2000. Contingent consideration
ultimately paid will be added to excess of cost over net assets acquired and
amortized prospectively. Contingent consideration, if any, will be paid in cash.
Effective June 4, 1999, the Company acquired all of the outstanding
shares of Citizen 1 Software, Inc. ("Citizen 1") of San Francisco, California, a
provider of Internet-based healthcare research products to consumers and
healthcare industry participants, for $5.0 million in cash and 770,652 shares of
the Company's common stock.
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<PAGE> 7
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 $2.0 million and estimated excess of cost over net assets acquired of
$10.7 million. The Company used borrowings under the Bank of America Revolver to
finance the cash portion of the acquisition consideration.
The pro forma results of operations of the Company for the nine months
ended September 30, 1999 and the year ended December 31, 1998 (as if the
acquisitions described above and the Company's 1998 acquisitions of
Healthdemographics, Inc., Successful Solutions, Inc. and Sweetwater Health
Enterprises, Inc. had been effective January 1, 1998) are summarized as follows:
<TABLE>
<CAPTION>
NINE MONTHS ENDED YEAR ENDED
(Amounts in thousands, except per share data) SEPTEMBER 30, 1999 DECEMBER 31, 1998
------------------ -----------------
<S> <C> <C>
Revenue $28,084 $ 36,444
======= ========
Net loss $(1,435) $(10,228)
======= ========
Net loss per share of common stock $ (0.18) $ (1.44)
======= ========
Weighted average number of common shares outstanding 8,191 7,104
======= ========
</TABLE>
The pro forma results do not reflect the charges for acquired
in-process research and development costs, integration costs and
acquisition-related costs. The pro forma results do not necessarily represent
results that would have occurred if the acquisitions had taken place on the
dates indicated, and they are not 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 Reports
acquisition from 1997, additional consideration of $5.5 million and $3.0 million
was paid in 1999 and 1998, respectively. In connection with the 1998 acquisition
of Healthdemographics, the Company paid additional cash consideration of $4.7
million during 1999 and issued 465 shares of Series 1998-A Preferred Stock in
September 1999. Each share of Series 1998-A Preferred Stock has a liquidation
preference and redemption value of $10,000, is mandatorily convertible into 442
shares of common stock upon the market value of the Company's common stock
reaching $22.61 per share, earns dividends at a rate of 5 percent of the
redemption value, and is mandatorily redeemable at the twentieth anniversary of
the date of issuance.
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<PAGE> 8
5. SEGMENT REPORTING:
The Company's reportable segments are designated as Market Performance
and Physician Information. Market Performance products provide customers with
comprehensive proprietary data and decision support tools for use in analyzing
physician fees, healthcare utilization patterns, clinical outcomes and member
satisfaction with managed care plans in the United States. Physician Information
database products, software and outsourced services enable customers to access
detailed information concerning the background and credentials of physicians in
the United States.
The Company evaluates each segment's profit (loss) based on a modified
operating profit measurement (earnings before interest, taxes, depreciation,
amortization, acquired in-process research and development costs and integration
and acquisition-related costs).
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
------------ -----------
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
------------------- -------------------
(Amounts in thousands)
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenue:
Market Performance $ 5,963 $ 4,568 $ 14,898 $ 11,015
Physician Information 4,414 3,194 12,272 7,339
-------- -------- -------- --------
$ 10,377 $ 7,762 $ 27,170 $ 18,354
-------- -------- -------- --------
Segment profit (loss):
Market Performance $ 2,612 $ 1,919 $ 6,182 $ 4,620
Physician Information 1,896 865 4,698 1,811
Corporate (1,888) (996) (4,478) (2,683)
-------- -------- -------- --------
$ 2,620 $ 1,788 $ 6,402 $ 3,748
-------- -------- -------- --------
Depreciation and amortization:
Market Performance $ 242 $ 218 $ 643 $ 521
Physician Information 437 158 980 375
Corporate 1,075 484 2,511 1,043
-------- -------- -------- --------
$ 1,754 $ 860 $ 4,134 $ 1,939
-------- -------- -------- --------
Reconciling income (expense):
Acquired in-process research
and development costs,
integration costs and
acquisition-related costs $ (802) $ (992) $ (3,351) $(13,056)
Other $ 53 $ 298 $ 291 $ 300
-------- -------- -------- --------
$ (855) $ (694) $ (3,060) $(12,756)
-------- -------- -------- --------
Income (loss) before income taxes $ 11 $ 234 $ (792) $(10,947)
======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
SEP. 30, DEC. 31,
-------- --------
1999 1998
---- ----
<S> <C> <C>
Assets:
Market Performance $14,138 $11,829
Physician Information 9,508 3,465
Corporate 54,392 43,826
------- -------
$78,038 $59,120
======= =======
</TABLE>
-8-
<PAGE> 9
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
The Company is a leading provider of healthcare intelligence that
drives decision making among businesses and consumers. The Company's customers
use its products and services to verify the background and credentials of
physicians, assess member satisfaction with specific managed care plans, make
objective comparisons of costs and clinical outcomes and analyze the supply of
and demand for healthcare services. These capabilities assist the Company's
customers in strategic planning, effective contracting, improving the delivery
of care and increasing profitability.
ACQUISITIONS
The acquisition of businesses with complementary products and services
continues to broaden the Company's customer base, create additional
cross-selling opportunities, increase market share within existing products and
give rise to new product extensions and enhancements. The Company completed
three acquisitions during the nine months of 1999 (the "1999 Acquisitions"),
summarized as follows:
- In March 1999, the Company acquired Patient Care Analyst
("PCA"), an Internet-based product that provides evaluation of
patient-level hospital discharge data.
