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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, 1999
[_] Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Commission File Number. 0-21819
MC INFORMATICS, INC.
(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)
18881 Von Karman Ave., Suite 100, Irvine, California 92612
(Address of principal executive offices) (Zip Code)
949-261-7100
(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 November 8, 1999, there were 15,469,291 shares of the Company's Common
Stock outstanding and warrants to purchase 2,175,000 shares of Common Stock
outstanding.
Transitional Small Business Disclosure Format Yes [_] No [X]
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1
INDEX
Part I Page
Item 1 Financial Statements.....................................3
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations.....................3
Part II
Item 1 Legal Proceedings.......................................12
Item 2 Changes in Securities and Use of Proceeds...............12
Item 3 Defaults Upon Senior Securities.........................12
Item 4 Submission of Matters to a Vote of Security Holders.....12
Item 5 Other Information.......................................12
Item 6 Exhibits and Reports on Form 8-K........................12
Item 7 Signature...............................................13
2
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 Condensed Financial Statements
Condensed Balance Sheet
Condensed Statements of Operations
Condensed Statements of Cash Flows
Notes to Condensed Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
The Company's operating performance each quarter is subject to various risks
and uncertainties. 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
Exchange Act of 1934, as amended (the "Exchange Act"), and is subject to the
safe harbor created by such section. Readers are cautioned not to place undue
reliance on these forward-looking statements as they speak only as of the date
hereof.
Overview
On August 18, 1998, MC Informatics, Inc., a California corporation, and
certain shareholders of MC Informatics, Inc. entered into an Agreement and Plan
of Reorganization (the "Agreement") with MC Acquisition Corporation, a
California corporation and a wholly-owned subsidiary of HealthDesk Corporation
("Sub").
On March 2, 1999, pursuant to the terms of the Agreement, MC Informatics,
Inc., was merged with and into the Sub through the issuance of 5,645,230 shares
of HealthDesk Corporation common stock in exchange for all of the outstanding
shares of common stock of MC Informatics pursuant to the terms of the Agreement.
In connection with the merger, the surviving corporation changed its name to MC
Informatics, Inc. and, unless otherwise noted, the surviving Corporation is
referred to herein as the Company. In addition, in accordance with the
Agreement, upon the closing of the merger in March 1999, all of the outstanding
shares of series B preferred stock of HealthDesk Corporation were converted into
2,525,000 shares of the Company's common stock.
As a result of the foregoing, the discussion below relates to the current and
historical business of MC Informatics, Inc. The statements below 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.
3
Results of Operations
Three Month Period Ended September 30, 1999 Compared to the Three Month Period
Ended September 30, 1998
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The Company's revenues for the three months ended September 30, 1999 were
$2,471,756 as compared with $1,084,294 for the three months ended September 30,
1998. The increase of $1,387,462 was primarily a result of an increase in the
type of services performed and an increase in the number of billable personnel
employed by the Company to meet contractual obligations.
Gross profit increased to $442,538 for the three months ended September 30,
1999 from $306,142 for the same period of the previous year. Gross margin
decreased from 28% for the quarter ended September 30, 1998 to 18% for the
quarter ended September 30, 1999. The decrease in gross margin was primarily due
to the establishment of two new departments, Physician Care and Clinical Care,
for which the Company incurred significant start up costs, principally salary
and travel expenses without realizing substantial gross revenues yet. Gross
margin also decreased because several consultants were not billable for a period
of time while they transitioned from one engagement to another.
For the three months ended September 30, 1999, selling, general and
administrative expenses increased to $1,079,289 from $408,667 for the three
months ended September 30, 1998. The $670,622 increase was primarily due to
costs incurred in connection with the acquisition of Medical System Solutions
and an increase in personnel, increasing corporate overhead.
For the three month period ended September 30, 1999, other expense increased
to $23,364 from $3,800 for the period ended September 30, 1998. The increase was
primarily due to interest expense incurred from the Company's line of credit.
Nine Month Period Ended September 30, 1999 Compared to the Nine Month Period
Ended September 30, 1998
- -------------------------------------------------------------------------------
The Company's revenues for the nine months ended September 30, 1999 were
$6,665,751 as compared with $2,306,099 for the nine months ended September 30,
1998. The increase of $4,359,652 was primarily a result of an increase in the
type of services performed and an increase in the number of billable personnel
employed by the Company, from 35 to 56, to meet contractual obligations.
