CERTAIN PRO FORMA FINANCIAL INFORMATION
The following unaudited pro forma combined financial statements give effect to the combination of MedicaLogic, Inc. and Medscape, Inc. The unaudited pro forma combined balance sheet assumes the merger took place on March 31, 2000 and combines MedicaLogic, Inc. and Medscape, Inc. historical balance sheets at that date.
The unaudited pro forma combined statements of operations assume that the merger took place as of the beginning of 2000 and combine the consolidated historical statements of operations of MedicaLogic, Inc. and Medscape, Inc. for the three months ended March 31, 2000.
The unaudited pro forma combined statements of operations are not necessarily indicative of operating results which would have been achieved had the merger been completed as of the beginning of the period and should not be construed as representative of future operations.
These unaudited pro forma combined consolidated financial statements should be read in conjunction with the respective audited consolidated historical financial statements and the accompanying notes of MedicaLogic, Inc. and Medscape, Inc. which are contained in the registration statement on Form S-4 filed with the SEC on March 14, 2000 (as amended on April 4, 2000).
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MedicaLogic, Inc.
Unaudited Pro Forma Condensed Combined Balance Sheet
(in thousands)
| | March 31, 2000 | |||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | | | Pro forma | |||||||||||
| | MedicaLogic | Medscape | Adjustments | Combined | ||||||||||
| Assets | ||||||||||||||
| Cash and short-term investments | $ | 117,749 | $ | 28,514 | $ | (39 | )(C) | $ | 146,224 | |||||
| Accounts receivable, net | 5,905 | 6,320 | — | 12,225 | ||||||||||
| Prepaid expenses and current assets | 4,381 | 14,539 | — | 18,920 | ||||||||||
| Total current assets | 128,035 | 49,373 | (39 | ) | 177,369 | |||||||||
| Property and equipment, net | 18,101 | 7,962 | — | 26,063 | ||||||||||
| Other assets, net | 8,364 | 3,156 | — | 11,520 | ||||||||||
| Intangible assets | — | 9,861 | 62,600 | (B) | 62,600 | |||||||||
| (9,861 | )(D) | |||||||||||||
| Goodwill | — | 2,207 | 476,844 | (B) | 476,844 | |||||||||
| (2,207 | )(D) | |||||||||||||
| Total assets | $ | 154,500 | $ | 72,559 | $ | 527,337 | $ | 754,396 | ||||||
Liabilities, Redeemable Preferred Stock and Shareholders' Equity | ||||||||||||||
| Accounts payable and other accrued liabilities | $ | 9,026 | $ | 10,108 | $ | 4,734 | (A) | $ | 23,868 | |||||
| Deferred revenue | 2,756 | 1,016 | — | 3,772 | ||||||||||
| Other | 2,361 | — | — | 2,361 | ||||||||||
| Total current liabilities | 14,143 | 11,124 | 4,734 | 30,001 | ||||||||||
| Long-term liabilities | 4,567 | — | — | 4,567 | ||||||||||
| Total liabilities | 18,710 | 11,124 | 4,734 | 34,568 | ||||||||||
| Commitments and contingencies | ||||||||||||||
| Shareholders' equity: | ||||||||||||||
| Common stock and additional paid in capital | 230,578 | 266,831 | (266,831 | )(C) | 950,011 | |||||||||
| 719,433 | (A) | |||||||||||||
| Common stock notes receivable | (12,387 | ) | (628 | ) | 628 | (C) | (12,387 | ) | ||||||
| Deferred stock compensation | (4,149 | ) | (6,501 | ) | 6,501 | (C) | (4,149 | ) | ||||||
| Treasury stock | — | (78 | ) | 78 | (C) | — | ||||||||
| Contribution of services | — | (135,395 | ) | — | (135,395 | ) | ||||||||
| Warrants | — | 6,353 | (6,353 | )(C) | — | |||||||||
| Unrealized loss on investment securities | — | (39 | ) | 39 | (C) | — | ||||||||
| Accumulated deficit | (78,252 | ) | (69,108 | ) | 69,108 | (C) | (78,252 | ) | ||||||
| Total shareholders' equity | 135,790 | 61,435 | 522,603 | 719,828 | ||||||||||
| Total liabilities, redeemable preferred stock and shareholders' equity | $ | 154,500 | $ | 72,559 | $ | 527,337 | $ | 754,396 | ||||||
See accompanying notes to unaudited pro forma condensed combined financial information.
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MedicaLogic, Inc.
Unaudited Pro Forma Condensed Combined Statement of Operations
(in thousands, except share and per share data)
| | Three months ended March 31, 2000 | ||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | | | Pro forma | ||||||||||||
| | MedicaLogic | Medscape | Adjustments | Combined | |||||||||||
| Revenues | $ | 5,608 | $ | 6,009 | — | $ | 11,617 | ||||||||
| Operating expense: | |||||||||||||||
| Cost of revenues | 4,472 | 5,555 | — | 10,027 | |||||||||||
| Marketing and sales | 8,659 | 18,547 | — | 27,206 | |||||||||||
| Research and development | 3,759 | — | — | 3,759 | |||||||||||
| General and administrative | 3,305 | 3,870 | — | 7,175 | |||||||||||
| Deferred stock compensation expenses | — | 996 | — | 996 | |||||||||||
| Depreciation and amortization | 1,575 | 1,173 | $ | (477 | )(c) | 2,271 | |||||||||
| Goodwill amortization | 379 | 45 | 47,063 | (a) | 47,442 | ||||||||||
| (45 | )(c) | ||||||||||||||
| Total operating expenses | 22,149 | 30,186 | 46,541 | 98,876 | |||||||||||
| Operating loss | (16,541 | ) | (24,177 | ) | (46,541 | ) | (87,259 | ) | |||||||
| Other income (expense) | 1,815 | 490 | — | 2,305 | |||||||||||
| Net loss | (14,726 | ) | (23,687 | ) | (46,541 | ) | (84,954 | ) | |||||||
| Net loss per share: | |||||||||||||||
| Basic and diluted | $ | (0.45 | ) | $ | (0.53 | ) | — | $ | (1.79 | ) | |||||
| Shares used in computing net loss per share: | |||||||||||||||
| Basic and diluted | 32,423,637 | 44,827,358 | — | 47,355,502 | (b) | ||||||||||
See accompanying notes to unaudited pro forma condensed combined financial information.
