<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- --- EXCHANGE ACT OF 1934. For the quarterly period ended June 30, 1999.
Or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- --- EXCHANGE ACT OF 1934. For the transition period from ______________ to
_______________.
Commission file number 000-27056
CAREDATA.COM, INC.
(Exact name of registrant as specified in its charter)
Delaware 58-2256400
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
Two Piedmont Center, Suite 400, 3565 Piedmont Rd., Atlanta, Georgia 30305
- --------------------------------------------------------------------------------
(Address of principal executive office) (Zip code)
Registrant's Telephone Number Including Area Code: (404) 364-6700
------------------------------
Medirisk, Inc.
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(former name, former address, and former fiscal year,
if changed since last report)
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 August 12, 1999 was 8,218,614.
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PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
CAREDATA.COM, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(Amounts in thousands)
<TABLE>
<CAPTION>
(UNAUDITED)
6/30/99 12/31/98
----------- ---------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 7,594 $ 21,365
Accounts receivable, less allowance for
doubtful accounts of $684 and $466 at June 30, 1999
and December 31, 1998, respectively 9,022 8,009
Prepaid expenses 2,137 1,181
Notes receivable from stockholders 198 448
Other current assets 507 399
-------- ---------
Total current assets 19,458 31,402
-------- ---------
Property and equipment 6,454 4,951
Less accumulated depreciation and amortization 3,052 2,377
-------- ---------
Property and equipment, net 3,402 2,574
-------- ---------
Excess of cost over net assets of businesses acquired, less accumulated
amortization of $2,679 and $1,689 at June 30, 1999 and
December 31, 1998, respectively 38,835 17,761
Other intangible assets, less accumulated amortization of $1,408 and $922 at
June 30, 1999 and December 31, 1998, respectively 6,251 4,337
Software development costs, less accumulated amortization of $534
and $363 at June 30, 1999 and December 31, 1998, respectively 4,184 2,437
Notes receivable from stockholders, excluding current portion 45 45
Other assets 707 564
-------- ---------
Total other assets 50,022 25,144
-------- ---------
Total assets $ 72,882 $ 59,120
======== =========
</TABLE>
See accompanying notes to consolidated condensed financial statements.
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<PAGE> 3
CAREDATA.COM, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(Amounts in thousands, except per share data)
<TABLE>
<CAPTION>
(UNAUDITED)
6/30/99 12/31/98
--------- ---------
<S> <C> <C>
CURRENT LIABILITIES
Current installments of long-term debt and obligations
under capital leases $ 5,015 $ 62
Accounts payable 866 277
Accrued expenses 3,264 1,117
Income taxes payable 1,175 1,297
Deferred revenue 3,321 2,703
--------- ---------
Total current liabilities 13,641 5,456
Long-term debt and obligations under capital leases,
excluding current installments 281 16
--------- ---------
Total liabilities 13,922 5,472
Series 1998-A preferred stock, $.001 par value, redeemable; 5 shares
authorized and designated; none issued or outstanding -- --
STOCKHOLDERS' EQUITY
Preferred stock, $.001 par value; 795 shares authorized;
none issued or outstanding -- --
Series A junior participating preferred stock, $.001 par value; 200 shares
authorized and designated; none issued or outstanding -- --
Common stock - $.001 par value; 20,000 shares authorized;
8,201 and 7,345 shares issued and outstanding at
June 30, 1999 and December 31, 1998, respectively 8 7
Additional paid-in-capital 82,669 76,114
Accumulated deficit (23,717) (22,473)
--------- ---------
Total stockholders' equity 58,960 53,648
--------- ---------
Total liabilities and stockholders' equity $ 72,882 $ 59,120
========= =========
</TABLE>
See accompanying notes to consolidated condensed financial statements.
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CAREDATA.COM, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
(Amounts in thousands, except per share data)
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
1999 1998 1999 1998
------- ------- -------- --------
<S> <C> <C> <C> <C>
Revenue $ 8,715 $ 5,415 $ 16,793 $ 10,592
Salaries, wages and benefits 3,698 2,964 7,555 5,539
Other operating expenses 3,090 1,572 5,456 3,094
Depreciation and amortization 1,378 651 2,380 1,079
Acquired in-process research and development costs,
integration costs and acquisition-related costs 2,549 7,249 2,549 12,064
------- ------- -------- --------
Operating loss (2,000) (7,021) (1,147) (11,184)
Interest income (expense), net 71 (34) 345 3
------- ------- -------- --------
Loss before income taxes (1,929) (7,055) (802) (11,181)
Income tax expense -- -- (442) --
------- ------- -------- --------
Net loss $(1,929) $(7,055) $ (1,244) $(11,181)
======= ======= ======== ========
Net loss per share of common stock - basic and diluted $ (0.25) $ (1.34) $ (0.17) $ (2.29)
======= ======= ======== ========
Weighted average number of common shares outstanding -
basic and diluted 7,664 5,275 7,527 4,885
======= ======= ======== ========
</TABLE>
See accompanying notes to consolidated condensed financial statements.
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<PAGE> 5
CAREDATA.COM, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(Amounts in thousands)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30,
1999 1998
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (1,244) $(11,181)
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities:
Acquired in-process research and development costs 2,000 11,650
Depreciation and amortization 2,380 1,079
Increase in:
Accounts receivable (894) (1,939)
Other assets (1,091) (976)
Increase (decrease) in:
Accounts payable 306 (577)
Accrued expenses and other liabilities 129 (1,322)
Deferred revenue (33) 157
-------- --------
Net cash provided by (used in) operating activities 1,553 (3,109)
-------- --------
Cash flows from investing activities:
Acquisition of businesses, net of cash acquired (17,787) (14,309)
Purchases of property and equipment (1,224) (1,001)
Additions to software development costs (1,674) (811)
Repayment of note receivable from stockholder 250 23
-------- --------
Net cash used in investing activities (20,435) (16,098)
-------- --------
Cash flows from financing activities:
Proceeds from issuance of common stock 152 40,998
Proceeds from draw on revolving credit facility 5,000 --
Payments on long-term debt and obligations under capital leases (41) (1,847)
-------- --------
Net cash provided by financing activities 5,111 39,151
-------- --------
Net increase (decrease) in cash and cash equivalents $(13,771) $ 19,944
Cash and cash equivalents at beginning of period 21,365 3,516
-------- --------
Cash and cash equivalents at end of period $ 7,594 $ 23,460
======== ========
Supplemental disclosure of non-cash activities:
Issuance of restricted stock awards $ 145 $ --
======== ========
Acquisitions of businesses:
Fair value of assets acquired $ 15,531 $ 13,269
Acquired in-process research and development costs 2,000 11,650
Fair value of liabilities assumed (1,982) (6,492)
Common stock issued (6,260) (6,603)
Contingent consideration paid 8,528 3,000
-------- --------
Total cash paid for acquisitions 17,817 14,824
Cash acquired (30) (515)
-------- --------
Net cash paid for acquisitions $ 17,787 $ 14,309
======== ========
</TABLE>
See accompanying notes to consolidated condensed financial statements.
