<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 September 30,
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
- ------------------------------------------------------------- ------------------------------------
(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, $0.001 par value as, of November 12, 1998 was 7,331,626.
-1-
<PAGE> 2
AMENDED FILING OF FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 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 September 30, 1998 previously
filed on November 13, 1998. The Company has adjusted the allocation of the
purchase price related to the March 1998, May 1998 and June 1998 acquisitions of
Healthdemographics, Successful Solutions, Inc. and Sweetwater Health
Enterprises, Inc., respectively, 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. 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)
9/30/98 12/31/97
------- --------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $21,769 $ 3,516
Accounts receivable, less allowance for
doubtful accounts of $393 and $148 at September 30, 1998
and December 31, 1997, respectively 5,770 3,802
Prepaid expenses 1,226 697
Notes receivable from stockholders 448 23
Other current assets 1,655 452
------- -------
Total current assets 30,868 8,490
------- -------
Property and equipment 5,082 3,083
Less accumulated depreciation and amortization 2,128 1,444
------- -------
Property and equipment, net 2,954 1,639
------- -------
Excess of cost over net assets of businesses acquired, less accumulated
amortization of $1,250 and $537 at September 30, 1998 and
December 31, 1997, respectively 18,606 7,556
Intangible assets, less accumulated amortization of $793 and $409 at
September 30, 1998 and December 31, 1997, respectively 4,445 1,794
Software development costs, less accumulated amortization of $244
and $97 at September 30, 1998 and December 31, 1997, respectively 2,091 1,008
Notes receivable from stockholders, excluding current portion 45 67
Other assets 538 104
------- -------
Total other assets 25,725 10,529
------- -------
Total assets $59,547 $20,658
======= =======
</TABLE>
-2-
<PAGE> 4
MEDIRISK, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(Amounts in thousands, except per share data)
<TABLE>
<CAPTION>
(UNAUDITED)
9/30/98 12/31/97
------- --------
<S> <C> <C>
CURRENT LIABILITIES
Accounts payable $ 473 $ 258
Accrued expenses 1,531 758
Income taxes payable 778 816
Current installments of long-term debt and obligations
under capital leases 118 168
Deferred revenue 2,891 2,309
-------- --------
Total current liabilities 5,791 4,309
Long-term debt and obligations under capital leases,
excluding current installments 26 165
Deferred tax liabilities 1,000 --
-------- --------
Total liabilities 5,817 4,474
STOCKHOLDERS' EQUITY
Preferred stock, $0.001 par value; 1,000 shares authorized;
none outstanding -- --
Common stock - $0.001 par value; 20,000 shares authorized;
7,332 and 4,193 shares issued and outstanding at
September 30, 1998 and December 31, 1997, respectively 7 4
Additional paid in capital 76,049 28,559
Accumulated deficit (23,326) (12,379)
-------- --------
Total stockholders' equity 52,730 16,184
-------- --------
Total liabilities and stockholders' equity $ 59,547 $ 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 NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
------------------- -------------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenue $ 7,762 $ 4,677 $ 18,354 $ 10,570
Salaries, wages and benefits 3,614 2,036 9,153 5,517
Other operating expenses 2,360 1,309 5,453 2,848
Depreciation and amortization 860 352 1,939 802
Acquired in-process research and development costs,
integration costs and acquisition-related costs 992 1,064 13,056 4,164
------- ------- -------- --------
Operating loss (64) (84) (11,247) (2,761)
Interest income, net 298 103 300 301
------- ------- -------- --------
Income (loss) before extraordinary item 234 19 (10,947) (2,460)
Extraordinary item - loss on early extinguishment of debt -- -- -- (806)
------- ------- -------- --------
Net income (loss) 234 19 (10,947) (3,266)
Convertible preferred stock dividend requirement -- -- -- (25)
------- ------- -------- --------
Net income (loss) attributable to common stock $ 234 $ 19 $(10,947) $ (3,291)
======= ======= ======== ========
Net income (loss) per share of common stock - basic and diluted:
Income (loss) per share before extraordinary item $ 0.03 $ 0.00 $ (1.93) $ (0.65)
Loss per share - extraordinary item -- -- -- (0.21)
------- ------- -------- --------
Net income (loss) per share of common stock $ 0.03 $ 0.00 $ (1.93) $ (0.86)
======= ======= ======== ========
Weighted average number of common shares outstanding -
basic 7,260 4,171 5,677 3,830
======= ======= ======== ========
Weighted average number of common shares outstanding -
diluted 7,531 4,937 5,677 3,830
======= ======= ======== ========
</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>
NINE MONTHS
ENDED SEPTEMBER 30,
-------------------
1998 1997
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net loss $(10,947) $ (3,266)
Adjustments to reconcile net loss to net cash (used in) provided by
operating activities:
Acquired in-process research and development costs 11,650 4,075
Depreciation and amortization 1,939 811
Loss due to early extinguishment of debt -- 806
Decrease (increase) in:
Accounts receivable (1,606) (108)
Other assets (1,985) (230)
Increase (decrease) in:
Accounts payable (455) (394)
Accrued expenses and other liabilities (1,917) (510)
Deferred revenue (200) (1,160)
-------- --------
Net cash (used in) provided by operating activities (3,521) 24
-------- --------
Cash flows from investing activities:
Acquisition of businesses, net of cash acquired (14,362) (7,114)
Purchases of property and equipment (1,225) (552)
Additions to software development costs (1,229) (675)
Notes receivable from stockholders (425) --
-------- --------
Net cash used in investing activities (17,241) (8,341)
-------- --------
Cash flows from financing activities:
Proceeds from issuance of common stock 40,890 22,614
Payments of dividends -- (643)
Payments on long-term debt and obligations under capital leases (1,898) (8,787)
Repayment of note receivable from stockholder 23 23
-------- --------
Net cash provided by financing activities 39,015 13,207
-------- --------
Net increase in cash and cash equivalents 18,253 4,890
Cash and cash equivalents at beginning of period 3,516 447
-------- --------
Cash and cash equivalents at end of period $ 21,769 $ 5,337
======== ========
Acquisitions of businesses:
Fair value of assets acquired $ 13,322 $ 7,259
Acquired in-process research and development costs 11,650 4,075
Fair value of liabilities assumed (6,492) (2,560)
Common stock issued (6,603) (901)
Contingent consideration paid 3,000 --
-------- --------
Total cash paid for acquisitions 14,877 7,873
Cash acquired (515) (759)
-------- --------
Net cash paid for acquisitions $ 14,362 $ 7,114
======== ========
</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 September 30,
1998 and for the nine-month and three-month periods ended September 30, 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. ("Medirisk" or the "Company") for
the year ended December 31, 1997.
