<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the quarterly period ended September 30, 2000.
Or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the transition period from to .
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Commission file number 000-27056
CAREDATA.COM, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
Delaware 58-2256400
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(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
Two Piedmont Center, Suite 400, 3565 Piedmont Rd., Atlanta, Georgia 30305
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(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 13, 2000 was 8,361,726 .
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PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
CAREDATA.COM, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(UNAUDITED)
(Amounts in thousands)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
2000 1999
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<S> <C> <C>
Current assets
Cash and cash equivalents $ -- $ 199
Accounts receivable, less allowance for doubtful
accounts of $778 and $902 at September 30, 2000
and December 31, 1999, respectively 5,078 12,053
Prepaid expenses 347 956
Note receivable from officer 23 39
Product and data licenses 642 1,188
Other current assets 229 621
------- -------
Total current assets 6,319 15,056
------- -------
Property and equipment 10,173 9,058
Less accumulated depreciation and amortization 5,366 4,020
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Property and equipment, net 4,807 5,038
------- -------
Excess of cost over net assets of businesses
acquired, less accumulated amortization of
$6,787 and $4,467 at September 30, 2000 and December 31, 1999, respectively 45,529 42,568
Intangible assets, less accumulated amortization of
$2,387 and $2,010 at September 30, 2000 and December 31, 1999, respectively 3,930 5,637
Software development costs, less accumulated
amortization of $1,029 and $925 at September 30, 2000 and
December 31, 1999, respectively 4,076 5,564
Note receivable from officer, excluding current portion -- 23
Investments 6,475 13,490
Other assets 3,160 1,392
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Total other assets 63,170 68,674
------- -------
Total assets $74,296 $88,768
======= =======
</TABLE>
See accompanying notes to consolidated condensed financial statements.
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CAREDATA.COM, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(UNAUDITED)
(Amounts in thousands, except per share data)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
2000 1999
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<S> <C> <C>
CURRENT LIABILITIES
Current installments of long-term debt and obligations under
capital leases $ 27,754 $ 16,620
Accounts payable 4,316 678
Accrued expenses 11,163 1,927
Income taxes payable 870 758
Deferred revenue 2,444 3,569
-------- --------
Total current liabilities 46,547 23,552
Long-term debt and obligations under capital leases, excluding
current installments 78 105
-------- --------
Total liabilities 46,625 23,657
-------- --------
Series 1998-A preferred stock, $.001 par value, redeemable; 5 shares authorized
and designated; 0.465 shares issued and outstanding with a per-share
liquidation value of $10,000 at
September 30, 2000 and December 31, 1999 4,270 4,255
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;
8,317 and 8,236 shares issued and outstanding at
September 30, 2000 and December 31, 1999, respectively 8 8
Additional paid in capital 83,070 82,920
Accumulated deficit (59,677) (22,072)
-------- --------
23,401 60,856
-------- --------
Total liabilities and stockholders' equity $ 74,296 $ 88,768
======== ========
</TABLE>
See accompanying notes to consolidated condensed financial statements.
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<PAGE> 4
CAREDATA.COM, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
(Amounts in thousands, except per share data)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
2000 1999 2000 1999
------------ ----------- ------------ ------------
<S> <C> <C> <C> <C>
Revenue $ 3,733 $ 10,377 $ 19,745 $ 27,170
Salaries, wages and benefits 3,446 4,403 12,941 11,958
Other operating expenses 2,952 3,354 13,621 8,810
Depreciation and amortization 3,058 1,754 9,021 4,134
Impairment of long-term assets 250 - 17,410 -
Costs to exit a business - - 1,289 -
IPR&D and integration costs - 802 - 3,351
----------- ----------- ------------ ------------
Operating loss (5,973) 64 (34,537) (1,083)
Interest income (expense), net (795) (53) (2,853) 291
----------- ----------- ------------ ------------
Loss before income taxes (6,768) 11 (37,390) (792)
Income taxes - - (215) (442)
----------- ----------- ------------ ------------
Net loss (6,768) 11 (37,605) (1,234)
Series 1998-A preferred stock dividend (5) - (15) -
Accretion of redemption value of Series 1998-A
convertible preferred stock (58) - (174) -
----------- ----------- ------------ ------------
Net loss attributable to common stock $ (6,831) $ 11 $(37,794) $ (1,234)
=========== =========== ============ ============
Net loss per share of common stock - basic $ (0.82) $ 0.00 $ (4.57) $ (0.16)
