8-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): December 31, 2003

Commission File No. 001-12392

NDCHealth Corporation

(Exact name of registrant as specified in its charter)

DELAWARE	58-0977458
(State or other jurisdiction of incorporation)	(IRS Employer Identification Number)
NDC Plaza, Atlanta, Georgia	30329-2010
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code (404) 728-2000

None

(Former name or former address, if changed since last report.)

Item 2. Acquisition or Disposition of Assets

Substantially all of the information required by this item was “previously reported,” as defined by Rule 12b-2 of the Securities Exchange Act of 1934, under Note 11 (Subsequent Events) to the registrant’s condensed consolidated financial statements included in the registrant’s Quarterly Report on Form 10-Q for the quarterly period ended November 28, 2003. This Current Report on Form 8-K is being filed to report certain financial information relating to this transaction.

On December 31, 2003, through an agreement whereby NDCHealth Corporation acquired all fixed assets, employees and gained exclusive license to their assets, we acquired the continuing operations of ArcLight Systems LLC, an information management company. As consideration for ArcLight’s assets, we issued 381,098 shares of unregistered NDCHealth common stock and a five-year warrant to purchase an additional 381,098 shares of NDCHealth common stock at an exercise price of $26.24 per share. Additionally, ArcLight made a transition payment of $1,983,000 to NDCHealth at closing. We will also pay ArcLight royalties on product sales utilizing ArcLight data. The agreement will be extended for three additional years if certain financial and business objectives are met. If the agreement is extended an additional three years, then ArcLight will receive an additional $10 million in either cash or NDCHealth common stock at ArcLight’s option.

Item 7. Financial Statements and Exhibits

Exhibit 99.1

(a) Pro Forma Financial Information

1) Introduction to the Pro Forma Combined Financial Statements

2) Pro Forma Combined Balance Sheet as of November 28, 2003

3) Pro Forma Combined Statement of Operations for the Year ended May 30, 2003

4) Pro Forma Combined Statement of Operations for the Six Months ended November 28, 2003

5) Notes to Pro Forma Combined Financial Statements

(b) Audited Financial Statements of ArcLight Systems LLC

1) Independent Auditors’ Report

2) Balance Sheets as of December 31, 2002 and 2001

3) Statements of Operations for the Year ended December 31, 2002 and Period from April 1, 2001 (date of inception of operations) to December 31, 2001

4) Statements of Members’ Equity for the Year ended December 31, 2002 and Period from April 1, 2001 (date of inception of operations) to December 31, 2001

5) Statements of Cash Flows for the Year ended December 31, 2002 and Period from April 1, 2001 (date of inception of operations) to December 31, 2001

6) Notes to Financial Statements

7) Consent of Independent Auditors

(c) Unaudited Financial Statements of ArcLight Systems LLC

1) Unaudited Balance Sheet as of September 30, 2003

2) Unaudited Statements of Operations for the Nine months ended September 30, 2003 and 2002

3) Unaudited Statements of Cash Flows for the Nine months ended September 30, 2003 and 2002

4) Unaudited Notes to Financial Statements

As a result of the pro forma adjustments discussed in Exhibit 99.1 (a) 1 and 5 above, which are the basis of our presentation of the financial schedules filed in Exhibit 99.1 (a) 2, 3 and 4, please note that these financial schedules do not reflect our historical financial statements. This pro forma information is not necessarily indicative of the results that would have occurred if the acquisition had occurred on the dates indicated or the expected financial position or results of operations in the future.

SIGNATURE

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 hereunto duly authorized.

NDCHealth Corporation

            (Registrant)

By: /s/ Randolph L.M. Hutto

Randolph L.M. Hutto

Chief Financial Officer

(Authorized Signing Officer and Principal

Financial Officer)

Date: March 15, 2004

EX-99.1A1

Exhibit 99.1 (a) 1

Introduction to Pro Forma Financial Information

The following pro forma combined financial statements have been prepared as if the acquisition had taken place on November 28, 2003 for the pro forma combined balance sheet and June 1, 2002 for the pro forma combined statements of operations. For the periods presented, NDCHealth had a fiscal year end of May 30 and ArcLight had a fiscal year end of December 31. For the purposes of the pro forma combined financial statements for the period ended May 30, 2003, ArcLight information for their year ended December 31, 2002 has been adjusted by subtracting the results of operations for the three months ended March 31, 2002 and adding the results of operations for the three months ended March 31, 2003. These results of operations for the twelve months ended March 31, 2003 have been combined with NDCHealth information for the year ended May 30, 2003. For the purposes of the pro forma combined statement of income for the six months ended November 28, 2003, ArcLight’s results for the six months ended September 30, 2003 have been combined with NDCHealth’s results for the six months ended November 28, 2003.

ArcLight Systems LLC previously provided value-added edits for electronic healthcare claims through its ScriptLINE operating segment and pharmaceutical adjudication services through its service bureau operating segment. As discussed in Notes 3 and 4 to the financial statements contained in Exhibit 99.1 (b) 6 to this report, ArcLight exited these segments in May 2002 and September 2003, respectively, to focus its efforts on its informatics operating segment. Accordingly, through an agreement whereby NDCHealth Corporation acquired all fixed assets, employees and gained exclusive license to ArcLight’s assets, we acquired the continuing operations of ArcLight Systems LLC on December 31, 2003.

The pro forma combined financial statements are not necessarily indicative of the results that would have occurred if the acquisition had occurred on the dates indicated or the expected financial position or results of operations in the future. The pro forma combined financial statements should be read in conjunction with the separate historical financial statements and notes thereto of ArcLight Systems LLC contained in Exhibit 99.1 (b) to this report, NDCHealth’s Annual Report on Form 10-K/A for the fiscal year ended May 30, 2003, and the related notes to these pro forma combined financial statements.

EX-99.1A2

Exhibit 99.1 (a) 2

Pro Forma Combined Balance Sheet

November 28, 2003

Unaudited

(in thousands)

