U. S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
X Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the Quarterly Period Ended September 30, 1997
____ Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1994
Commission File Number. 0-21819
HealthDesk Corporation
(Exact name of Company as specified in charter)
California 94-3165144
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
2560 Ninth Street, Suite 220, 94710
Berkeley, California (Zip Code)
(Address of principal executive offices)
(510) 883-2160
(Company's telephone number, including area code)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 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___
As of October 31, 1997, there were 5,392,845 shares of the Company's Common
Stock outstanding, 1,955,000 Redeemable Warrants outstanding and 340,000
Underwriter's Warrants outstanding.
Transitional Small Business Disclosure Format Yes___ No X
________________________________________________________________________________
INDEX
Part I Page
Item 1 Financial Statements ............................................. 3
Item 2 Management's Discussion and Analysis or Plan Operation............ 3
Part II
Item 6 Exhibits and Reports on Form 8-K.................................. 6
Part I
Item 1. Financial Statements.
The following Financial Statements are filed with this report as pages F-1
through F-7 following the signature page:
Index to Interim Financial Statements
Condensed Balance Sheets
Condensed Statements of Operations
Condensed Statements of Shareholders' Equity (Deficit)
Condensed Statements of Cash Flows
Notes to Condensed Financial Statements
Item 2. Management's Discussion and Analysis or Plan Operation.
The Company's operating performance each quarter is subject to various
risks and uncertainties as discussed in the Company's Form 10-KSB for the year
ended December 31, 1996. The following discussion should be read in conjunction
with the section entitled "Factors Affecting the Company's Business, Operating
Results and Financial Condition" in the Form 10-KSB.
The information set forth in "Management's Discussion and Analysis of
Financial Condition and Results of Operations" below includes "forward-looking
statements" within the meaning of Section 21E of the Securities and Exchange Act
of 1934, as amended (the "Exchange Act"), and is subject to the safe harbor
created by the section. Readers are cautioned not to place undue reliance on
these forward-looking statements as they speak only as of the date hereof.
Overview
The Company was organized in August 1992. Since inception, the Company has
been engaged primarily in product development activities. The Company's initial
product was introduced in early 1993 and the Company has not yet proven to be
commercially viable.
The Company has not yet generated any meaningful revenues, and will not
generate any meaningful revenues until after the Company successfully completes
development and market testing of HealthDesk OnLine and attracts and retains a
significant number of subscribers. For the period August 28, 1992 (inception) to
September 30, 1997, the Company incurred a cumulative net loss of $9,373,154.
Since September 30, 1997, the Company has continued to incur increasing and
significant losses and anticipates that it will continue to incur significant
losses until, at the earliest, the Company generates sufficient revenues to
offset the substantial up-front expenditures and operating costs associated with
developing and commercializing its products.
In January 1997 the Company completed an initial public offering ("IPO")
raising net proceeds of $7,018,788 through the issuance of 1,700,000 shares of
Common Stock and 1,955,000 Warrants.
The statements regarding the Company's future cash requirements are forward
looking statements that are subject to risks and uncertainties which could
result in the Company's inability to meet its funding requirements for the time
period indicated.
Software development costs (consisting primarily of salaries and related
expenses) incurred prior to establishing technological feasibility are expensed
in accordance with Financial Accounting Standards Board (FASB) Statement No. 86.
In accordance with FASB 86, the Company will capitalize software development
costs at such time as the technological feasibility of the product has been
established.
In February 1997, Statement of Financial Accounting Standards No. 128
"Earnings Per Share" (FAS 128) was issued and is effective for the Company's
year ending December 31, 1997. In March 1997, Statement of Financial Accounting
Standards No. 129, "Disclosure of Information About Capital Structure" was
issued and is effective for the Company's year ending December 31, 1997. In June
1997, Statement of Financial Accounting Standards No. 130 "Reporting
Comprehensive Income" and Statement of Financial Accounting Standards No. 130
3
"Disclosures About Segments of An Enterprise and Related Information" were
issued and are effective for the year ending December 31, 1998. The Company has
not determined the impact of the implementation of these pronouncements.