2. MAJOR CUSTOMERS:
One customer accounted for 7% and 14% of the Company's revenue for the
nine months ended September 30, 1998 and 1997, respectively.
3. INCOME (LOSS) PER SHARE OF COMMON STOCK:
Income (loss) per share of Common Stock for all periods presented are
based on the weighted average shares of Common Stock outstanding. Loss per share
for the nine month periods ending September 30, 1998 and 1997, does not include
the effect of outstanding Common Stock equivalents because the effect is
antidilutive.
4. LINE OF CREDIT:
In June 1998 the Company entered into an Amended and Restated Credit
Agreement with NationsBank under which a $25 million revolving credit facility
(the "NationsBank Revolver") was made available to the Company. The NationsBank
Revolver is available to fund working capital needs as well as new product
development and acquisitions.
5. FOLLOW-ON OFFERING:
In June 1998 the Company completed a follow-on offering of 2,250,000
shares of Common Stock. As a result of the offering, the Company received
approximately $40.5 million, net of offering costs of approximately $600,000.
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 of and demand for
healthcare services, for $2.7 million in cash and 171,315 shares of the
Company's common stock. 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 purchased in-process research and
development costs of $4.8 million, acquired products of $120,000 and excess of
cost over net assets acquired of $2.0 million. Potential contingent
consideration will be paid by the
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<PAGE> 8
Company based upon a multiple of Healthdemographics' operating income over a
predetermined amount through the year 2000. These potential payments could be
significant. Contingent consideration ultimately paid will be added to excess of
cost over net assets acquired and amortized prospectively. The contingent
consideration will be paid by the Company in cash and common stock or a newly
designated Series 1998 - A Redeemable Preferred Stock.
Effective May 28, 1998, the Company acquired all of the outstanding
shares of Successful Solutions, Inc. of Vidalia, Georgia, which provides
decision-support tools, consulting services and training materials to hospitals
and physician group practices to assist them in improving patient outcomes,
achieving the efficient delivery of care and establishing billing and coding
practices that comply with industry requirements. Medirisk purchased Successful
Solutions for $2.9 million in cash, and 189,811 shares of the Company's common
stock. 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 purchased in-process research and development costs of
$3.4 million, acquired products of $500,000 and excess of cost over net assets
acquired of $2.2 million. Potential contingent consideration will be paid by the
Company based upon a multiple of Successful Solutions' operating income over a
predetermined amount through the year 1999. These payments could be significant.
Contingent consideration ultimately paid will be added to excess of cost over
net assets acquired and amortized prospectively. The contingent consideration
will be paid by the Company in cash and common stock.
Effective June 25, 1998, the Company acquired all of the outstanding
shares of Sweetwater Health Enterprises, Inc. of Dallas, Texas, which provides a
comprehensive selection of physician credentialing services to hospitals and
managed care organizations to evaluate professional relationships with
physicians and secure accreditation by industry associations. In addition,
Sweetwater provides a suite of quality management software used by healthcare
organizations to facilitate in-house credentialing and network management, as
well as track perceptions of care and individual physician performance.
Sweetwater also provides managed care and interim management services for
healthcare organizations throughout the country. Medirisk purchased Sweetwater
for $6.2 million in cash. The acquisition was accounted for using the purchase
method of accounting with the results of operations of the business acquired
included in the Company's results of operations from the effective date of the
acquisition. The acquisition resulted in purchased in-process research and
development costs of $3.5 million, acquired products of $2.2 million and excess
of cost over net assets acquired of $3.9 million.