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<PAGE> 6
CAREDATA.COM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
1. GENERAL:
The consolidated condensed financial statements as of June 30, 1999 and
for the six-month and three-month periods ended June 30, 1999 and 1998 are
unaudited. In the opinion of management, all adjustments, consisting of normal
recurring accruals, necessary for the fair presentation of the consolidated
financial position and results of operations and cash flows for the periods
presented have been included. Results for the interim period are not necessarily
indicative of results that may be expected for the full year.
These consolidated condensed financial statements should be read in
conjunction with the consolidated financial statements and notes included in the
Annual Report on Form 10-K of Medirisk, Inc. ("Caredata.com" or the "Company")
for the year ended December 31, 1998.
2. LOSS PER SHARE:
Basic earnings (loss) per common share available to common stockholders
is based on the weighted-average number of common shares outstanding. Diluted
earnings (loss) per common share available to common stockholders is based on
the weighted-average number of common shares outstanding and dilutive potential
common shares, such as dilutive stock options. All of the Company's potential
common shares are excluded from the loss per share calculation since their
effect is antidilutive for all periods presented.
3. 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. As of June 30, 1999, the Company had $20 million
of borrowing availability under the NationsBank Revolver.
4. ACQUISITIONS:
Effective March 11, 1999, the Company acquired Patient Care Analyst
("PCA"), an Internet-based software product that provides online evaluation of
patient-level hospital discharge data. PCA was acquired from the Center for
Performance Improvement, a subsidiary of the Maryland Hospital Association, for
$289,000 in cash. The acquisition was accounted for using the purchase method of
accounting with the results of operations of the business acquired included in
the Company's results of operations from the effective date of the acquisition.
The acquisition resulted in excess of cost over net assets acquired of $162,000.
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<PAGE> 7
Effective March 31, 1999, the Company acquired certain assets,
including two Internet-based physician credentialing products, of Healthcare
Credentials Management Services, Inc. ("HCMS"), a leading Credentials
Verification Organization, for $4.0 million in cash. The acquisition resulted in
excess of cost over net assets acquired of $1.9 million. If the acquired
business exceeds certain revenue goals, potential contingent consideration will
be paid by the Company based upon a multiple of certain HCMS product revenues
over a predetermined amount through March 2000. Contingent consideration
ultimately paid will be added to excess of cost over net assets acquired and
amortized prospectively. Contingent consideration, if any, will be paid in cash.
Effective June 4, 1999, the Company acquired all of the outstanding
shares of Citizen 1 Software, Inc. ("Citizen 1") of San Francisco, California, a
provider of Internet-based healthcare research products to consumers and
healthcare industry participants, for $5.0 million in cash and 770,652 shares of
the Company's common stock. The acquisition was accounted for using the purchase
method of accounting with the results of operations of the business acquired
included in the Company's results of operations from the effective date of the
acquisition. The acquisition resulted in estimated purchased in-process research
and development costs of $2.0 million and estimated excess of cost over net
assets acquired of $10.7 million. The Company used borrowings under its existing
revolving credit facility with NationsBank to finance the cash portion of the
acquisition consideration.
The pro forma results of operations of the Company for the six months
ended June 30, 1999 and the year ended December 31, 1998 as if the acquisitions
described above and the Company's 1998 acquisitions of Healthdemographics, Inc.,
Successful Solutions, Inc. and Sweetwater Health Enterprises, Inc. had been
effective January 1, 1998 are summarized as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
(Amounts in thousands, except per share data) JUNE 30, 1999 DECEMBER 31, 1998
------------- -----------------
<S> <C> <C>
Revenue $17,707 $ 36,444
======= ========
Net loss $(2,247) $(10,228)
======= ========
Net loss per share of common stock $ (0.28) $ (1.44)
======= ========
Weighted average number of common shares outstanding 8,058 7,104
======= ========
</TABLE>
The pro forma results do not reflect the charges for acquired
in-process research and development costs discussed above. The pro forma results
do not necessarily represent results that would have occurred if the
acquisitions had taken place on the dates indicated, and they are not
necessarily indicative of the results of future operations.
Many of the Company's acquisition agreements provide for the payment of
contingent consideration based upon the performance of the acquired businesses
over a prescribed period of time. If such acquired businesses exceed the
relevant performance goals, the Company will be required to make additional
payments, which could be material. In connection with the CareData Reports
acquisition, additional consideration of $5.5 million and $3.0 million was paid
in April 1999 and 1998, respectively. In connection with the Healthdemographics
acquisition, additional consideration of $3.0 million was paid in March 1999.
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<PAGE> 8
5. SEGMENT REPORTING:
The Company's reportable segments are designated as Market Performance,
Clinical Performance and Physician Credentials. Market Performance products
provide customers with comprehensive proprietary data and decision support tools
for use in analyzing physician fees, healthcare utilization patterns and member
satisfaction with managed care plans in the United States. Clinical Performance
products enable customers to measure clinical outcomes across a full range of
care within a variety of medical specialties. Physician Credentials database
products, software and outsourced services enable customers to access detailed
information concerning the background and credentials of physicians in the
United States.
The Company evaluates each segment's profit (loss) based on a modified
operating profit measurement (earnings before interest, taxes, depreciation,
amortization, acquired in-process research and development costs and integration
and acquisition-related costs).
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
------------ ----------
ENDED JUNE 30, ENDED JUNE 30,
-------------- --------------
(Amounts in thousands)
1999 1998 1999 1998
------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenue:
Market Performance $ 2,862 $ 2,050 $ 6,614 $ 4,492
Clinical Performance 1,259 1,247 2,321 1,955
Physician Credentials 4,594 2,118 7,858 4,145
------- -------- -------- --------
$ 8,715 $ 5,415 $ 16,793 $ 10,592
------- -------- -------- --------
Segment profit (loss):
Market Performance $ 1,206 $ 993 $ 3,482 $ 2,517
Clinical Performance 101 162 88 184
Physician Credentials 1,915 544 2,802 946
Corporate (1,295) (820) (2,590) (1,688)
------- -------- -------- --------
$ 1,927 $ 879 $ 3,782 $ 1,959
------- -------- -------- --------
Depreciation and Amortization:
Market Performance $ 87 $ 100 $ 151 $ 174
Clinical Performance 126 88 250 129
Physician Credentials 346 126 542 217
Corporate 819 337 1,437 559
------- -------- -------- --------
$ 1,378 $ 651 $ 2,380 $ 1,079
------- -------- -------- --------
Reconciling items $(2,478) $ (7,283) $ (2,204) $(12,061)
Loss before income taxes $(1,929) $ (7,055) $ (802) $(11,181)
======= ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
-------- ------------
1999 1998
---- ----
<S> <C> <C>
Assets:
Market Performance $ 8,719 $ 8,793
Clinical Performance 3,918 3,036
Physician Credentials 10,640 3,465
Corporate 49,605 43,826
------- -------
$72,882 $59,120
======= =======
</TABLE>
-8-
<PAGE> 9
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
The Company is a leading provider of healthcare intelligence that
drives decision making among businesses and consumers. The Company's customers
use its products and services to make objective comparisons of healthcare costs
and clinical outcomes, analyze the supply of and demand for healthcare services,
assess member satisfaction with specific managed care plans and verify the
background and credentials of physicians. These capabilities assist
the Company's customers in strategic planning, effective contracting, improving
the delivery of care and increasing profitability.