	NDCHealth			ArcLight		Pro Forma Adjustments (a)			Pro Forma NDC Health
Assets
Current assets:
Cash and cash equivalents	$	38,584		$	37,367	$	(35,384	) (1,2)	$	40,567
Accounts receivable, net		73,031			23		—			73,054
Income tax receivable		639			—		—			639
Deferred income taxes		15,377			—		—			15,377
Prepaid expenses and other		33,888			550		700	(1)		35,138
Total current assets		161,519			37,940		(34,684	)		164,775
Property and equipment, net		124,493			3,191		—			127,684
Intangible assets, net		475,941			23,482		(7,762	) (1,3,4,5)		491,661
Deferred income taxes		2,312			—		—			2,312
Debt issuance costs		12,269			—		—			12,269
Investments		17,345			—		—			17,345
Other		13,757			—		—			13,757
Total assets of discontinued operations		—			182		(182	) (3)		—
Total Assets	$	807,636		$	64,795	$	(42,628	)	$	829,803
Liabilities and Shareholders’ Equity
Current liabilities:
Current portion of long-term debt	$	6,590		$	—	$	—		$	6,590
Current portion of obligations under capital leases		921			—		—			921
Accounts payable and accrued liabilities		63,473			4,685		3,118	(5)		71,276
Distribution payable		—			15,055		(15,055	) (2)		—
Accrued interest		13,259			—		—			13,259
Deferred revenue		37,042			—		—			37,042
Total current liabilities		121,285			19,740		(11,937	)		129,088
Long-term debt		319,598			—		—			319,598
Obligations under capital leases		266			—		—			266
Deferred revenue		12,049			—		—			12,049
Other long-term liabilities		31,513			—		—			31,513
Total liabilities of discontinued operations		—			599		(599	) (3)		—
Total liabilities		484,711			20,339		(12,536	)		492,514
Commitments and contingencies
Minority interest in equity of subsidiaries		8,396			—		—			8,396
Shareholders’ equity:
Preferred stock		—			—		—			—
Common stock		4,414			—		48	(1)		4,462
Capital in excess of par		223,705			—		14,316	(1)		238,021
Members’ equity		—			33,917		(33,917	) (2)		—
Retained earnings		92,496			10,539		(10,539	) (4)		92,496
Deferred compensation and other		(7,731	)		—		—			(7,731	)
Other comprehensive income		1,645			—		—			1,645
Total shareholders’ equity		314,529			44,456		(30,092	)		328,893
Total Liabilities and Shareholders’ Equity	$	807,636		$	64,795	$	(42,628	)	$	829,803

The accompanying notes are an integral part of this Pro Forma Combined Balance Sheet.

EX-99.1A3

Exhibit 99.1 (a) 3

Pro Forma Combined Statement of Operations

For the Year Ended May 30, 2003

Unaudited

(in thousands, except per share data)

	NDCHealth			ArcLight			Pro Forma Adjustments (b)			Pro Forma NDCHealth
Revenues	$	429,606		$	3,405		$	(5,429	)(1,2)	$	427,582
Operating expenses		339,727			29,280			(10,007	)(1,2,3)		359,000
Operating income		89,879			(25,875	)		4,578			68,582
Other income (expense)		(34,954	)		739			(739	)(1)		(34,954	)
Income before income taxes, equity in losses of affiliated companies and discontinued operation		54,925			(25,136	)		3,839			33,628
Provision for income taxes		22,975			—			(7,667	)(4)		15,308
Income before equity in losses of affiliated companies and discontinued operations		31,950			(25,136	)		11,506			18,320
Equity in losses of affiliated companies		(1,348	)		—			—			(1,348	)
Income before discontinued operations		30,602			(25,136	)		11,506			16,972
Discontinued operations		—			78,656			(78,656	)(1)		—
Net income	$	30,602		$	53,520		$	(67,150	)	$	16,972
Basic earnings per share	$	0.88								$	0.49
Number of Shares		34,591							(5)		34,972
Diluted earnings per share	$	0.88							(5)	$	0.48
Number of Shares		34,941									35,322

The accompanying notes are an integral part of this Pro Forma Combined Statement of Income.

EX-99.1A4

Exhibit 99.1 (a) 4

Pro Forma Combined Statement of Operations

For the Six Months Ended November 28, 2003

Unaudited

(in thousands, except per share data)

	NDCHealth			ArcLight			Pro Forma Adjustments (b)			Pro Forma NDCHealth
Revenues	$	224,125		$	238		$	(886	)(2)	$	223,477
Operating expenses		183,099			16,834			(5,309	)		194,624
Operating income		41,026			(16,596	)		4,423	(1,2,3)		28,853
Other income (expense)		(14,369	)		260			(260	)(1)		(14,369	)
Income before income taxes, equity in losses of affiliated companies and discontinued operation		26,657			(16,336	)		4,163			14,484
Provision for income taxes		9,986			—			(4,565	)(4)		5,421
Income before equity in losses of affiliated companies and discontinued operations		16,671			(16,336	)		8,728			9,063
Equity in losses of affiliated companies		(583	)		—			—			(583	)
Income before discontinued operations		16,088			(16,336	)		8,728			8,480
Discontinued operations		—			674			(674	)(1)		—
Net income	$	16,088		$	(15,662	)	$	8,054		$	8,480
Basic earnings per share	$	0.46								$	0.24
Number of Shares		34,785							(5)		35,166
Diluted earnings per share	$	0.45								$	0.24
Number of Shares		35,367							(5)		35,748

The accompanying notes are an integral part of this Pro Forma Combined Statement of Income.

EX-99.1A5

Exhibit 99.1 (a) 5

Notes to Pro Forma Combined Financial Statements

a) Pro Forma Combined Balance Sheet Adjustments

The following Pro Forma adjustments were made to the historical combined balance sheet of NDCHealth to reflect the acquisition of ArcLight Systems LLC as if it had occurred on November 28, 2003.

(1) To record NDCHealth’s acquisition of ArcLight Systems LLC. NDCHealth issued 381,098 shares of unregistered NDCHealth common stock with a market value as of the date of issuance of $10 million and a five-year warrant to purchase an additional 381,098 shares of NDCHealth common stock at an exercise price of $26.24 per share. The warrant has an estimated value of $4,364,000. The acquisition of ArcLight requires the recording of a $700,000 receivable for future cash payments from ArcLight to NDCHealth relating to a previous agreement between the two parties. Additionally, ArcLight made a transition payment of $1,983,000 to NDCHealth at closing. The transition and future payments adjust the consideration we paid for ArcLight’s business.

(2) To adjust ArcLight’s distribution payable and members’ equity. NDCHealth did not assume this liability or equity.

(3) To remove the assets and liabilities of ArcLight’s discontinued operations. These operations were not acquired by NDCHealth as a part of the license agreement.

(4) To eliminate ArcLight’s retained earnings.

(5) To record a liability for expected transactions costs. These transaction costs increase the consideration we paid for ArcLight’s business.

b) Pro Forma Combined Statement of Operations Adjustments

The following Pro Forma adjustments were made to the historical combined statements of operations of NDCHealth for the year ended May 30, 2003 and the six months ended November 28, 2003 to reflect the acquisition of ArcLight as if it had occurred on June 1, 2002.

(1) To eliminate the results of ArcLight’s discontinued operations and service bureau operating segment. These operations were not acquired by NDCHealth as a part of the license agreement.

(2) To eliminate inter-company revenues and operating expenses of $2,024,000 for the year ended May 30, 2003 and $886,000 for the six months ended November 28, 2003.

(3) To reflect the amortization of acquired intangibles of $2,012,000 for the year ended May 30, 2003 and $1,006,000 for the six months ended November 28, 2003. NDCHealth’s acquisition of ArcLight has resulted in acquired intangibles and goodwill.