Recent Events
In September 1997, the Company released an upgraded client version of
HealthDesk OnLine 2.0, the first software product designed to put the power of
general health management firmly into the hands of the consumers. HealthDesk
OnLine features easy-to-use Windows based software designed to develop personal
medical records and health management programs and educational, health related
information from the Company's private Website and over the Internet.
Also in September 1997, the Company entered into a three (3) year marketing
agreement with HBO & Company of Atlanta, Georgia. The contract is a market
limited exclusive agreement to distribute HealthDesk OnLine products to
specified markets. The HealthDesk OnLine products distributed through HBO &
Company will include the general health focused HealthDesk OnLine and HealthDesk
OnLine for Diabetes, both currently on the market as well as other HealthDesk
products to be developed. The contract's exclusivity provisions are maintained
based on HBO & Company meeting certain performance criteria over the next three
years.
Results of Operations
Revenue increased from $154 for the three months ended September 30, 1996
to $150,047 for the three months ended September 30, 1997, and revenue increased
from $6,170 for the nine months ended September 30, 1996 to $376,090 for the
nine months ended September 30, 1997. These increases were primarily
attributable to an increase in development fee revenue associated with a
progress payment for a delivery of a version of HealthDesk OnLine for Diabetes.
During 1996, the Company focused its efforts on the initial development of
HealthDesk OnLine and reduced its marketing and sales efforts relating to its
original HealthDesk product.
Product development costs increased by 20.5% from $398,823 for the three
months ended September 30, 1996 to $480,477 for the three months ended September
30, 1997, and product development costs increased by 49.5% from $1,194,038 for
the nine months ended September 30, 1996 to $1,785,408 for the nine months ended
September 30, 1997. These increases in expenditures were principally related to
the expansion of the programming staff and associated costs related to the
development of HealthDesk OnLine version 2.0 and HealthDesk OnLine for Diabetes
during the three months and nine months ended September 30, 1997. To date, all
product development costs have been expensed as incurred. The Company believes
that significant investments in product development will be incurred to enhance
the functionality of HealthDesk OnLine and enhance the investment in new disease
and lifestage modules.
Sales and marketing costs increased by 1.1% from $341,425 for the three
months ended September 30, 1996 to $345,122 for the three months ended September
30, 1997, and sales and marketing costs increased by 38.1% from $836,291 for the
nine months ended September 30, 1996 to $1,154,531 for the nine months ended
September 30, 1997. These increases resulted primarily from the hiring of
additional marketing personnel, associated collateral, travel and entertainment
expenses in connection with the marketing of HealthDesk OnLine for Diabetes
during the first nine months of 1997. The Company anticipates that sales and
marketing costs will increase in future periods, as the Company expands its
marketing efforts in support of the agreement with HBO & Company.
General and administrative costs decreased by 16.1% from $119,243 for the
three months ended September 30, 1996 to $100,078 for the three months ended
September 30, 1997, and general and administrative costs decreased by 26.7% from
$562,986 for the nine months ended September 30, 1996 to $412,683 for the nine
months ended September 30, 1997. These decreases were primarily attributable to
a change in the allocation of resources to marketing and development activities
and the write-off of deferred offering costs of $118,113 in 1996.
Other income (expense), net (including interest expense and interest
income) changed from expense of ($13,200) for the three months ended September
30, 1996 to income of $34,023 for the three months ended September 30, 1997.
This change was primarily attributable to the increased interest expense as a
result of higher levels of borrowings prior to the IPO, and later offset in 1997
by the interest income earned on the IPO proceeds.
4
Other income (expense), net (including interest expense, interest income
and amortization of discount and issuance costs) increased from ($10,046) for
the nine months ended September 30, 1996 to ($47,580) for the nine months ended
September 30, 1997. This increase was primarily attributable to the amortization
of $145,023 of the bridge discount and deferred debt issuance costs relating to
the Company's October 1996 Bridge Financing..
As a result of the foregoing, the Company incurred a net loss of $741,806
and $3,024,712 for the three months and nine months ended September 30, 1997, as
compared to a net loss of $872,737 and $2,597,791 for the comparable periods in
1996.