The unaudited pro forma results of operations of the Company for the
nine months ended September 30, 1998 and the year ended December 31, 1997 as if
the acquisitions 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>
NINE MONTHS YEAR ENDED
ENDED SEPTEMBER 30, DECEMBER 31,
------------------- ------------
1998 1997
---- ----
(in thousands)
<S> <C> <C>
Revenue $ 22,534 $ 33,542
======== ========
Loss before extraordinary item $ (4,390) $ (802)
Extraordinary item - Loss on early extinguishment of debt -- (806)
-------- --------
Net loss (4,390) (1,608)
Convertible preferred stock dividend requirement -- (25)
-------- --------
Net loss attributable to common stock $ (4,390) $ (1,633)
======== ========
Net loss per share of common stock - basic and diluted:
Loss per share before extraordinary item $ (0.74) $ (0.18)
Loss per share - extraordinary item -- (0.19)
-------- --------
Net loss per share of common stock $ (0.74) $ (0.37)
======== ========
Weighted average number of common shares outstanding 5,916 4,404
======== ========
</TABLE>
-7-
<PAGE> 9
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, 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 acquisition,
additional consideration of $3.0 million was paid in April 1998, was added to
excess of cost over net assets acquired, and is being amortized on a prospective
basis.
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 healthcare 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 healthcare industry
participants in measuring the performance of healthcare payers and providers and
forecasting the supply of and demand for healthcare 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 healthcare delivery networks, and
marketing healthcare services. The Company actively sells its products to over
1,000 major customers, including leading health plans, insurers, hospitals,
large multi-specialty physician groups, physician practice management companies,
employers, equipment suppliers and pharmaceutical companies, as well as several
hundred smaller customers, including single-specialty physician groups. Medirisk
believes that it is the leading provider of clinical and financial database
products comprised of physician-oriented content and managed care member
satisfaction information in the United States.
ACQUISITIONS
Following the completion of its initial public offering in January
1997, Medirisk significantly expanded its operations by acquiring four companies
in 1997 (the "1997 Acquisitions") and three companies in 1998 (the "1998
Acquisitions"). 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
healthcare 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 healthcare 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 healthcare 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.
-8-
<PAGE> 10
- - 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 healthcare 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 healthcare 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 healthcare services.
Healthcare delivery organizations, insurers, equipment suppliers,
consultants and other healthcare industry participants use the
proprietary demographic and market segmentation information and
software provided by Healthdemographics to make more informed business
decisions regarding strategic planning and market planning and
analysis. The acquisition of Healthdemographics resulted in an
expansion of the Company's market performance products and customer
base.
- - In May 1998, Medirisk acquired Successful Solutions, Inc. ("Successful
Solutions") of Vidalia, Georgia, which provides decision-support tools,
consulting services, and training materials to hospitals and physician
group practices to assist them in improving patient outcomes, achieving
the efficient delivery of care and establishing billing and coding
practices that comply with industry requirements. Successful Solutions
collects clinical and billing record data from its customers and
profiles the relative performance of individual physicians using its
analytical tools and statistical algorithms. Successful Solutions
implements on-site education through physician consultants and medical
record specialists to influence physician behavior and promote the
effective and efficient delivery of healthcare. Successful Solutions'
tools and services for bill coding and medical record documentation
help its customers achieve optimal and appropriate reimbursement for
services delivered, while improving the quality of data for future
comparative analysis.
- In June 1998, Medirisk acquired Sweetwater Health Enterprises, Inc.
("Sweetwater") of Dallas, Texas, which offers a comprehensive selection
of physician credentialing services to hospitals and managed care
organizations to evaluate professional relationships with physicians
and secure accreditation by industry associations. In addition,
Sweetwater provides a suite of quality management software used by
healthcare organizations to facilitate in-house credentialing and
network management, as well as to track perceptions of care and
individual physician performance. Sweetwater also provides managed care
consulting and interim management services for healthcare organizations
throughout the country.
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 acquired in-process research and development
costs of $3.1 million for CIVS, $975,000 for CareData, $300,000 for Medsource,
$4.8 million for Healthdemographics, $3.4 million for Successful Solutions and
$3.5 million for Sweetwater. 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, 25% for Successful Solutions, 33% for
Sweetwater, 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, $349,000 and $992,000 of integration costs
during the first, second and third quarters of 1998, respectively. Included in
the third quarter's integration costs were approximately $221,000 of internal
expense allocations which may recur in other 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 $300,000 in connection with the 1998 Acquisitions during
the remainder of 1998 and the first quarter of 1999.
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<PAGE> 11
As a result of the 1997 Acquisitions and 1998 Acquisitions, 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 or quarterly fees. The products and services consist
of 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 from 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; (ii) credentials reports that validate
physicians' education, training and other matters, for which revenue is
recognized upon delivery of the completed reports; and (iii) physician
credentialing information products and software utility tools, for which revenue
is recognized upon the delivery of the data and software. 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 September 30, 1998, the Company
derived approximately 41% from market performance products, approximately 18%
from clinical performance products and approximately 41% from physician
credentials products. Of its total revenue for the nine months ended September
30, 1998, the Company derived approximately 42% from market performance
products, approximately 18% from clinical performance products and approximately
40% 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.