- In March 1999, the Company acquired certain assets of
Healthcare Credentials Management Services, Inc. ("HCMS"), a
leading credentials verification organization. Assets acquired
from HCMS include Healthcare Credentials Online, an
Internet-based product that enables physician credentials to
be verified online, and AppSTAT, an Internet-based product
that streamlines the physician application process by allowing
physicians to electronically maintain a single set of
credentials information that can be provided to any managed
care organization. The Company also acquired HCMS' outsourced
physician credentialing services, which are provided to over
300 managed care clients.
- In June 1999, the Company acquired Citizen 1 Software, Inc.
("Citizen 1"), whose suite of tools organizes the Internet's
broad base of healthcare content, allowing efficient access to
the most relevant information and avoiding the clutter and
confusion created by the multitude of Web sites. Supported by
an editorial staff and sophisticated search technology,
Citizen 1 offers its advanced Web research capabilities via a
free, consumer-based version at www.citeline.com, while
premium Internet and intranet versions are licensed to
healthcare industry researchers. Premium versions offer
notification of content changes and dramatically improve
research productivity by allowing simultaneous searches of the
"invisible" Web databases, repositories of content which are
typically reachable only through a particular site's own
search engine.
In connection with the 1999 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
their adaptability to changing market conditions.
Also in connection with the Citizen 1 acquisition, the Company recorded
a non-recurring charge related to acquired in-process research and development
costs of $2.0 million. The amount of this non-recurring charge 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 30%) 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 also incurred approximately $802,000 of integration
costs during the third quarter of 1999. Included in the integration costs were
approximately $229,000 of internal expense allocations during the third quarter
of 1999, which may recur in other
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<PAGE> 10
expense categories in the future and may result in an increase in some expense
categories as a percentage of total revenues. The Company estimates that it will
incur additional integration costs of approximately $200,000 in connection with
the 1999 Acquisitions during the remainder of 1999.
As a result of the Company's acquisitions, including the 1999
Acquisitions, the Company's historical financial statements are not necessarily
representative of financial results to be expected for future periods.
See Note 1 of Notes to Consolidated Financial Statements of the Company.
SOURCES OF REVENUE
The Company provides services and licenses its products within its two
segments, market performance and physician information. The Company also
co-brands or syndicates its products with its business partners in order to
enhance Caredata.com's brand recognition. The Company's product offerings enable
its partners to provide Internet features and functionality to their customers
and members, allowing them to remain competitive in the rapidly changing
Internet marketplace without having to incur the extensive time and costs
associated with the internal development of such products. In addition, the
Company's licensing arrangements enable the Company to create multiple points of
entry and distribution channels for the Company's products and services, build
brand awareness, source additional data and expand without the associated
infrastructure costs.
The Company's market performance products include healthcare
forecasting software, healthcare utilization and reimbursement data, clinical
outcomes data, healthcare satisfaction and pharmacy surveys, and on-line
healthcare research software. The Company's market performance services include
facility profitability analysis services, reimbursement compliance services, and
clinical outcomes reporting services. The Company's physician information
products consist of physician recruiting databases and software, physician
credentialling databases and software, and practice management software. The
Company's physician information services consist of physician recruiting
services, physician credentialling services, and healthcare administrative
consulting services.
The Company's license and product revenues are generally recognized
upon delivery provided that no significant Company obligations remain and
collection of the receivable is probable. Revenue from healthcare surveys is
recognized as the related costs to produce the surveys are incurred. Fees from
maintenance, updates and support of the Company's products are deferred and
recognized ratably over the service period. Revenue from subscription to the
Company's physician recruiting databases is recognized over the term of the
subscription. Revenues for the Company's services are recognized as the services
are performed.
The Company's two 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 three months ended September 30, 1999, the Company derived
approximately 57% from market performance products and 43% from physician
information products. Of its total revenue for the nine months ended September
30, 1999, the Company derived approximately 55% from market performance products
and 45% from physician information products. Of its total revenue for the year
ended December 31, 1998, the Company derived approximately 61% from market
performance products and 39% from physician information products.
The Company's revenue is composed of both recurring revenue from the
Company's current customer base and 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 65% for each of the last five years.
In September 1999, the Company and Healthsouth Corporation entered into
an amendment of their License and Services Agreement dated December 19, 1997.
The amendment provides, among other things, that the License and Services
Agreement will expire on December 31, 1999 rather than the originally agreed
upon expiration date of December 31, 2000. The amendment was agreed to by the
parties following the negotiation of a mutually acceptable economic arrangement
relating to the early termination of the License and Services Agreement. The
Company does not believe this amendment will have a material effect on its
results of operations.
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<PAGE> 11
RESULTS OF OPERATIONS
The following table sets forth, for the fiscal periods indicated,
certain items from the statements of operations of the Company expressed as a
percentage of revenue:
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
------------ -----------
STATEMENTS OF OPERATIONS: ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
------------------- -------------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenue 100% 100% 100% 100%
Salaries, wages and benefits 42 47 44 50
Other operating expenses 32 30 33 30
Depreciation and amortization 17 11 15 10
Acquired in-process research and development costs,
integration costs and acquisition-related costs 8 13 12 71
--- --- --- ---
Operating income (loss) 1 (1) (4) (61)
Interest income (expense) net (1) 4 1 1
Income tax expense -- -- (2) --
--- --- --- ---
Net income (loss) --% 3% (5)% (60)%
=== === === ===
</TABLE>
QUARTER ENDED SEPTEMBER 30, 1999 COMPARED TO QUARTER ENDED SEPTEMBER 30, 1998
Revenue. Revenue for the three months ended September 30, 1999 was
$10.4 million, an increase of $2.6 million or 34% over the same period in the
prior year. Approximately 47% of the increase was attributable to the 1999
Acquisitions, with the remaining increase due primarily to sales of new
Internet-related products.
