-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, FoVaDILLLtnLJKD1Bydyg/KvPa/rQnfUh7HXpHvX7wGaARUsfZc6amUtYXPWeN4q 0kX5F7BSG53MG+rZ+/5mqA== 0000950116-98-001720.txt : 19980817 0000950116-98-001720.hdr.sgml : 19980817 ACCESSION NUMBER: 0000950116-98-001720 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19980630 FILED AS OF DATE: 19980814 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: HEALTHDESK CORP CENTRAL INDEX KEY: 0001023767 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-PREPACKAGED SOFTWARE [7372] IRS NUMBER: 843165144 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10QSB SEC ACT: SEC FILE NUMBER: 000-21819 FILM NUMBER: 98689212 BUSINESS ADDRESS: STREET 1: 2560 NINTH ST STREET 2: STE 220 CITY: BERKELEY STATE: CA ZIP: 94710 BUSINESS PHONE: 5108832160 10QSB 1 - ------------------------------------------------------------------------------- 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 June 30, 1998 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, Berkeley, California 94710 (Address of principal executive offices) (Zip Code) (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 August 10, 1998, there were 5,792,845 shares of the Company's Common Stock outstanding, 425 shares of the Company's Series B Preferred 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 of Financial Condition and Results of Operations.......... 3 Part II Item 1 Legal Proceedings.............................................................................. 7 Item 2 Changes in Securities and Use of Proceeds...................................................... 7 Item 3 Defaults Upon Senior Securities................................................................ 7 Item 4 Submission of Matters to a Vote of Security Holders............................................ 7 Item 5 Other Information.............................................................................. 8 Item 6 Exhibits and Reports on Form 8-K............................................................... 8
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 Interim Financial Statements Condensed Balance Sheets 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 as discussed in the Company's Form 10-KSB for the year ended December 31, 1997. 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 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 The Company was organized in August 1992 and is still in the development stage. 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 market testing and subsequent commercialization of CareTeam Connect and HealthDesk OnLine for Diabetes and the commercialization of HealthDesk OnLine, and then attracts and retains a significant number of subscribers for such products. For the period August 28, 1992 (inception) to June 30, 1998, the Company incurred a cumulative net loss of approximately $11,767,066. In May 1998, as a result of ongoing difficulties in marketing its HealthDesk OnLine products, the Company announced a major restructuring of its operations. In connection therewith, in June 1998, the Company executed a letter of intent to merge (the "Merger") with MC Informatics, Inc. ("MCI"). In the event the Company enters into a definitive merger agreement, the Merger will still be subject to a number of closing conditions, including the approval of the Merger by the Company's shareholders. If the Merger closes, the Company will merge with MCI and assume its operations. MCI is a healthcare consulting firm that provides a wide range of information technology and strategic and operations management consulting services to a broad cross-section of healthcare industry participants and healthcare information system vendors. If the Merger is consummated, HealthDesk would issue approximately five million (5,000,000) shares of Common Stock to the current shareholders of MCI, representing approximately 40% of the Company's total outstanding shares following the Merger. In June 1998, the Company announced that as part of its restructuring process, it intends to sell substantially all of its assets relating to its HealthDesk OnLine products. As a result of its restructuring, the Company's Chief Executive Officer, Peter O'Donnell, and its Chief Financial Officer, Timothy Yamauchi, resigned from the Company in May 1998. In addition, the Company eliminated seven other positions. During the restructuring process, the Company has established an Operating Committee, consisting of Messrs. Dunham, Brandt and Zieg, to manage the Company's operations. 