Gross profit increased to $1,742,939 for the nine months ended September 30,
1999 from $819,521 for the same period of the previous year. Gross margin
decreased from 36% for the nine month period ended September 30, 1998 to 26% for
the nine month period ended September 30, 1999. The decrease in gross margin was
primarily due to the expansion of the Company's operations into the Hawaii
market and the establishment of two new departments, Physician Care and Clinical
Care, which have incurred significant start up costs, principally salary and
travel expenses. Gross margin also decreased because several consultants were
not billable for a short period of time while they transitioned from one
engagement to another.
4
For the nine month period ended September 30, 1999, selling, general and
administrative expenses increased to $2,973,363 from $849,858 for the nine month
period ended September 30, 1998. The $2,123,505 increase was primarily due to
the merger with HealthDesk Corporation in March 1999, the acquisition of Medical
System Solutions in June, 1999, the relocation of the Company's corporate
headquarters and an increase from 10 to 27 in personnel.
For the nine month period ended September 30, 1999, other expense increased to
$152,005 from $3,800 for the nine month period ended September 30, 1998. The
increase was primarily due to the incremental yield on common stock issued at a
discount to market to certain employees in connection with a private placement
by HealthDesk Corporation prior to the merger with MC Informatics, Inc. in March
1999, and interest expense incurred on the line of credit.
Liquidity and Capital Resources
At September 30, 1999, the Company had cash and cash equivalents of $0, as
compared to $17,730 at December 31, 1998. Working capital at September 30, 1999
was $598,826 as compared to a negative working capital of $276,834 at December
31, 1998.
The Company's operating activities used net cash of $2,054,019 for the nine
months ended September 30, 1999 primarily as a result of the cash portion of the
net loss and increases in accounts receivable and decreases in accrued
liabilities partially offset by cash provided by increases in accounts payable.
For the nine months ended September 30, 1998, the Company's operating activities
used net cash of $344,759 primarily due to an increase in accounts receivable
partially offset by an increase in accrued liabilities and accounts payable.
The Company's investing activities provided net cash of $1,245,397 for the
nine months ended September 30, 1999, while the Company used net cash of $2,730
for the same period of the previous year. For the current period, the Company
received proceeds of $871,267 upon the reverse merger with HealthDesk
Corporation and collected $1,111,819 from related party notes receivable which
amounts were offset by $195,264 used to acquire Medical System Solutions,
$172,085 in advances to related parties, and $370,340 in capital expenditures,
primarily related to the relocation of the Company's corporate facility.
The Company's financing activities provided net cash of $790,892 for the nine
months ended September 30, 1999 while financing activities for the same period
of the previous year generated net cash of $372,000. For the current period, the
Company received proceeds aggregating $867,211 on its revolving credit facility,
and long term debt, collected $725,000 from a pre-merger subscription receivable
and repaid $801,319 on a related party note payable. The Company's financing
activities provided net cash of $372,000 for the nine months ended September 30,
1998, relating to proceeds received from a note payable to a related party.
The Company obtained a $1.7 million revolving line of credit from a bank in
May 1999. In October, the remaining amount available under the line of credit
was utilized for the acquisition of Inteck, Inc. The Company believes that it
will have to obtain additional funds to meet its projected cash requirements for
the next twelve months. However, there can be no assurance that the Company will
be able to secure additional financing with reasonable terms, if at all or that
the
5
Company's funding requirements will not increase significantly as a result of
unforeseen circumstances or that the Company's cash used in operating activities
will not increase.
In the event the Company exceeds its projected cash requirements, there can be
no assurance that the Company would be able to obtain public or private third-
party sources of financing or that favorable terms for such financing would be
available. In addition, given the trading history of the Company's Common Stock
and warrants to purchase common stock, there can be no assurance that the
Company will be able to raise additional cash through public or private
offerings of its Common Stock.
Year 2000 Issues
Some computers, software, and other equipment include computer code in which
calendar year data is abbreviated to only two digits. As a result of this
design decision, some of these systems could fail to operate or fail to produce
correct results if "00" is interpreted to mean 1900, rather than 2000. These
problems are widely expected to increase in frequency and severity as the year
2000 approaches, and are commonly referred to as the "year 2000 problem."