(4) To reflect the pro forma income tax effect.

(5) To reflect the issuance of 381,098 shares of common stock.

EX-99.1B1

Exhibit 99.1 (b) 1

Independent Auditors’ Report

The Board of Managers

ArcLight Systems LLC:

We have audited the accompanying balance sheets of ArcLight Systems LLC (the Company) as of December 31, 2002 and 2001, and the related statements of operations, members’ equity, and cash flows for the year ended December 31, 2002 and the period from April 1, 2001 (date of inception of operations) to December 31, 2001. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of ArcLight Systems LLC as of December 31, 2002 and 2001, and the results of its operations and its cash flows for the periods then ended in conformity with accounting principles generally accepted in the United States of America.

/s/ KPMG LLP

Columbus, Ohio

March 7, 2003

EX-99.1B2

Exhibit 99.1 (b) 2

ARCLIGHT SYSTEMS LLC

Balance Sheets

December 31, 2002 and 2001

	2002		2001
Assets
Current assets:
Cash and cash equivalents	$	56,212,589	$	937,350
Accounts receivable, net of allowance for doubtful accounts of $0 in 2002 and 2001		601,050		612,951
Prepaid expenses		479,714		332,798
Other current assets		391,848		2,417
Total assets of discontinued operations		505,778		1,440,196
Total current assets		58,190,979		3,325,712
Property and equipment, net		2,852,060		3,128,751
Capitalized software, net of accumulated amortization of $229,237 and $10,325 in 2002 and 2001, respectively		1,273,342		1,870,725
Intangible assets, net of accumulated amortization of $4,241,466 and $985,161 in 2002 and 2001, respectively		26,307,385		26,021,405
Total assets	$	88,623,766	$	34,346,593
Liabilities and Members’ Equity
Current liabilities:
Accounts payable	$	327,525	$	162,673
Payable to Cardinal Health		444,052		1,102,357
Distribution payable		18,115,000		—
Accrued payroll, bonus and related		928,973		398,988
Accrued software development fees		82,500		1,270,382
Customer deposits		1,262,500		—
Other accrued expenses		1,881,211		721,681
Total liabilities of discontinued operations		648,479		1,348,607
Total current liabilities		23,690,240		5,004,688
Notes payable due to Class A members		—		5,000,000
Total liabilities		23,690,240		10,004,688
Members’ equity:
Class A equity; 2,500,000 units authorized, issued and outstanding		3,137,932		3,137,932
Class B equity; 5,000,000 units authorized, 4,027,952 and 4,017,202 units issued and outstanding in 2002 and 2001, respectively		27,078,835		27,006,566
Class C equity; 2,500,000 units authorized, 370,604 and 0 units issued and outstanding in 2002 and 2001, respectively		3,547,277		—
Retained earnings (accumulated deficit)		31,169,482		(5,802,593	)
Total members’ equity		64,933,526		24,341,905
Total liabilities and members’ equity	$	88,623,766	$	34,346,593

See accompanying notes to financial statements.

EX-99.1B3

Exhibit 99.1 (b) 3

ARCLIGHT SYSTEMS LLC

Statements of Operations

Year ended December 31, 2002 and Period from April 1, 2001

(date of inception of operations) to December 31, 2001

	2002			2001
Revenues	$	4,281,649		$	2,543,120
Operating expenses:
Cost of revenues		4,842,537			3,387,055
Selling and marketing		2,969,963			1,446,226
Product development		15,016,009			4,022,836
Loss from disposal and sale of assets		550,682			—
General and administrative		4,698,984			2,680,227
Total operating expenses		28,078,175			11,536,344
Loss from operations		(23,796,526	)		(8,993,224	)
Other income (expense):
Interest expense		(163,833	)		(112,983	)
Interest income		634,597			30,731
Total other income (expense)		470,764			(82,252	)
Net loss from continuing operations		(23,325,762	)		(9,075,476	)
Discontinued operations:
Income from discontinued operations (including gain on sale of $77,877,708 in 2002)		78,862,837			3,272,883
Net income (loss)	$	55,537,075		$	(5,802,593	)

See accompanying notes to financial statements.

EX-99.1B4

Exhibit 99.1 (b) 4

ARCLIGHT SYSTEMS LLC

Statements of Members’ Equity

Year ended December 31, 2002 and Period from April 1, 2001

(date of inception of operations) to December 31, 2001

	Class A Equity			Class B Equity			Class C Equity			Retained earnings (Accumulated deficit)			Total members’ equity
	Units	Amount		Units	Amount		Units	Amount
Balances at April 1, 2001 (date of inception)	2,500,000	$	3,137,932	3,623,454	$	12,492,054	—	$	—	$	—		$	15,629,986
Issuance of Class B units	—		—	393,748		1,357,467	—		—		—			1,357,467
Interim measurement of Class B floating shares	—		—	—		13,157,045	—		—		—			13,157,045
Net loss	—		—	—		—	—		—		(5,802,593	)		(5,802,593	)
Balances at December 31, 2001	2,500,000	$	3,137,932	4,017,202	$	27,006,566	—	$	—	$	(5,802,593	)	$	24,341,905
Issuance of Class B units	—		—	10,750		72,269	—		—		—			72,269
Issuance of Class C units	—		—	—		—	370,604		3,547,277		—			3,547,277
Member distributions	—		—	—		—	—		—		(18,565,000	)		(18,565,000	)
Net income	—		—	—		—	—		—		55,537,075			55,537,075
Balances at December 31, 2002	2,500,000	$	3,137,932	4,027,952	$	27,078,835	370,604	$	3,547,277	$	31,169,482		$	64,933,526

See accompanying notes to financial statements.