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 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 June 1998, 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 also effective for the year ending December 31, 1998. The Company believes the adoption of these pronouncements will not have a material effect on its financial statements. In October 1997, the Accounting Standards Executive Committee issued Statement of Position 97-2 (SOP 97-2), Software Revenue Recognition, which delineates the accounting for software product and maintenance revenue. SOP 97-2 supersedes the Accounting Standards Executive Committee Statement of Position 91-1, Software Revenue Recognition, and is effective for transactions entered into in fiscal years beginning after December 15, 1997. The Company anticipates that SOP 97-2 will not have a material impact on its financial statements. Results of Operations Revenue, which consists primarily of software development and licensing fees, increased from $25,558 for the three months ended June 30, 1997 to $43,276 for the three months ended June 30, 1998, and decreased from $226,043 for the six months ended June 30, 1997 to $56,186 for the six months ended June 30, 1998. The six-month decrease was primarily attributable to a decrease in development fee revenue associated with the development of HealthDesk OnLine for Diabetes. Product development costs decreased by 33.0% from $607,714 for the three months ended June 30, 1997 to $407,015 for the three months ended June 30, 1998, and by 41.0% from $1,304,931 for the six months ended June 30, 1997 to $770,227 for the six months ended June 30, 1998. The decrease in product development costs was principally related to the hiring of full-time programming staff instead of using higher cost contractors. The decrease in product development costs was also due to the Company's re-negotiation of an existing content license agreement which resulted in reduced royalty costs of approximately $95,000 and the elimination of certain engineering and programmer positions as a result of the Company's restructuring that was announced in May 1998. Sales and marketing costs decreased by 40.2% from $370,691 for the three months ended June 30, 1997 to $221,624 for the three months ended June 30, 1998, and by 35.6% from $809,409 for the six months ended June 30, 1997 to $521,491 for the six months ended June 30, 1998. This decrease in sales and marketing costs resulted primarily from the reduction in headcount in connection with the Company's restructuring that was announced in May 1998. General and administrative costs decreased by 59.1% from $168,688 for the three months ended June 30, 1997 to $69,019 for the three months ended June 30, 1998 and by 42.8% from $312,605 for the six months ended June 30, 1997 to $178,806 for the six months ended June 30, 1998. The decrease in general and administrative costs was primarily attributable to the reversal of certain professional fees over accruals and the reduction in personnel as a result of the Company's restructuring that was announced in May 1998. Other income (expense), net (including interest expense, interest income and non-recurring restructuring costs) changed from income of $40,471 for the three months ended June 30, 1997 to expense of ($202,488) for the three months ended June 30, 1998. Other income (expense), net (including interest expense, interest income, amortization of discount and issuance costs and non-recurring restructuring costs) changed from expense of ($81,604) for the six months ended June 30, 1997 to expense of ($186,639) for the six months ended June 30, 1998. The increase in other expenses was primarily attributable to the fact that during the first half of 1998, the Company recorded non-recurring costs, which consisted principally of employee termination severance packages, of $220,697 associated with the Company's restructuring of its operations in May 1998. 4 As a result of the foregoing, the Company incurred a net loss of $857,070 and $1,601,377 for the three months and six months ended June 30, 1998, respectively, as compared to a net loss of $1,081,264 and $2,282,906 for the comparable periods in 1997. Liquidity and Capital Resources On February 25, 1998, the Company completed an $800,000 private placement. The placement consisted of the sale of 400,000 shares of Common Stock, at a price of $2.00 per share to two of the Company's existing shareholders. As of June 30, 1998, the Company has a total of 425 shares of Series B Preferred Stock issued and outstanding as a result of the following private placements. On March 31, 1998, two existing shareholders agreed to purchase 250 shares of the Company's Series B Preferred Stock for proceeds of $500,000. On May 13, 1998, the Company received the $500,000 proceeds. On June 30, 1998, three existing shareholders purchased 175 shares of the Company's Series B Preferred Stock for total proceeds of $350,000, of which $300,000 was received on June 30, 1998 and $50,000 was received on July 8, 1998. The outstanding shares of Series B Preferred Stock are convertible, at any time, at the option of the holders into an aggregate of 1,700,000 shares of the Company's Common Stock. The shares of Series B Preferred Stock are subject to automatic conversion upon the closing of the contemplated Merger with MCI or five years from the date of their issuance at a conversion price of $0.50 per share. On April 13, 1998, the Company announced that with respect to its outstanding publicly traded warrants, it was reducing (i) the exercise price from $5.00 per share to $2.50 per share, and (ii) the call price for the warrants from $7.50 to $3.75. At June 30, 1998, the Company had cash and cash equivalents of $1,268,165, as compared to $1,405,430 at December 31, 1997. During the first half of 1998, $1,698,748 of cash was used in operating activities, principally as a result of the $1,601,377 loss incurred in the first half of 1998. The decrease in accounts