Exhibit 99.1(c) 4
ARCLIGHT SYSTEMS LLC
Unaudited Notes to Financial Statements
September 30, 2003 and 2002
| (1) | Interim Financial Statements |
The condensed financial statements of ArcLight Systems LLC (“the Company”) included herein should be read in conjunction with the audited financial statements and related notes for the fiscal year ended December 31, 2002. Without limiting the generality of the foregoing, Note 1 and Note 2 of the “Notes to Financial Statements” from the 2002 financial statements are specifically incorporated herein by reference. In the opinion of management, these financial statements reflect all adjustments necessary to present fairly the balance sheets, results of operations, and cash flows for the interim periods presented.
| (2) | Exit of Service Bureau Contracts |
As described further in Note 4 of the “Notes to Financial Statements” from the 2002 financial statements, the Company did not renew customer contracts in the service bureau operating segment. As of September 30, 2003, the Company no longer provided pharmaceutical adjudication services. Operating results associated with this segment are included in discontinued operations in these condensed financial statements. The following is summary financial information of the service bureau operating segment as of September 30, 2003 and December 31, 2002 for the balance sheet and for the nine months ended September 30, 2003 and 2002 for the statements of operations:
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Balance Sheet: | | | | | | | | |
Assets: | | | | | | | | |
Accounts receivable, net | | $ | 182,430 | | | $ | 601,050 | |
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Liabilities: | | | | | | | | |
Accounts payable | | $ | 140,000 | | | $ | — | |
Payable to Cardinal Health | | | — | | | | 83,232 | |
Accrued payroll, bonus and related | | | — | | | | 62,773 | |
Customer deposits | | | — | | | | 100,000 | |
Other accrued expenses | | | 426,861 | | | | 154,000 | |
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Total liabilities of service bureau discontinued operations | | $ | 566,861 | | | $ | 400,005 | |
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Statements of Operations: | | | | | | | | |
Revenues | | $ | 2,801,694 | | | $ | 2,873,210 | |
Operating Expenses | | | (1,218,694 | ) | | | (1,997,154 | ) |
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Income from service bureau discontinued operations | | $ | 1,583,000 | | | $ | 876,056 | |
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ARCLIGHT SYSTEMS LLC
Unaudited Notes to Financial Statements
September 30, 2003 and 2002
| (3) | Sale of ScriptLINE business |
The operations of the ScriptLINE business have been presented as discontinued operations in the accompanying statements of operations and statements of cash flows. The total assets and liabilities of the ScriptLINE business are separately reported in the balance sheets. The following is summary financial information of the ScriptLINE business operating segment as of September 30, 2003 and December 31, 2002 for the balance sheet and for the nine months ended September 30, 2003 and 2002 for the statements of operations:
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| | | 2003
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Balance Sheet: | | | | | | | |
Assets: | | | | | | | |
Accounts receivable, net | | $ | — | | $ | — | |
Other receivables | | | — | | | 505,778 | |
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Total assets of ScriptLINE discontinued operations | | $ | — | | $ | 505,778 | |
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Liabilities: | | | | | | | |
Accounts Payable | | $ | 5,413 | | $ | 80,073 | |
Other accrued expenses | | | 26,522 | | | 568,406 | |
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Total liabilities of ScriptLINE discontinued operations | | $ | 31,935 | | $ | 648,479 | |
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Statements of Operations: | | | | | | | |
Revenues | | $ | — | | $ | 3,882,198 | |
Operating expenses | | | — | | | (2,535,100 | ) |
Gain on sale of ScriptLINE business | | | 52,331 | | | 74,321,249 | |
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Income from ScriptLINE discontinued operations | | $ | 52,331 | | $ | 75,668,347 | |
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The Company applies the intrinsic-value-based method of accounting prescribed by Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees, and related interpretations including FASB Interpretation No. 44, Accounting for Certain Transactions involving Stock Compensation, an interpretation of APB Opinion No. 25, issued in March 2000, to account for its fixed-plan stock options. Under this method, compensation expense is recorded on the date of grant only if the current market price of the underlying stock exceeds the exercise price. SFAS No. 123, Accounting for Stock-Based Compensation, established accounting and disclosure requirements using a fair-value-based method of accounting for stock-based employee compensation plans. As allowed by SFAS No. 123, the Company has elected to continue to apply the intrinsic-value-based method of accounting described above, and has adopted
ARCLIGHT SYSTEMS LLC
Unaudited Notes to Financial Statements
September 30, 2003 and 2002
only the disclosure requirements of SFAS No. 123. The following table illustrates the effect on net income (loss) if the fair-value-based method had been applied to all outstanding and unvested awards.
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| | | 2003
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Net income (loss), as reported | | $ | (20,536,245 | ) | | $ | 56,707,381 | |
Add stock-based employee compensation expense included in reported net income (loss) | | | — | | | | — | |
Deduct total stock-based employee compensation expense determined under fair-value-based method for all awards | | | (300,827 | ) | | | (1,607,920 | ) |
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Pro forma net income (loss) | | $ | (20,837,072 | ) | | $ | 55,099,461 | |
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The Company purchased pharmacy prescription data from pharmacy retailers and other pharmacy service providers with cash. Total cash purchases expensed during the nine months ended September 30, 2003 and 2002 were $5,505,140 and $5,712,478, respectively and were included in product development in the accompanying statements of operations.
| (6) | Subsequent Event - NDC License Agreement |
On December 31, 2003, the Company entered into an exclusive license agreement whereby ArcLight granted to NDCHealth Corporation an exclusive and perpetual license to all prescription and related data provided to ArcLight by any ArcLight Member prior to the expiration or termination of the NDC Exclusive License Agreement. ArcLight also granted to NDCHealth exclusive licenses to certain ArcLight products, substantially all of ArcLight’s intellectual property and certain ArcLight trademarks. NDCHealth also acquired substantially all of ArcLight’s property and equipment, prepayments and assumed substantially all of ArcLight’s licenses, leases and maintenance agreements relating to the period after December 31, 2003. ArcLight made a transition payment of $1,983,000 to NDCHealth at closing.