ACQUISITIONS
The acquisition of businesses with complementary products and services
continues to broaden the Company's customer base, create additional
cross-selling opportunities, increase market share within existing products and
give rise to new product extensions and enhancements. The Company completed
three acquisitions during the first six months of 1999 (the "1999
Acquisitions"), summarized as follows:
- In March 1999, Caredata.com acquired Patient Care Analyst
("PCA"), an Internet-based product that provides evaluation of
patient-level hospital discharge data.
- In March 1999, Caredata.com acquired certain assets of
Healthcare Credentials Management Services, Inc. ("HCMS"), a
leading credentials verification organization. Assets acquired
from HCMS include Healthcare Credentials Online, an
Internet-based product that enables physician credentials to
be verified online, and AppSTAT, an Internet-based product
that streamlines the physician application process by allowing
physicians to electronically maintain a single set of
credentials information that can be provided to any managed
care organization. The Company also acquired HCMS' outsourced
physician credentialing services, which are provided to over
300 managed care clients.
- In June 1999, Caredata.com acquired Citizen 1 Software, Inc.
("Citizen 1"), whose suite of tools organizes the Internet's
broad base of healthcare content, allowing efficient access to
the most relevant information and avoiding the clutter and
confusion created by the multitude of Web sites. Supported by
an editorial staff and sophisticated search technology,
Citizen 1 offers its advanced Web research capabilities via a
free, consumer-based version at www.citeline.com, while
premium Internet and intranet versions are used by healthcare
industry researchers on a subscription basis. Premium versions
of CiteLine offer notification of content changes and
dramatically improve research productivity by allowing
simultaneous searches of the "invisible" Web databases,
repositories of content which are typically reachable only
through a particular site's own search engine.
In connection with the 1999 Acquisitions, the Company acquired
intangible assets, which are being amortized over various useful lives. The
amortization periods are based on, among other things, the nature of the
products and markets, the competitive position of the acquired companies and
their adaptability to changing market conditions.
Also in connection with the Citizen 1 acquisition, the Company recorded
non-recurring charges related to acquired in-process research and development
costs of $2.0 million. The amount 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 30%) of specifically
identified technologies for which technological feasibility had not yet been
established pursuant to Statement of Financial Accounting Standards No. 86,
"Accounting for the Costs of Computer Software to be Sold, Leased or Otherwise
Marketed" and for which future alternative uses did not exist. Similar charges
could result in the future as a result of additional acquisitions accounted for
as purchases.
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<PAGE> 10
The Company also incurred approximately $549,000 of integration costs during the
second quarter of 1999. Included in the second quarter's integration costs were
approximately $386,000 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 $750,000 in connection with
the 1999 acquisitions during the remainder of 1999.
As a result of the Company's acquisitions, including the 1999
Acquisitions, the Company's historical financial statements are not necessarily
representative of financial results to be expected for future periods.
See Note 1 of Notes to Consolidated Financial Statements of the Company.
SOURCES OF REVENUE
The Company provides services and licenses its products primarily
pursuant to single- and multi-year contracts. The Company's revenue is generated
from its market performance, clinical performance and physician credentials
products and services.
Market performance products provide customers with information from the
Company's market performance databases. Revenue from these sales is recognized
upon the delivery of the data. Revenue from the exclusive licensing of the
Company's managed care consumer satisfaction survey results is recognized upon
delivery of the results. Revenue from the licensing of disease-specific
customized surveys to the pharmaceutical industry is recognized as the related
costs of producing the surveys are incurred. Revenue from the licensing of the
right to use the Company's on-line healthcare content search engine is
recognized ratably over the life of the contract. Revenue from clinical
performance services is 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. Revenue from the licensing of the
Company's software products is recognized upon shipment of the software. 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 three months ended June 30, 1999, the Company derived
approximately 33% from market performance products, 14% from clinical
performance products and 53% from physician credentials products. Of its total
revenue for the six months ended June 30, 1999, the Company derived
approximately 39% from market performance products, 14% from clinical
performance products and 47% from physician credentials products. Of its total
revenue for the year ended December 31, 1998, the Company derived approximately
44% from market performance products, 17% from clinical performance products and
39% from physician credentials products.
The Company's revenue is composed of both recurring revenue from the
Company's current customer base and revenue from new customers. The Company
defines its recurring revenue percentage with respect to any particular period
as the quotient, expressed as a percentage, of (i) revenue recognized during
such period from a sale of a product to a customer who purchased a similar
product in the prior period, divided by (ii) the Company's total revenue in the
prior period. In determining its recurring revenue percentage, the Company
includes in its revenue the revenue of entities acquired during the period as if
such acquisitions had occurred at the beginning of the prior period. The Company
does not include revenue in its recurring revenue percentage to the extent that
such revenue exceeds total revenue in the prior period. The Company's recurring
revenue percentage has been in excess of 70% for each of the last five years.
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<PAGE> 11
RESULTS OF OPERATIONS
The following table sets forth, for the fiscal periods indicated,
certain items from the statements of operations of the Company expressed as a
percentage of revenue:
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
------------ ----------
STATEMENTS OF OPERATIONS: ENDED JUNE 30, ENDED JUNE 30,
-------------- --------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenue 100% 100% 100% 100%
Salaries, wages and benefits 43 55 46 53
Other operating expenses 35 29 32 29
Depreciation and amortization 16 12 14 10
Acquired in-process research and development costs,
integration costs and acquisition-related costs 29 134 15 114
--- ---- -- ----
Operating loss (23) (130) (7) (106)
Interest income, net 1 -- 2 --
Income tax expense -- -- (2) --
--- ---- -- ----
Net loss (22)% (130)% (7)% (106)%
=== ==== == ====
</TABLE>
QUARTER ENDED JUNE 30, 1999 COMPARED TO QUARTER ENDED JUNE 30, 1998
Revenue. Revenue for the three months ended June 30, 1999 was $8.7
million, an increase of $3.3 million or 61% over the same period in the prior
year. The increase was primarily attributable to the three acquisitions made by
the Company in 1998 (the "1998 Acquisitions").
Salaries, wages and benefits. Salaries, wages and benefits for the
three months ended June 30, 1999 were $3.7 million, an increase of $734,000 or
25% over the same period in the prior year. The increase was primarily the
result of the 1998 Acquisitions. Salaries, wages and benefits as a percentage of
revenue decreased to 43% from 55% in the same period in the prior year primarily
due to improvements in operations resulting from integration activities during
1998 and 1999.
Other operating expenses. Other operating expenses for the three months
ended June 30, 1999 were $3.1 million, an increase of $1.5 million or 97% over
the same period in the prior year. This increase is primarily related to costs
associated with the 1998 Acquisitions and costs associated with the Company's
expansion into the Internet market; consequently, other operating expenses as a
percentage of revenue increased to 35% as compared to 29% in the same period in
the prior year.