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<PAGE> 12
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,
------------------- -------------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenue 100% 100% 100% 100%
Salaries, wages and benefits 47 43 50 52
Other operating expenses 30 28 30 27
Depreciation and amortization 11 8 11 8
Acquired in-process research and
development costs, integration costs and acquisition-
related costs 13 23 71 39
---- ---- ---- ----
Operating loss (1) (2) (62) (26)
Interest income, net 4 2 2 3
---- ---- ---- ----
Income (loss) before extraordinary item 3 -- (60) (23)
Extraordinary item: loss on early extinguishment of debt -- -- -- (8)
---- ---- ---- ----
Net income (loss) 3% --% (60)% (31)%
==== ==== ==== ====
</TABLE>
QUARTER ENDED SEPTEMBER 30, 1998 COMPARED TO QUARTER ENDED SEPTEMBER 30, 1997
Revenue. Revenue for the three months ended September 30, 1998 was $7.8
million, an increase of $3.1 million or 66% over the same period in the prior
year. The increase was primarily attributable to the 1998 Acquisitions. Revenue
associated with the 1998 Acquisitions represented $2.7 million of the total
increase. The Company's revenue excluding the 1998 Acquisitions increased 8% for
the third quarter of 1998 over the third quarter of 1997. This increase was due
primarily to growth in sales of market performance products and clinical
performance products, but was limited by lower than anticipated volume in the
outsourced credentialing services product set.
Salaries, wages and benefits. Salaries, wages and benefits for the
three months ended September 30, 1998 were $3.6 million, an increase of $1.6
million or 77% over the same period in the prior year. The increase was
primarily the result of the 1998 Acquisitions and incremental expenses
associated with internal growth. Salaries, wages and benefits as a percentage of
revenue increased to 47% from 43% in the same period in the prior year as a
result of slower than expected revenue growth in the Company's outsourced
credentialing services product set.
Other operating expenses. Other operating expenses for the three months
ended September 30, 1998 were $2.4 million, an increase of $1.1 million or 80%
over the same period in the prior year. This increase is primarily related to
costs associated with the 1998 Acquisitions. Other operating expenses as a
percentage of revenue increased to 30% from 28% in the same period in the prior
year primarily as a result of differences in expense structures of the acquired
companies.
Depreciation and amortization. Depreciation and amortization expenses
for the three months ended September 30, 1998 were $860,000, an increase of
$508,000 or 144% 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 1998 Acquisitions and 1997 Acquisitions; consequently,
depreciation and amortization as a percentage of revenue increased to 11% as
compared to 8% 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 three months
ended September 30, 1998 were $992,000 as compared to $1.1 million in the same
period in the prior year. Integration costs for the three months ended September
30, 1998 were $992,000 as compared to $89,000 in the same period in the prior
year. These integration charges were associated with the 1997 Acquisitions and
the acquisitions of Healthdemographics, Successful Solutions and Sweetwater in
1998. Included in the third quarter's integration costs were approximately
-11-
<PAGE> 13
$221,000 of internal expense allocations which may recur in other expense
categories in the future and may result in an increase in some expense
categories as a percentage of total revenues.
Interest income, net. Net interest income for the three months ended
September 30, 1998 was $298,000, compared to net interest income of $103,000 for
the same period in the prior year. The net proceeds remaining from the Company's
follow-on offering in the three months ended September 30, 1998 were
substantially larger than the net proceeds from the initial public offering
remaining in the same period in the prior year, which resulted in greater net
interest income.
NINE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
1997
Revenue. Revenue for the nine months ended September 30, 1998 was $18.4
million, an increase of $7.8 million or 74% over the same period in the prior
year. The increase was primarily attributable to the 1998 Acquisitions and the
1997 Acquisitions. Revenue associated with the 1998 Acquisitions and the 1997
Acquisitions represented $6.2 million or 80% of the total increase. The
Company's revenue excluding acquisitions increased $1.6 million and represented
a 15% increase in revenue for the first nine months of 1998 over the first nine
months of 1997. This increase was due to internal growth.
Salaries, wages and benefits. Salaries, wages and benefits for the nine
months ended September 30, 1998 were $9.2 million, an increase of $3.6 million
or 66% over the same period in the prior year. The increase was primarily the
result of the 1998 Acquisitions and 1997 Acquisitions and incremental expenses
associated with internal growth. Salaries, wages and benefits as a percentage of
revenue decreased to 50% from 52% in the same period in the prior year. This
decrease resulted primarily from leveraging personnel investments made during
1997 as revenue increased through acquisitions and internal growth.
Other operating expenses. Other operating expenses for the nine months
ended September 30, 1998 were $5.5 million, an increase of $2.6 million or 91%
over the same period in the prior year. This increase is primarily related to
costs associated with the 1998 Acquisitions and 1997 Acquisitions. Other
operating expenses increased as a percentage of revenue to 30% as compared to
27% in the same period in the prior year primarily as a result of differences in
expense structures of the acquired companies.