EX-99.1B5

Exhibit 99.1 (b) 5

ARCLIGHT SYSTEMS LLC

Statements of Cash Flows

Year ended December 31, 2002 and Period from April 1, 2001

(date of inception of operations) to December 31, 2001

	2002			2001
Cash flows from operating activities:
Net income (loss)	$	55,537,075		$	(5,802,593	)
Adjustments to reconcile net loss to net cash used in operating activities:
Net income from discontinued operations		(78,862,837	)		(3,272,883	)
Depreciation		1,403,794			728,570
Amortization of intangible assets		3,256,305			985,161
Amortization of capitalized software		401,294			10,325
Net loss from disposal of assets		550,682			—
Non-cash data costs		77,261			—
Changes in assets and liabilities:
Accounts receivable		11,901			(612,951	)
Prepaid expenses and other assets		(536,347	)		66,140
Accounts payable		164,852			162,673
Payable to Cardinal Health		(658,305	)		934,643
Other assets and liabilities, net of investing activity related accruals		2,759,431			1,120,669
Net cash used in continuing operations		(15,894,894	)		(5,680,246	)
Net cash provided by discontinued operations		1,219,419			3,181,294
Net cash used in operating activities		(14,675,475	)		(2,498,952	)
Cash flows from investing activities:
Net proceeds from sale of ScriptLINE business		77,950,455			—
Purchases of property and equipment		(1,049,434	)		(1,398,167	)
Capitalized software		(1,500,307	)		(165,531	)
Net cash provided by (used in) investing activities		75,400,714			(1,563,698	)
Cash flows from financing activities:
Proceeds from issuance of note payable to related parties		4,000,000			5,000,000
Repayments of notes payable to related parties		(9,000,000	)		—
Distributions		(450,000	)		—
Net cash provided by (used in) financing activities		(5,450,000	)		5,000,000
Net increase in cash and cash equivalents		55,275,239			937,350
Cash and cash equivalents at beginning of period		937,350			—
Cash and cash equivalents at end of period	$	56,212,589		$	937,350
Supplemental disclosure of cash flow information:
Interest paid	$	114,045		$	63,195
Noncash financing activities:
Intangible assets received through the issuance of Class B and C units	$	3,542,285		$	14,514,512

See accompanying notes to financial statements.

EX-99.1B6

Exhibit 99.1 (b) 6

ARCLIGHT SYSTEMS LLC

Notes to Financial Statements

December 31, 2002 and 2001

(1) Description of Business

ArcLight Systems LLC (“ArcLight”), based in Las Vegas, Nevada with an administration office in Westerville, Ohio, provides pharmaceutical adjudication services through its service bureau operating segment. As discussed in Notes 3 and 4 of the financial statements, the Company has decided to exit the ScriptLINE and service bureau operating segments to focus its efforts on the informatics operating segment. The Company plans on providing pharmaceutical manufacturers Internet-speed access to a stream of pharmaceutical marketing and sales information through its informatics operating segment. In this segment, pharmaceutical manufacturers and other customers will be charged a subscription fee for access to the online service.

On March 13, 2001, Cardinal Health, Inc., via its wholly-owned subsidiary RxealTime, Inc. (“Cardinal”), and CVS Corporation (“CVS”) contributed technology assets to be used by ArcLight in exchange for Class A units. Through the execution of data contribution agreements, CVS and other pharmacy retailers also committed to contribute on a prospective basis the prescription data that is categorized, analyzed and reported for ArcLight’s informatics customers in exchange for Class B units. ArcLight began operations April 1, 2001.

ArcLight is organized as a limited liability company (LLC) in the state of Delaware pursuant to the ArcLight Systems Limited Liability Company Agreement (the “LLC Agreement”). Under the LLC agreement, no LLC member shall be liable for the debts, obligations or liabilities of ArcLight, including under a judgment decree or order of a court.

(2) Summary of Significant Accounting Policies

(a) Cash Equivalents

Cash equivalents invested in varied short-term investments at December 31, 2002 and 2001 totaled $56,138,262 and $937,350, respectively. For the purposes of the statement of cash flows, the Company considers all highly liquid instruments with original maturities of three months or less to be cash equivalents.

(b) Property and Equipment

Property and equipment are stated at cost or at the fair value of assets contributed. Depreciation on property and equipment is calculated on a straight-line basis over the estimated useful lives of the assets.

(c) Capitalized Software

Statement of Financial Accounting Standards (SFAS) No. 86, Accounting for the Costs of Computer Software to Be Sold, Leased, or Otherwise Marketed, requires the capitalization of certain software development costs once technological feasibility is established, subject to net realizable value considerations. The capitalized cost is then amortized. The period between achieving technological feasibility, which the Company has defined as the establishment of a working model, and the general release of such software is the period in which software development costs incurred are considered for capitalization. The Company capitalized $312,425 and $1,435,913 in 2002 and 2001, respectively. At formation, Cardinal contributed $445,137 in capitalized software. Beginning on the date of expected commercial release of software products to be sold, these costs are amortized

ARCLIGHT SYSTEMS LLC

Notes to Financial Statements

December 31, 2002 and 2001

over a three-year period on a straight-line basis. Capitalized software amortization expense was $401,294 and $10,325 in 2002 and 2001, respectively. In July 2002, the Company elected to abandon software development efforts associated with an early version of its RxealTime software product and wrote-off $508,514 in capitalized software.

(d) Intangible Assets

Intangible assets, which consist of data contribution agreements, have been received by the Company in exchange for Class B and Class C membership units. They are being amortized on the straight-line basis over the royalty-free contractual life, or approximately 10 years for data contribution agreements with Class B Members and four years for data contribution agreements with Class C Members.

(e) Equity Granted to Non-Employees

The Company accounts for equity instruments issued to non-employees in accordance with the provisions of SFAS No. 123, Accounting for Stock-Based Compensation, and Emerging Issues Task Force (“EITF”) Issue No. 96-18, Accounting for Equity Instruments That Are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or Services. All transactions in which goods or services are the consideration received for the issuance of equity instruments are accounted for based on the fair value of the consideration received or the fair value of the equity instrument issued, whichever is more reliably measurable. The measurement date of the fair value of the equity instrument issued is the earlier of the date on which the counter-party’s performance is complete or the date on which it is probable that performance will occur.

(f) Product Development

The Company records costs directly relating to developing its informatics products to be sold to pharmaceutical manufacturers as product development in the accompanying statements of operations. These product development costs are expensed as incurred and include payroll for information technology, data acquisition and analysis employees; outside consultants assisting those employees; cash and non-cash data acquisition costs; amortization of intangible assets related to the data contribution agreements; property and equipment depreciation; and equipment lease costs.

(g) Revenue Recognition

Revenues from services are recognized as the related services are performed.

(h) Income Taxes

The Company is a LLC and elected to be treated as a partnership for tax purposes. The results of operations are included in the tax returns of its members. Therefore no provision for income taxes has been included in the accompanying financial statements. The LLC Agreement requires the Company to distribute in cash to its members 35% of its taxable income, adjusted for tax credits passed to members, provided that such distribution is permitted by all lending agreements and is approved by the board of managers. Accordingly, the Company accrued distributions of $18,565,000 representing distributions required per the LLC agreement based upon estimated cumulative taxable income from inception of operations to December 31, 2002. The Company had $18,115,000 in distributions payable on the accompanying balance sheet as of December 31, 2002.

ARCLIGHT SYSTEMS LLC

Notes to Financial Statements

December 31, 2002 and 2001

(i) Use of Estimates

Management has made a number of estimates and assumptions relating to the reporting of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reporting of revenues and expenses during the reporting period to prepare these financial statements in conformity with accounting principles generally accepted in the United States of America. Actual results could differ from those estimates.

(j) Stock Option Plan

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 only the disclosure requirements of SFAS No. 123. The following table illustrates the effect on net income if the fair-value-based method had been applied to all outstanding and unvested awards.

