<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q/A
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the quarterly period ended March 31, 1998.
Or
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the transition period from to .
--------------- --------------
Commission file number 000-27056
Medirisk, Inc.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
Delaware 58-2256400
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(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
Two Piedmont Center, Suite 400, 3565 Piedmont Rd., Atlanta, Georgia 30305
- -----------------------------------------------------------------------------------------------------
(Address of principal executive office) (Zip code)
</TABLE>
Registrant's Telephone Number Including Area Code: (404) 364-6700
-----------------------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes x No
--- ---
The number of shares outstanding of the issuer's only class of Common
Stock, $.001 par value as of May 4, 1998 was 4,664,117.
<PAGE> 2
AMENDED FILING OF FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 1998
This Quarterly Report on Form 10-Q/A amends and supersedes the Registrant's
Quarterly Report on Form 10-Q for the period ended March 31, 1998 previously
filed on May 6, 1998. The Company has adjusted the allocation of the purchase
price related to the March 1998 acquisition of Healthdemographics to reflect the
results of applying new guidance from the Staff of the Securities and Exchange
Commission (the "Staff") regarding in-process research and development. The new
guidance was received after the Company filed the Form 10-Q to which this
amended filing relates. Although the Company believes that its original
accounting treatment was in accordance with generally accepted accounting
principles, it has accepted the Staff's new guidance with respect to these
matters and has made certain adjustments as set forth in this amended filing.
<PAGE> 3
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
MEDIRISK, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(Amounts in thousands)
<TABLE>
<CAPTION>
(UNAUDITED) (AUDITED)
3/31/98 12/31/97
------- --------
<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 12,351 7,556
and December 31, 1997, respectively
Other intangible assets, less accumulated amortization
of $493 and $409 at March 31, 1998
and December 31, 1997, respectively 1,915 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 16,324 10,529
Total assets $25,791 $20,658
======= =======
</TABLE>
-2-
<PAGE> 4
MEDIRISK, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(Amounts in thousands, except per share data)
<TABLE>
<CAPTION>
(UNAUDITED) (AUDITED)
3/31/98 12/31/97
------- --------
<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 (16,505) (12,379)
------- -------
Total stockholders' equity 15,163 16,184
Total liabilities and stockholders' equity $25,791 $20,658
======= =======
</TABLE>
See accompanying notes to consolidated condensed financial statements.
-3-
<PAGE> 5
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 4,815 --
------- -------
Operating income (loss) (4,162) 41
Interest income, net 36 41
------- -------
Income (loss) before extraordinary item (4,126) 82
------- -------
Extraordinary item - loss on early extinguishment of debt -- (806)
------- -------
Net loss (4,126) (724)
Convertible preferred stock dividend requirement -- (25)
------- -------
Net loss attributable to common stock $(4,126) $ (749)
======= =======
Net loss per share of common stock - basic and diluted:
Income (loss) per share before extraordinary item $ (0.92) $ 0.02
Loss per share - extraordinary item -- (0.25)
------- -------
Net loss per share of common stock $ (0.92) $ (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.
-4-
<PAGE> 6
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 $(4,126) $ (724)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Acquired in-process research and development costs 4,750 --
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 $ 2,284 $ --
Acquired in-process research and
development costs 4,750 --
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.
-5-
<PAGE> 7
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 as of 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 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 and the assumption of net liabilities of $532,000. The acquisition was
accounted for using the purchase method of accounting with the results of
operations of the business acquired included in the Company's results of
operations from the effective date of the acquisition. The acquisition resulted
in estimated purchased in-process research and development costs of $4.8
million, estimated acquired products of $120,000, and estimated excess of cost
over net assets acquired of $2.0 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 could be
significant. Contingent consideration ultimately paid will be added to excess of
cost over net assets acquired and amortized prospectively.
-6-
<PAGE> 8
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, Inc.
and CareData Reports, Inc. had been effective January 1, 1997 is summarized as
follows:
<TABLE>
<CAPTION>
THREE MONTHS YEAR ENDED
ENDED MARCH 31, DECEMBER 31,
--------------- ------------
1998 1997
---- ----
(in thousands)
<S> <C> <C>
Revenue $ 5,518 $19,384
======= =======
Income before extraordinary item $ 178 $ 530
Extraordinary item - Loss on early extinguishment of debt -- (806)
------- -------
Net income (loss) 178 (276)
Convertible preferred stock dividend requirement -- 25
------- -------
Net income (loss) attributable to common stock $ 178 $ (301)
======= =======
Net income (loss) per share of common stock - basic and diluted:
Income (loss) per share before extraordinary item $ 0.03 $ 0.13
Loss per share - extraordinary item -- (0.20)
------- -------
Net income (loss) per share of common stock $ 0.03 $ (0.07)
======= =======
Weighted average number of common shares outstanding 5,272 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.