=========== =========== ============ ============
=========== =========== ============ ============
Net loss per share of common stock - diluted $ (0.82) $ 0.00 $ (4.57) $ (0.16)
=========== =========== ============ ============
Weighted average number of common shares outstanding -
basic 8,314 8,215 8,277 7,757
=========== =========== ============ ============
Weighted average number of common shares outstanding -
diluted 8,314 8,964 8,277 7,757
=========== =========== ============ ============
basic
</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)
<TABLE>
<CAPTION>
(Amounts in thousands) NINE MONTHS
-----------
ENDED SEPTEMBER 30,
-------------------
2000 1999
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<S> <C> <C>
Cash flows from operating activities:
Net loss $(37,605) $ (1,234)
Adjustments to reconcile net income (loss) to net cash provided by
(used in) operating activities:
Acquired in-process research and development costs -- 2,000
Impairment of long-term assets 17,410 --
Depreciation and amortization 9,021 4,134
Provision for doubtful accounts 3,610 --
Increase in:
Accounts receivable 1,441 (2,625)
Other assets (1,052) (1,680)
Increase (decrease) in:
Accounts payable 3,638 278
Accrued expenses and other liabilities 1,385 (619)
Deferred revenue (828) (48)
-------- --------
Net cash provided by (used in) operating activities (2,980) 206
-------- --------
Cash flows from investing activities:
Acquisition of businesses, net of cash acquired -- (19,440)
Purchases of property and equipment (1,909) (2,590)
Additions to software development costs (1,837) (2,408)
Purchase of Investments (4,705) (1,240)
Repayment of note receivable from stockholders 23 373
-------- --------
Net cash used in investing activities (8,428) (25,305)
-------- --------
Cash flows from financing activities:
Proceeds from issuance of common stock 201 214
Common stock repurchased and canceled (26) --
Proceeds from draw on revolving credit facility 11,120 6,652
Payments on long-term debt and obligations under capital leases (86) (69)
-------- --------
Net cash provided by financing activities 11,209 6,797
-------- --------
Net increase (decrease) in cash and cash equivalents (199) (18,302)
Cash and cash equivalents at beginning of period 199 21,365
-------- --------
Cash and cash equivalents at end of period $ -- $ 3,063
======== ========
Supplemental disclosure of cash flow information:
Cash paid during the period for interest $ 874 $ 126
======== ========
Supplemental disclosure of non-cash activities:
Accrual of bank fees $ 1,250 $ --
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Accrual of contingent consideration $ 8,176 $ --
======== ========
Issuance of restricted stock awards $ -- $ 145
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Equipment acquired under capital lease obligations $ 73 $ --
======== ========
Accretion of Series 1998-A convertible preferred stock $ 15 $ --
======== ========
Accrual of Series 1998-A preferred stock dividend $ 174 $ --
======== ========
Acquisitions of businesses:
Fair value of assets acquired $ -- $ 15,531
Acquired in-process research and development costs -- 2,000
Fair value of liabilities assumed -- (1,982)
Common stock issued -- (6,260)
Preferred stock issued -- (4,250)
Contingent consideration paid -- 14,431
-------- --------
Total cash paid for acquisitions -- 19,470
Cash acquired -- (30)
-------- --------
Net cash paid for acquisitions $ -- $ 19,440
======== ========
</TABLE>
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<PAGE> 6
CAREDATA.COM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
1. GENERAL:
The consolidated condensed financial statements as of September 30,
2000 and for the three-month and nine-month periods ended September 30, 2000 and
1999 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 Caredata.com, Inc. (the "Company") for the
year ended December 31, 1999.
2. NET EARNINGS (LOSS) PER SHARE OF COMMON STOCK:
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, determined using the treasury stock method.
Securities that could have potentially diluted basic earnings per
share ("EPS") that were not included in diluted EPS because their effect on the
three months and nine months ended September 30, 2000 was antidilutive totaled
approximately 199,000 and 384,000 shares. Securities that could have
potentially diluted basic earnings per share ("EPS") that were not included in
diluted EPS because their effect on the three months and nine months ended
September 30, 1999 was antidilutive totaled approximately 749,000 and 567,000
shares, respectively.
3. LINE OF CREDIT:
In June of 1998, the Company entered into an Amended and Restated
Credit Agreement with Bank of America, Amended as of May 12, 2000, August 11,
2000 and October 4, 2000. Under this line the Company had access to $29.0
million and as of November 14, 2000 it has drawn down $29 million. The Company
is currently in default on a cash collection minimum requirement in the Second
Amendment as well as a nonpayment of certain fees covenant on the Third
Amendment.
4. ACQUISITIONS:
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 $8.1 million was earned and accrued at
June 30, 2000, was due and payable at July 31, 2000, but remains unpaid at
November 14, 2000.