	2002
Net income, as reported	$	55,537,075
Add stock-based employee compensation expense included in reported net income		—
Deduct total stock-based employee compensation expense determined under fair-value-based method for all awards, net of tax		(2,143,893	)
Pro forma net income	$	53,393,182

(k) Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of

SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, provides a single accounting model for long-lived assets to be disposed of. SFAS No. 144 also changes the criteria for classifying an asset as held for sale; and broadens the scope of businesses to be disposed of that qualify for reporting as discontinued operations and changes the timing of recognizing losses on such operations. The Company adopted SFAS No. 144 on January 1, 2002. The adoption of SFAS No. 144 did not affect the Company’s financial statements.

In accordance with SFAS No. 144, long-lived assets, such as property, plant, and equipment, and purchased intangibles subject to amortization, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized by the amount by which the carrying amount of the asset exceeds the fair value of the

ARCLIGHT SYSTEMS LLC

Notes to Financial Statements

December 31, 2002 and 2001

asset. Assets to be disposed of would be separately presented in the balance sheet and reported at the lower of the carrying amount or fair value less costs to sell, and are no longer depreciated.

Prior to the adoption of SFAS No. 144, the Company accounted for long-lived assets in accordance with SFAS No. 121, Accounting for Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of.

(3) Sale of ScriptLINE Business

On May 29, 2002, the Company sold assets associated with its ScriptLINE business to NDC Health Corporation (“NDC”) for $81,000,000 in cash. The assets sold by the Company primarily include all ScriptLINE customer contracts, all intellectual property used in performance of ScriptLINE services and a covenant not to provide switching or pre-adjudication or post-adjudication services for five years from the date of sale. The Company recorded a gain on sale of assets of $77,877,708 in 2002. In order to ensure an appropriate transition of the ScriptLINE contracts to NDC, under a separate agreement the Company also agreed to provide specific transition services to NDC. The transition of the ScriptLINE business was successfully completed in November 2002 and the Company has no further obligation to NDC regarding the transition of the customer contracts.

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. No interest expense was allocated to discontinued operations. The following is a detail of the specific components:

	2002			2001
Balance Sheet:
Assets:
Accounts receivable, net	$	—		$	1,440,196
Other receivables		505,778			—
Total assets of discontinued operations	$	505,778		$	1,440,196
Liabilities:
Accounts Payable	$	80,073		$	270,480
Payable to Cardinal Health		—			17,048
Accrued payroll, bonus and related		—			166,162
Customer deposits		—			220,332
Other accrued expenses		568,406			674,585
Total liabilities of discontinued operations	$	648,479		$	1,348,607
Statements of Operations:
Revenues	$	3,882,197		$	6,491,871
Operating expenses		(2,897,068	)		(3,218,988	)
Gain on sale of ScriptLINE business		77,877,708			—
Income from discontinued operations	$	78,862,837		$	3,272,883

ARCLIGHT SYSTEMS LLC

Notes to Financial Statements

December 31, 2002 and 2001

(4) Exit of Service Bureau Contracts

The Company provides pharmaceutical adjudication services through its service bureau operating segment. In September 2002, the Company informed its customers in that segment that their current contracts would not be renewed beyond their current terms which expire no later than September 30, 2003. The following is summary financial information of the service bureau operating segment for 2002 and 2001.

	2002			2001
Balance Sheet:
Assets:
Accounts receivable, net	$	601,050		$	612,951
Liabilities:
Payable to Cardinal Health	$	83,232		$	144,763
Accrued payroll, bonus and related		62,773			30,699
Customer deposits		100,000			—
Other accrued expenses		154,000			65,000
Total liabilities of service bureau operating segment	$	400,005		$	240,462
Statements of Operations:
Revenues	$	4,281,649		$	2,543,120
Operating Expenses		(2,672,611	)		(1,555,960	)
Income from Service Bureau Operating Segment	$	1,609,038		$	987,160

ARCLIGHT SYSTEMS LLC

Notes to Financial Statements

December 31, 2002 and 2001

(5) Property and Equipment

Property and equipment consists of the following:

	Useful Lives	2002			2001
Furniture and fixtures	3 years	$	553,472		$	213,804
Data processing equipment	3 years		2,931,706			2,558,663
Software	3 years		1,325,185			1,084,854
			4,810,363			3,857,321
Less accumulated depreciation			(1,958,303	)		(728,570	)
		$	2,852,060		$	3,128,751

(6) Leases

The Company has operating leases having an initial or remaining noncancelable lease term in excess of one year for its office facilities and for other data processing equipment. As of December 31, 2002, future minimum lease payments due in 2003 through 2005 of $2,603,282 are guaranteed by Cardinal and CVS. Total future minimum lease payments under the noncancelable leases are as follows:

As of year ending December 31:
2003	$	2,045,576
2004		1,301,421
2005		1,028,384
2006		664,515
2007		677,791
2008		111,000
Total minimum lease payments	$	5,828,687

Total rent expense was $1,699,327 and $425,365 during 2002 and 2001, respectively.

(7) Amortization of Intangible Assets

The Company expects future amortization of its intangible assets to be as follows:

For each year ending December 31:
2003	$	3,767,358
2004		3,767,358
2005		3,767,358
2006		3,405,898
2007		2,899,854

ARCLIGHT SYSTEMS LLC

Notes to Financial Statements

December 31, 2002 and 2001

(8) Other Accrued Expenses

Other accrued expenses consisted of the following:

	2002		2001
Accrued data costs	$	521,761	$	—
Accrued consulting and professional fees		259,206		180,402
Accrued liabilities for property and equipment		233,777		—
Accrued switching and adjucation costs		182,065		65,000
Accrued sales and property taxes		59,494		67,396
Accrued interest		—		49,788
Other		624,908		359,095
	$	1,881,211	$	721,681

(9) Notes Payable Due to Class A Members

The Company has access to notes payable from Cardinal and CVS that enable it to borrow up to $10,000,000 at the Wall Street Journal prime rate (4.25% and 4.75% at December 31, 2002 and 2001, respectively). Interest is payable quarterly. The Company had borrowing capacity under the notes of $10,000,000 and $5,000,000 as of December 31, 2002 and 2001, respectively. According to amended terms of the notes, additional borrowings under the notes require the written consent of Cardinal and CVS. The notes are secured by substantially all of the Company’s assets. The notes expire and any amounts outstanding under the notes are due upon the earlier of December 31, 2004 or the date a Valuation Event occurs (including a sale or an IPO) as defined in the LLC Agreement.