Salaries, wages and benefits. Salaries, wages and benefits for the
three months ended September 30, 1999 were $4.4 million, an increase of $789,000
or 22% over the same period in the prior year. The increase was primarily the
result of the 1999 Acquisitions. Salaries, wages and benefits as a percentage of
revenue decreased to 42% from 47% in the same period in the prior year primarily
due to operational efficiencies resulting from integration activities during
1998 and 1999.
Other operating expenses. Other operating expenses for the three months
ended September 30, 1999 were $3.4 million, an increase of $994,000 or 42% over
the same period in the prior year. This increase is primarily related to costs
associated with the 1999 Acquisitions and costs associated with the Company's
expansion into the Internet market; consequently, other operating expenses as a
percentage of revenue increased to 32% as compared to 30% in the same period in
the prior year.
Depreciation and amortization. Depreciation and amortization expenses
for the three months ended September 30, 1999 were $1.8 million, an increase of
$894,000 or 104% over the same period in the prior year. The increase was
primarily the result of the amortization of goodwill and intangible assets
acquired in the 1999 Acquisitions and the acquisitions made by the Company in
1998 (the "1998 Acquisitions") consequently, depreciation and amortization as a
percentage of revenue increased to 17% as compared to 11% in the same period in
the prior year.
Acquired in-process research and development costs, integration costs
and acquisition-related costs. Integration costs and acquisition-related costs
for the three months ended September 30, 1999 were $802,000 as compared to
$992,000 in the same period in the prior year. The Company anticipates
integration costs of approximately $200,000 during the remainder of 1999 related
to the 1999 Acquisitions.
Interest income(expense), net. Net interest expense for the three
months ended September 30, 1999 was $53,000, compared to net interest income of
$298,000 for the same period in the prior year, primarily due to the borrowings
under the Bank of America Revolver in 1999.
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<PAGE> 12
NINE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
1998
Revenue. Revenue for the nine months ended September 30, 1999 was $27.2
million, an increase of $8.8 million or 48% over the same period in the prior
year. The increase was primarily attributable to the full period versus partial
period impact of the 1998 Acquisitions as well as acquisitions made by the
Company in 1999 and sales of new Internet-related products.
Salaries, wages and benefits. Salaries, wages and benefits for the nine
months ended September 30, 1999 were $12.0 million, an increase of $2.8 million
or 31% over the same period in the prior year. The increase was primarily the
result of the full period versus partial period impact of the 1998 Acquisitions.
Salaries, wages and benefits as a percentage of revenue decreased to 44% from
50% in the same period in the prior year primarily due to operational
efficiencies resulting from integration activities during 1998 and 1999.
Other operating expenses. Other operating expenses for the nine months
ended September 30, 1999 were $8.8 million, an increase of $3.4 million or 62%
over the same period in the prior year. This increase is primarily related to
the full period versus partial period impact of the 1998 Acquisitions as well as
costs associated with the Company's expansion into the Internet market;
consequently, other operating expenses as a percentage of revenue increased to
33% as compared to 30% in the same period in the prior year.
Depreciation and amortization. Depreciation and amortization expenses
for the nine months ended September 30, 1999 were $4.1 million, an increase of
$2.2 million or 113% over the same period in the prior year. The increase was
primarily the result of the amortization of goodwill and intangible assets
acquired in the 1999 and the 1998 Acquisitions; consequently, depreciation and
amortization as a percentage of revenue increased to 15% as compared to 10% in
the same period in the prior year.
Acquired in-process research and development costs, integration costs
and acquisition-related costs. Acquired in-process research and development
costs, integration costs and acquisition-related costs for the nine months ended
September 30, 1999 were $3.4 million as compared to $13.1 million in the same
period in the prior year. The Company recorded approximately $2.0 million of
acquired in-process research and development costs for the acquisition of
Citizen 1 for the nine-month period ended September 30, 1999 as compared to
$11.7 million recorded in the same period in the prior year related to the 1998
acquisitions. Integration costs for the nine months ended September 30, 1999
were $1.4 million, the same as in the same period in the prior year. The Company
anticipates integration costs of approximately $200,000 during the remainder of
1999 related to the 1999 acquisitions.
Interest income (expense), net. Net interest income for the nine months
ended September 30, 1999 was $291,000, compared to net interest income of
$300,000 for the same period in the prior year, primarily due to the remaining
proceeds from the Company's June 1998 follow-on offering.
LIQUIDITY AND CAPITAL RESOURCES
The Company had working capital of $2.7 million as of September 30,
1999 as compared to working capital of $25.9 million at December 31, 1998. The
decrease was due primarily to the use of working capital for the 1999
Acquisitions and the payment of $10.2 million of contingent consideration in
connection with the acquisitions of Healthdemographics and CareData Reports.
Net cash provided by operating activities totaled $206,000 for the nine
months ended September 30, 1999 as compared to cash used in operating activities
of $3.5 million for the same period in the prior year. The increase in cash
provided by operating activities of $3.7 million was primarily due to
operational efficiencies as a result of the Company's integration activities as
well as an increase in operating income before amortization and depreciation
charges.