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
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 payers 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.
-7-
<PAGE> 9
ACQUISITIONS
Following the completion of its initial public offering in January 1997,
Medirisk significantly expanded its operations by acquiring five companies,
four in 1997 (the "1997 Acquisitions") and one, Healthdemographics, 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 transactions.
- In May 1997, Medirisk acquired substantially all of the assets of
Staff-Link, Inc. ("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, 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
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 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 recent acquisitions, 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 $4.8
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, 20% 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 also incurred approximately $65,000 of
integration costs during the first quarter of 1998 and estimates that it will
incur additional integration costs of approximately $400,000 in 1998 with
respect to the acquisition of Healthdemographics.
-8-
<PAGE> 10
As a result of the 1997 Acquisitions and the acquisition of
Healthdemographics, 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 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 fees, and
other miscellaneous services, is recognized upon the completion 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.
-9-
<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
ENDED MARCH 31,
STATEMENT OF OPERATIONS: 1998 1997
---- ----
<S> <C> <C>
Revenue 100% 100%
Salaries, wages and benefits 50 66
Other operating expenses 29 24
Depreciation and amortization 8 8
Acquired in-process research and
development costs and integration costs 93 --
--- ----
Operating income (loss) (80) 2
Interest and other income (expense), net 1 1
--- ----
Income (loss) before extraordinary item (79) 3
Extraordinary item: loss on early extinguishment of debt -- (30)
--- ----
Net loss (79)% (27)%
=== ====
</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 revenue from these acquisitions increased 53% for the first quarter of 1998
over the first quarter of 1997 as a result of a combination of factors,
including increases in the volume of products licensed and revenue attributable
to an increase in the Company's sales and marketing personnel.
-10-
<PAGE> 12
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 $4.8 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, 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.
LIQUIDITY AND CAPITAL RESOURCES
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.
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.
-11-
<PAGE> 13
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 $13.4 million for the same period in
the prior year. In 1997 the Company retained $13.7 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.
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.
In April 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. No
assurances can be given that such offering will be consummated or, if
consummated, what the proceeds of such offering will be. 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.
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<PAGE> 14
EFFECTS OF INFLATION
Management does not believe that inflation has had a material impact on
results of operations for the periods presented. Substantial increases in costs,
particularly the cost of labor for product development, marketing and sales,
could have an adverse impact on the Company and the healthcare information
industry.
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. However, the Company is still analyzing its
databases and software applications and those utilized by its key suppliers, 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 would not have a material adverse effect on the Company's
business, results of operations or financial condition.
FORWARD-LOOKING STATEMENTS
The Company may from time to time make written or oral forward-looking
statements contained in the Company's filings with the Securities and Exchange
Commission (the "Commission") and its reports to stockholders. Statements made
in this Quarterly Report on Form 10-Q, other than those concerning historical
information, should be considered forward-looking and subject to various risks
and uncertainties. Such forward-looking statements are made based on
management's belief, as well as on assumptions made by, and information
currently available to, management, and are made pursuant to, and in reliance
upon, the "safe harbor" provisions of the Private Securities Litigation Reform
Act of 1995. The Company's actual results may differ materially from the results
anticipated in these forward-looking statements due to numerous factors,
including the following: History of Operating Losses and Uncertain
Profitability; Risks Related to Growth; Risks of Integration of Acquired
Operations; Dependence on Data Sources and AMA Licenses; Dependence on
Intellectual Property Rights; Risks Related to Intangible Assets; 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;
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; and Risks Associated with
Unspecified Use of Proceeds. For a more complete discussion of these factors,
please see the section entitled "Risk Factors" in the Company's Registration
Statement on Form S-3, as amended, as originally filed with the Commission on
April 13, 1998, Registration Number 333-50015.
ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The Registrant currently maintains all cash in United States dollars in
highly liquid, interest-bearing, investment-grade instruments with maturities of
less than three months, which the Company considers cash equivalents; therefore,
the Registrant has no "market risk sensitive instruments," and no disclosure is
required under this Item.