(10) Members’ Equity

(a) Company Formation

On March 13, 2001, Cardinal and CVS received 1,800,000 and 700,000 Class A Membership Units, respectively, for their contributions of technology assets to ArcLight. Cardinal contributed its existing ScriptLINE business and a license to Cardinal’s internally developed software for the RxealTime product. CVS contributed claims switching equipment and software. As Cardinal was deemed to be the acquirer for accounting purposes, ArcLight recorded the net assets received from Cardinal at formation at their predecessor historical cost basis detailed as follows:

Prepaid expenses and other current assets	$	401,355
Property and equipment, net		1,159,154
Capitalized software		445,137
Payable to Cardinal Health		(167,714	)
Total net assets received from Cardinal	$	1,837,932

The Company recorded CVS’s switching equipment and software at its fair value of $1,300,000 in property and equipment, net. At formation and as of December 31, 2002 and 2001, there were no other Class A Members.

Each Class B Member has entered into a Data Contribution Agreement pursuant to which prescription claim data (“the Data”) will be transmitted to the Company on a real-time basis. The

ARCLIGHT SYSTEMS LLC

Notes to Financial Statements

December 31, 2002 and 2001

Data Contribution Agreement entitles the Company to receive the Data into perpetuity and at no cost for the period ending December 31, 2010 and at the lowest market price beginning January 1, 2011. Each Class B Member received 5,000 Class B Membership Units per one million prescription claims. Upon execution of the Class B Data Contribution Agreements, one-half of the Class B Membership Units issued to each Class B Member during 2001, or a total of 2,008,601 were fixed. The other one-half or 2,008,601 units issued during 2001 floated and following each calendar year through December 31, 2004, such floating Class B Membership Units were to be adjusted based on actual Data volume relative to other Class B Members.

The Company measured and recorded the fixed portion of the Class B units issued and Data Contribution Agreements received at their total estimated fair value of $12,492,054 at formation and $1,357,467 for Data Contribution Agreements executed during 2001 and is amortizing these amounts on a straight-line basis over the period ending December 31, 2010 consistent with royalty-free period. The Company estimated the fair value of Data Contribution Agreements by calculating the present value of the assumed cash outflows over a 10 year period had the data not been royalty-free.

Floating Class B membership units remain constant in total; however, each Class B Member’s floating units will fluctuate up or down based on each Class B Member’s proportionate share of the aggregate Data volume generated through the applicable measurement date. For financial statement purposes, the floating units are measured and recorded at fair value at the earlier of the date on which the counter-party’s performance is complete or the date on which it is probable that performance at a certain level will occur. Prior to December 31, 2001, management commenced steps necessary to fix and determine a portion of each Class B Member’s membership units that were designated as floating units at the original execution of the Data Contribution Agreements, making it probable that performance at a certain level would occur. Thus on December 31, 2001, the Company measured and recorded at fair value 1,908,171 of the originally floating Class B membership units for an estimated total of $13,157,045 and is amortizing this amount on the straight-line method over the period ending December 31, 2010 consistent with royalty-free period. On the measurement date, the Company estimated the fair value of Data Contribution Agreements by calculating the present value of the assumed cash outflows over a 10 year period had the data not been royalty-free.

Consistent with the accounting treatment described above, on September 20, 2002, the Company completed steps necessary to fix 1,908,171 floating Class B membership units and amended its LLC Agreement. Per the amended LLC Agreement, five percent, or 100,430 Class B membership units remain floating and will be fixed on December 31, 2004 primarily based upon each Class B Member’s proportionate share of total Class B Member Data contributed to the Company through December 31, 2004.

(b) LLC Provisions

Prior to December 31, 2004, the voting power among the Members of ArcLight will be split 50-50 between the Class A Members and the Class B Members. After December 31, 2004, each Class A and Class B Membership Unit entitles the holder to one vote. The Members elected the Managers to oversee the management of ArcLight.

The Managers, by majority vote, may request optional additional cash contributions to be made pro rata in accordance with unit ownership. The Managers and the Chief Executive Officer (“CEO”) have the right to issue up to 2,500,000 Class C Membership Units. Class C Membership Units are non-voting.

ARCLIGHT SYSTEMS LLC

Notes to Financial Statements

December 31, 2002 and 2001

If, on or prior to April 1, 2004, a valuation event (i.e., an IPO, sale, merger or similar transaction) occurs and ArcLight’s enterprise value is $200 million or more, then, as Class A members, Cardinal will be issued an additional 7% of the outstanding Membership Units (on a fully diluted basis) and CVS will be issued an additional 5%. These equity instruments were considered in the accounting at formation.

All distributions will be made only by Majority Vote of the Managers. All allocations of income, loss and other items will be in proportion to equity ownership. ArcLight is intended to be a perpetual LLC. If there is a change in control of a Member prior to a valuation event, as defined in the LLC agreement, ArcLight can force a Member to sell its Membership Units to ArcLight for the fair market value of such Member’s units. In the event of a material breach as defined, ArcLight can also force such Member to sell its Membership Units to ArcLight for the book value of such Member’s units.

At any time upon 30 days written notice, a Member may convert any of its Class A or Class B Membership units on a one-for-one basis into authorized but unissued Class C Membership units.

(c) Equity Issued for Data Contribution Agreements in 2002

During 2002 the Company issued 10,750 Class B membership units, of which 269 units remain floating, to one pharmacy retailer under the same terms and conditions as the Class B units issued in 2001. The Class B units were measured and recorded for financial statement purposes in the same manner as the Class B membership units issued in 2001.

Furthermore, during 2002, the Company issued 70,604 Class C membership units to five pharmacy retailers whereby the membership units evenly vest over a four year period based upon the volume of pharmacy data received from each retailer. Under the terms of these Class C data contribution agreements, the pharmacy retailers agree to provide all their pharmacy data to the Company royalty-free for four years and perpetually at most-favored pricing subsequent to the four years. Each Class C Member received 2,000 Class C Membership Units per one million prescription claims. The Company records a non-cash data cost and Class C equity as the units vest over the four year period. As of December 31, 2002, the Company estimates the non-cash data cost and Class C equity to be recorded over the remaining vesting period is $739,396. This estimate is based upon the fair value of these Class C data contribution agreements determined by calculating the present value of the assumed cash outflows over the four year period had the data not been royalty-free. The Company recorded $77,261 in product development costs as non-cash data costs associated with these Class C data contribution agreements in 2002.

Finally, in July 2002, the Company issued 300,000 Class C membership units to a pharmacy software vendor in exchange for a data contribution agreement whereby the pharmacy software vendor agreed to provide all of their pharmacy data not currently provided to the Company from its then-current members royalty-free for four years and perpetually at most-favored pricing subsequent to the four years. Under the terms of this data contribution agreement, the Class C membership units were fully vested at the time of issuance. The pharmacy software vendor received 2,000 Class C Membership Units per one million prescription claims. Therefore, the Company estimated the fair value of the data contribution agreement by calculating the present value of the assumed cash outflows over the four year period had the data not been royalty-free. An intangible asset and corresponding Class C equity was recorded of $3,470,016. The intangible asset is being amortized over the four year royalty-free period.