Depreciation and amortization. Depreciation and amortization expenses
for the three months ended June 30, 1999 were $1.4 million, an increase of
$727,000 or 112% over the same period in the prior year. The increase was
primarily the result of the amortization of goodwill and intangible assets
acquired in the 1999 and the 1998 Acquisitions; consequently, depreciation and
amortization as a percentage of revenue increased to 16% as compared to 12% 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 June 30, 1999 were $2.5 million as compared to $7.2 million in the same
period in the prior year. The Company recorded approximately $2.0 million of
acquired in-process research and development costs in connection with the
acquisition of Citizen 1 for the three months ended June 30, 1999 as compared to
$6.9 million recorded in the same period in the prior year related to the
acquisitions of Sweetwater Health Enterprises and Successful Solutions.
Integration costs for the three months ended June 30, 1999 were $549,000 as
compared to $349,000 in the same period in the prior year. The Company
anticipates integration costs of approximately $750,000 during the remainder of
1999 related to the 1999 acquisitions.
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<PAGE> 12
Interest income (expense), net. Net interest income for the three
months ended June 30, 1999 was $71,000, compared to net interest expense of
$34,000 for the same period in the prior year, primarily due to the remaining
proceeds from the Company's June 1998 follow-on offering.
SIX MONTHS ENDED JUNE 30, 1999 COMPARED TO SIX MONTHS ENDED JUNE 30, 1998
Revenue. Revenue for the six months ended June 30, 1999 was $16.8
million, an increase of $6.2 million or 59% over the same period in the prior
year. The increase was primarily attributable to the three acquisitions made by
the Company in 1998.
Salaries, wages and benefits. Salaries, wages and benefits for the six
months ended June 30, 1999 were $7.6 million, an increase of $2.0 million or 36%
over the same period in the prior year. The increase was primarily the result of
the 1998 Acquisitions. Salaries, wages and benefits as a percentage of revenue
decreased to 46% from 53% in the same period in the prior year primarily due to
improvements in operations resulting from integration activities during 1998
and 1999.
Other operating expenses. Other operating expenses for the six months
ended June 30, 1999 were $5.5 million, an increase of $2.4 million or 76% over
the same period in the prior year. This increase is primarily related to costs
associated with the 1998 Acquisitions and costs associated with the Company's
expansion into the Internet market; consequently, other operating expenses as a
percentage of revenue increased to 32% as compared to 29% in the same period in
the prior year.
Depreciation and amortization. Depreciation and amortization expenses
for the six months ended June 30, 1999 were $2.4 million, an increase of $1.3
million or 121% over the same period in the prior year. The increase was
primarily the result of the amortization of goodwill and intangible assets
acquired in the 1999 and the 1998 Acquisitions; consequently, depreciation and
amortization as a percentage of revenue increased to 14% as compared to 10% in
the same period in the prior year.
Acquired in-process research and development costs, integration costs
and acquisition-related costs. Acquired in-process research and development
costs, integration costs and acquisition-related costs for the six months ended
June 30, 1999 were $2.5 million as compared to $12.1 million in the same period
in the prior year. The Company recorded approximately $2.0 million of acquired
in-process research and development costs for the acquisition of Citizen 1 for
the six-month period ended June 30, 1999 as compared to $11.7 million recorded
in the same period in the prior year related to the 1998 acquisitions.
Integration costs for the six months ended June 30, 1999 were $549,000 as
compared to $414,000 in the same period in the prior year. The Company
anticipates integration costs of approximately $750,000 during the remainder of
1999 related to the 1999 acquisitions.
Interest income, net. Net interest income for the six months ended June
30, 1999 was $345,000, compared to net interest income of $3,000 for the same
period in the prior year, primarily due to the remaining proceeds from the
Company's June 1998 follow-on offering.
LIQUIDITY AND CAPITAL RESOURCES
The Company had working capital of $5.8 million as of June 30, 1999 as
compared to working capital of $25.9 million at December 31, 1998. The decrease
was due primarily to the use of working capital for the purchases of the 1999
acquisitions and the payment of $8.5 million of contingent consideration in
connection with the acquisitions of Healthdemographics and CareData Reports.
Net cash provided by operating activities totaled $1.6 million for the
six months ended June 30, 1999 as compared to cash used in operating activities
of $3.1 million for the same period in the prior year. The increase in cash
provided by operating activities of $4.7 million was primarily due to increases
in net income before depreciation and amortization, accounts payable and accrued
expenses, and a decrease in the growth of accounts receivable.
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<PAGE> 13
Net cash used in investing activities was approximately $20.4 million
for the six months ended June 30, 1999 as compared to $16.1 million in the same
period in the prior year. In the six months ended June 30, 1999, the Company
used $9.3 million in cash to fund the acquisitions of PCA, HCMS and Citizen 1
and $8.5 million of contingent consideration was paid in connection with the
acquisitions of Healthdemographics and CareData Reports. The remaining cash used
in investing activities for the six months ended June 30, 1999 funded $1.2
million in fixed asset purchases and $1.7 million of software development,
offset by a $250,000 partial repayment of a note receivable from a stockholder.
Net cash provided by financing activities was $5.1 million for the six
months ended June 30, 1999 as compared to $39.2 million for the same period in
the prior year. The cash provided by financing activities in 1999 was primarily
due to borrowings on the revolving line of credit with NationsBank (as described
below) to partially fund the acquisition of Citizen 1. The cash provided by
financing activities in 1998 was primarily due to proceeds from the Company's
follow-on offering completed in June 1998.
Many of the Company's acquisition agreements provide for the payment of
contingent consideration based upon the performance of the acquired businesses
over a prescribed period of time. If such acquired businesses exceed the
relevant performance goals, the Company is required to make additional payments,
which could be material. In connection with the CareData acquisition, additional
consideration payments of $5.5 and $3.0 million were made in April 1999 and
1998, respectively. In connection with the Healthdemographics acquisition,
additional consideration of $3.0 million was paid in March 1999. Additional
consideration may be paid to Healthdemographics during 1999.
In June 1998, the Company entered into an Amended and Restated Credit
Agreement with NationsBank under which a $25.0 million revolving credit facility
(the "NationsBank Revolver") was made available to the Company. The NationsBank
Revolver is available to fund working capital needs, new product development and
acquisitions. In June 1999, the Company borrowed $5.0 million on the NationsBank
Revolver to partially fund the acquisition of Citizen 1. At June 30, 1999, the
Company had $20.0 million in borrowing availability remaining on the NationsBank
Revolver.
The Company's future liquidity and cash requirements will depend on a
wide range of factors, including costs associated with development of new
products, enhancements of existing products and acquisitions. The Company
believes that the remaining proceeds of its June 1998 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 in the near term.
EFFECTS OF INFLATION
Management does not believe that inflation has had a material impact on
the Company's results of operations for the periods presented. Substantial
increases in costs, particularly the cost of labor for product development,
marketing and sales, could have an adverse impact on the Company and the
healthcare information industry.
YEAR 2000 COMPLIANCE
Many of the world's computer systems and non-information technology
systems have programs and imbedded chips using two digits rather than four to
define the applicable year. If not addressed, such computer systems could be
unable to properly interpret dates beyond the year 1999. Many of the Company's
systems and much of its software are Year 2000 compliant. To bring the remaining
systems and software into compliance by end of the third quarter of 1999, the
Company has designed a Year 2000 compliance program.