13
<PAGE> 15
PART II - OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
(b) In connection with the acquisition of Healthdemographics, the Company's
Board of Directors created a new series of Preferred Stock, par value $0.001, of
the Company, designated as the Series 1998-A Preferred Stock. The Board of
Directors designated 5,000 of the previously undesignated shares of Preferred
Stock as Series 1998-A Preferred Stock. The principal features of the Series
1998-A Preferred Stock, which shall apply if it is issued and until its
conversion, are summarized below. The following description of the Series 1998-A
Preferred Stock is only a summary of certain provisions and is qualified in its
entirety by reference to the copy of the Certificate of Designation filed
herewith as an exhibit.
DIVIDENDS: The holders of Series 1998-A Preferred Stock are entitled to
receive cash dividends payable before any dividends are paid to holders of
Medirisk Common Stock or any other securities ranking junior to the Series
1998-A Preferred Stock at the rate of 5% per annum of the initial liquidation
preference per share of the Series 1998-A Preferred Stock ($10,000). Dividends
on the Series 1998-A Preferred Stock accrue from and after the date shares are
issued and are payable annually on December 31 of each year. The Company may, in
the discretion of the Board of Directors, declare and pay dividends or
distributions, or make provision for the payment thereof, on the Medirisk Common
Stock or any security ranking junior to the Series 1998-A Preferred Stock, but
only if all accrued dividends on the Series 1998-A Preferred Stock have been
paid in full prior to the date of any such declaration, payment or provision.
LIQUIDATION RIGHTS: Upon any liquidation, dissolution and winding up of
the Company, holders of Series 1998-A Preferred Stock will be entitled to
receive, from the assets of the Company available for distribution to
stockholders of the Company, an amount equal to $10,000 per share plus any
accrued and unpaid dividends on the Series 1998-A Preferred Stock (the
"Liquidation Preference") before any distribution is made to holders of Medirisk
Common Stock or any other class of stock ranking junior upon liquidation,
dissolution and winding up to the Series 1998-A Preferred Stock.
VOTING RIGHTS: Each share of Series 1998-A Preferred Stock is entitled
to a number of votes equal to the number of shares of Medirisk Common Stock into
which such share of Series 1998-A Preferred Stock is then convertible. Except as
otherwise provided by the Delaware General Corporation law, the holders of
Series 1998-A Preferred Stock will vote together with the holders of Medirisk
Common Stock as a single class on all matters on which the holders of Medirisk
Common Stock are entitled to vote.
REDEMPTION: Beginning on the fifth anniversary of any issue date of
shares of Series 1998-A Preferred Stock, the Company may, but is not required
to, redeem all of the shares of Series 1998-A Preferred Stock that were issued
on such issue date and that remain outstanding. Effective as of the twentieth
anniversary of each issue date of shares of Series 1998-A Preferred Stock, the
Company is required to redeem all of the shares of Series 1998-A Preferred Stock
that were issued on such issue date and that remain outstanding. Upon any
redemption of the Series 1998-A Preferred Stock, the Company will pay in cash
the Liquidation Preference in effect on the date established for redemption, and
dividends shall cease to accrue on that date. The Company will not establish any
retirement or sinking fund for the redemption of the Series 1998-A Preferred
Stock.
14
<PAGE> 16
CONVERSION: Each share of Series 1998-A Preferred Stock is subject to
automatic conversion into Medirisk Common Stock if, at any time, the Market
Value (as defined in the Certificate of Designation) of Medirisk Common Stock
equals or exceeds $22.6094 (the "Conversion Price"). In such event, each share
of Series 1998-A Preferred Stock will, automatically and without action on the
part of the holder or the Company, be converted into a number of shares of
Medirisk Common Stock that results from dividing the Liquidation Preference in
effect at the time by the Conversion Price. To protect against dilution, the
Conversion Price is subject to adjustment if the Company effects a subdivision
or combination of the Medirisk Common Stock (whether by stock split, stock
dividend or otherwise). The Conversion Price and securities issuable upon
conversion are also subject to adjustment if the Company (i) conducts a capital
reorganization of the Medirisk Common Stock, (ii) engages in a merger,
consolidation or statutory share exchange in which the stockholders of the
Company prior to such transaction own less than a majority of the voting stock
of the resulting, surviving or exchanging corporation, or (iii) sells all or
substantially all of its properties or assets or capital stock.