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<PAGE> 7
Also in connection with the CareData Reports acquisition, $5.5 million and $3.0
million of contingent consideration was paid in 1999 and 1998, respectively. In
connection with the 1999 acquisition of Healthcare Credentials Management
Services, Inc. ("HCMS") additional consideration of $58,000 was earned and
accrued at June 30, 2000, was due and payable at July 31, 2000, but remains
unpaid at November 14, 2000. In connection with the 1998 acquisition of
Healthdemographics, the Company paid additional cash consideration of $4.7
million during 1999 and issued 465 shares of Series 1998-A Preferred Stock in
September 1999. Each share of Series 1998-A Preferred Stock has a liquidation
preference and redemption value of $10,000, is mandatorily convertible into 442
shares of common stock upon the market value of the Company's common stock
reaching $22.61 per share, earns dividends at a rate of 5 percent of the
redemption value, and is mandatorily redeemable at the twentieth anniversary of
the date of issuance. Although no additional contingent payments were made in
the nine months ended September 30, 2000, contingent payments totaling $8.2
million were due and payable at July 31, 2000, but remain unpaid at November
14, 2000.
5. IMPAIRMENT OF LONG-TERM ASSETS:
The Company recorded an impairment of asset charge of $250,000 during
the three months ended September 30, 2000. The charge for impairment of assets
was to adjust the carrying value of an equity investment to estimated net
realizable value.
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<PAGE> 8
6. SIGNIFICANT NINE MONTH CHARGES:
During the nine months ended September 30, 2000 the Company recorded a
number of unusual charges. These charges included costs associated with the
closing of the Clinical Outcomes and Physician Education and Profiling business
units, the write-off of capitalized software related to a discontinued product,
write-downs in the carrying values of a number of the Company's minority equity
investments, fees associated with the expansion and extension of the Company's
credit facility and the write-off of accounts receivable related to troubled
eHealth companies. These charges totaled $23.7 million in the nine months ended
September 30, 2000 and are included in various line-item categories on the
Statement of Operations.
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<PAGE> 9
7. SEGMENT REPORTING:
The Company's reportable segments are strategic business units that
offer different products and services. The Company provides its services and
products through its Market Performance and Physician Information segments. The
Company's market performance products include healthcare forecasting software,
healthcare utilization and reimbursement data, healthcare satisfaction and
pharmacy surveys, clinical outcomes data products and on-line healthcare
research software. Through June 30, 2000 the Company's market performance
services included facility Physician Education and Profiling services and
clinical outcomes reporting services; but June 27, 2000 the Company decided to
discontinue these services and its clinical outcomes data products. The
Company's physician information products consist of physician recruiting
databases and software, physician credentialling databases and software, and
practice management software. The Company's physician information services
consist of physician recruiting services, physician credentialling services,
and healthcare administrative consulting services.
The Company evaluates each segment's performance based on a modified
operating profit measurement (earnings before interest, taxes, depreciation,
amortization, impairment of assets, costs to exit a business and acquired
in-process research and development costs and integration costs).
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
(Amounts in thousands) ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
------------------- -------------------
2000 1999 2000 1999
------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenue:
Market Performance $ 1,543 $ 5,963 $ 9,635 $ 14,898
Physician Information 2,190 4,414 10,110 12,272
------- -------- -------- --------
Total $ 3,733 $ 10,377 $ 19,745 $ 27,170
------- -------- -------- --------
Operating profit (loss) (1):
Market Performance $ (389) $ 2,612 $ (1,185) $ 6,182
Physician Information (123) 1,896 2,568 4,698
Corporate (2,153) (1,888) (8,200) (4,478)
------- -------- -------- --------
Total $(2,665) $ 2,620 $ (6,817) $ 6,402
------- -------- -------- --------
Depreciation and amortization:
Market Performance $ 419 $ 242 $ 1,599 $ 643
Physician Information 554 437 1,522 980
Corporate 2,085 1,075 5,900 2,511
------- -------- -------- --------
Total $ 3,058 $ 1,754 $ 9,021 $ 4,134
------- -------- -------- --------
Reconciling items:
Impairment of long-term assets $ (250) $ -- $(17,410) $ --
Costs to exit a business -- -- (1,289) --
Acquired in-process IPR&D and integration costs -- (802) -- (3,351)
Other (795) (53) (2,853) 291
------- -------- -------- --------
Loss before income taxes $(6,768) $ 11 $(37,390) $ (792)
======= ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
SEP. 30, DEC. 31
2000 1999
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<S> <C> <C>
Assets:
Market Performance $ 4,861 $13,197
Physician Information 8,990 9,951
Corporate 60,445 65,620
------- -------
$74,296 $88,768
======= =======
</TABLE>
(1) Excludes depreciation costs, amortization costs, impairment of assets,
costs to exit a business, acquired in-process research and development
costs, integration costs and acquisition-related costs.