payable and accrued liabilities was attributable to the lower volume as a result of the Company's May 1998 restructuring. During the first half of 1997, $2,299,346 of cash was used in operating activities, principally as a result of the $2,282,906 loss incurred in the first half of 1997. The decrease in accounts payable and accrued liabilities, offset by the non-cash discount associated with the Company's bridge financing in October 1996 and prepaid expenses and deferred costs, was attributable to the non-recurring costs associated with the Company's initial public offering in January 1997. Working capital at June 30, 1998 was $1,150,172, as compared to $2,469,731 at June 30, 1997. In the event the Company is unable to sell its assets relating to its HealthDesk OnLine products, the Company expects to incur significant expenses in connection with its operations, including expenses associated with marketing and sales personnel and the research and development of product lines. However, the Company believes that it has working capital sufficient to meet its projected cash requirements through the end of 1998. The Company is actively seeking additional equity financing. There can be no assurance that the Company will 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 and Warrants since the initial public offering, there can be no assurance that the Company will be able to raise additional cash through public or private offerings of its Common Stock. There also 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 for operating activities will not increase. In the event the Company completes the proposed Merger with MCI, the Company anticipates that its current operations will cease and it will assume the operations of MCI. The Company's capital requirements relating to the development and commercialization of HealthDesk OnLine have been and will continue to be significant. Other than as described in this Form 10-QSB, the Company has no material commitments for capital expenditures. For the period August 28, 1992 (inception) to June 30, 1998, the Company had capital expenditures of approximately $1,115,843 relating primarily to purchases of servers, PCs and telecommunications equipment. 5 Year 2000 The Company is working to resolve the potential impact of the Year 2000 on the ability of the Company's computerized information systems to accurately process information that may be date-sensitive. Any of the Company's programs that recognize a date using "00" as the Year 1900 rather than the Year 2000 could result in errors or system failures. The Company utilizes a number of computer programs across its entire operation. The Company has not completed its assessment, but currently believes that costs of addressing this issue will not have a material adverse impact on the Company's financial position. However, if the Company and third parties upon which it relies are unable to address this issue in a timely manner, it could result in a material financial risk to the Company. The Company currently expects that its internal-use software application will be Year 2000 compliant by no later than January 1999. However, there can be no guarantee that these estimates will be achieved and actual results could differ materially from those anticipated. Specific factors that might cause such material differences include, but are not limited to, the availability and loss of personnel trained in this area, the ability to locate and correct all relevant computer codes, and similar uncertainties. 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 and in the Company's Form 10-KSB filed with the Securities and Exchange Commission on March 10, 1998. Transition of Company. The Company has recently announced that it intends to sell substantially all of its assets relating to its HealthDesk OnLine products, and to merge its remaining operations with MC Informatics, a healthcare consulting firm. Individually and in combination these transactions represent a fundamental change in the nature of the Company's business, assets and operations. Each of these proposed transactions is subject to a number of conditions, including the negotiation and execution of definitive agreements and the approval of such transactions by the Company's shareholders. There can be no assurance that either or both of the transactions will be consummated, or that if they are consummated, the Company will be able to successfully transition its business to become a healthcare consulting firm. The Company's failure to transition its operations upon completion of these proposed transactions could have a material adverse effect on the Company's business, financial condition and results of operations. In addition, if the Company's proposed sale of its HealthDesk OnLine assets or the merger with MC Informatics are not completed, there can be no assurance that the Company will be able to continue its current operations. Possible Delisting of Securities from NASDAQ System; Disclosure Relating to Low-Priced Stocks. The Common Stock and Warrants are currently quoted on NASDAQ SmallCap Market ("NASDAQ"). As of June 30, 1998, the Company did not meet the maintenance criteria for continued listing on NASDAQ because its total assets are below $2,000,000. Because of its failure to meet these maintenance criteria, the Company's securities may be delisted from NASDAQ in which case trading, if any, in the Company's securities would thereafter be conducted in the non-NASDAQ over-the-counter market. As a result of such 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. In addition, if the Common Stock were delisted from trading on NASDAQ and the trading price of the Common Stock was less than $5.00 per share, trading in the Common Stock would also be 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 purchasers in the offering to sell the Common Stock in the secondary market. 