Assessment. The year 2000 problem affects the computers, software and other
equipment that we use, operate or maintain for our operations. Accordingly, the
Company has hired an individual to monitor the assessment and remediation status
of our year 2000 projects and report such status to our board of directors.
This individual began assessing the potential effect and costs of remediating
the year 2000 problem for the Company's internal systems in March 1999. The
Company has not obtained verification or validation from any independent third
parties of its processes to assess and correct any of its year 2000 problems or
the costs associated with these activities.
Internal infrastructure. The Company believes that all of its significant
internal information technology systems are currently year 2000 compliant and,
accordingly, does not anticipate any significant expenditures to replace
existing internal use systems.
Systems other than information technology systems. In addition to computers
and related systems, the operation of office and facilities equipment, such as
fax machines, telephone switches, security systems, and other common devices may
be affected by the year 2000 problem. The Company recently purchased a new
telephone system and network server and workstations which the Company believes
are year 2000 compliant. The Company estimates the total cost to it of
completing any required modifications, upgrades or replacements of the Company's
internal systems will not exceed $10,000, almost all of which the Company
believes will be incurred during 1999. This estimate is being monitored and the
Company will revise it as additional information becomes available.
Based on the activities described above, the Company does not believe that the
year 2000 problem will have a material adverse effect on its business or
operating results. In addition, the Company has not deferred any material
information technology projects as a result of its year 2000 problem activities.
Suppliers. The Company is in the process of contacting its third-party
suppliers to resolve issues involving the year 2000 problem. However, the
Company has limited or no control over the actions of these third-party
6
suppliers. Thus, while the Company expects that it will be able to resolve any
significant year 2000 problems with these third parties, there can be no
assurance that these suppliers will resolve any or all year 2000 problems before
the occurrence of a material disruption to the operation of its business. Any
failure of these third parties to timely resolve year 2000 problems with their
systems could have a material adverse effect on the Company's business,
operating results and financial condition.
Most likely consequences of year 2000 problems. The Company expects to
identify and resolve all year 2000 problems that could materially adversely
affect its business operations. However, the Company believes that it is not
possible to determine with complete certainty that all year 2000 problems
affecting it have been identified or corrected. The number of devices that could
be affected and the interactions among these devices are simply too numerous. In
addition, no one can accurately predict how many year 2000 problem-related
failures will occur or the severity, duration, or financial consequences of
these perhaps inevitable failures. As a result, the Company believes that the
following consequences are possible:
. A significant number of operational inconveniences and inefficiencies for
the Company and its customers that will divert management's time and attention
and financial and human resources from ordinary business activities;
. Several business disputes and claims for pricing adjustments or penalties
due to year 2000 problems by the Company's customers, which the Company believes
will be resolved in the ordinary course of business; and
. A few serious business disputes alleging that the Company failed to comply
with the terms of contracts or industry standards of performance, some of which
could result in litigation or contract termination.
Contingency plans. The Company is currently developing contingency plans to be
implemented if its efforts to identify and correct year 2000 problems affecting
its internal systems are not effective. Depending on the systems affected, these
plans could include:
. Accelerated replacement of affected equipment or software;
. Short- to medium-term use of backup equipment and software;
. Increased work hours for our personnel; and
. Use of contract personnel to correct on an accelerated schedule any year
2000 problems that arise or to provide manual workarounds for information
systems.
The Company's implementation of any of these contingency plans could have a
material adverse effect on its business, operating results and financial
condition.
Disclaimer. The discussion of the Company's efforts and expectations relating
to year 2000 compliance are forward-looking statements. The Company's ability
to achieve year 2000 compliance and the level of incremental costs associated
therewith, would be adversely affected by, among other things, the availability
and cost of programming and testing resources, third party suppliers' ability to
7
modify proprietary software, and unanticipated problems identified in the
ongoing compliance review.
Factors that May Affect Future Operating Results
The Company's future operating results are dependent on a number of factors,
including those set forth below.