The Company's project team has completed the Year 2000 assessment for
all business areas that may be impacted by the Year 2000 issue, including
assessment of the following business areas: IT systems, Non-IT systems, third
parties and
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<PAGE> 14
the Company's products. The assessment included an inventory in all areas, state
of readiness determination, assessment of risk and cost associated with
non-compliant items, development of contingency plan steps in the event of
non-compliance and the remediation steps for non-compliant items. The Company's
remediation efforts were prioritized in order of risk, with the most critical
items corrected immediately. The Company assessed risk based on level of impact
to operations and the ability to deliver quality products to our customers.
The Company designates each of the statements made by it in this
section as a Year 2000 Readiness Disclosure. Such statements are made
pursuant to the Year 2000 Information and Readiness Disclosure Act.
State of Readiness
Substantially all of the Company's business areas are Year 2000
compliant. The Company has developed a plan to bring the remaining areas into
compliance, and the Company has scheduled completion of such plan by October
1999. The Company is in the process of assessing the Year 2000 compliance of
third parties, including its customer and vendors. Detailed project plans have
been designed for bringing all non-compliant issues into compliance; however,
the process of analyzing Year 2000 issues, particularly as they relate to
customers and suppliers, is ongoing.
Cost
The Company's current estimate of the remaining cost of compliance is
under $100,000; however, the process of analyzing these issues is ongoing, and
the estimate may change. The Company's cost estimate does not include unforeseen
costs in the event of additional programming hours and similar matters. The
Company does not anticipate that the overall costs will have a material impact
on the Company's financial results or financial condition.
Contingency Plans
The Company has developed written contingency plans for all currently
identified non-compliant items. The Company has developed a project plan and
has assigned dates and responsibilities to each action item.
Remediation Steps
The Year 2000 project team plans to achieve full remediation of all
non-Year 2000 compliant items by October of 1999.
Risk
The Year 2000 issue creates risk for the Company from unforeseen
problems with both its internal systems and those of third parties upon which
the Company relies. Accordingly, the Company has produced a list of all vendors
and has assessed the level of impact of each vendor. The Company is in the
process of querying all vendors and third parties to determine their compliance.
If the databases or systems of the Company, key suppliers of data or
key customers are not Year 2000 compliant, then the cost necessary to update
databases or software or potential interruption in the supply of data or
interruptions in demand for the Company's products could have a material adverse
effect on the Company's business, results of operations or financial conditions.
RECENT ACCOUNTING PRONOUNCEMENTS
In December 1998, the AICPA issued SOP No. 98-9, "Modification of SOP
No. 97-2, Software Revenue Recognition, with Respect to Certain Transactions."
This SOP amends SOP No. 97-2 to, among other matters, require recognition of
revenue using the "residual method" in circumstances outlined in the SOP.
Under the residual method, revenue is recognized as follows: (1) the total fair
value of undelivered elements, as indicated by vendor-specific objective
evidence, is deferred and subsequently recognized in accordance with the
relevant sections of SOP No. 97-2 and (2) the difference between the total
arrangement fee and the amount deferred for the undelivered elements is
recognized as revenue related to the delivered elements. SOP No. 98-9 is
effective for fiscal years beginning after March 15, 1999. The Company does not
believe that the adoption of SOP No. 98-9 will have a material effect on its
revenue recognition.
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<PAGE> 15
On September 15, 1998 the SEC issued a letter to the AICPA SEC
Regulations Committee outlining changes that the SEC believes should be made to
the methodology of calculating acquired in-process research and development
costs. The Company has applied this new guidance with respect to the 1997, 1998
and 1999 acquisitions.
RISK FACTORS
In evaluating the Company and its business, prospective investors
should carefully consider the following risk factors in addition to the other
information contained herein. This Form 10-Q, as well as press releases and
other public statements made by the Company from time to time, contain
"forward-looking statements" within the meaning of the safe harbor provisions of
the Private Securities Litigation Reform Act of 1995. These statements address
activities, events or developments that will or may occur in the future and are
based on assumptions and analyses made by the Company in light of its experience
and perception of historical trends, current conditions, expected future
developments and other factors. Actual results and developments are subject to a
number of risks and uncertainties, including general economic, market or
business conditions; opportunities (or lack thereof) that may be presented to
and pursued by the Company; competitive actions by other companies; changes in
laws or regulations; and other factors (such as those set forth below) as may be
discussed from time to time in the Company's SEC reports and other filings. Many
of these risks and uncertainties are beyond the control of the Company.
Accordingly, readers are cautioned not to place undue reliance on such forward
looking statements, which speak only as of the date made and which the Company
undertakes no obligation to revise or update in order to reflect events after
the date made.
Variable Quarterly Operating Results; Seasonality. The Company's
quarterly revenue and operating results have varied significantly in the past
and are likely to vary substantially from quarter to quarter in the future.
Quarterly results may fluctuate as a result of a variety of factors including,
but not limited to, the Company's sales cycle; demand for the Company's
products; the timing of significant new customer contracts; the non-renewal of
significant customer contracts; the timing of acquisitions; competitive
conditions in the industry; changes in customer budgets; and general economic
factors. The Company has historically recorded a disproportionate amount of its
revenue for each quarter in the final month of the quarter, while expenses have
been incurred more evenly throughout the period. Furthermore, the Company has
experienced a seasonal pattern in its operating results, with a greater
proportion of the Company's revenue and more favorable operating margins
occurring in the second half of the year. Accordingly, results of operations for
any particular quarter may not be indicative of results of operations for future
periods. Additionally, a significant portion of the Company's expenses are
relatively fixed, and the amount and timing of increases in such expenses are
based in large part on the Company's expectations concerning future revenue. If
revenue is below expectations in any given quarter, the adverse effect may be
magnified by the Company's inability to adjust spending quickly enough to
compensate for the revenue shortfall. Accordingly, even a small variation from
expected revenue could have a material adverse effect on the Company's operating
results and financial condition for a given quarter. Fluctuations in the
Company's revenue and operating results could have a material adverse effect on
the market price for the Company's Common Stock.
History of Operating Losses; Uncertain Profitability. The Company
incurred net losses in the years ended December 31, 1996, 1997 and 1998 and in
the six-month period ended June 30, 1999. In view of the Company's prior
operating history, there can be no assurance that the Company will be able to
achieve profitability on a quarterly or annual basis or that it will be able to
sustain or increase its revenue growth in future periods. Furthermore, in
applying the provisions of Statement of Financial Accounting Standards No. 109
("SFAS 109") to the Company, particularly considering the Company's history of
net losses, the Company has been unable to support a conclusion that it is more
likely than not that its deferred tax assets will be realized for purposes of
SFAS 109. As a result, the Company has provided a full valuation allowance
against its net deferred tax assets.