Depreciation and amortization. Depreciation and amortization expenses
for the nine months ended September 30, 1998 were $1.9 million, an increase of
$1.1 million or 142% over the same period in the prior year. The increase was
primarily the result of the amortization of intangible assets acquired in the
1998 Acquisitions and 1997 Acquisitions; consequently, depreciation and
amortization as a percentage of revenue increased to 11% compared to 8% 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, 1998 were $13.1 million, an increase of $8.9 million or 214% over
the same period in the prior year. In connection with the acquisition of
Sweetwater, Successful Solutions and Healthdemographics in 1998, the Company's
recorded non-recurring charges resulting from expensing the acquired in-process
research and development costs of $3.5 million, $3.4 million and $4.8 million,
respectively. Integration costs for the nine months ended September 30, 1998
were $1.4 million as compared to $89,000 in the same period in the prior year.
These integration charges were associated with the 1997 Acquisitions and the
acquisitions of Healthdemographics, Successful Solutions and Sweetwater.
Included in the third quarter's integration costs were approximately $221,000 of
internal expense allocations which may recur in other expense categories in the
future and may result in an increase in some expense categories as a percentage
of total revenues.
Interest income, net. Net interest income for the nine months ended
September 30, 1998 was $300,000, compared to net interest income of $301,000 for
the same period in the prior year.
Extraordinary items. The Company recorded an extraordinary loss for the
nine months ended September 30, 1997 of $806,000 related to a one-time,
non-recurring, non-cash charge for bond discount and debt issue cost associated
with the early extinguishment of debt.
-12-
<PAGE> 14
LIQUIDITY AND CAPITAL RESOURCES
The Company had working capital of $25.1 million as of September 30,
1998 as compared to working capital of $4.2 million at December 31, 1997. The
increase was due primarily to the net proceeds remaining from the follow-on
stock offering completed by the Company in June 1998.
Net cash used by operating activities totaled $3.5 million for the nine
months ended September 30, 1998 as compared to cash provided by operating
activities of $24,000 for the same period in the prior year. The increase in
cash used of $3.5 million was primarily due to increases in accounts receivable
and other current assets and the extinguishment of accrued liabilities assumed
in the 1998 Acquisitions.
Net cash used in investing activities was approximately $17.2 million
for the nine months ended September 30, 1998 as compared to $8.3 million in the
same period in the prior year. In the nine months ended September 30, 1998, the
Company used $14.4 million in cash to fund partially the acquisitions of
Healthdemographics, Successful Solutions and Sweetwater which includes $3.0
million of contingent consideration paid in connection with the acquisition of
CareData. The remaining $2.8 million of net cash used in investing activities
for the nine months ended September 30, 1998 was used to fund $1.2 million in
fixed asset purchases, $1.2 million of software development and $425,000 of
Shareholder Notes. The increase in Shareholder Notes is due primarily to a
$350,000 loan to the Company's Chairman and Chief Executive Officer. This loan
bears interest at 7.5% and is payable on July 30, 1999.
Net cash provided by financing activities was $39.0 million for the
nine months ended September 30, 1998 as compared to $13.2 million for the same
period in the prior year. In 1997 the Company received net proceeds of $22.6
million from its initial public offering, and in June 1998 the Company received
net proceeds of $40.5 million from its follow-on offering.
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 was paid in April 1998.
In June 1998 the Company entered into an Amended and Restated Credit
Agreement with NationsBank under which a $25 million revolving credit facility
(the "NationsBank Revolver") was made available to the Company. The NationsBank
Revolver is available to fund working capital needs as well as new product
development and acquisitions. At September 30, 1998, the Company had $25 million
in borrowing availability remaining on its revolving line of credit.
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 remaining proceeds of its follow-on offering, available
borrowings under the NationsBank Revolver and cash generated from operations
will be sufficient to meet the capital expenditure and working capital needs for
the Company's operations for the near term.
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.
-13-
<PAGE> 15
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. Many of Medirisk's
systems and much of its software are Year 2000 compliant. To bring the remaining
systems and software into compliance by mid-1999, Medirisk has designed a Year
2000 compliance program.
The Company has implemented a project team and project plan to manage
the Year 2000 initiative. The project team has substantially 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 Medirisk 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 are being prioritized in order of risk,
with the most critical items to be corrected immediately. The Company assessed
risk based on level of impact to operations and the ability to deliver quality
products to our customers.
State of Readiness
Substantially all of the areas the Company has assessed are Year 2000
compliant. The Company has developed a plan to bring the remaining 13 percent of
such areas into compliance, and the Company has scheduled completion of such
plan by June 1999. The Company is in the process of assessing the Year 2000
compliance of third parties, including its customer and vendors. Detailed
project plans are being 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 cost of compliance is between
$300,000 and $500,000; however, the process of analyzing these issues is
ongoing, and the estimate may change. In addition, the majority of the
expenditures expected to be incurred to address Year 2000 issues were planned
and would have been incurred by the Company in the normal course of business in
the ongoing process of updating and maintaining its systems. 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. Medirisk is in the process of developing these
plans into a project plan and assigning dates and responsibilities to each
action item.
Remediation Steps
The Year 2000 project team has assessed and documented the remediation
steps for the non-compliant items and is in the process of implementing project
plans this quarter to achieve full remediation of all non-Year 2000 compliant
items by the second quarter 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. Medirisk is in the process
of querying all vendors and third parties to determine their compliance.
Tracking and follow-up procedures are being determined and will be prioritized
to focus on those vendors determined to have the most impact on the Company's
business operations.