Net cash used in investing activities was approximately $25.3 million
for the nine months ended September 30, 1999 as compared to $17.2 million in the
same period in the prior year. In the nine months ended September 30, 1999, the
Company used $9.2 million in cash to fund the acquisitions of PCA, HCMS and
Citizen 1, and $10.2 million of contingent consideration was paid in cash in
connection with the acquisitions of Healthdemographics and
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CareData Reports. The remaining cash used in investing activities for the nine
months ended September 30, 1999 funded $2.6 million in fixed asset purchases,
$2.4 million of software development, and other investments of $1.2 million,
offset by a $373,000 partial repayment of a note receivable from a stockholder.
Net cash provided by financing activities was $6.8 million for the nine
months ended September 30, 1999 as compared to $39.0 million for the same period
in the prior year. The cash provided by financing activities in 1999 was
primarily due to borrowings on the revolving line of credit with Bank of America
(as described below) to partially fund the acquisition of Citizen 1 and
additional consideration in connection with the acquisition of
Healthdemographics. The cash provided by financing activities in 1998 was
primarily due to proceeds from the Company's follow-on offering completed in
June 1998.
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 is required to make additional payments,
which could be material. In connection with the CareData acquisition, additional
consideration payments of $5.5 and $3.0 million were made in 1999 and 1998,
respectively. In connection with the Healthdemographics acquisition, additional
consideration of $4.7 million in cash was paid in 1999 and 465 shares of Series
1998-A Preferred Stock with a liquidation preference of $10,000 per share were
issued in September 1999.
In June 1998, the Company entered into an Amended and Restated Credit
Agreement with Bank of America under which a $25.0 million revolving credit
facility (the "Bank of America Revolver") was made available to the Company. The
Bank of America Revolver is available to fund working capital needs, new product
development and acquisitions. In June 1999, the Company borrowed $5.0 million on
the Bank of America Revolver to partially fund the acquisition of Citizen 1. In
September 1999, the Company borrowed $1.7 million on the Bank of America
Revolver to partially fund the additional consideration paid in connection with
the Healthdemographics acquisition. At September 30, 1999, the Company had
approximately $18.3 million in borrowing availability remaining on the Bank of
America Revolver.
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. The Company
believes that the available borrowings under the Bank of America Revolver and
cash generated from operations will be sufficient to meet the capital
expenditure and working capital needs for the Company in the near term.
EFFECTS OF INFLATION
Management does not believe that inflation has had a material impact on
the Company's results of operations for the periods presented. Substantial
increases in costs, particularly the cost of labor for product development,
marketing and sales, could have an adverse impact on the Company and the
healthcare information industry.
YEAR 2000 COMPLIANCE
Many of the world's computer systems and non-information technology
systems have programs and imbedded chips using two digits rather than four to
define the applicable year. If not addressed, such computer systems could be
unable to properly interpret dates beyond the year 1999. Essentially all of the
Company's systems and software are Year 2000 compliant. To bring the remaining
systems and software into compliance by end of the fourth quarter of 1999, the
Company has designed a Year 2000 compliance program.
The Company's project team has completed the Year 2000 assessment for
all business areas that may be impacted by the Year 2000 issue, including
assessment of the following business areas: IT systems, Non-IT systems, third
parties and the Company's products. The assessment included an inventory in all
areas, state of readiness determination, assessment of risk and cost associated
with non-compliant items, development of contingency plan steps in the event of
non-compliance and the remediation steps for non-compliant items. The Company's
remediation efforts were prioritized in order of risk, with the most critical
items corrected immediately. The
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Company assessed risk based on the level of impact to operations and the ability
to deliver quality products to its customers.
The Company designates each of the statements made by it in this
section as a Year 2000 Readiness Disclosure. Such statements are made pursuant
to the Year 2000 Information and Readiness Disclosure Act.
State of Readiness
Substantially all of the Company's business areas are Year 2000
compliant. The Company has developed a plan to bring the remaining areas into
compliance, and the Company has scheduled completion of such plan by December
1999. The Company is in the process of assessing the Year 2000 compliance of
third parties, including its customer and vendors. Detailed project plans have
been designed for bringing all non-compliant issues into compliance; however,
the process of analyzing Year 2000 issues, particularly as they relate to
customers and suppliers, is ongoing.
Cost
The Company's current estimate of the remaining cost of compliance is
under $20,000; however, the process of analyzing these issues is ongoing, and
the estimate may change. The Company's cost estimate does not include unforeseen
costs in the event of additional programming hours and similar matters. The
Company does not anticipate that the overall costs will have a material impact
on the Company's financial results or financial condition.
Contingency Plans
The Company has developed written contingency plans for all currently
identified non-compliant items. The Company has also developed a project plan
and has assigned dates and responsibilities to each action item.
Remediation Steps
The Year 2000 project team plans to achieve full remediation of all
non-Year 2000 compliant items by December of 1999.
Risk
The Year 2000 issue creates risk for the Company from unforeseen
problems with both its internal systems and those of third parties upon which
the Company relies. Accordingly, the Company has produced a list of all vendors
and has assessed the level of impact of each vendor. The Company is in the
process of querying all vendors and third parties to determine their compliance.
If the databases or systems of the Company, key suppliers of data or
key customers are not Year 2000 compliant, then the cost necessary to update
databases or software or potential interruption in the supply of data or
interruptions in demand for the Company's products could have a material adverse
effect on the Company's business, results of operations or financial condition.