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<PAGE> 10
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
During the second and third quarters the Company has continued to
aggressively pursue numerous potential sources of additional financing,as well
as potential merger partners, acquirors, restructuring partners and other
strategic partners. As of November 13, 2000 the Company has been unable to
reach an agreement with one of these financing sources or strategic partners.
The Company's liabilities are substantially greater than it's assets and the
Company is currently unable to meet its ongoing obligations. Due to these
factors the Company is planning to immediately cease operations and file for
liquidation under Chapter 7 of the Federal Bankruptcy laws.
SOURCES OF REVENUE
The Company has provided services and licensed its products within its
two segments, market performance and physician information. The Company has also
co-branded or syndicated its products with its business partners in order to
enhance Caredata.com's brand recognition. The Company's product offerings were
designed to enable its partners to provide Internet features and functionality
to their customers and members, allowing them to remain competitive in the
rapidly changing Internet marketplace without having to incur the extensive time
and costs associated with the internal development of such products. In
addition, because many of the Company's products and databases have been
digitally linked, license agreements often created multiple points of entry and
distribution channels for the Company's complementary products and services.
These digital networks were also intended to provide primary source data and
strengthen the Company's information infrastructure with minimal incremental
costs.
The Company's market performance products have included healthcare
forecasting software, healthcare utilization and reimbursement data, healthcare
satisfaction and pharmacy surveys, clinical outcomes data products and on-line
healthcare research software. Through June 30, 2000 the Company's market
performance services included facility Physician Education and Profiling
services and clinical outcomes reporting services; but on June 27, 2000 the
Company decided to discontinue these services and its clinical outcomes data
products. The Company's physician information products have consisted of
physician recruiting databases and software, physician credentialing databases
and software, and practice management software. The Company's physician
information services have consisted of physician recruiting services, physician
credentialing services, and healthcare administrative consulting services.
The Company's license and product revenues generally have been
recognized upon delivery provided that no significant Company obligations
remained and collection of the receivable was probable. Revenue from healthcare
surveys has been recognized as the related costs to produce the surveys were
incurred. Fees from maintenance, updates and support of the Company's products
have been deferred and recognized ratably over the service period. Revenue from
subscription to the Company's physician recruiting databases has been recognized
over the term of the subscription. Revenues for the Company's services has been
recognized as the services have been performed.
The Company's two groups of products contributed 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
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<PAGE> 11
and the seasonality of the Company's products. Of its total revenue for the
three months and nine months ended September 30, 2000, the Company derived
approximately 41% and 49%, respectively, from market performance products and
approximately 59% and 51%, respectively from physician information products. Of
its total revenue for the year ended December 31, 1999, the Company derived
approximately 56% from market performance products and approximately 44% from
physician information products.
From time to time, the Company agreed to accept equity securities from
its customers in lieu of cash as payment for products and services purchased by
such customers. These arrangements typically involved high risk, start-up
companies whose equity securities have no trading market and, therefore, no
liquidity. Approximately $0 and $2.1 million or 0% and 11% of the Company's
revenue for the three months and nine months ended September 30, 2000,
respectively, consists of such securities. Of this total, approximately $1.6
million was from entities in which we reduced the carrying value during the
nine months ended September 30, 2000 of the equity securities received in lieu
of cash.
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>
STATEMENTS OF OPERATIONS: THREE MONTHS NINE MONTHS
------------ -----------
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
------------------- -------------------
2000 1999 2000 1999
------ ------ ------ -----
<S> <C> <C> <C> <C>
Revenue 100 % 100 % 100 % 100 %
Salaries, wages and benefits 92 42 66 44
Other operating expenses 79 32 68 33
Depreciation and amortization 82 17 46 15
Impairment of long-term assets 7 -- 88 --
Costs to exit a business -- -- 7 --
IPR&D and integration costs -- 8 -- 12
---- --- ---- ---
Operating loss (160) 1 (175) (4)
Interest income (expense), net (21) (1) (14) 1
---- --- ---- ---
Loss before income taxes (181) -- (189) (3)
Income taxes -- -- (1) (2)
---- --- ---- ---
Net loss (181)% --% (190)% (5)%
==== === ==== ===
</TABLE>
QUARTER ENDED SEPTEMBER 30, 2000 COMPARED TO QUARTER ENDED SEPTEMBER 30, 1999
Revenue. Revenue for the three months ended September 30, 2000 was $3.7
million, a decrease of $6.6 million, or 64%, over the same period in the prior
year. Internet-related revenue, which consists of sales of newly developed
Internet products, Internet products acquired in connection with the
acquisitions made in 1999 and traditional products that became Web-enabled in
1999 and 2000, represented $1.6 million of the Company's revenue for the three
months ended September 30, 2000 compared with $5.0 million for the same period
in the prior year. The decrease in revenue from 1999 to 2000 is primarily
attributable to an expected de-emphasis of our core business products which
serve institutional healthcare customers, the continued weakening of sales of
the Company's Internet-related products due to the unfavorable market
conditions affecting all eHealth companies as well as the pressure liquidity
issues put on the business both internally and externally.