-15-
<PAGE> 16
Risks Related to Growth. The Company's strategy is to grow
aggressively, both internally and through acquisitions. This strategy is likely
to place significant demands on the Company's financial, operational and
management resources, and exposes the Company to a variety of risks, including
the risk that the Company will be unable to retain the personnel or obtain the
financial and other resources necessary to pursue and manage such growth. The
Company's growth has resulted in an increase in the level of responsibility for
the Company's key personnel. Expenses arising from the Company's efforts to
complete acquisitions, develop new products or increase its existing market
penetration could have an adverse impact on the Company's business, results of
operations and financial condition. Furthermore, there can be no assurance that
the Company will be able to identify, acquire or integrate acquisition
candidates successfully or manage profitably any additional products and
services resulting from such acquisitions. Acquired businesses, products and
services may not contribute to the Company's overall strategy or produce returns
that justify the related investment or implementation by the Company. In
addition, the Company's growth may involve the acquisition of companies or the
development of products or services in areas in which the Company does not
currently operate. Such acquisition or development may require the Company's
management to develop expertise in new areas and to attract a new customer base,
and could have a material adverse effect on the Company's business, results of
operations or financial condition. There can be no assurance that the Company
will be able to implement its growth strategy successfully or, if successful in
consummating acquisitions, that it will be able to manage its expanded
operations effectively and profitably.
Risks of Integration of Acquired Operations. The process of integrating
management services, administrative organizations, facilities, management
information systems and other operational aspects of acquired businesses,
products or services can be time consuming and costly, and may distract
management from day-to-day operations. The difficulties of integration may be
increased by challenges in coordinating geographically separated organizations,
integrating personnel with disparate business backgrounds and combining
different corporate cultures. If Caredata.com is to realize the anticipated
benefits of past and future acquisitions, the operations of the acquired
entities must be combined and integrated successfully. There can be no assurance
that the Company's integration processes will be successful or that the
anticipated benefits of any past or future acquisitions will be realized.
Furthermore, there can be no assurance that there will not be substantial
unanticipated costs or liabilities, or other material adverse effects associated
with past or future acquisitions and integration activities conducted by the
Company.
Dependence on Data Sources and AMA Licenses. The Company incorporates
the Physicians' Current Procedural Terminology ("CPT") codes of the AMA into
certain of its market performance products under a non-exclusive five-year
license with the AMA that expires in February 2000. The CPT code system is
considered to be the current industry standard for identifying physician
procedures, and the loss or non-renewal of the AMA CPT code license would have a
material adverse effect on the Company's business, results of operations or
financial condition. In addition, the Company relies in large part on data from
outside payor, provider and other sources to develop its proprietary products,
including acquired data and data received from customers under the Company's
data collection program. In general, the Company's data sources are not subject
to exclusive agreements with the Company; therefore, data included in the
Company's data products may also be included in data products of the Company's
competitors. There can be no assurance that the Company's sources will continue
to provide data in the future. If any of the Company's sources of data becomes
unavailable, there can be no assurance that alternative sources of data would be
available or that the Company could purchase such data in a cost-efficient
manner.
Risks of Customer Concentration. The Company derives a substantial
portion of its clinical performance revenue from products provided to
HEALTHSOUTH Corporation under a three-year contract, the current term of which
expires in December 2000. HEALTHSOUTH accounted for approximately 7% of the
Company's revenues for fiscal 1998. The loss of, or a significant decrease in,
business from HEALTHSOUTH could have a material adverse effect on the Company's
business, results of operations and financial condition.
Risks of Rapid Technological Change. The healthcare information market
is characterized by rapid technological change, changing customer needs and
evolving industry standards. The Company believes that as the market for its
current products matures, its future success will depend on its ability to
enhance its current products and to develop or acquire and introduce new
products to keep pace with technological developments and emerging
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<PAGE> 17
industry standards. In addition, the introduction of competing products
embodying new technologies and the emergence of new industry standards could
render the Company's existing products non-competitive or obsolete. Accordingly,
the Company anticipates that significant amounts of future revenue may be
derived from products and product enhancements that do not exist today or have
not been sold in sufficient quantities to measure accurately market acceptance.
There can be no assurance that the Company will not experience difficulties that
could delay or prevent the successful development and introduction of product
enhancements or new products, or that such enhancements or new products will
adequately meet the requirements of the marketplace or achieve market
acceptance. Any failure by the Company to develop and introduce product
enhancements and new products in a timely and cost-efficient manner in response
to changing market conditions or customer requirements could have a material
adverse effect on the Company's business, results of operations or financial
condition.
Need for Additional Financing. Implementation of the Company's growth
strategy will require significant capital resources. Capital is needed for both
internal growth and the acquisition and integration of new businesses, products
and services. In addition, many of the Company's acquisition agreements provide
for the payment of contingent consideration based on the performance of the
acquired business. If such acquired businesses exceed the relevant performance
goals, the Company will be required to make additional payments, which could be
material. If the Company does not have sufficient cash resources or if the
Company's Common Stock is not attractive to target businesses, the Company's
growth could be limited and its existing operations impaired, unless it is able
to obtain additional capital through debt or equity financings. Any debt
financings could result in the imposition on the Company of operational or
financial restrictions. Any equity financings could result in dilution to
holders of the Company's Common Stock. There can be no assurance that the
Company will be able to obtain financing in the future or that, if available,
such financing will be on terms acceptable to the Company.
Dependence on Intellectual Property Rights. The Company does not own
any patents or federally-registered copyrights relating to its databases or
software applications. The Company relies largely on copyright law, its license
agreements with customers and its own security systems, confidentiality
procedures and employee non-disclosure agreements to maintain the
confidentiality and trade secrecy of its proprietary procedures and resources.
Policing unauthorized use and piracy of the Company's products is difficult. The
Company is aware that from time to time there have been limited breaches of the
confidentiality provisions of customers' agreements with the Company, and there
can be no assurance that the precautions taken by the Company will be adequate
to prevent further breaches or misappropriation of the Company's proprietary
information. In addition, the Company cannot prevent the independent development
or implementation of functionally equivalent or superior systems, products or
methodologies. The misappropriation of the Company's information or independent
development of similar products may have a material adverse effect on the
Company's competitive position. Furthermore, there can be no assurance that
third parties will not assert infringement claims against the Company or that a
license or similar agreement will be available on reasonable terms in the event
of an unfavorable ruling on any such claim.
Risk Related to Intangible Assets and Acquisition Related Charges.
Largely as a result of the Company's various acquisitions, Caredata.com has
recorded approximately $49.3 million in intangible assets net of accumulated
amortization as of June 30, 1999. Such intangible assets are being amortized
over periods of five to 15 years. The Company expects its intangible assets to
increase in connection with future acquisitions, in connection with future
contingent consideration payments for acquisitions that have been consummated
and in connection with capitalized software development projects, resulting in
increases in the Company's amortization expense. In the event of any sale or
liquidation of the Company or a portion of its assets, there can be no assurance
that the value of the Company's intangible assets will be realized. In addition,
the Company regularly evaluates whether events and circumstances have occurred
indicating that any portion of the remaining balance of amounts allocable to the
Company's intangible assets may not be recoverable. If factors indicate that the
carrying value of the Company's intangible assets has been impaired, the Company
would be required to reduce the carrying value of such assets. Any future
determination requiring the write-off of a significant portion of the
unamortized intangible assets could have a material adverse effect on the
Company's business, results of operations or financial condition.