RECENT ACCOUNTING PRONOUNCEMENTS
On September 15, 1998 the SEC issued a letter to the AICPA SEC
Regulations Committee outlining changes that the SEC believes should be made to
the methodology of calculating acquired in-process research and development
costs. The Company has applied this new guidance with respect to the 1997, 1998
and 1999 acquisitions.
In December 1998, the AICPA issued SOP No. 98-9, "Modification of SOP
No. 97-2, Software Revenue Recognition, with Respect to Certain Transactions."
This SOP amends SOP No. 97-2 to, among other matters, require recognition of
revenue using the "residual method" in circumstances outlined in the SOP. Under
the residual
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method, revenue is recognized as follows: (1) the total fair value of
undelivered elements, as indicated by vendor-specific objective evidence, is
deferred and subsequently recognized in accordance with the relevant sections of
SOP No. 97-2 and (2) the difference between the total arrangement fee and the
amount deferred for the undelivered elements is recognized as revenue related to
the delivered elements. SOP No. 98-9 is effective for fiscal years beginning
after March 15, 1999. The Company does not believe that the adoption of SOP No.
98-9 will have a material effect on its revenue recognition.
RISK FACTORS
In evaluating the Company and its business, prospective investors
should carefully consider the following risk factors in addition to the other
information contained herein.
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 length and unpredictable nature of the Company's sales
cycle; demand for the Company's products; the timing of significant new customer
contracts; the loss or non-renewal of significant customer contracts; the timing
of acquisitions or new strategic Internet relationships; 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 Company's Common Stock.
History of Operating Losses; Uncertain Profitability. The Company
incurred net losses in the years ended December 31, 1996, 1997 and 1998 and in
the nine-month period ended September 30, 1999. 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 has been 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.
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 exposes 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
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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 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.
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 the Company 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.
Dependence on Data Sources and AMA Licenses. The Company incorporates
the Physicians' Current Procedural Terminology ("CPT") codes of 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. 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.
Risks of Rapid Technological Change. The healthcare 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.
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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
Company's 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 the Company's 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.
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 and Acquisition Related Charges.
Largely as a result of the Company's various acquisitions, the Company has
recorded approximately $54.0 million in intangible assets net of accumulated
amortization as of September 30, 1999. Such intangible assets are being
amortized over periods of five to 15 years. The Company expects its intangible
assets to increase in connection with future acquisitions, in connection with
future contingent consideration payments for acquisitions that have been
consummated and in connection with capitalized software development projects,
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.
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 has recorded approximately
$4.4 million of these charges in 1997, $11.7 million in 1998 and $2.0 million in
the nine months ended September 30, 1999. Similar charges could result in the
future as a result of additional acquisitions accounted for as purchases.
Uncertainty and Consolidation in the Healthcare Industry. The
healthcare industry is subject to changing political, economic and regulatory
influences that may affect the procurement practices and operation of healthcare
providers, payors and other industry participants. The Company's products and
services are designed to function within the current structure of the U.S.
healthcare system; therefore, the commercial value of the Company's products
could be adversely affected if there were material changes in the current U.S.
healthcare system. Many federal and state legislators have announced that they
intend to propose programs to reform the U.S. healthcare system at both
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the federal and state levels. These programs may contain proposals to increase
governmental involvement in healthcare, lower reimbursement rates and otherwise
change healthcare delivery and payment systems. Participants in the healthcare
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 the Company's products and
services. The impact of these developments on the healthcare industry is
difficult to predict and could have a material adverse effect on the Company's
business, results of operations or financial condition.
Competition. The healthcare 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 healthcare 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.
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 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.
Year 2000 Compliance. 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.
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. In
addition, Section 203 of the Delaware General Corporation Law restricts
transactions between the Company and any "interested stockholders" (as defined
therein). Finally, the Company adopted a Shareholder Protection Rights
Agreement, commonly known as a "poison pill," in August of 1998. These
provisions could reduce or eliminate any takeover premium in the market price
for the Company's Common Stock or otherwise limit the price certain investors
might be willing to pay for the Company's Common Stock.
Reliance on Strategic Relationships. The Company has established
strategic relationships with a number of healthcare industry participants and
intends to continue doing so. These relationships are intended to increase
awareness of and access to the Company's products and services without a
substantial increase in internal costs, proliferate the Caredata.com brand,
improve product and data offerings, generate revenue to the Company, and augment
the Company's healthcare, Internet, and marketing expertise. The Company's
experience in establishing and managing these relationships is limited;
therefore, the success or failure of such relationships is difficult to predict.
The costs of establishing and managing these relationships could exceed any
revenue they generate. Loss of these strategic relationships, failure of these
relationships to generate additional revenue, actions taken by the Company's
partners in these relationships which conflict with the Company's values and
objectives, and failure by the Company to establish new strategic relationships
in the future could have a material adverse effect on the Company's business,
results of operations and financial condition.
Internet Regulation Uncertainties. Currently, Internet access, content,
commerce, privacy, and usage are largely unregulated. With the increased usage
of and transition to the Internet by both consumers and commercial users, it is
likely that local, state, federal, and international government agencies and
other regulators will adopt new laws and regulations covering such issues.
Because Internet-related revenues are becoming a significant portion of the
Company's revenue, any new law or regulation impairing the growth and usage of
the Internet may hinder the demand for the Company's Internet-related products
and services and could have a material adverse effect on the Company's business,
results of operations or financial condition.
Dependence on Key Personnel. The Company's success is substantially
dependent on the performance of its key employees, including its senior
management team, key sales and marketing personnel, and key technical personnel.