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Notes to Pro Forma Condensed Combined Financial Information
(in thousands, except share and per share data)
(unaudited)
The unaudited pro forma condensed combined financial information reflects the MedicaLogic/ Medscape merger and gives effect to certain reclassifications to conform the presentation of the historical operations of the merged companies.
The total estimated purchase price of the transaction has been allocated on a preliminary basis to assets and liabilities based on management's estimate of their fair values. The excess of the purchase price over the fair value of the net assets and other intangible assets acquired has been allocated to goodwill. These allocations are subject to change pending the completion of the final analysis of the total purchase price and fair values of the assets acquired and the liabilities assumed. The impact of such changes could be material.
The adjustments to the unaudited pro forma condensed combined balance sheet as of March 31, 2000 have been calculated as if the merger occurred on March 31, 2000. The adjustments to the unaudited pro forma condensed combined statement of operations for the three months ended March 31, 2000 have been calculated as if the merger occurred on January 1, 2000. The adjustments are as follows:
A. To reflect the acquisition of all the outstanding capital stock by Medscape by exchanging shares of MedicaLogic/Medscape common stock in exchange for each share of Medscape capital stock for a total estimated combined purchase price of approximately $724.2 million. The purchase consideration consists of the issuance of an estimated 14.9 million shares of MedicaLogic/Medscape common stock with a fair value of approximately $637.1 million and the assumption of options and warrants to purchase approximately 2.5 million shares of MedicaLogic/Medscape common stock with a fair value of approximately $82.3 million and other related merger costs of approximately $4.7 million in investment banking, legal, accounting and regulatory filing fees.
The purchase price was determined as follows:
| | Medscape | ||||
|---|---|---|---|---|---|
| | Equivalent Shares | Fair Value | |||
| | | (in thousands) | |||
| Shares | 14,931,864 | $ | 637,125 | ||
| Stock Options | 1,639,043 | 49,490 | |||
| Warrants | 905,794 | 32,818 | |||
| Total Shares | 17,476,701 | ||||
| Merger Costs | 4,734 | ||||
| $ | 724,167 | ||||
The estimated fair value of the common stock to be issued is based on the average closing price of MedicaLogic's common stock for the five days prior and subsequent to the days the merger became effective, which was $42.69. The estimated fair value of the options and warrants to be assumed is based on the Black-Scholes model using the following assumptions:
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B. To reflect of the excess purchase price of approximately $476.8 million over the fair value of net tangible and intangible assets as goodwill.
The purchase price is allocated to the assets and liabilities of Medscape based on preliminary fair values as follows (in thousands):
| | Medscape | ||||
|---|---|---|---|---|---|
| Assets acquired: | |||||
| Current assets | $ | 49,334 | |||
| Property and equipment | 7,962 | ||||
| Intangibles | 62,600 | ||||
| Contribution of services | 135,395 | ||||
| Goodwill | 476,844 | ||||
| Other assets | 3,156 | ||||
| Less liabilities assumed | (11,124 | ) | |||
| Purchase price | $ | 724,167 | |||
C. To reflect the elimination of the historical shareholders' equity accounts of Medscape.
D. To reflect the elimination of goodwill and other intangible assets on the balance sheets of Medscape as of the acquisition date.
The adjustments to the unaudited pro forma condensed combined statements of operations for the three months ended March 31, 2000, assume the merger occurred as of January 1, 2000 are as follows:
(a) To reflect the amortization of goodwill and other intangible assets resulting from the merger. Intangibles consist of customer lists, workforce and trademarks. The goodwill and other intangible assets are being amortized over periods of approximately one and one-half to five years. Management does not anticipate that any significant value will be attributed to purchased in-process research and development.
(b) Basic and diluted net loss per share have been adjusted to reflect the issuance of approximately 14.9 million shares of MedicaLogic/Medscape common stock, as if the shares had been outstanding for the entire period. The effect of stock options and warrants of Medscape, assumed in the merger has not been included as their inclusion would be anti-dilutive.
(c) To reflect the following amortization adjustments for the year ended March 31, 2000 (in thousands):
| | Medscape | |||
|---|---|---|---|---|
| Elimination of historical amortization—Goodwill | $ | (45 | ) | |
| Elimination of historical amortization—Intangibles | (477 | ) | ||
(d) MedicaLogic expects to record charges to operations subsequent to the purchase transaction to reflect the combination of the two companies. These charges are yet to be estimated and will consist primarily of severance costs related to the termination of certain employees. This charge is not reflected in the pro forma combined condensed financial information.
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