Liquidity and Capital Resources
In January 1997, the Company consummated an underwritten initial public
offering of 1,700,000 shares of Common Stock at an offering price of $5.00 per
share and 1,955,000 warrants at an offering price of $.10 per warrant. The net
proceeds to the Company were $7,018,788 after deducting issuance costs of
$1,676,712. Each warrant entitles the registered holder thereof to purchase one
share of Common Stock at an price of $5.00, subject to adjustment in certain
circumstances, at any time through and including January 16, 2002. The warrants
are redeemable by the Company, upon the consent of the Underwriter, at any time,
upon notice of not less than 30 days, at a price of $.10 per warrant, provided
that the closing bid quotation of Common Stock on all 30 of the trading days
ending on the third day prior to the day which the Company gives notice has been
at least 150% (currently $7.50, subject to adjustment) of the then effective
exercise price of the warrants.
Upon the closing of the IPO, the Company repaid $2,000,000 principal amount
of bridge notes financing and converted the outstanding convertible notes into
100,000 shares of Common Stock. In addition, all outstanding shares of the
Company's Series A Preferred Stock were converted into 1,059,600 shares of
Common Stock.
At September 30, 1997, the Company had cash and cash equivalents of
$2,261,457, as compared to $198,277 at December 31, 1996.
During the first nine months of 1996, $2,086,204 of cash was used in
operating activities, principally as a result of the $2,597,791 loss incurred in
the first nine months of 1996. During the first nine months of 1997, $2,844,536
of cash was used in operating activities, principally as a result of the
$3,024,712 loss incurred in the first nine months of 1997 and a $727,960
decrease in accounts payable. This decrease in accounts payable resulted because
in 1996 the Company incurred non-recurring accounting, legal and printing
charges of $466,411 related to the IPO and the Bridge Financing and a
non-recurring bonus of $80,000 paid to an officer per the employment agreement.
The decrease in accounts payable was offset by $145,023 attributable to the
amortization of the non cash discount associated with the Bridge Financing, and
a $556,333 decrease in prepaid expenses and deferred offering costs associated
with the IPO.
Working capital/(deficit) at September 30, 1997 was $1,777,926, as compared
to $(2,804,411) at December 31, 1996.
The Company expects to incur significant expenses in connection with its
operations, including expenses associated with hiring additional marketing and
sales personnel and the research and development of product lines. The Company
anticipates, based on its current proposed growth plans and assumptions relating
to its growth and operations, that the proceeds from the IPO and planned
revenues will be sufficient to satisfy the Company's contemplated cash
requirements through 1997. However, there can be no assurance that the Company's
funding requirements will not increase significantly as a result of unforeseen
circumstances or that the Company's cash used by operating activities will not
increase. If the Company is required to seek third-party sources of financing to
meet its short-term or long-term funding needs, there can be no assurance that
the Company would be able to obtain public or private third-party sources of
financing or, if obtained, that favorable terms for such financing would be
obtained. In addition, given the trading history of the Company's common stock
since the initial public offering, there can be no assurance that the Company
would be able to raise additional cash through the warrants or other public
and/or private offerings of its common stock.
The Company's capital requirements relating to the development and
5
commercialization of HealthDesk OnLine have been and will continue to be
significant. Other than as described in this 10-QSB, the Company has no material
commitments for capital expenditures. For the period August 28, 1992 (inception)
to September 30, 1997, the Company had capital expenditures of $1,033,714
relating primarily to purchases of servers, PCs and telecommunications
equipment.
Part II
Item 6. Exhibits and Reports on Form 8-K.
a) Exhibits:
10.10 * Marketing Agreement dated as of September 30, 1997 between the
Registrant and HBO & Company of Atlanta, Georgia
11.1 Statement Regarding computation of earnings per share
27 Financial Data Schedule
*This exhibit has been filed separately with the Commission pursuant to an
application for confidential treatment. The confidential portions of this
exhibit have been omitted and marked by an asterisk.
b) No reports have been filed on Form 8-K in the Quarter ended September 30,
1997.
SIGNATURE
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto authorized.