Salaries, wages and benefits. Salaries, wages and benefits for the
three months ended September 30, 2000 were $3.4 million, a decrease of $957,000
or 22% over the same period in the prior year. The decrease was primarily the
result of efforts to improve profitability and cash flow implemented during the
third quarter 2000. As a percentage of revenue, salaries, wages and benefits for
the three months ended September 30, 2000 and 1999 were 92% and 42%,
respectively. The increase in salaries, wages and benefits as a percentage of
revenue was primarily attributable to the decline in revenue for the three
months ended September 30, 2000, over the same period in the prior year.
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<PAGE> 12
Other operating expenses. Other operating expenses for the three months
ended September 30, 2000 were $3.0 million, a decrease of $402,000 or 12% over
the same period in the prior year. The decrease was primarily the result of
efforts to improve profitability and cash flow implemented during the third
quarter 2000. Other operating expenses as a percentage of revenue were 79% for
the three months ended September 30, 2000 as compared to 32% in the same period
in the prior year. The increase in other operating expenses as a percentage of
revenue was primarily attributable to the decline in revenue for the three
months ended September 30, 2000, over the same period in the prior year.
Depreciation and amortization. Depreciation and amortization expenses
for the three months ended September 30, 2000 were $3.1 million, an increase of
$1.3 million or 74% over the same period in the prior year. The increase was
primarily the result of the amortization of intangible assets acquired in the
business acquisitions made in 1999, 1998 and 1997 and the amortization of
product and data licenses acquired in 2000 and 1999. Many acquisitions completed
by the Company in prior years provided for the payment of contingent
consideration based upon the performance of the acquired business. Amortization
of intangible assets from such acquisitions increases in later years as
contingent consideration payments are earned and accrued. Depreciation and
amortization as a percentage of revenue increased to 82% for the three months
ended September 30, 2000 compared to 17% in the same period in the prior year.
The increase in depreciation and amortization expenses as a percentage of
revenue was primarily attributable to the decline in revenue for the three
months ended September 30, 2000, over the same period in the prior year and the
increases in the amortization of intangible assets acquired and product and data
licenses acquired.
Impairment of long-term assets. The Company recorded impairment of
asset charges of $250,000 during the three months ended September 30, 2000. The
charge for impairment of assets was to adjust the carrying value of certain
equity investments to estimated net realizable value.
Interest income (expense), net. Net interest expense for the three
months ended September 30, 2000 was $795,000, compared to net interest expense
of $53,000 for the same period in the prior year. The increase in expense was a
result of decreased cash balances and the interest expense related to draws on
the Company's revolving credit facility with Bank of America.
NINE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
1999
Revenue. Revenue for the nine months ended September 30, 2000 was $19.7
million, a decrease of $7.4 million, or 27%, over the same period in the prior
year. Internet-related revenue, which consists of sales of newly developed
Internet products, Internet products acquired in connection with the business
acquisitions made in 1999 and traditional products that became Web-enabled in
1999 and 2000, represented $11.8 million of the Company's revenue for the nine
months ended September 30, 2000 compared with $7.7 million for the same period
in the prior year. The decrease in revenue from 1999 to 2000 is primarily
attributable to an expected de-emphasis of our core business products which
serve institutional healthcare customers, the rapid and unexpected weakening of
sales of the Company's Internet-related products due to the unfavorable market
conditions affecting all eHealth companies as well as the pressure liquidity
issues put on the business both internally and externally.
Salaries, wages and benefits. Salaries, wages and benefits for the
nine months ended September 30, 2000 were $12.9 million, an increase of
$983,000 or 8% over the same period in the prior year. The increase was
primarily the result of the full-year impact of the business acquisitions made
in 1999. Salaries, wages and benefits as a percentage of revenue increased to
66% as compared to 44% in the same period in the prior year.