-14-
<PAGE> 16
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 conditions.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 130 ("SFAS 130"), "Reporting Comprehensive
Income" and Statement of Financial Accounting Standards No. 131 ("SFAS 131"),
"Disclosures About Segments of an Enterprise and Related Information." SFAS 130
established standards for reporting and display of comprehensive income and its
components. Comprehensive income generally includes all changes in equity during
a period except those resulting from investments by owners and distribution to
owners. There was no impact on the Company's consolidated financial statements
with the adoption of SFAS 130. SFAS 131 established standards for reporting
information about operating segments in annual financial statements and in
interim financial reports to shareholders. The Company adopted both statements
in the first quarter of 1998; however, the provisions of SFAS 131 need not be
applied to interim periods in the initial year of application.
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
acquisitions of Healthdemographics in March 1998, Successful Solutions in May
1998 and Sweetwater Health Enterprises in June 1998. As a result, certain
adjustments relating to acquired in-process research and development costs and
purchase price allocations associated with such acquisitions have been made as
set forth in this amended filing.
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 and Acquisition
of In-process Research and Development; Uncertainty and Consolidation in the
Healthcare Industry; Risks of Rapid Technological Change; Need for Additional
Financing; Competition; Risks of Customer Concentration; Potential for System
Defects; Dependence on Key Personnel; Variable Quarterly Operating Results and
Seasonality; Possible Volatility of Stock Price; Potential Adverse Effects of
Substantial Number of Shares Eligible for Future Sale; Year 2000 Compliance;
Adverse Impact of Anti-takeover Provisions; 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.
-15-
<PAGE> 17
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
The Company and certain of its officers and directors are named as
defendants in three purported securities class action lawsuits entitled Richard
Sturm v. Medirisk, Inc., et al. (Civil Action No. 1-98-CV-1922), John T.
Gallagher v. Medirisk, Inc., et al. (Civil Action No. 1-98-CV-2099), and
Frederick T. Casiello v. Medirisk, Inc., et al. (Civil Action No. 1-98-CV-2100).
The Sturm action was filed on July 8, 1998. The Gallagher and Casiello actions
were each filed on July 24, 1998. Each of these lawsuits is pending in the
United States District Court for the Northern District of Georgia. The
complaints in these lawsuits allege that the Company violated federal securities
laws by failing to disclose in its public statements and/or the Registration
Statement/Prospectus for its June 11, 1998 follow-on offering: (i) that the
Company's operating results for the second quarter of 1998 would be below
analysts' expectations and a departure from prior historical financial results;
(ii) that demand for its Market Performance and Physician Credentialing Products
was weakening such that sales would continue to slow for the remainder of the
fiscal year; and (iii) that the Company was preparing to change sales
management, implement new product distribution channels and introduce new
product enhancements as a result of weakening demand for its products. The Sturm
complaint asserts claims based on Sections 10(b) and 20(a) of the Securities
Exchange Act of 1934 and Rule 10b-5, the Casiello complaint alleges claims under
Sections 11 and 15 of the Securities Act of 1933, and the Gallagher complaint
asserts claims based on Sections 11, 12(a)(2) and 15 of the 1933 Act. All of the
plaintiffs seek compensatory damages and reimbursement of their attorneys' fees
and costs. Because of the uncertainty of the litigation process, the Company
cannot predict the outcome of these cases and, therefore, it is possible that
their outcome could have a material adverse effect on the Company. The Company
believes that plaintiffs' claims have no merit and intends to defend these cases
vigorously.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
(a) On July 29, 1998, the Board of Directors of the Company declared a dividend
of one preferred stock purchase right (a "Right") for each outstanding share of
Common Stock of the Company (a "Common Share"). The dividend was payable on
August 14, 1998 (the "Record Date") to the stockholders of record on that date.
Each Right entitles the registered holder to purchase from the Company one
one-hundredth of a share of Series A Junior Participating Preferred Stock, par
value $0.001 per share (the "Preferred Shares"), of the Company, at a price of
$40.00 per one one-hundredth of a Preferred Share (the "Exercise Price"),
subject to adjustment. The description and terms of the Rights are set forth in
the Shareholder Protection Rights Agreement, as the same may be amended from
time to time (the "Rights Agreement"), dated as of July 29, 1998 between the
Company and SunTrust Bank, Atlanta, as Rights Agent (the "Rights Agent").
Separation Time
Until the date on which certain events take place (the "Separation
Time"), the Rights will be evidenced by, with respect to any Common Share
certificate outstanding on the Record Date, such Common Share and a Summary of
Rights mailed to each holder of record on or about August 20, 1998. The term
"Separation Time" means the close of business on the earlier of (a) the tenth
business day (or such earlier or later date as may be determined by the Board of
Directors of the Company) following a public announcement by the Company that a
person or group of affiliated or associated persons has acquired beneficial
ownership of 15% or more of the outstanding Common Shares (collectively, an
"Acquiring Person") (the "Flip-in Date") or (b) the tenth business day (or such
later date as may be determined by the Board of Directors of the Company) after
the date on which any person or group of affiliated or associated persons
commences a tender or exchange offer the consummation of which would result in
the beneficial ownership by such Person or Group of 15% or more of such
outstanding Common Shares.