The loss of the services of any of these key employees could have a material
adverse effect on the business, results of operations or financial condition of
the Company. The Company is heavily dependent upon its ability to attract,
retain and motivate skilled sales, marketing, technical and managerial
personnel. Competition for such personnel is intense, and there can be no
assurance that the Company will be able to attract, hire, or retain other highly
qualified sales, marketing, technical and managerial personnel in the future.
The inability to attract, hire, assimilate or retain the necessary sales,
marketing, technical and managerial personnel could have a material adverse
effect upon the Company's business, results of operations or financial
condition.
Liability for Information Retrieved from the Internet. Because
information distributed over the Internet is subject to unauthorized copying,
redistribution and other potential miss-uses, the Company may be exposed to
potential copyright infringement claims, privacy complaints, breach of contract
claims, or other legal claims that may not be covered by the Company's liability
insurance, which may have a material adverse effect on the Company's business,
results of operations or financial condition.
Dependence on the Internet. Access to the Company's Internet-related
products and services depends on the Internet infrastructure remaining a
reliable and effective medium. As the number of users of and products and
services offered on the Internet grows, there can be no assurance that the
Internet infrastructure will continue to be able to support the increased
demands placed upon it. In addition, the Internet could lose its commercial
viability if new technology and processes designed to alleviate increased levels
of Internet activity are not developed. Failure of the Internet to maintain a
reliable and effective infrastructure necessary to support commercial
transactions or the loss in confidence in the marketplace in the Internet's
ability to maintain a reliable and effective infrastructure may have a material
adverse effect on the Company's business, results of operations and financial
condition.
Risk of System Failure. Many of the Company's products and services are
accessible only over the Internet. The Internet and the Company's related
hardware and software is vulnerable to interruption or damage from fire, floods,
earthquakes, power loss, telecommunications failures, computer viruses, and
intentional sabotage. The occurrence of any of these interruptions could have a
material adverse effect on the Company's business, results of operations and
financial condition.
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FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933, as amended,
and Section 21E of the Securities Exchange Act of 1934, as amended, that are
based on the beliefs of the Company's management as well as assumptions made by
and information currently available to the Company's management. When used in
this Quarterly Report on Form 10-Q Report, the words "estimate," "project,"
"believe," "anticipate," "intend," "expect," "plan," "predict," "may," should,"
"will," and similar expressions are intended to identify forward-looking
statements. Forward-looking statements are inherently subject to risks and
uncertainties, many of which cannot be predicted with accuracy and some of
which might not even be anticipated. Future events and actual results,
financial and otherwise, could differ materially from those set forth in or
contemplated by the forward-looking statements contained herein. Important
factors that could contribute to such differences include, but are not limited
to, the matters discussed above under the caption "Risk Factors" and other
factors that may be described from time to time in the Company's other filings
with the Securities and Exchange Commission, news releases and other
communications. Readers are cautioned not to place undue reliance on these
forward-looking statements, which speak only as of the date hereof. The Company
does not undertake any obligation to release publicly any revisions to these
forward-looking statements to reflect events or circumstances after the date
hereof or to reflect the occurrence of unanticipated events. Subsequent written
and oral forward-looking statements attributable to the Company or persons
acting on its behalf are expressly qualified in their entirety by the
cautionary statements contained in this Quarterly Report on Form 10-Q.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The Company currently maintains all cash in United States dollars in
highly liquid, interest-bearing, investment-grade instruments with maturities of
less than three months, which the Company considers cash equivalents. The
Company has no "market risk sensitive instruments."
The Company's line of credit agreement provides for borrowings that
bear interest at variable rates based on either LIBOR or Bank of America prime
rate. At September 30, 1999, the Company had $6.7 million outstanding pursuant
to the line of credit. The Company believes that the effect, if any, of
reasonably possible near-term changes in interest rates on the Company's
financial position, results of operations and cash flows should not be material.
-19-
<PAGE> 20
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits:
<TABLE>
<CAPTION>
Exhibit No. Description
- ----------- -----------
<S> <C>
3.1 Certificate of Incorporation of the Company (incorporated by
reference from Exhibit 3.1 to the Company's Registration
Statement on Form S-1 (No. 333-12311) filed with the
Commission on September 19, 1996).
3.1.1 Certificate of Designation of Series 1998-A Preferred Stock
(incorporated by reference from Exhibit 3.1.1 to the Company's
Current Report on Form 8-K dated March 31, 1998).
3.1.2 Certificate of Designation, Preferences and Rights of Series A
Junior Participating Preferred Stock (incorporated by
reference from Exhibit 3.1.2 to the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 1998).
3.2 Bylaws of the Company (incorporated by reference from Exhibit
3.2 to the Company's Registration Statement on Form S-1 (No.
333-12311) filed with the Commission on September 19, 1996).
4.1 Shareholder Protection Rights Agreement dated as of July 29,
1998 between the Company and SunTrust Bank, Atlanta, as Rights
Agent (incorporated by reference from Exhibit 2.8 to the
Company's Current Report on Form 8-K dated July 29, 1998).
4.2 Specimen Stock Certificate of the Common Stock of the Company
(incorporated by reference from Exhibit 4.2 to the Company's
Registration Statement on Form S-1 (No. 333-12311) filed with
the Commission on September 19, 1996).