ARCLIGHT SYSTEMS LLC

Notes to Financial Statements

December 31, 2002 and 2001

(11) Employee Stock Options

On January 1, 2002, the Company adopted the ArcLight Systems LLC Stock Option Plan (the “Plan”). The Plan provides for the granting of non-qualified stock options at the current per-unit fair value to all employees and non-employee managers of the Company. The Plan allows for grants of stock options to purchase an aggregate of up to 1,000,000 Class C Membership Units. Options granted under the Plan have a 10 year term and fully vest on the third anniversary of the grant date. Activity in the plan during 2002 was as follows:

	Unit options		Grant Price per unit
Outstanding as of December 31, 2001	—			—
Options granted	943,700		$	15.40
Options forfeited	(144,400	)	$	15.40
Options expired	—			—
Options exercised	—			—
Outstanding as of December 31, 2002	799,300		$	15.40

None of the options outstanding as of December 31, 2002 were exercisable. The estimated fair value of all options granted during 2002 was $9.57 per share and options outstanding at December 31, 2002 have a remaining contractual life of 9.1 years. This fair value was determined by utilizing a Black-Scholes option pricing model with the following assumptions: risk free interest rate of 5.16%; dividend yield of 0%; volatility factor of 75%; and an expected option life of 4.5 years.

(12) Employee 401(k) Plan

On January 1, 2002, the Company adopted the ArcLight Systems LLC 401(k) Profit Sharing Plan (the “401(k) Plan”). The 401(k) Plan covers substantially all employees. Participants must be at least 21 years old and expected to work at least 1,000 hours during a plan year. Participants can elect salary deferrals up to established IRS annual limits. Company matching contributions are currently 100 percent of each participant’s total contribution, not to exceed 8 percent of the participant’s compensation, subject to specified IRS annual limits. To be eligible for Company matching contributions, the participant must have completed one year of service with the Company. The matching contributions vest 100% upon three years of service. Expense under this plan amounted to $279,420 in 2002.

(13) Related Party Transactions

(a) Management Agreement with Cardinal

Upon the formation of ArcLight until December 31, 2001, Cardinal provided through its employees and data center operations essentially all management and day-to-day operations support services of ArcLight. Under the terms of the management agreement, ArcLight reimbursed Cardinal for direct costs including employee payroll and payroll-related expenses, data center operations, facility rent and business insurance. ArcLight also incurred a management fee of 10% of the direct reimbursed costs. Effective January 1, 2002, ArcLight hired as employees essentially all Cardinal employees providing direct services under the management agreement. As of January 1, 2002, the management agreement was cancelled; however, Cardinal continues to provide certain data center operations and office space to ArcLight at mutually agreed-upon amounts. The Company incurred expenses payable

ARCLIGHT SYSTEMS LLC

Notes to Financial Statements

December 31, 2002 and 2001

to Cardinal of $1,091,686 and $4,265,354 for direct and other costs in 2002 and 2001, respectively. In addition, the Company incurred expenses payable to Cardinal of $382,220 for the management fee in accordance with the terms of the management agreement in 2001.

The Company’s payable to Cardinal Health for continuing operations consisted of the following as of December 31:

	2002		2001
Accrued data center and other service costs	$	444,052	$	416,658
Accrued payroll and related costs		—		588,119
Accrued management fee		—		97,580
	$	444,052	$	1,102,357

(b) Income from Discontinued Operations and Accounts Receivable from Members

Included in income from discontinued operations were revenues of $2,507,293 and $4,342,658 related to ScriptLINE services provided to Arclight members during 2002 and 2001, respectively. Gross accounts receivable outstanding from members were $1,118,274 as of December 31, 2001. One member accounted for 26% and 29% of the revenues in the ScriptLINE business segment in 2002 and 2001, respectively, and 22% of accounts receivable outstanding at December 31, 2001.

(14) Segment Reporting

See Note 1 for description of different operating segments of Arclight. Interest income (expense) was not allocated to an operating segment. The following table includes revenues, net income (loss) from continuing operations, depreciation and amortization expense, and capital expenditures for the periods ended December 31, 2002 and 2001, and assets as of December 31, 2002 and 2001, for each segment and reconciling items necessary to total to amounts reported in the financial statements:

	2002			2001
Assets
Service Bureau	$	601,050		$	612,951
Informatics		30,355,705			30,497,092
Unallocated (cash and shared equipment)		57,161,233			1,796,354
Total assets of continuing operations	$	88,117,988		$	32,906,397
Revenues
Service Bureau	$	4,281,649		$	2,543,120
Informatics		—			—
Total revenues	$	4,281,649		$	2,543,120
Net income (loss) from continuing operations
Service Bureau	$	1,609,038		$	987,160
Informatics		(18,217,831	)		(5,362,736	)
Unallocated (primarily shared equipment operating expenses and general and administrative expenses)		(7,187,773	)		(4,617,648	)
Total net income (loss) from continuing operations	$	(23,796,526	)	$	(8,993,224	)
Depreciation and amortization expense
Service Bureau	$	—		$	—
Informatics		4,639,157			1,360,283
Unallocated (shared equipment)		499,497			363,773
Total depreciation and amortization expense	$	5,138,654		$	1,724,056
Capital expenditures
Service Bureau	$	—		$	—
Informatics		1,985,734			1,235,499
Unallocated (shared equipment)		564,007			328,199
Total capital expenditures	$	2,549,741		$	1,563,698

ARCLIGHT SYSTEMS LLC

Notes to Financial Statements

December 31, 2002 and 2001

(15) Income Taxes

The net differences between the tax bases and the reported amounts of assets and liabilities are as follows as of December 31:

	2002		2001
Tax bases exceed book bases (not tax effected):
Data acquisition costs	$	1,001,411	$	—
Other		772,407		546,636
	$	1,773,818	$	546,636
Book bases exceed tax bases (not tax effected):
Intangible assets	$	26,307,385	$	26,021,405
Capitalized software		1,273,342		1,870,725
Property and equipment		837,902		476,208
	$	28,418,629	$	28,368,338

EX-99.1B7

Exhibit 99.1 (b) 7

Independent Auditors’ Consent

The Board of Managers

ArcLight Systems LLC:

We consent to the incorporation by reference in the registration statement (No. 333-109371) on Form S-3, registration statement (No. 333-103959) on Form S-4 and registration statements (Nos. 33-55057, 333-05449, 333-05427, 333-50474 and 333-107526) on Form S-8 of NDCHealth Corporation of our report dated March 7, 2003, with respect to the balance sheets of ArcLight Systems LLC as of December 31, 2002 and 2001, and the related statements of operations, members’ equity, and cash flows for the year ended December 31, 2002 and the period from April 1, 2001 (date of inception of operations) to December 31, 2001, which report appears in the Form 8-K of NDCHealth Corporation dated March 15, 2004.