Because the Company concluded that the merger of MC Informatics, Inc. with
HealthDesk Corporation constituted a reverse merger, Nasdaq required the Company
to comply with the initial listing requirements to remain listed on the Nasdaq
Small Cap Market. Since the Company did not meet these initial listing
requirements, the Company was delisted on June 9, 1999. As a result, the
trading of the Company's securities is now conducted in the non-Nasdaq over-the-
counter market. Due to the delisting, an investor may find it more difficult to
dispose of, or to obtain accurate quotations as to the market value of, the
Company's securities. Also, the trading of securities is subject to certain
rules promulgated under the Exchange Act, which require additional disclosure by
broker-dealers in connection with any trades involving a stock defined as a
penny stock (generally, any non-NASDAQ equity security that has a market price
of less than $5.00 per share, subject to certain exceptions). Such rules
require the delivery, prior to any penny stock transaction, of a disclosure
schedule explaining the penny stock market and the risks associated therewith,
and impose various sales practice requirements on broker-dealers who sell penny
stock to persons other than established customers and accredited investors
(generally institutions). For these types of transactions, the broker-dealer
must make a special suitability determination for the purchaser and have
received the purchaser's written consent to the transactions prior to sale. The
additional burdens imposed upon broker-dealers by such requirements may
discourage broker-dealers from effecting transactions in the Common Stock, which
could severely limit the market liquidity of the Common Stock and the ability of
holders of common stock to sell the Common Stock in the secondary market. There
can be no assurance that the Company's Common Stock will be listed on Nasdaq in
the foreseeable future.
Retention and Recruitment of Professional Staff. The Company's business
involves the delivery of professional services and is labor-intensive. The
Company's success depends in large part upon its ability to attract, develop,
motivate and retain highly skilled consultants. There is significant competition
for employees with the skills required to perform the services offered by the
Company from other consulting firms, healthcare providers and other healthcare
industry participants, health information systems vendors, clients, systems
integrators and many other enterprises. There can be no assurance that the
Company will be able to attract and retain a sufficient number of highly skilled
employees in the future or that it will continue to be successful in training,
retaining, and motivating employees. The loss of a significant number of
consultants and/or the Company's inability to hire a sufficient number of
qualified consultants would adversely affect the Company's ability to secure,
service and complete client engagements and could have a material adverse effect
on the Company's business, operating results and financial condition.
Client Concentration. The Company derives a significant portion of its
revenues from a relatively limited number of clients. Clients will typically
engage the Company on an assignment-by-assignment basis, and a client will be
able to generally terminate an assignment at any time without penalty. In
8
addition, the level of the Company's services required by any individual client
can diminish over the life of its relationship with the Company, and there can
be no assurance that the Company will be successful in establishing
relationships with new clients as this occurs. Moreover, there can be no
assurance that the Company's clients prior to the merger with HealthDesk
Corporation will continue to engage the Company for additional projects or do so
at the same revenue levels. The loss of any significant client could have a
material adverse effect on the Company's business, financial condition and
results of operations.
Project Risks; Limited Outsourcing Experience. Many of the Company's
engagements involve projects which are critical to the operations of its
clients' business and which provide benefits that may be difficult to quantify.
The Company's failure to meet a client's expectations in the performance of its
services could damage the Company's reputation and adversely affect its ability
to attract new business. In addition, the Company could incur substantial costs
and expend significant resources correcting errors in its work, and could
possibly become liable for damages caused by such errors. For example, the
healthcare industry faces potential difficulties with its information systems
and business operations arising out of potential year 2000 problems. The Company
has assisted and expects to continue to assist clients in selecting and
implementing software applications for the clients' use in their business. While
the Company is not aware of any existing or potential claims, the occurrence of
year 2000 related system failures in the information systems or other systems of
clients of the Company could involve the Company in disputes and negatively
impact client relationships, which in turn could have a material adverse effect
on the Company's business, financial condition and results of operations,
whether or not the Company bears any responsibility, legal or otherwise, for the
occurrence of those problems.
The Company has had limited experience to date as an outsourcing provider, and
there can be no assurance that it will be able to assess accurately the
investment required and negotiate and perform in a profitable manner any of its
outsourcing contracts. If the Company is successful in implementing its
outsourcing strategy, the Company anticipates that competitors may increase
their focus on this market which could adversely affect the Company's ability to
obtain new outsourcing contracts as well as the profitability of any such
contracts. In addition, any failure by the Company to perform adequately under
its outsourcing agreements may adversely effect its ability to obtain future
consulting engagements from these or other clients. The Company's failure to
obtain future consulting engagements could have a material adverse affect on the
Company's business, financial condition and results of operations.