Transfer of Rights and Certificates
The Rights Agreement provides that, until the Separation Time, the
Rights will be transferred with and only with the Common Shares. Until the
Separation Time (or the earlier termination or expiration of the Rights), new
Common Share certificates issued after the Record Date upon transfer or new
issuance of Common Shares will contain a notation incorporating the Rights
Agreement by reference. Until the Separation Time (or the earlier termination or
expiration of the Rights), the surrender for transfer of any certificates for
Common Shares
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<PAGE> 18
outstanding as of the Record Date, even without such notation, will also
constitute the transfer of the Rights associated with the Common Shares
represented by such certificate. As soon as practicable following the Separation
Time, separate certificates evidencing the Rights (the "Right Certificates")
will be mailed to holders of record of the Common Shares as of the close of
business on the Separation Time, and such separate Right Certificates alone will
evidence the Rights.
Exercise Period
The Rights are not exercisable until the Separation Time. After the
Separation Time and prior to the Expiration Time, each Right (unless previously
terminated) will entitle the holder to purchase, for the Exercise Price, one
one-hundredth of a Preferred Share having the rights described below. The Rights
will expire on the Expiration Time, unless the Expiration Time is extended, or
the Rights are earlier terminated by the Company. The term "Expiration Time" is
defined in the Rights Agreement and generally means July 29, 2008, unless the
Rights are sooner exchanged or terminated.
Adjustments
The Exercise Price payable, and the number of outstanding Rights and
the number of one one-hundredth interests in Preferred Shares issuable upon
exercise of each Right, are subject to adjustment in the event of a stock split
of the Common Shares or a stock dividend on the Common Shares payable in Common
Shares or subdivisions, consolidations or combinations of the Common Shares
occurring, in any such case, prior to the Separation Time.
If prior to the Separation Time, the Company distributes securities or
assets in exchange for Common Shares (other than regular cash dividends or a
dividend paid solely in Common Shares) whether by dividend, reclassification or
otherwise, the Company shall make such adjustments, if any, in the Exercise
Price, number of Rights and otherwise as the Board of Directors deems
appropriate.
Exercise of Rights for Common Stock
At a Flip-in Date, Rights owned by the Acquiring Person or any
affiliate or associate thereof or any transferee thereof will automatically
become void and, subject to the Exchange Option summarized below, each other
Right will automatically become a right to buy, for the Exercise Price, that
number of Common Shares or, at the option of the Board of Directors, Preferred
Shares designed to have economic and voting terms similar to the Common Shares,
in either case, having a market value of twice the Exercise Price. If any person
or group acquires beneficial ownership of 15% or more of the outstanding Common
Shares without any intent to acquire or affect control of the Company, that
acquisition will not result in a Flip-in Date if such acquirer immediately
enters into an irrevocable commitment to promptly divest, and thereafter
promptly divests, sufficient Common Shares so that such 15% or greater
beneficial ownership ceases. After a Flip-in Date occurs, the Company may not
consolidate or merge with, or sell 50% or more of its assets or earning power
to, any person, if the Company's Board of Directors is controlled by the
Acquiring Person, unless proper provision is made so that each Right would
thereafter become a right to buy, for the Exercise Price, that number of shares
of common stock of such other person having a market value of twice the Exercise
Price.
Optional Exchange of Rights
At any time after a Flip-in Date occurs and prior to the time a person
or group of persons become the beneficial owner of more than 50% of the
outstanding Common Shares, the Board of Directors of the Company may elect to
exchange all of the outstanding Rights (other than Rights owned by such person
or group which have become void), for Common Shares at an exchange ratio
(subject to adjustment) of one Common Share per Right (the "Exchange Option").
Termination of Rights
At any time prior to a Flip-in Date, the Board of Directors of the
Company may terminate the Rights. Immediately upon any termination of the
Rights, the right to exercise the Rights will terminate.
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<PAGE> 19
Amendments
The Company and the Rights Agent may amend the Rights Agreement in any
respect prior to the occurrence of a Flip-in Date. Thereafter, the Company and
the Rights Agent may amend the Rights Agreement in any respect which shall not
materially adversely affect the interests of holders of Rights generally or to
cure an ambiguity or to correct or supplement any provision which may be
inconsistent with any other provision or otherwise defective.
Rights Prior to Exercise
Until a Right is exercised, the holder thereof, as such, will have no
rights as a stockholder of the Company, including, without limitation, the right
to vote or to receive dividends.
Anti-Takeover Effects
The Rights may have certain anti-takeover effects. The Rights will
cause substantial dilution to a person or group that attempts to acquire the
Company on terms not approved by the Board of Directors of the Company (with,
where required by the Rights Agreement, the concurrence of a majority of the
continuing directors) unless the offer is conditioned on a substantial number of
Rights being acquired. However, the Rights should not interfere with any merger,
statutory share exchange or other business combination approved by a majority of
the directors since the Rights may be terminated by the Board of Directors at
any time on or prior to the close of business ten business days after
announcement by the Company that a person has become an Acquiring Person. Thus,
the Rights are intended to encourage persons who may seek to acquire control of
the Company to initiate such an acquisition through negotiations with the Board
of Directors. However, the effect of the Rights may be to discourage a third
party from making a partial tender offer or otherwise attempting to obtain a
substantial equity position in the equity securities of, or seeking to obtain
control of, the Company. To the extent any potential acquirers are deterred by
the Rights, the Rights may have the effect of preserving incumbent management in
office.