HealthDesk Corporation
By: /s/ Timothy S. Yamauchi Date: November 13, 1997
-----------------------
Timothy S. Yamauchi
Chief Financial Officer
(principal financial and accounting officer)
6
CONTENTS
Page
Condensed Balance Sheets as of December 31, 1996 and September
30, 1997 (unaudited).................................................... F-2
Condensed Statements of Operations for the three months and the
nine months ended September 30, 1996 and 1997, and period from
inception to September 30, 1997 (unaudited)............................. F-3
Condensed Statements of Shareholders' Equity (Deficit) for the
years ended December 31, 1992, 1993, 1994, 1995, 1996 and the
nine months ended September 30, 1997 (unaudited)........................ F-4
Condensed Statements of Cash Flows for the nine months ended
September 30, 1996 and 1997 and period from inception to Septembe
30, 1997 (unaudited).................................................... F-5
Notes to Condensed Financial Statements................................... F-6
F-1
HealthDesk Corporation
(a Development Stage Company)
CONDENSED BALANCE SHEETS
December 31, September 30
ASSETS 1996 1997
---- ----
(unaudited)
Current assets:
Cash and cash equivalents.............................. $ 198,277 $ 2,261,457
Prepaid expenses and other............................. 172,294 108,069
Deferred offering and debt issuance costs.............. 492,109 ----
------------------ ------------------
Total current assets................................ 862,680 2,369,526
Property and equipment, net.............................. 568,040 485,845
Other assets............................................. 17,517 16,267
------------------ ------------------
Total assets.................................... $ 1,448,237 $ 2,871,638
================== ==================
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable....................................... $ 857,428 $ 129,467
Accrued liabilities.................................... 441,076 462,133
Notes payable.......................................... 1,851,546 ----
Convertible notes payable and accrued interest......... 517,041 ----
------------------ ------------------
Total liabilities 3,667,091 591,600
------------------ ------------------
Shareholders' equity (deficit):
Convertible preferred stock, no par value; authorized
3,000,000 shares; issued and outstanding 1,059,600
shares at December 31, 1996 and none at September 30,
1997................................................ 2,183,036 ----
Common stock, no par value; authorized 17,000,000
shares; issued and outstanding 2,530,120, and
5,392,845 at December 31, 1996, and September 30,
1997, respectively.................................. 1,946,552 11,457,505
Warrants............................................... ---- 195,687
Deficit accumulated during the development stage....... (6,348,442) (9,373,154)
------------------ ------------------
Total shareholders' equity (deficit)................ (2,218,854) 2,280,038
------------------ ------------------
Total liabilities and shareholders' equit (deficit) $ 1,448,237 $ 2,871,638
================== ==================
The accompanying notes are an integral part of these
financial statements.
F-2
HealthDesk Corporation
(a Development Stage Company)
CONDENSED STATEMENTS OF OPERATIONS
(unaudited)
August 28,
1992
Three Months Nine Months (Inception)
------------ ----------- to
Ended September 30, Ended September 30, September 30,
------------------- -------------------
1996 1997 1996 1997 1997
---- ---- ---- ---- ----
Revenue:
Software development and licensing............ $ 154 $ 150,047 $ 6,170 $ 376,090 $ 1,119,629
Other......................................... ---- ---- ---- ---- 10,158
----------- ------------ ------------ ------------ ------------
Total revenues.............................. 154 150,047 6,170 376,090 1,129,787
----------- ------------ ------------ ------------ ------------
Costs and expenses:
Product development........................... 398,823 480,477 1,194,038 1,785,408 4,495,525
Sales and marketing........................... 341,425 345,122 836,291 1,154,531 3,081,021
General and administrative.................... 119,243 100,078 562,986 412,683 1,898,113
----------- ------------ ------------ ------------ ------------
Total costs and expenses................... 859,491 925,677 2,593,315 3,352,622 9,474,659
----------- ------------ ------------ ------------ ------------
Loss from operations....................... (859,337) (775,630) (2,587,145) (2,976,532) (8,344,872)
Interest expense................................. (15,709) ---- (33,707) (14,900) (127,232)
Interest income.................................. 2,509 34,024 23,661 112,343 147,122
Amortization of discount and issuance cost
associated with bridge financing............. ---- ---- ---- (145,023) (1,029,250)
Other expenses................................... ---- ---- ---- ---- (14,322)
----------- ------------ ------------ ------------ ------------
Loss before income taxes.................... (872,537) (741,606) (2,597,191) (3,024,112) (9,368,554)
Provision for income taxes....................... 200 200 600 600 4,600
----------- ------------ ------------ ------------ ------------
Net loss................................... $ (872,737) $ (741,806) $ (2,597,791) $ (3,024,712) $ (9,373,154)
=========== ============ ============ ============ ============
Net loss per share............................... $ (0.23) $ (0.14) $ (0.67) $ (0.59)
=========== ============ ============ ============
The accompanying notes are an integral part of these
financial statements.