10.1 Amendment to License and Services Agreement dated September
27, 1999 by and between Medirisk of Illinois, Inc. and
HealthSouth Corporation.*
11 Statements of Computation of Per Share Income (Loss)
27 Financial Data Schedule (EDGAR Filing Only) (For SEC use only).
</TABLE>
(b) Reports on Form 8-K
* Confidential Treatment pursuant to 17 CFR sec. 200.80 and 240.24-b-z has
been requested regarding certain portions of the indicated Exhibit,
which portions have been separately filed with the Commission.
-20-
<PAGE> 21
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Caredata.com, Inc.
November 15, 1999 By: /s/ Thomas C. Kuhn III
---------------------------
Thomas C. Kuhn III
Senior Vice President
Chief Financial Officer and
Chief Accounting Officer
-21-
<PAGE> 22
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description
- ----------- -----------
<S> <C>
3.1 Certificate of Incorporation of the Company (incorporated by
reference from Exhibit 3.1 to the Company's Registration
Statement on Form S-1 (No. 333-12311) filed with the
Commission on September 19, 1996).
3.1.1 Certificate of Designation of Series 1998-A Preferred Stock
(incorporated by reference from Exhibit 3.1.1 to the Company's
Current Report on Form 8-K dated March 31, 1998).
3.1.2 Certificate of Designation, Preferences and Rights of Series A
Junior Participating Preferred Stock (incorporated by
reference from Exhibit 3.1.2 to the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 1998).
3.2 Bylaws of the Company (incorporated by reference from Exhibit
3.2 to the Company's Registration Statement on Form S-1 (No.
333-12311) filed with the Commission on September 19, 1996).
4.1 Shareholder Protection Rights Agreement dated as of July 29,
1998 between the Company and SunTrust Bank, Atlanta, as Rights
Agent (incorporated by reference from Exhibit 2.8 to the
Company's Current Report on Form 8-K dated July 29, 1998).
4.2 Specimen Stock Certificate of the Common Stock of the Company
(incorporated by reference from Exhibit 4.2 to the Company's
Registration Statement on Form S-1 (No. 333-12311) filed with
the Commission on September 19, 1996).
10.1 Amendment to License and Services Agreement dated September
27, 1999 by and between Medirisk of Illinois, Inc. and
HealthSouth Corporation.*
11 Statements of Computation of Per Share Income (Loss)
27 Financial Data Schedule (EDGAR Filing Only) (For SEC use only).
</TABLE>
- ----------------
* Confidential treatment pursuant to 17 CFR sec. 200.80 and 240.24-b-7 has been
requested regarding certain portions of the indicated Exhibit, which portions
have been separately filed with the Commission.
-22-
<PAGE> 1
EXHIBIT 10.1
AMENDMENT TO LICENSE AND SERVICES AGREEMENT
THIS AMENDMENT is hereby made and entered into as of the 27th day of
September 1999 by and between MEDIRISK OF ILLINOIS, INC., an Indiana
corporation doing business as "Caredata" ("Caredata") and HEALTHSOUTH
CORPORATION, a Delaware corporation ("Licensee").
W I T N E S S E T H:
WHEREAS, the parties have previously entered into that certain License
and Services Agreement dated as of 19 December 1997 (the "Agreement"), and now
desire to amend the Agreement upon the terms hereinafter set forth;
NOW, THEREFORE, for and in consideration of the mutual undertakings of
the parties hereinafter set forth and other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the parties
hereby agree as follows:
1. DEFINITIONS. All terms as used herein shall have the same meaning
as given thereto in the Agreement, unless otherwise defined herein.
2. TERM. The first sentence of Section 3.1 of the Agreement is hereby
deleted and replaced with a new first sentence which shall read as follows:
This Agreement shall have an initial term of two (2) years, commencing
1 January 1998 and expiring 31 December 1999.
3. RENEWAL. Section 3.2 of the Agreement is hereby deleted.
4. HOSPITAL-BASED OUTPATIENT PRODUCTS. Section 2 of Attachment "A" to
the Agreement, which Attachment is also known as the "Statement of Work," is
hereby deleted in its entirety.
5. DELIVERY OF INPATIENT REPORTS. Notwithstanding anything else in the
Agreement, Caredata will prepare and deliver to Licensee, on a timely basis
consistent with the timetable set forth in the Statement of Work, the Facility
Reports and Corporate Reports referred to in Sections 1.C. and 1.D. thereof,
respectively, with respect to the data collected during the third and fourth
quarters of 1999. Such reports shall be prepared using statistical models
consistently applied from the similar reports with respect to the data from the
second quarter of 1999, as corrected and agreed to by Licensee, using
industry-standard calculations specifically including, but not limited to, LOS
calculations. Effective the date hereof, no other reports or services referred
to in Section 1 of the Statement of Work shall be provided by Caredata to
Licensee.
6. DELIVERY OF ORYX REPORTS. Notwithstanding anything else in the
Agreement, Caredata will prepare and deliver to JCAHO and Licensee, on a timely
basis consistent with the JCAHO timetable set forth in Section 3 of the
Statement of Work, ORYX facility reports (as referred to in such Section) with
respect to the data collected during the second, third and fourth quarters of
1999 that are accurate and understandable in the currently-utilized format
consistent with JCAHO requirements and file and format standards. Caredata will
also promptly prepare and provide to Licensee modified written instructions for
such reports in a form which is mutually acceptable to both parties. Effective
the date hereof, no other reports or services referred to in Section 3 of the
Statement of Work shall be provided by Caredata to Licensee.
7. ACKNOWLEDGEMENT. The parties acknowledge that due to scrivener's
error there has never been a Section 4 of the Statement of Work and the current
Section 5 should have been designated Section 4. However, in order to avoid
further confusion, the parties agree that no renumbering of these Sections is
necessary.