Documents and Effect of This Summary
A copy of the Rights Agreement is included as an Exhibit to the
Company's Current Report on Form 8-K filed with the Securities and Exchange
Commission on August 5, 1998. This summary description of the Rights does not
purport to be complete and is qualified in its entirety by reference to the
Rights Agreement, which is hereby incorporated herein by reference.
(b) See (a) above for a description of the Shareholder Protection Rights
Agreement and its effect on the Company's Common Stock.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On July 29, 1998, the Company held its Annual Meeting of Stockholders
at which the election of a director and three other proposals were brought to a
vote. The results were as follows:
<TABLE>
<CAPTION>
For Against Abstain
--- ------- -------
<S> <C> <C> <C>
Election of Michael J. Finn as a Director 5,489,721 -- 372,231
Approval of 1998 Employee Stock Purchase Plan 3,563,482 823,954 125,510
Approval of 1998 Long-Term Incentive Plan 2,521,945 1,854,571 126,790
Approval of Healthdemographics Issuance for
purposes of NASDAQ National Market
Listing requirements 3,202,105 1,181,801 119,400
</TABLE>
-18-
<PAGE> 20
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
<TABLE>
<S> <C>
10.2 Employment Agreement dated as of August 18, 1998,
between the Company and Mark A. Kaiser.*(1)
10.3 Employment Agreement dated as of August 21, 1998,
between the Company and Kenneth M. Goins, Jr.*(1)
10.17 Medirisk, Inc. 1998 Employee Stock Purchase Plan.*(2)
10.18 Medirisk, Inc. 1998 Long-Term Incentive Plan.*(2)
11 Statements of Computation of Per Share Income (Loss).
27 Financial Data Schedule (for SEC use only).
</TABLE>
____________
* Constitute management contracts or compensatory plans or
arrangements.
(1) Previously filed.
(2) Incorporated by reference from the Company's definitive Proxy
Statement on Schedule 14A filed with the SEC on June 30, 1998.
(b) Reports on Form 8-K
On June 30, 1998, the Company filed a Current Report on Form 8-K to
report the acquisition of all of the capital stock of Sweetwater, which
acquisition was consummated June 25, 1998. On August 31, 1998, the Company filed
Form 8-K/A amending such Form 8-K to include required financial statements and
pro forma financial information.
On August 8, 1998, the Company filed a Current Report on Form 8-K to
report the adoption of the Shareholder Protection Rights Agreement, which was
established on July 29, 1998.
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<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.
Medirisk, Inc.
January 27, 1999 By: /s/ Thomas C. Kuhn III
-------------------------------------
Thomas C. Kuhn III
Senior Vice President
Chief Financial Officer and
Principal Accounting Officer
-20-
<PAGE> 22
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------ -----------
<S> <C>
11 Statements of Computation of Per Share Income (Loss)
27 Financial Data Schedule (for SEC use only)
</TABLE>
-21-
<PAGE> 1
EXHIBIT 11
MEDIRISK, 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,
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net income (loss) attributable to common stock $ 234 $ 19 $(10,947) $ (3,291)
======== ======== ======== =========
Net income (loss) per share of common stock - basic and
diluted:
Income (loss) per share before extraordinary item $ 0.03 -- $ (1.93) $ (0.65)
Loss per share - extraordinary item -- -- -- (0.21)
-------- -------- -------- ---------
Net income (loss) per share of common stock $ 0.03 $ -- $ (1.93) $ (0.86)
======== ======== ======== =========
Weighted average number of common shares outstanding -
basic 7,260 4,171 5,677 3,830
======== ======== ======== =========
Weighted average number of common shares outstanding -
diluted 7,531 4,937 5,677 3,830
======== ======== ======== =========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM THE MEDIRISK, INC.
CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1998 AND THE MEDIRISK, INC. CONSOLIDATED CONDENSED BALANCE SHEET
AS OF SEPTEMBER 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
CONSOLIDATED CONDENSED FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 21,769
<SECURITIES> 0
<RECEIVABLES> 6,163
<ALLOWANCES> 393
<INVENTORY> 0
<CURRENT-ASSETS> 30,868
<PP&E> 5,082
<DEPRECIATION> 2,128
<TOTAL-ASSETS> 59,547
<CURRENT-LIABILITIES> 5,791
<BONDS> 0
0
0
<COMMON> 7
<OTHER-SE> 52,723
<TOTAL-LIABILITY-AND-EQUITY> 59,547
<SALES> 18,354
<TOTAL-REVENUES> 18,354
<CGS> 0
<TOTAL-COSTS> 29,601
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 135
<INCOME-PRETAX> (10,947)
<INCOME-TAX> 0
<INCOME-CONTINUING> (10,947)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (10,947)
<EPS-PRIMARY> (1.93)
<EPS-DILUTED> (1.93)
</TABLE>