Other operating expenses. Other operating expenses for the nine months
ended September 30, 2000 were $13.6 million, an increase of $4.8 million or 55%
over the same period in the prior year. The increase was primarily related to
an increase in the provision for doubtful accounts due to uncertainty of
collectibility of accounts receivable related to the Company's eHealth
customers as a result of the recent adverse changes in the capital market
conditions for this industry and to costs associated with the full-year impact
of the business acquisitions made in 1999. Other operating expenses as a
percentage of revenue increased to 68% as compared to 33% in the same period in
the prior year.
Depreciation and amortization. Depreciation and amortization expenses
for the nine months ended September 30, 2000 were $9.0 million, an increase of
$4.9 million or 118% over the same period in the prior year. The increase was
primarily the result of the amortization of intangible assets acquired in the
business acquisitions
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<PAGE> 13
made in 1999, 1998 and 1997 and the amortization of product and data licenses
acquired in 2000 and 1999. Many acquisitions completed by the Company in prior
years provided for the payment of contingent consideration based upon the
performance of the acquired business. Amortization of intangible assets from
such acquisitions increases in later years as contingent consideration payments
are earned and accrued. As a result of these increases, depreciation and
amortization as a percentage of revenue increased to 46% for the nine months
ended September 30, 2000 compared to 15% in the same period in the prior year.
Impairment of long-term assets. The Company recorded impairment of
asset charges of $17.4 million during the nine months ended September 30, 2000.
The charges for impairment of assets included a charge of $11.7 million to
adjust the carrying value of certain equity investments to estimated net
realizable value, a charge of $1.5 million to write-off developed software and
a charge of $4.2 million to write-off assets related to product-lines the
Company decided to exit.
Costs to exit a business. The Company recorded costs to exit the
Clinical Outcomes and Physician Education and Profiling product-lines of
business of approximately $1.3 million for the nine months ended September 30,
2000. Included in this total are lease obligations of $828,000 and severance
and other employee-related costs of $455,000.
Interest income (expense), net. Net interest expense for the nine
months ended September 30, 2000 was $2.9 million, compared to net interest
income of $291,000 for the same period in the prior year. The increase in
expense was a result of decreased cash balances and the interest expense
related to draws on the Company's revolving credit facility with Bank of
America and the accrual of $1.4 million in fees to amend the revolving credit
facility.
Income tax expense. Income tax expense for the nine months ended
September 30, 2000 was $215,000, compared to income tax expense of $442,000 for
the same period in the prior year. The decrease was primarily due to a decrease
in taxable income. The Company records income tax expense using an effective
tax rate of 39% on its taxable income. Differences between taxable income and
net income (loss) arise primarily from the non-deductibility of amortization
expense related to certain acquisitions.
LIQUIDITY AND CAPITAL RESOURCES
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<PAGE> 14
The Company had a working capital deficit of $40.2 million as of
September 30, 2000 as compared to a working capital deficit of $8.5 million at
December 31, 1999. The decrease was primarily due to additional borrowings
against the Bank of America Revolver the accrual of $8.1 million of additional
contingent consideration payable in connection with the acquisition of CareData
Reports, the accrual of $1.1 million of costs related to exiting the healthcare
analytical services and clinical outcomes product-lines of business, an
additional accrual for doubtful accounts of $3.6 million, the accrual $1.3
million of bank fees related to an extension of the Bank of America Revolver and
the impact of the liquidity problems on the business.
Net cash used in operating activities totaled $3.0 million for the
nine months ended September 30, 2000 as compared to net cash provided by
operating activities of $206,000 for the same period in the prior year. The
decrease in cash provided by operating activities of $3.2 million was primarily
due to a larger net loss for the nine months ended September 30, 2000 versus
the same period in the prior year.
Net cash used in investing activities was approximately $8.4 million
for the nine months ended September 30, 2000 as compared to $25.3 million for
the same period in the prior year. In the nine months ended September 30, 2000,
the Company used cash to fund $1.9 million in fixed asset purchases, $1.8
million of software development and $4.7 million in minority investments in
other companies.
Net cash provided by financing activities was $11.2 million for the
nine months ended September 30, 2000 as compared to $6.8 million for the same
period in the prior year. In the nine months ended September 30, 2000, the
Company borrowed $11.1 million under the Bank of America revolving credit
facility.