F-3
HealthDesk Corporation
(a Development Stage Company)
CONDENSED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
Deficit
Accumulated Total
Preferred Stock Common Stock During the Shareholders'
--------------- ------------ Development Equity
Shares Amount Warrants Shares Amount Stage (Deficit)
------ ------ -------- ------ ------ ----- ---------
Balances at August 28, 1992
(inception)............... ---- ---- ---- ---- ---- ----- ----
Common stock issued for cash
on October 1, 1992 at
$0.003 per share.......... ---- ---- ---- 960,000 $ 2,480 ---- $ 2,480
Net loss..................... ---- ---- ---- ---- ---- $ (92,744) (92,744)
-------- ---------- --------- --------- ------------ ----------- -----------
Balances at December 31, 1992 ---- ---- ---- 960,000 2,480 (92,744) (90,264)
Common stock issued for cash
in April and May 1993 at
$1.04 per share........... ---- ---- ---- 240,000 250,000 ---- 250,000
Net loss..................... ---- ---- ---- ---- ---- (190,749) (190,749)
-------- ---------- --------- --------- ------------ ----------- -----------
Balances at December 31, 1993 ---- ---- ---- 1,200,000 252,480 (283,493) (31,013)
Common stock issued for cash
on May 2, 1994 at $1.04 per
share..................... ---- ---- ---- 60,000 62,500 ---- 62,500
Net loss..................... ---- ---- ---- ---- ---- (237,022) (237,022)
-------- ---------- --------- --------- ------------ ----------- -----------
Balances at December 31, 1994 ---- ---- ---- 1,260,000 314,980 (520,515) (205,535)
Common stock issued in
exchange for convertible
debt on September 29, 1995
at $1.04 per share........ ---- ---- ---- 768,000 800,000 ---- 800,000
Common stock issued upon
exercise of options in
September and December 1995
at $1.04 per share........ ---- ----- ----- 102,000 106,250 ---- 106,250
Preferred stock issued for
cash in November and
December 1995 at $2.08 per
share, net of issuance
costs of $21,693.......... 939,600 $1,935,807 ---- ---- ---- ---- 1,935,807
Net loss..................... ---- ---- ---- ---- ---- (1,436,473) (1,436,473)
-------- ---------- -------- --------- ------------ ----------- -----------
Balances on December 31, 1995 939,600 1,935,807 ---- 2,130,000 1,221,230 (1,956,988) 1,200,049
Common stock issued upon
exercise of options on
February 1, 1996 at $1.04
per share................. ---- ---- ---- 120 125 ---- 125
Preferred stock issued for
cash in February 1996 at
$2.08 per share, net of
issuance costs of $2,771.. 120,000 247,229 ---- ---- ---- ---- 247,229
Common Stock issued for cash
in October 1996 at $2.25
per share, net of issuance
cost of $174,803.......... ---- ---- ---- 400,000 725,197 ---- 725,197
Net loss..................... ---- ---- ---- ---- ---- (4,391,454) (4,391,454)
--------- --------- -------- --------- ------------ ----------- -----------
Balances at December 31, 1996 1,059,600 2,183,036 ---- 2,530,120 1,946,552 (6,348,442) (2,218,854)
Common Stock and Warrants
issued in connection with
the initial public offering
on January 23, 1997
(unaudited)............... ---- ---- $195,500 1,700,000 6,823,101 ---- 7,018,601
Preferred Stock converted to
common stock (unaudited).. (1,059,600) (2,183,036) ---- 1,059,600 2,183,036 ---- ----
Convertible notes converted to
common stock (unaudited).. ---- ---- ---- 100,000 500,000 ---- 500,000
Issuance of warrants in
connection with the initial
public offering (unaudited) ---- ---- 187 ---- ---- ---- 187
Common Stock issued upon
exercise of options in
March at $1.04 and $2.08
per share (unaudited)..... ---- ---- ---- 3,125 4,816 ---- 4,816
Net loss (unaudited)......... ---- ---- ---- ---- ---- (3,024,712) (3,024,712)
--------- ---------- -------- --------- ------------ ----------- -----------
Balances on September 30, 1997
(unaudited)............... ---- ----- $195,687 5,392,845 $ 11,457,505 $(9,373,154) $ 2,280,038
========= ========== ======== ========= ============ =========== ===========
The accompany notes are an integral part of these financial statements.