Competition. The market for the Company's services is highly fragmented,
highly competitive and subject to rapid change. The Company believes that it
will compete principally with systems integration firms, national consulting
firms, including the consulting divisions of large accounting firms, information
system vendors, service groups of computer equipment companies, facilities
management companies, general management consulting firms, and regional and
specialty consulting firms. Many of these competitors have significantly greater
financial, technical and marketing resources than the Company, generate greater
revenues and have greater name recognition than the Company. Moreover, those
competitors that sell or license their own software may in the future attempt to
limit or eliminate the use of third party consultants, such as the Company, to
9
implement and/or customize such software. In addition, vendors whose systems may
enjoy wide market acceptance and large market share could enter into exclusive
or restrictive agreements with other consulting firms which could eliminate or
substantially reduce the Company's implementation work for those systems. There
are relatively low barriers to entry into the Company's markets, and the Company
faces and expects to face additional competition from new entrants into the
healthcare consulting industry. In addition, combinations and consolidations in
the consulting industry will give rise to large competitors whose relative
strengths are impossible to predict. The Company also competes with its clients'
internal resources, particularly where these resources represent a fixed cost to
the client. This internal client competition may heighten as consolidation of
healthcare providers creates organizations large enough to support more
sophisticated internal information management capabilities. There can be no
assurance that the Company will be able to compete effectively with current and
future competitors or that competitive pressures, including wage pressures as
the consultant labor market tightens, faced by the Company will not cause the
Company's revenue, or operating margins to decline.
Limited Revenues: Significant and Continuing Losses. The Company has not
achieved annual profitability and management cannot be certain that the Company
will realize sufficient revenues to achieve profitability. There can be no
assurance that the Company will be able to generate meaningful revenues or
achieve profitable operations.
Year 2000 Issues. Apprehension in the marketplace over year 2000 compliance
issues may lead businesses, including the customers of the Company to defer
significant capital investment in information technology programs. They could
elect to defer those investments because they decide to focus their capital
budgets on the expenditures necessary to bring their own existing systems into
compliance. If these deferrals are significant, the Company may not achieve
expected revenue or earnings levels.
Negative Cash Flow; Need for Additional Financing. The Company obtained a $1.7
million revolving line of credit from a bank in May 1999. In October, the
remaining amount available under the line of credit was utilized for the
acquisition of Inteck, Inc. The Company believes that it will have to obtain
additional funds to meet its projected cash requirements for the next twelve
months. The Company's capital requirements relating to its professional services
organization are expected to be significant. There can be no assurance that the
Company will be able to secure additional financing with reasonable terms, if at
all or that the Company's funding requirements will not increase significantly
as a result of unforeseen circumstances or that the Company's cash used in
operating activities will not increase. In the event the Company exceeds its
projected cash requirements, there can be no assurance that the Company would be
able to obtain public or private third-party sources of financing or, that
favorable terms for such financing would be available. In addition, given the
trading history of the Company's Common Stock and warrants to purchase common
stock, there can be no assurance that the Company will be able to raise
additional cash through public or private offerings of its common stock. Any of
these developments could materially adversely affect the Company's business,
financial condition and operating results.
Outstanding Options. As of September 30, 1999, the Company had outstanding
options to purchase an aggregate of 2,524,114 shares of common stock at exercise
prices ranging from $1.00 to $5.00. Exercise of any of the aforementioned
10
options may have a dilutive effect on the Company's shareholders. Furthermore,
the terms upon which the Company may be able to obtain additional equity
financing may be adversely affected, since the holders of the options can be
expected to exercise them at a time when the Company would, in all likelihood,
be able to obtain any needed capital on terms more favorable to the Company than
those provided in the options.
No Dividends. To date, the Company has not paid any cash dividends and does
not expect to declare or pay dividends on common stock in the foreseeable
future.
Authorized Preferred Stock. The Company's Restated Articles of Incorporation
authorize the Company's board of directors to issue 3,000,000 shares of "blank
check" preferred stock and to fix the rights and restrictions, including voting
rights, of these shares, without further shareholder approval. The rights of the
holders of the Company's Common Stock will be subject to and may be adversely
affected by the rights of holders of any preferred stock that may be issued in
the future. The ability to issue Preferred Stock without shareholder approval
could have the effect of making it more difficult for a third party to acquire a
majority of the voting stock of the Company thereby delaying, deferring or
preventing a change in control of the Company.