/s/ KPMG LLP

Columbus, Ohio

March 15, 2004

EX-99.1C1

Exhibit 99.1 (c) 1

ARCLIGHT SYSTEMS LLC

Unaudited Balance Sheets

September 30, 2003 and December 31, 2002

	September 30, 2003		December 31, 2002
Assets
Current assets:
Cash and cash equivalents	$	37,366,835	$	56,212,589
Accounts receivable, net of allowance for doubtful accounts of $87,000 and $0 in 2003 and 2002, respectively		23,000		—
Prepaid expenses		470,785		479,714
Other current assets		79,188		391,848
Total current assets		37,939,808		57,084,151
Property and equipment, net of accumulated depreciation of $2,590,999 and $1,958,303 in 2003 and 2002, respectively		2,315,887		2,852,060
Capitalized software, net of accumulated amortization of $600,859 and $229,237 in 2003 and 2002, respectively		874,719		1,273,342
Intangible assets, net of accumulated amortization of $7,066,980 and $4,241,466 in 2003 and 2002, respectively		23,481,871		26,307,385
Total assets of discontinued operations		182,430		1,106,828
Total assets	$	64,794,715	$	88,623,766
Liabilities and Members’ Equity
Current liabilities:
Accounts payable	$	704,335	$	327,525
Payable to Cardinal Health		8,526		360,820
Distribution payable		15,055,000		18,115,000
Accrued payroll, bonus and related		1,081,034		866,200
Accured software development fees		—		82,500
Customer deposits		1,100,000		1,162,500
Other accrued expenses		1,791,325		1,727,211
Total current liabilities		19,740,220		22,641,756
Total liabilities of discontinued operations		598,796		1,048,484
Total liabilities		20,339,016		23,690,240
Members’ equity:
Class A equity; 2,500,000 units authorized, issued and outstanding		3,137,932		3,137,932
Class B equity; 5,000,000 units authorized, 4,027,952 issued and outstanding in 2003 and 2002, respectively		27,078,835		27,078,835
Class C equity; 2,500,000 units authorized, 370,604 units issued and outstanding in 2003 and 2002, respectively		3,700,403		3,547,277
Retained earnings		10,538,529		31,169,482
Total members’ equity		44,455,699		64,933,526
Total liabilities and members’ equity	$	64,794,715	$	88,623,766

See accompanying notes to financial statements.

EX-99.1C2

Exhibit 99.1 (c) 2

ARCLIGHT SYSTEMS LLC

Unaudited Statements of Operations

Nine months ended September 30, 2003 and 2002

	2003			2002
Revenues	$	238,391		$	—
Operating expenses:
Equipment operating expenses		4,336,704			2,106,664
Selling and marketing		1,869,206			2,010,499
Product development		13,086,818			11,841,670
Loss from disposal and sale of assets		—			550,682
General and administrative		3,569,352			3,555,703
Total operating expenses		22,862,080			20,065,218
Loss from operations		(22,623,689	)		(20,065,218	)
Other income (expense):
Interest expense		—			(148,938	)
Interest income		452,113			377,134
Total other income (expense)		452,113			228,196
Net loss from continuing operations		(22,171,576	)		(19,837,022	)
Discontinued operations:
Income from discontinued operations		1,635,331			76,544,403
Net income (loss)	$	(20,536,245	)	$	56,707,381

See accompanying notes to financial statements.

EX-99.1C3

Exhibit 99.1 (c) 3

ARCLIGHT SYSTEMS LLC

Unaudited Statements of Cash Flows

Nine months ended September 30, 2003 and 2002

	2003			2002
Cash flows from operating activities:
Net income (loss)	$	(20,536,245	)	$	56,707,381
Adjustments to reconcile net loss to net cash used in operating activities:
Net income from discontinued operations		(1,635,331	)		(76,544,403	)
Depreciation		949,504			1,258,859
Amortization of intangible assets		2,825,514			2,320,191
Amortization of capitalized software		370,755			113,538
Net loss from disposal of assets		—			550,682
Non-cash data costs		153,126			—
Changes in assets and liabilities:
Accounts receivable		(23,000	)		—
Prepaid expenses and other assets		321,589			(407,962	)
Accounts payable		376,810			(24,670	)
Payable to Cardinal Health		(352,294	)		(761,659	)
Other assets and liabilities, net of investing activity related accruals		216,448			1,743,838
Net cash used in continuing operations		(17,333,124	)		(15,044,205	)
Net cash from discontinued operations		2,110,041			4,768,471
Net cash used in operating activities		(15,223,083	)		(10,275,734	)
Cash flows from investing activities:
Net proceeds from sale of ScriptLINE business		—			77,950,455
Purchases of property and equipment		(413,331	)		(434,697	)
Capitalized software		(54,632	)		(906,537	)
Net cash provided by (used in) investing activities		(467,963	)		76,609,221
Cash flows from financing activities:
Proceeds from issuance of note payable to related parties		—			4,000,000
Repayments of notes payable to related parties		—			(9,000,000	)
Distributions		(3,154,708	)		—
Net cash used in financing activities		(3,154,708	)		(5,000,000	)
Net (decrease) increase in cash and cash equivalents		(18,845,754	)		61,333,487
Cash and cash equivalents at beginning of period		56,212,589			937,350
Cash and cash equivalents at end of period	$	37,366,835		$	62,270,837
Supplemental disclosure of cash flow information:
Interest paid	$	—		$	114,045
Noncash financing activities:
Intangible assets received through the issuance of Class B and C units	$	—		$	3,542,285

See accompanying notes to financial statements.

EX-99.1C4

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:

	2003			2002
Balance Sheet:
Assets:
Accounts receivable, net	$	182,430		$	601,050
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
Total liabilities of service bureau discontinued operations	$	566,861		$	400,005
Statements of Operations:
Revenues	$	2,801,694		$	2,873,210
Operating Expenses		(1,218,694	)		(1,997,154	)
Income from service bureau discontinued operations	$	1,583,000		$	876,056

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:

	2003		2002
Balance Sheet:
Assets:
Accounts receivable, net	$	—	$	—
Other receivables		—		505,778
Total assets of ScriptLINE discontinued operations	$	—	$	505,778
Liabilities:
Accounts Payable	$	5,413	$	80,073
Other accrued expenses		26,522		568,406
Total liabilities of ScriptLINE discontinued operations	$	31,935	$	648,479
Statements of Operations:
Revenues	$	—	$	3,882,198
Operating expenses		—		(2,535,100	)
Gain on sale of ScriptLINE business		52,331		74,321,249
Income from ScriptLINE discontinued operations	$	52,331	$	75,668,347

(4) Stock Option Plan

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.

	2003			2002
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	)
Pro forma net income (loss)	$	(20,837,072	)	$	55,099,461

(5) Cash Data Purchases

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.