In connection with many of its acquisitions, the Company has recorded
non-recurring charges related to in-process research and development costs. The
amount of each of these non-recurring charges is equal to the estimated current
fair value of specifically identified technologies for which technological
feasibility has not yet
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<PAGE> 18
been established pursuant to Statement of Financial Accounting Standards No. 86,
"Accounting for Costs of Computer Software to be Sold, Leased or Otherwise
Marketed" and for which future alternative uses did not exist at the time of
acquisition. The Company has recorded approximately $4.4 million of these
charges in 1997, $11.7 million in 1998 and $2.0 million in the six months ended
June 30, 1999. Similar charges could result in the future as a result of
additional acquisitions accounted for as purchases.
Uncertainty and Consolidation in the Healthcare Industry. The
healthcare industry is subject to changing political, economic and regulatory
influences that may affect the procurement practices and operation of healthcare
providers, payors and other industry participants. The Company's products and
services are designed to function within the current structure of the U.S.
healthcare system; therefore, the commercial value of the Company's products
could be adversely affected if there were material changes in the current U.S.
healthcare system. Many federal and state legislators have announced that they
intend to propose programs to reform the U.S. healthcare system at both the
federal and state levels. These programs may contain proposals to increase
governmental involvement in healthcare, lower reimbursement rates and otherwise
change healthcare delivery and payment systems. Participants in the healthcare
market may react to these proposals and the uncertainty surrounding such
proposals by curtailing or deferring investments, including investments in the
Company's products and services. In addition, in response to this changing
environment, many market participants are consolidating to create larger health
care delivery organizations. This consolidation reduces the number of potential
customers for the Company and may increase the bargaining power of these
organizations, which could lead to reduced prices for Caredata.com's products
and services. The impact of these developments on the healthcare industry is
difficult to predict and could have a material adverse effect on the Company's
business, results of operations or financial condition.
Competition. The healthcare information market is intensely competitive
and rapidly changing. The Company believes that the principal competitive
factors in its target markets include the breadth and quality of database and
applications offerings, access to proprietary data, the proprietary nature of
methodologies and technical resources, price, and the effectiveness of marketing
and sales efforts. In each of its target markets, the Company competes with
various competitors, which vary in size, scope and breadth of product and
service offerings. In addition, other information companies not presently
offering healthcare information services competitive with the Company's products
and services may enter the markets in which the Company competes. Many of the
Company's competitors have, and many of its potential competitors may have,
significantly greater financial, technical, product development and marketing
resources than the Company. The Company also competes with the internal
information resources and systems of certain of its prospective and existing
customers. There can be no assurance that competitive pressures will not have a
material adverse effect on the Company's business, results of operations or
financial condition.
Potential for System Defects. The information products offered by the
Company may contain undetected errors or failures. Any such errors or failures
could result in a loss of, or delay in, market acceptance of the product and in
claims against the Company. The Company also depends on the accuracy of the data
received from its data sources. If a statistically significant number of medical
records, transactions or physician profiles were found to have been altered or
incorrectly entered, or otherwise contain flawed data, there could be a loss of,
or delay in, market acceptance of the product and possible claims against the
Company. Any of the foregoing results could have a material adverse effect on
the Company's business, results of operations or financial condition.
Year 2000 Compliance. Both the Company's internal operations and
products use a significant number of computer software programs and operating
systems. Given the information known at this time about the Company's systems
and products, coupled with the Company's ongoing efforts to upgrade or maintain
systems and products, as necessary, the Company does not anticipate that the
year 2000 issue or related costs will have a material adverse effect on the
Company's business, results of operations or financial condition. However, the
Company is still analyzing its databases and software applications and those
utilized by key suppliers of data and key customers, and to the extent they are
not fully year 2000 compliant, there can be no assurance that the costs
necessary to update databases or software or potential systems interruptions,
interruptions in the supply of data or interruptions in demand for the Company's
products would not have a material adverse effect on the Company's business,
results of operations or financial condition.
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<PAGE> 19
Adverse Impact Of Anti-Takeover Provisions. Certain provisions of the
Company's Certificate of Incorporation and Bylaws and of Delaware law could have
the effect of delaying, deterring or preventing a change of control involving
the Company. Specifically, the Company's Certificate of Incorporation, as
amended, provides for the issuance of up to 995,000 shares of preferred stock
with such rights and preferences as may be determined by the Board of Directors.
Such shares may be issued without further stockholder approval in circumstances
that could have the effect of preventing or delaying a change of control. The
Company's Board of Directors is classified into three classes, with each class
of directors having a staggered three-year term. The Company's Bylaws prohibit
action by the stockholders through written consent and restrict the ability of
stockholders to call stockholder meetings and propose action at meetings.
Finally, Section 203 of the Delaware General Corporation Law restricts
transactions between the Company and any "interested stockholders" (as defined
therein). In addition, the Company adopted a Shareholder Protection Rights
Agreement, commonly known as a "poison pill," in August of 1998. These
provisions could reduce or eliminate any takeover premium in the market price
for the Company's Common Stock or otherwise limit the price certain investors
might be willing to pay for the Company's Common Stock.
FORWARD-LOOKING STATEMENTS
The Company may from time to time make written or oral forward-looking
statements contained in press releases, the Company's filings with the SEC 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; Variable Quarterly Operating Results and
Seasonality; Year 2000 Compliance; and Adverse Impact of Anti-takeover
Provisions and other factors as may be discussed from time to time in the
Company's reports and filings with the SEC. For a more complete discussion of
these factors, please see the section of Management's Discussion and Analysis of
Financial Condition and Results of Operations entitled " Risk Factors."
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The Company currently maintains all cash in United States dollars in
highly liquid, interest-bearing, investment-grade instruments with maturities of
less than three months, which the Company considers cash equivalents. The
Company's line of credit agreement provides for borrowings that bear interest
at variable rates based on either LIBOR or NationsBank prime rate. At June 30,
1999, the Company had $5.0 million outstanding pursuant to the line of credit.
The Company believes that the effect, if any, of reasonably possible near-term
changes in interest rates on the Company's financial position, results of
operations and cash flows should not be material.
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<PAGE> 20
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
At the Annual Meeting of Stockholders of the Company held on May 20, 1999,
the following matters were brought before and voted upon by the stockholders:
1. On the proposal to elect the following persons to each serve as a
Class 3 Director for a three-year period and until his successor is
elected and qualified:
<TABLE>
<CAPTION>
AUTHORITY GRANTED AUTHORITY WITHHELD
----------------- ------------------
<S> <C> <C>
Mark A. Kaiser 6,215,327 263,575
Robert P. Pinkas 6,263,821 215,081
</TABLE>
2. On the proposal to amend the Medirisk, Inc. 1998 Long-Term Incentive
Plan to increase the number of shares of Medirisk Common Stock
available for awards under the Plan by 350,000 from 500,000 to
850,000:
<TABLE>
<CAPTION>
FOR AGAINST ABSTAIN
--- ------- -------
<S> <C> <C>
5,488,125 956,206 34,571
</TABLE>
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits:
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<S> <C>
2.1 Acquisition Agreement and Plan of Merger, dated as of June 2, 1999
by and among Medirisk, Inc., Citizen 1 Software, Inc., a Delaware
corporation, Citizen 1 Software, Inc., a California corporation
and certain shareholders of Citizen 1 Software, Inc., a California
corporation (incorporated by reference from the Company's Current
Report on Form 8-K filed with the Commission on June 18, 1999).