<PAGE> 2
8. CUSTOMER SUPPORT. Notwithstanding anything else in the Agreement,
Caredata will continue to support Licensee's facilities as set forth in the
Agreement, including a response time of not more that 48 hours with respect to
inquiries received from such facilities.
9. TRANSITION. Caredata acknowledges that Licensee can and shall
immediately begin the process of retaining a new vendor to commence providing
services to Licensee in place of Caredata, effective 1 January 2000. Caredata
shall provide all assistance reasonably requested by Licensee in the
transitioning of the service relationship from Caredata to such new vendor,
including but not limited to, timely production of data and other information
upon request of Licensee. With respect to such transition neither party shall
undertake any disparaging conduct directed at the other, and each party
(including their respective employees) shall refrain from making any negative
or derogatory statements concerning the other with respect to the Agreement or
its expiration, the services provided thereunder, or such transition. Licensee
shall assign Susan Sheedy and/or her designee as its representative on all
transition-related matters. Caredata shall initially assign Damion Ortega and
Amy Thomas to deal solely with such transition-related matters, together from
time-to-time with such other persons and/or replacements as are reasonably
necessary to deal with such matters. Caredata will use reasonable efforts to
retain Mr. Ortega and Ms. Thomas during such transition period. Any
replacements of Mr. Ortega, Ms. Thomas and/or Jill Engholm in this regard shall
be reasonably satisfactory to Licensee. Further, Caredata shall deliver to
Licensee contemporaneously with the Corporate Reports for the fourth quarter of
1999 a copy of all Licensee's data not theretofore provided to Licensee, such
copy to be in Licensee's desired format.
10. FEES. Effective the date hereof, and in lieu of any further
payment in accordance with the payment structure set forth in Schedule "A" to
the Agreement, Licensee shall pay to Caredata the following amounts on the
dates indicated:
AMOUNT DUE AND PAYABLE
------ ---------------
[S] [C]
* Upon execution and delivery
of this Amendment
* 3/31/00 (for Q3 1999 reports)
* 6/30/00 (for Q4 1999 reports)
11. EFFECT OF AMENDMENT. Except as hereinabove specifically set forth,
the Agreement is not otherwise herein amended. Caredata acknowledges and agrees
that it shall continue to hold Licensee harmless in the event of non-compliance
with JCAHO requirements that results from the non-performance of Caredata with
the requirements of the Agreement. Caredata also hereby specifically ratifies
and affirms the terms of Section 9.5 of the Agreement and further acknowledges
and agrees that disclosure of data to third parties as permitted thereunder
will also be done in a fashion that does not reveal Licensee as the source of
the data.
IN WITNESS WHEREOF, the parties have hereto set their hands under seal
contemporaneously with the execution of the foregoing Agreement.
MEDIRISK OF ILLINOIS, INC. HEALTHSOUTH CORPORATION
<TABLE>
<S> <C>
BY: /S/AUTHORIZED SIGNATORY BY: /S/ AUTHORIZED SIGNATORY
----------------------------- -------------------------------
(Signature) (Signature)
NAME: ______________________________ NAME: _______________________________
TITLE: ______________________________ TITLE: _______________________________
</TABLE>
* CONFIDENTIAL TREATMENT REQUESTED.
<PAGE> 1
EXHIBIT 11
CAREDATA.COM, INC. AND SUBSIDIARIES
STATEMENTS OF COMPUTATION OF PER SHARE INCOME (LOSS)
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
1999 1998 1999 1998
------ ------ ------- --------
<S> <C> <C> <C> <C>
Net income (loss) $ 11 $ 234 $(1,234) $(10,947)
====== ====== ======= ========
Weighted average number of common shares outstanding 8,215 7,260 7,757 5,677
====== ====== ======= ========
Net income (loss) per share of common stock - basic $ 0.00 $ 0.03 $ (0.16) $ (1.93)
====== ====== ======= ========
Shares used in net income (loss) per diluted share calculation:
Weighted average number of common shares outstanding 8,215 7,260 7,757 5,677
Dilutive securities 749 271 -- --
------ ------ ------- --------
8,964 7,531 7,757 5,677
====== ====== ======= ========
Net income (loss) per share of common stock - diluted $ 0.00 $ 0.03 $ (0.16) $ (1.93)
====== ====== ======= ========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CAREDATA.COM, INC. CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS FOR THE NINE
MONTHS ENDED SEPTEMBER 30, 1999 AND THE CAREDATA.COM, INC. CONSOLIDATED
CONDENSED BALANCE SHEET AS OF SEPTEMBER 30, 1999 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH CONSOLIDATED CONDENSED FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 3,063
<SECURITIES> 0
<RECEIVABLES> 11,542
<ALLOWANCES> 789
<INVENTORY> 0
<CURRENT-ASSETS> 17,151
<PP&E> 7,816
<DEPRECIATION> 3,478
<TOTAL-ASSETS> 78,038
<CURRENT-LIABILITIES> 14,500
<BONDS> 0
4,250
0
<COMMON> 8
<OTHER-SE> 59,025
<TOTAL-LIABILITY-AND-EQUITY> 78,038
<SALES> 27,170
<TOTAL-REVENUES> 27,170
<CGS> 0
<TOTAL-COSTS> 28,253
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 127
<INCOME-PRETAX> (792)
<INCOME-TAX> 442
<INCOME-CONTINUING> (1,234)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,234)
<EPS-BASIC> (0.16)
<EPS-DILUTED> (0.16)
</TABLE>