F-4
CONDENSED STATEMENTS OF CASH FLOWS
(unaudited)
Nine Months Ended September 30, August 28, 1992
------------------------------- (inception) to
1996 1997 September 30,1997
---- ---- -----------------
Cash flows from operating activities:
Net loss....................................... $ (2,597,791) $ (3,024,712) $ (9,373,154)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization................ 159,871 198,083 492,794
Amortization of non cash discount............ ---- 145,023 1,029,250
Other........................................ 17,254 --- 28,800
Changes in assets and liabilities:
(Increase) decrease in prepaid expenses and
deferred costs............................ (277,630) 556,333 (85,225)
(Increase) decrease in other assets........ (37,589) 1,250 (16,267)
Increase (decrease) in accounts payable.... 294,856 (727,960) 129,467
Increase in accrued liabilities............ 354,825 7,447 465,564
---------------- ------------------ ------------------
Net cash used in operating activities..... (2,086,204) (2,844,536) (7,328,771)
---------------- ------------------ ------------------
Cash flows from investing activities:
Additions to property and equipment............ (296,394) (115,888) (1,033,714)
---------------- ------------------ ------------------
Net cash used in investing activities...... (296,394) (115,888) (1,033,714)
---------------- ------------------ ------------------
Cash flows from financing activities:
Payments of short-term notes payable........... ---- (2,000,000) (2,000,000)
Proceeds of short-term notes payable, net
accrued offering costs........................ ---- ---- 970,750
Repayment of convertible notes payable......... ---- ---- (500,000)
Proceeds from issuance of convertible notes
payable....................................... 500,000 ---- 1,800,000
Proceeds from issuance of common stock and
warrants, net of offering costs............... ---- 7,018,788 8,058,965
Net proceeds from issuance of preferred stock.. 235,217 ---- 2,183,036
Proceeds from shareholders' loans.............. ---- ---- 118,164
Repayment of loans from shareholders........... ---- ---- (118,164)
Proceeds from the exercise of stock options..... 100,125 4,816 111,191
---------------- ------------------ ------------------
Net cash provided by financing activities... 835,342 5,023,604 10,623,942
---------------- ------------------ ------------------
Net increase (decrease) in cash and cash
equivalents................................. (1,547,256) 2,063,180 2,261,457
Cash and cash equivalents at beginning of period.. 1,554,034 198,277 ----
---------------- ------------------ ------------------
Cash and cash equivalents at end of period........ $ 6,778 $ 2,261,457 $ 2,261,457
================ ================== ==================
The accompany notes are an integral part of these
financial statements.
F-5
HealthDesk Corporation
(a Development Stage Company)
NOTES TO CONDENSED FINANCIAL STATEMENTS
(unaudited)
The interim financial data is unaudited; however, in the opinion of
management, the interim data includes all adjustments, consisting of all normal
recurring adjustments necessary for a fair statement of results for the interim
periods. The financial statements included herein have been prepared by the
Company pursuant to the rules and regulations of the Securities and Exchange
Commission. Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such rules and
regulations, although the Company believes that the disclosures included herein
are adequate to make the information presented not misleading. Operating results
for the nine months ended September 30, 1997 are not necessarily indicative of
the results that may be expected for the year ending December 31, 1997.