Volatility of Stock and Warrants Prices. The Company's common stock and
warrants to purchase common stock have experienced substantial price
fluctuations. In addition, the stock market has experienced significant price
and volume fluctuations that have especially affected the market prices of
equity securities of many companies, which often have been unrelated to the
operating performance of such companies. In the past, following periods of
volatility in the market price of a company's securities, securities class
action litigation has often been instituted against such a company. Such
litigation could result in substantial costs and a diversion of management's
attention and resources, which would have a material adverse effect on the
Company's business, operating results and financial condition. These broad
market fluctuations may adversely affect the market price of the Company's
Common Stock and warrants.
11
Part II
Item 1. Legal Proceedings.
None.
Item 2. Changes in Securities and Use of Proceeds.
None.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
Item 5. Other Information.
Not applicable
Item 6. Exhibits and Reports on Form 8-K.
a) Exhibits:
27 Financial Data Schedule
b) Form 8-K
On July 14, 1999, the Company filed a Form 8-K in connection with the
acquisition of Medical System Solutions.
On September 28, 1999, the Company filed a Form 8-K/A Amendment #2 in
connection with the merger of MC Informatics, Inc. and HealthDesk
Corporation.
12
SIGNATURE
In accordance with the requirements of the Securities Exchange Act of 1934,
the Registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
MC Informatics, Inc.
By: /s/ Jeffrey Pollard, C.P.A. Date: November 10, 1999
---------------------------
Jeffrey Pollard
Chief Financial Officer and Chief Accounting
Officer
13
MC INFORMATICS, INC.
Condensed Financial Statements
CONTENTS
Page
----
Condensed Balance Sheet as of September 30, 1999 (unaudited).............. F-2
Condensed Statements of Operations for the three months and nine months
ended September 30, 1999 and 1998 (unaudited)............................ F-3
Condensed Statements of Cash Flows for the nine months
ended September 30, 1999 and 1998 (unaudited)............................ F-4
Notes to Condensed Financial Statements (unaudited)....................... F-5
F-1
MC INFORMATICS, INC.
CONDENSED BALANCE SHEET
SEPTEMBER 30, 1999
(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents................................. $ -
Accounts receivable, net.................................. 1,955,754
Note receivable from related party........................ 179,370
Inventories............................................... 47,693
Prepaid expenses and other current assets................. 198,797
-----------
Total current assets....................................... 2,381,614
Property and equipment, net............................... 361,452
Goodwill, net............................................. 413,387
Other assets.............................................. 60,117
-----------
Total assets........................................ $ 3,216,570
===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Note payable to bank...................................... $ 725,000
Accounts payable.......................................... 641,676
Accrued liabilities....................................... 416,112
-----------
Total current liabilities.................................. 1,782,788
Long-term debt............................................. 142,211
-----------
Total liabilities........................................ $ 1,924,999
-----------
Shareholders' equity:
Common stock.............................................. 2,995,349
Accumulated deficit....................................... (1,703,778)
-----------
Total shareholders' equity............................... 1,291,571
-----------
Total liabilities and shareholders' equity.............. $ 3,216,570
===========
See accompanying notes to condensed financial statements.
F-2
MC INFORMATICS, INC.
CONDENSED STATEMENTS OF OPERATIONS
(unaudited)
Three Months Nine Months
Ended September 30, Ended September 30,
1999 1998 1999 1998
------------ ------------- ------------ -----------
Revenues.............................................. $ 2,471,756 $ 1,084,294 $ 6,665,751 $2,306,099
Direct expenses....................................... 2,029,218 778,152 4,922,812 1,486,578
----------- ------------ ----------- ----------
Gross profit........................................ 442,538 306,142 1,742,939 819,521
Selling, general and administrative
expenses............................................. 1,079,289 408,667 2,973,363 849,858
----------- ------------ ----------- ----------
Loss from operations.................................. (636,751) (102,525) (1,230,424) (30,337)
Other expense......................................... 23,364 3,800 152,005 3,800
----------- ------------ ----------- ----------
Loss before provision
for income taxes..................................... (660,115) (106,325) (1,382,429) (34,137)
Provision for income taxes............................ 400 -- 1,200 --
----------- ------------ ----------- ----------
Net loss.............................................. $ (660,515) $ (106,325) $(1,383,629) $ (34,137)
=========== ============ =========== ==========
Net loss per share,
basic and diluted $ (0.04) $ (0.02) $ (0.11) $ (0.01)
=========== ============ =========== ==========
Weighted average number of shares of
common stock, basic and diluted....................... 15,224,291 5,645,230 13,066,530 5,645,230
=========== ============ =========== ==========
See accompanying notes to condensed financial statements.