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. In connection with the CareData
Reports acquisition, additional consideration of $8.1 million was earned and
accrued at June 30, 2000, was due and payable at July 31, 2000, but remains
unpaid at November 14, 2000. Also in connection with the CareData Reports
acquisition, $5.5 million and $3.0 million was paid in 1999 and 1998,
respectively. In connection with the 1999 acquisition of Healthcare Credentials
Management Services, Inc. ("HCMS") additional consideration of $58,000 was
earned and accrued at June 30, 2000, was due and payable at July 31, 2000, but
remains unpaid at November 14, 2000. In connection with the Healthdemographics
acquisition, additional consideration payments of $4.7 million in cash and 465
shares of Series 1998-A Preferred Stock were made in 1999. Although no
additional contingent payments were made in the nine months ended September 30,
2000, additional contingent payments totaling $8.2 million were due and payable
at July 31, 2000 but remain unpaid at November 14, 2000.
In June of 1998, the Company entered into an Amended and Restated
Credit Agreement with Bank of America, Amended as of May 12, 2000, August 11,
2000 and October 4, 2000. Under this line the Company had access to $29.0
million and as of November 13, 2000 it has drawn down $29 million. The Company
is currently in default on a minimum cash collection covenant in the Second
Amendment as well as a non payment of certain fees covenant in the Third
Amendment.
The Company does not have sufficient liquidity or capital resources to
meet current obligations or continue operations. During the second and third
quarters the Company has continued aggressively to pursue numerous
potential sources of additional financing, as well as potential merger partners,
acquirors, restructuring partners and other strategic partners. As of November
13, 2000 the Company has been unable to reach an agreement with one of these
financing sources or strategic partners. The Company's liabilities are
substantially greater than it's assets and the Company is currently unable to
meet its ongoing obligations. Due to these factors the Company is planning to
immediately cease operations and file for liquidation under Chapter 7 of the
Federal Bankruptcy laws.
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<PAGE> 15
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.
RECENT ACCOUNTING PRONOUNCEMENTS
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin ("SAB") No. 101. SAB No. 101 summarizes certain areas of
the Staff's views in applying generally accepted accounting principles to
revenue recognition in financial statements. The Company believes that its
current revenue recognition principles comply with SAB No. 101.
RISK FACTORS
The Company does not have sufficient liquidity or capital resources to
meet current obligations or to continue operations. As a result the Company
plans to cease operations immediately and to file for liquidation under the
Federal Bankruptcy Code. Because our liabilities significantly exceed our assets
it cannot be expected that shareholders will receive any recovery in the
Bankruptcy proceeding.
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<PAGE> 16
FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933, as amended,
and Section 21E of the Securities Exchange Act of 1934, as amended, that are
based on the beliefs of the Company's management as well as assumptions made by
and information currently available to the Company's management. When used in
this Quarterly Report on Form 10-Q, the words "estimate," "project," "believe,"
"anticipate," "intend," "expect," "plan," "predict," "may," should," "will,"
and similar expressions are intended to identify forward-looking statements.
Forward-looking statements are inherently subject to risks and uncertainties,
many of which cannot be predicted with accuracy and some of which might not
even be anticipated. Future events and actual results, financial and otherwise,
could differ materially from those set forth in or contemplated by the
forward-looking statements contained herein. Important factors that could
contribute to such differences include, but are not limited to, the matters
discussed above under the caption "Risk Factors" and other factors that may be
described from time to time in the Company's other filings with the Securities
and Exchange Commission, news releases and other communications. Readers are
cautioned not to place undue reliance on these forward-looking statements,
which speak only as of the date hereof. The Company does not undertake any
obligation to release publicly any revisions to these forward-looking
statements to reflect events or circumstances after the date hereof or to
reflect the occurrence of unanticipated events. Subsequent written and oral
forward-looking statements attributable to the Company or persons acting on its
behalf are expressly qualified in their entirety by the cautionary statements
contained in this Quarterly Report on Form 10-Q.
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<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 filed in the
United States District Court for the Northern District of Georgia: 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., el 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. These lawsuits have been consolidated under the style In
re Medirisk, Inc. Securities Litigation. Plaintiffs served their consolidated
and amended complaint on January 13, 1999. The consolidated and amended
complaint alleges that the Company violated federal securities laws by making
certain forward-looking statements and by failing to disclose in its public
statements and/or the Prospectus for its June 1998 common stock offering certain
alleged adverse trends respecting its Market Performance and Physician
Credentialing Products. The consolidated and amended complaint asserts claims
based on Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and
claims under Sections 11 and 15 of the Securities Act of 1933. Plaintiffs seek
compensatory damages, rescission or rescissory damages, and reimbursement of
their attorneys' fees and costs. All defendants moved to dismiss this complaint
on March 12, 1999. The Court has ruled that Plaintiffs' Securities Exchange Act
claims were not pled adequately, and it has allowed Plaintiffs an opportunity to
file an Amended Complaint to attempt to cure the pleading deficiencies. The
Court ruled that the Securities Act claims were pled adequately. As to the
latter ruling, Defendants have moved for permission to file an interlocutory
appeal, or alternatively, for reconsideration. Because of the uncertainty of the
litigation process, the Company cannot predict the outcome of these consolidated
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.