3.1 Certificate of Incorporation of the Company (incorporated by
reference from Exhibit 3.1 to the Company's Registration Statement
on Form S-1 (No. 333-12311) filed with the Commission on September
19, 1996).
3.1.1 Certificate of Designation of Series 1998-A Preferred Stock
(incorporated by reference from Exhibit 3.1.1 to the Company's
Current Report on Form 8-K dated March 31, 1998).
3.1.2 Certificate of Designation, Preferences and Rights of Series A
Junior Participating Preferred Stock (incorporated by reference
from Exhibit 3.1.2 to the Company's Annual Report on Form 10-K for
the fiscal year-ended December 31, 1998).
3.2 Bylaws of the Company (incorporated by reference from Exhibit 3.2
to the Company's Registration Statement on Form S-1 (No.
333-12311) filed with the Commission on September 19, 1996).
4.1 Shareholder Protection Rights Agreement dated as of July 29, 1998
between the Company and SunTrust Bank, Atlanta, as Rights Agent
(incorporated by reference from Exhibit 2.8 to the Company's
Current Report on Form 8-K dated July 29, 1998).
4.2 Specimen Stock Certificate of the Common Stock of the Company
(incorporated by reference from Exhibit 4.2 to the Company's
Registration Statement on Form S-1 (No. 333-12311) filed with the
Commission on September 19, 1996).
11 Statements of Computation of Per Share Loss
27 Financial Data Schedule (EDGAR Filing Only).
</TABLE>
(b) Reports on Form 8-K
On April 15, 1999, the Company filed a Current Report on Form 8-K to
report the acquisition of certain assets of Healthcare Credentials Management
Services, Inc., which acquisition was consummated March 31, 1998. On June 14,
1999, the Company filed a Form 8-K/A amending such Form 8-K to include required
financial statements and pro forma financial information.
On June 3, 1999, the Company filed a Current Report on Form 8-K to
report that it had entered into a definitive agreement to acquire Citizen 1
Software, Inc., and that in connection with the acquisition, the Company was
changing its corporate name to Caredata.com, Inc. and its trading symbol on the
Nasdaq National Market to "CDCM."
On June 18, 1999, the Company filed a Current Report on Form 8-K to
report the acquisition of all of the capital stock of Citizen 1 Software, Inc.
-20-
<PAGE> 21
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Caredata.com, Inc.
August 12, 1999 By: /s/ Thomas C. Kuhn III
------------------------------------
Thomas C. Kuhn III
Senior Vice President and
Chief Financial Officer
(Chief Accounting Officer)
-21-
<PAGE> 22
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description
- ----------- -----------
<S> <C>
2.1 Acquisition Agreement and Plan of Merger, dated as of June 2,
1999 by and among Medirisk, Inc., Citizen 1 Software, Inc., a
Delaware corporation, Citizen 1 Software, Inc., a California
corporation and certain shareholders of Citizen 1 Software,
Inc., a California corporation (incorporated by reference from
the Company's Current Report on Form 8-K filed with the
Commission on June 18, 1999).
3.1 Certificate of Incorporation of the Company (incorporated by
reference from Exhibit 3.1 to the Company's Registration
Statement on Form S-1 (No. 333-12311) filed with the
Commission on September 19, 1996).
3.1.1 Certificate of Designation of Series 1998-A Preferred Stock
(incorporated by reference from Exhibit 3.1.1. to the
Company's Current Report on Form 8-K dated March 31, 1998).
3.1.2 Certificate of Designation, Preferences and Rights of Series A
Junior Participating Preferred Stock (incorporated by
reference from Exhibit 3.1.2 to the Company's Annual Report on
Form 10-K for the fiscal year-ended December 31, 1998).
3.2 Bylaws of the company (incorporated by reference from Exhibit
3.2 to the Company's Registration Statement on Form S-1 (No.
333-12311) filed with the Commission on September 19, 1996).
4.1 Shareholder Protection Rights Agreement dated as of July 29,
1998 between the Company and SunTrust Bank, Atlanta, as Rights
Agent (incorporated by reference from Exhibit 2.8 to the
Company's Current Report on Form 8-K dated July 29, 1998).
4.2 Specimen Stock Certificate of the Common Stock of the Company
(incorporated by reference from Exhibit 4.2 to the Company's
Registration Statement on Form S-1 (No. 333-12311) filed with
the Commission on September 19, 1996).
11 Statements of Computation of Per Share Loss
27 Financial Data Schedule (EDGAR Filing Only).
</TABLE>
-22-
<PAGE> 1
EXHIBIT 11
CAREDATA.COM, INC. AND SUBSIDIARIES
STATEMENTS OF COMPUTATION OF PER SHARE LOSS
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
1999 1998 1999 1998
-------- -------- -------- ------
<S> <C> <C> <C> <C>
Net loss $ (1,929) $ (7,055) $ (1,244) $(11,181)
======== ======== ======== ========
Weighted average number of common shares outstanding 7,664 5,275 7,527 4,885
======== ======== ======== ========
Net loss per share of common stock - basic $ (0.25) $ (1.34) $ (0.17) $ (2.29)
======== ======== ======== ========
Shares used in net loss per diluted share calculation:
Weighted average number of common shares outstanding 7,664 5,275 7,527 4,885
Dilutive stock options -- -- -- --
-------- -------- -------- --------
7,664 5,275 7,527 4,885
======== ======== ======== ========
Net loss per share of common stock - diluted $ (0.25) $ (1.34) $ (0.17) $ (2.29)
======== ======== ======== ========
</TABLE>
-23-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM THE CAREDATA.COM, INC.
CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30,
1999 AND THE CAREDATA.COM, INC. CONSOLIDATED CONDENSED BALANCE SHEET AS OF JUNE
30, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH CONSOLIDATED
CONDENSED FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 7,594
<SECURITIES> 0
<RECEIVABLES> 9,706
<ALLOWANCES> 684
<INVENTORY> 0
<CURRENT-ASSETS> 19,458
<PP&E> 6,454
<DEPRECIATION> 3,052
<TOTAL-ASSETS> 72,882
<CURRENT-LIABILITIES> 13,641
<BONDS> 0
0
0
<COMMON> 8
<OTHER-SE> 58,952
<TOTAL-LIABILITY-AND-EQUITY> 72,882
<SALES> 16,793
<TOTAL-REVENUES> 16,793
<CGS> 0
<TOTAL-COSTS> 17,940
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 36
<INCOME-PRETAX> (802)
<INCOME-TAX> 442
<INCOME-CONTINUING> (1,244)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,244)
<EPS-BASIC> (0.17)
<EPS-DILUTED> (0.17)
</TABLE>