The organization and the business of the Company, accounting policies
followed by the Company and other information are contained in the notes to the
Company's consolidated financial statements filed as part of the Company's
annual report for the fiscal year ended December 31, 1996 on Form 10-KSB. This
quarterly report should be read in conjunction with such annual report.
For comparability, certain September 30, 1996 amounts have been
reclassified where appropriate to conform to the financial statement
presentation used at September 30, 1997.
1. Organization and Basis of Presentation:
HealthDesk Corporation (the Company), a development stage company, is
engaged in designing, developing and marketing HealthDesk(R) OnLine, a
healthcare management and information system which enables consumers to take a
more active role in their personal and family health. HealthDesk OnLine features
easy-to-use Windows-based software designed to develop personal medical records
and health management programs and access educational, health related
information from the Company's private website and over the Internet.
2. Recently Issued Accounting Pronouncements:
In February 1997, Statement of Financial Accounting Standards No. 128
"Earnings Per Share" (FAS 128) was issued and is effective for the Company's
year ending December 31, 1997. In March 1997, Statement of Financial Accounting
Standards No. 129, "Disclosure of Information About Capital Structure" was
issued and is effective for the Company's year ending December 31, 1997. In June
1997, Statement of Financial Accounting Standards No. 130 "Reporting
Comprehensive Income" and Statement of Financial Accounting Standards No. 131
"Disclosures About Segments of An Enterprise and Related Information" were
issued and are effective for the year ending December 31, 1998. The Company has
not determined the impact of the implementation of these pronouncements.
3. Legal Proceedings:
The Company is subject to a complaint filed by a former employee with the
California Department of Fair Employment & Housing and a second from a former
consultant. The claim alleges wrongful termination as a result of alleged denial
of reasonable accommodation for a wrist and neck injury. The second complaint
alleges that a former consultant is entitled to compensation associated with
accelerated vesting of stock options. The Company intends to defend these
matters vigorously. There can be no assurance, however, that such matters will
be resolved in a manner favorable to the Company.
F-6
HealthDesk Corporation
(a Development Stage Company)
NOTES TO CONDENSED FINANCIAL STATEMENTS
(unaudited)
4. Initial Public Offering:
On January 23, 1997, the Company completed an initial public offering of
1,700,000 shares of Common Stock at $5.00 per share, and 1,700,000 warrants at
$0.10 per warrant. Each warrant is exercisable through January 16, 2002 and
allows the purchase of one share of common stock at $5.00, subject to adjustment
in certain circumstances. In January 1997, the underwriter exercised its option
to purchase an additional 255,000 warrants at $0.10 per warrant to cover
over-allotments. The Company sold the securities to the underwriter at a
discount of 10% from the initial public offering price and paid the underwriters
an expense allowance of 3% of the gross proceeds of the public offering. The
Company also sold, pursuant to the underwriting agreement, to the underwriters
for $187, warrants to purchase up to an aggregate of 170,000 shares of Common
Stock, no par value and/or 170,000 warrants to purchase 170,000 shares of Common
Stock. After deducting offering expenses, the Company received net proceeds from
the offering of $7,018,788.
5. Stock Options:
On September 2, 1997, the Company authorized a voluntary stock option
repricing program in which 20,000 stock options originally issued with an
exercise price of $5.00 per share, were reissued with an exercise price of $3.25
per share, the fair market value of the Company's Common Stock on September 2,
1997.
F-7
Exhibit Index
Description
-----------
10.10* Marketing Agreement dated as of September 30, 1997 between the
Registrant and HBO & Company of Atlanta, Georgia
11.1 Statement Regarding computation of earnings per share
27 Financial Data Schedule
*This exhibit has been filed separately with the Commission pursuant to an
application for confidential treatment. The confidential portions of this
exhibit have been omitted and marked by an asterisk.