RANK: The Series 1998-A Preferred Stock ranks prior to the Medirisk
Common Stock with respect to the payment of dividends and distributions of
assets upon the dissolution, liquidation and winding up of the Company. The
Board of Directors may at any time and from time to time include additional
shares in the designation of the Series 1998-A Preferred Stock, designate one or
more series or classes of preferred stock with liquidation preferences, voting
rights, dividend rights and other rights and privileges senior to the Series
1998-A Preferred Stock without the vote or consent of, or notice to, the holders
of Series 1998-A Preferred Stock.
(c) In March 1998, in connection with the acquisition of
Healthdemographics, the Company issued 171,315 shares of its Common Stock to
shareholders of Healthdemographics. Such transaction was conducted without any
underwriter, and the Company claims that such transaction was exempt from
registration under the Securities Act of 1933 (the "Securities Act") pursuant to
Rule 505 of Regulation D and Section 4(2) of the Securities Act.
(d) On January 28, 1997, the Company's Registration Statement on Form S-1,
Registration Number 333-12311, was declared effective. The offering of the
Company's Common Stock under such Registration Statement commenced on January
28, 1997 and was completed on January 31, 1997. The managing underwriters for
the offering were Equitable Securities Corporation and Jeffries & Company, Inc.
In such offering 2.3 million shares were registered and sold by the Company for
an aggregate offering price of $25.3 million.
In connection with such offering, (i) underwriting fees and discounts of
$1.8 million were incurred by the Company and (ii) other expenses of $903,000
were incurred by the Company resulting in (iii) total expenses of $2.7 million
and net offering proceeds of $22.6 million. Of such net proceeds, the following
payments were made to persons owning 10% or more of the Company's equity
securities: (i) $6.9 million in repayment of certain indebtedness; and (ii)
$643,000 in payment of accrued dividends. Of such net proceeds, the following
other uses have been made: (i) $2.3 million in repayment of certain
indebtedness; (ii) $7.4 million to acquire other businesses; (iii) $2.8 million
for fixed asset purchases and software development; and (iv) $1.3 million for
general working capital purposes. The remaining net proceeds of $1.3 million are
in an institutional money market fund. The above-described uses of proceeds do
not represent a material change in the uses of proceeds described in the
prospectus.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
11 - Statements of Computation of Per Share Loss.
27 - Financial Data Schedule (for SEC use only).
(b) Reports on Form 8-K
None.
15
<PAGE> 17
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Medirisk, Inc.
January 27, 1999 By: /s/ Thomas C. Kuhn III
------------------------------------------
Thomas C. Kuhn III
Senior Vice President and
Chief Financial Officer
16
<PAGE> 18
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------ -----------
<S> <C>
11 Statements of Computation of Per Share Loss
27 Financial Data Schedule (for SEC use only)
</TABLE>
17
<PAGE> 1
EXHIBIT 11
MEDIRISK, INC. AND SUBSIDIARIES
STATEMENTS OF COMPUTATION OF PER SHARE LOSS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31,
1998 1997
---- ----
<S> <C> <C>
Net loss attributable to common stock $(4,126) $ (749)
======= =======
Net loss per share of common stock - basic and diluted:
Income (loss) per share before extraordinary item $ (0.92) $ 0.02
Loss per share - extraordinary item -- (0.25)
------- -------
Net loss per share of common stock $ (0.92) $ (0.23)
======= =======
Weighted average number of common shares outstanding - basic and diluted 4,495 3,265
======= =======
</TABLE>
18
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM THE MEDIRISK, INC.
CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH
31, 1998 AND THE MEDIRISK, INC. CONSOLIDATED CONDENSED BALANCE SHEET AS OF MARCH
31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH CONSOLIDATED
CONDENSED FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 1,280
<SECURITIES> 0
<RECEIVABLES> 4,958
<ALLOWANCES> 209
<INVENTORY> 0
<CURRENT-ASSETS> 7,505
<PP&E> 3,604
<DEPRECIATION> 1,642
<TOTAL-ASSETS> 25,791
<CURRENT-LIABILITIES> 10,587
<BONDS> 0
0
0
<COMMON> 5
<OTHER-SE> 15,158
<TOTAL-LIABILITY-AND-EQUITY> 25,791
<SALES> 5,176
<TOTAL-REVENUES> 5,176
<CGS> 0
<TOTAL-COSTS> 9,338
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7
<INCOME-PRETAX> (4,126)
<INCOME-TAX> 0
<INCOME-CONTINUING> (4,126)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,126)
<EPS-PRIMARY> (0.92)
<EPS-DILUTED> (0.92)
</TABLE>