F-3
MC INFORMATICS, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(unaudited)
Nine Months Ended September 30,
1999 1998
---------- -----------
Cash flows from operating activities:
Net loss........................................................ $(1,383,629) $ (34,137)
Adjustments to reconcile net loss
to net cash used in operating activities:
Depreciation and amortization.................................. 86,091 7,425
Non cash financing cost associated with discounted
common stock................................................ 131,250 --
Stock option compensation expense.............................. 48,792 --
Changes in operating assets and liabilities:
Accounts receivable........................................... (988,968) (526,071)
Prepaid expenses and other current assets..................... (84,885) 2,048
Other assets.................................................. (33,324) (7,725)
Accounts payable.............................................. 419,120 44,077
Accrued liabilities........................................... (248,466) 169,624
----------- ---------
Net cash used in operating activities........................ (2,054,019) (344,759)
----------- ---------
Cash flows from investing activities:
Purchases of property and equipment............................. (370,340) (2,730)
Proceeds received upon reverse acquisition...................... 871,267 --
Collection of notes receivable from related party............... 1,111,819
Advances to related party....................................... (172,085) --
Acquisition of Medical Systems Solutions........................ (195,264) --
----------- ---------
Net cash provided by (used in)
Investing activities....................................... 1,245,397 (2,730)
----------- ---------
Cash flows from financing activities:
Repayment of notes payable to related party..................... (801,319) --
Proceeds from related party note payable........................ 372,000
Collection of pre-merger subscription receivable................ 725,000 --
Net proceeds from note payable to bank.......................... 725,000 --
Proceeds from long-term debt.................................... 142,211 --
----------- ---------
Net cash provided by financing activities.................... 790,892 372,000
----------- ---------
Net increase in cash and cash equivalents.................... (17,730) 24,511
Cash and cash equivalents at beginning of period................ 17,730 --
----------- ---------
Cash and cash equivalents at end of period...................... $ -- $ 24,511
=========== =========
See accompanying notes to condensed financial statements.
F-4
MC INFORMATICS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(unaudited)
1. Basis of Presentation and Business
The accompanying unaudited condensed financial statements have been
prepared by the Company pursuant to the rules and regulations of the Securities
and Exchange Commission. The unaudited condensed financial statements include
all adjustments, consisting of all normal recurring adjustments, which are in
the opinion of management necessary to fairly state the financial position as of
September 30, 1999 and the results of operations and cash flows for the related
interim periods ended September 30, 1999 and 1998. 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 periods ended September 30,
1999 are not necessarily indicative of the results that may be expected for the
year ending December 31, 1999 or any other period.
The accounting policies followed by the Company and other information are
contained in the notes to the Company's financial statements filed on May
17, 1999 as part of the Company's current report on Form 8-K/A. This quarterly
report should be read in conjunction with such current report.
The Company is a healthcare consulting firm, which was established in April
1997 and provides a wide range of information technology, strategic and
operations management consulting services to a broad cross-section of healthcare
industry participants and healthcare information system vendors.
On March 2, 1999, MC Informatics, Inc., a California Corporation, ("MCIF")
was merged with and into a wholly-owned subsidiary of HealthDesk Corporation
("HealthDesk") through the issuance of 5,645,230 shares of HealthDesk's common
stock in exchange for all the outstanding common shares of MCIF pursuant to the
terms of an Agreement and Plan of Reorganization, dated August 18, 1998 (the
"Agreement"). In connection with the merger, HealthDesk changed its name to MC
Informatics, Inc. In accordance with the Agreement, upon the closing of the
merger in March 1999, all of the outstanding shares of series B preferred stock
of HealthDesk were converted into 2,525,000 shares of common stock.
As HealthDesk had no significant operations prior to the merger, the
transaction has been accounted for as a reverse acquisition whereby MCIF has
been identified as the acquiring corporation for financial reporting purposes.