The Company has been unable to meet it's current obligations to
vendors and other parties. Many of these vendors and other parties have
instituted collection actions against the Company. The Company is without
adequate resources to defend these lawsuits and expects them to result in
judgements against the Company.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
In June of 1998, the Company entered into an Amended and Restated
Credit Agreement with Bank of America, Amended as of May 12, 2000, August 11,
2000 and October 4, 2000. Under these Agreements the Company had access to $29
million and as of November 14, 2000 it has drawn down $29 million. The Company
is currently in default of a cash collection requirement in the Second
Amendment as well as a non payment of fees covenant in the Third Amendment. The
total default as well as the arrearage at the date of filing is $150,000.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits:
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<S> <C>
3.1 Certificate of Incorporation of the Company (incorporated by
reference from Exhibit 3.1 to the Company's Registration
Statement on Form S-1 (No. 333-12311) filed with the
Commission on September 19, 1996).
3.1.1 Certificate of Designation of Series 1998-A Preferred Stock
(incorporated by reference from Exhibit 3.1.1 to the
Company's Current Report on Form 8-K dated March 31, 1998).
3.1.2 Certificate of Designation, Preferences and Rights of Series
A Junior Participating Preferred Stock (incorporated by
reference from Exhibit 3.1.2 to the Company's Annual Report
on Form 10-K for the fiscal year ended December 31, 1998).
3.2 Bylaws of the Company (incorporated by reference from Exhibit
3.2 to the Company's Registration Statement on Form S-1 (No.
333-12311) filed with the Commission on September 19, 1996).
4.1 Shareholder Protection Rights Agreement dated as of July 29,
1998 between the Company and SunTrust Bank, Atlanta, as
Rights Agent (incorporated by reference from Exhibit 2.8 to
the Company's Current Report on Form 8-K dated July 29,
1998).
4.2 Specimen Stock Certificate of the Common Stock of the Company
(incorporated by reference from Exhibit 4.2 to the Company's
Registration Statement on Form S-1 (No. 333-12311) filed with
the Commission on September 19, 1996).
10.1 Third Amendment to Amended and Restated Credit Agreement,
dated as of October 4, 2000, between the Company and Bank of
America.
11 Statements of Computation of Per Share Loss
27 Financial Data Schedule (EDGAR Filing Only).
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</TABLE>
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<PAGE> 18
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Caredata.com, Inc.
November 14, 2000 By: /s/ Thomas C. Kuhn III
-------------------------
Thomas C. Kuhn III
Executive Vice President
Chief Financial Officer and
Chief Accounting Officer
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<PAGE> 19
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<S> <C>
3.1 Certificate of Incorporation of the Company (incorporated by reference
from Exhibit 3.1 to the Company's Registration Statement on Form S-1
(No. 333-12311) filed with the Commission on September 19, 1996).
3.1.1 Certificate of Designation of Series 1998-A Preferred Stock
(incorporated by reference from Exhibit 3.1.1 to the
Company's Current Report on Form 8-K dated March 31, 1998).
3.1.2 Certificate of Designation, Preferences and Rights of Series
A Junior Participating Preferred Stock (incorporated by
reference from Exhibit 3.1.2 to the Company's Annual Report
on Form 10-K for the fiscal year-ended December 31, 1998).
3.2 Bylaws of the Company (incorporated by reference from Exhibit 3.2 to
the Company's Registration Statement on Form S-1 (No. 333-12311) filed
with the Commission on September 19, 1996).
4.1 Shareholder Protection Rights Agreement dated as of July 29,
1998 between the Company and SunTrust Bank, Atlanta, as
Rights Agent (incorporated by reference from Exhibit 2.8 to
the Company's Current Report on Form 8-K dated July 29,
1998).
4.2 Specimen Stock Certificate of the Common Stock of the Company
(incorporated by reference from Exhibit 4.2 to the Company's
Registration Statement on Form S-1 (No. 333-12311) filed with
the Commission on September 19, 1996).
10.1 Third Amendment to Amended and Restated Credit Agreement,
dated as of October 4, 2000, between the Company and Bank of
America.
11 Statements of Computation of Per Share Loss
27 Financial Data Schedule (EDGAR Filing Only).
--------------------------------------------------------------------------------------------------
</TABLE>
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