Accordingly, the accompanying financial statements reflect the accounts of MCIF
for all periods presented. The accompanying financial statements include the
accounts of HealthDesk from the date of the stock-for-stock exchange (March 2,
1999).
The 5,645,230 shares of common stock issued to acquire the common stock of
MCIF are reflected in the accompanying financial statements as if the shares
were issued and outstanding for all periods presented. The 9,467,845 shares
retained by the original HealthDesk shareholders (including the 2,525,000 shares
F-5
of common stock issued upon conversion of the HealthDesk series B preferred
stock) are reflected in the accompanying financial statements as consideration
issued by MCIF to acquire the net assets of HealthDesk. The historical cost of
the net assets acquired and, accordingly, the recorded value of the common stock
issued was $2,531,747.
As used herein, the term the Company refers to the entity resulting from
the merger of MCIF and HealthDesk Corporation.
2. Notes receivable and payable - related parties
During 1998 and through February 1999, HealthDesk loaned amounts
aggregating $1,111,819 to certain of its directors and officers. These funds
were subsequently loaned on substantially the same terms back to the Company by
said directors and officers. The notes were unsecured bearing interest at 8.5%.
As of September 30, 1999, the notes receivable and notes payable had been
collected and repaid in full.
3. Note Payable to Bank and Long Term Debt
On May 28, 1999, the Company entered into an agreement with a bank for a
revolving line of credit of up to $1,700,000, which includes a $200,000 sub-
facility for an equipment term loan and a $150,000 sub-limit for the issuance of
commercial or standby letters of credit. In connection with the line of credit,
the Company issued warrants to purchase 50,000 shares of the Company's common
stock, exercisable at $2.87 per share and expiring on May 27, 2004. The Company
has ascribed an estimated fair value to these warrants aggregating $38,966 which
was capitalized at the date of issuance and is amortized over the term of the
revolving line of credit. As of September 30, 1999, the Company had drawn
$725,000 on the credit line and $142,211 on the equipment term loan.
The line of credit is collateralized by substantially all assets of the
Company and bears interest at the bank's prime rate plus 1.50%. The revolving
line of credit and the standby letters of credit are payable in monthly
installments of interest only, with the unpaid principal balance and accrued
interest due at May 26, 2000. The equipment term loan is payable in monthly
installments of interest only, commencing on June 5, 1999 continuing to
maturity. Commencing on June 5, 2000, the principal balance is payable in thirty
six equal monthly payments, with the unpaid principal balance and accrued
interest due at May 26, 2003.
4. Acquisition
Effective June 1, 1999, the Company acquired substantially all of the assets
of Medical Systems Solutions, Inc. pursuant to the terms of an Asset Purchase
Agreement. The assets purchased include inventory of computer hardware and
software programs, computer equipment and all of the current customer contracts
of Medical Systems Solutions, Inc. The purchase price for the acquisition
included the issuance of 111,216 shares of common stock (with a fair value of
$305,844) and a cash payment of $195,264. The cost in excess of the net assets
acquired was $438,415 which is being amortized on a straight-line basis over the
estimated useful life of five years.
F-6
5. Subsequent Event
On October 1, 1999, the Company acquired all of the outstanding stock of
HSG Acquisition, Inc. (dba Inteck, Inc.) pursuant to the terms of a Stock
Purchase Agreement for a purchase price of $1,812,500. The purchase price for
the acquisition included the issuance of 245,000 shares of the Company's Common
Stock valued at $2.50 per share (fair market value), an additional issuance of
120,000 shares of Common Stock valued at $2.50 per share on January 5, 2000, a
cash payment of $300,000 and a promissory note for $600,000 bearing interest at
the rate of 8.5% per annum commencing October 1, 1999. The terms of the
promissory note include an interest only payment of $13,413 due on January 5,
2000, and nine monthly payments of principal and interest of $36,650 commencing
January 5, 2000, with a balloon payment of $300,000 due on October 1, 2000.
In October 1999, certain officers and directors loaned an aggregate amount
of $500,000 to the Company. The notes are unsecured, bear interest at 10.0% per
annum and are payable with a $200,000 installment on December 31, 1999 and the
remaining balances are payable upon demand and if no demand is made, then they
are due one year from the date advanced.
F-7