6 Part II Item 1. Legal Proceedings. None. Item 2. Changes in Securities and Use of Proceeds. (c) Recent Sales of Unregistered Securities On February 19, 24 and 25, 1998, the Company sold an aggregate of 400,000 shares of Common Stock at a purchase price of $2.00 to two existing shareholders of the Company. On May 13, 1998, the Company received the proceeds of a $500,000 private placement of shares of Series B Preferred Stock with two existing shareholders of the Company. On June 30 and July 8, 1998, the Company received aggregate proceeds of $350,000 in connection with the private placement of additional shares of Series B Preferred Stock to three existing shareholders of the Company. The conversion price of the Series B Preferred Stock is $0.50 per share. The foregoing transactions were not registered under the Securities Act of 1933, as amended (the "1933 Act") in reliance upon the exemptions provided by Section 4 (2) of the 1933 Act and/or Regulation D promulgated thereunder as a transaction by an issuer not involving a public offering. Item 3. Defaults Upon Senior Securities. None. Item 4. Submission of Matters to a Vote of Security Holders. The Company's Annual Meeting of Shareholders (the "Annual Meeting") was held on June 17, 1998 at 9:00a.m., local time, at the Radisson Hotel Berkeley at 200 Marina Boulevard, Berkeley, California. The Annual Meeting was held for the purpose of (a) electing the Board of Directors, (b) ratifying and approving the Company's independent auditors for the fiscal year ending December 31, 1998 and (c) transacting other business as may properly come before the Annual Meeting. The two matters below were voted upon and approved: 7 Matter No. 1 - Election of Board of Directors: The following persons were duly elected to the Board for the ensuing year and until their successors are duly elected and qualified: NOMINATION FOR AGAINST ---------- --- ------- John Pappajohn 4,320,797 11,900 James A. Gordon 4,320,797 11,900 Dr. Joseph Rudick, Jr. 4,320,797 11,900 Molly C. Coye MD 4,320,797 11,900 Joseph R. Dunham II 4,320,797 11,900 Matter No. 2 - Ratification of the Appointment of Coopers & Lybrand L.L.P. as the Independent Auditors for the Fiscal Year Ending December 31, 1998: NOMINATION FOR AGAINST ABSTAINED ---------- --- ------- --------- Coopers & Lybrand L.L.P. 4,322,697 -- 10,000 Item 5. Other Information. The Company's proxy for its next Annual Meeting of Shareholders may confer discretionary authority to vote on any proposal submitted by a shareholder if written notice of such proposal is not delivered to the Company at its offices at 2560 Ninth Street, Suite 220, Berkeley, California 94710, on or before March 22, 1999. Any proposals of shareholders to be included in the Company's proxy statement for that meeting must be received by the Company at its offices not later than January 4, 1999, and must satisfy the conditions established by the Securities and Exchange Commission for shareholder proposals to be included in the Company's proxy statement for that meeting. Item 6. Exhibits and Reports on Form 8-K. a) Exhibits: 10.12 Form of Convertible Securities Subscription Agreement 11.1 Statement Regarding Computation of Earnings per Share 27 Financial Data Schedule b) No reports have been filed on Form 8-K in the quarter ended June 30, 1998. 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/ Joseph R. Dunham II Date: August 14, 1998 --------------------------------------- Joseph R. Dunham II Director and member of the Operating Committee /s/ Ledia L. Ouyang Date: August 14, 1998 --------------------------------------- Ledia L. Ouyang Controller 8 HealthDesk Corporation (A Development Stage Company) CONTENTS Page ---- Condensed Balance Sheets as of December 31, 1997 and June 30, 1998 (unaudited).......................................... F-2 Condensed Statements of Operations for the three months and the six months ended June 30, 1997 and 1998, and period from inception to June 30, 1998 (unaudited) .......................................... F-3 Condensed Statements of Cash Flows for the six months ended June 30, 1997 and 1998 and period from inception to June 30, 1998 (unaudited)......................................................... F-4 Notes to Condensed Financial Statements................................ F-5 F-1 HealthDesk Corporation (A Development Stage Company) CONDENSED BALANCE SHEETS
December 31, June 30 ASSETS 1997 1998 ---- ---- (unaudited) Current assets: Cash and cash equivalents ............................ $ 1,405,430 $ 1,268,165 Stock subscription receivable ........................ -- 50,000 Prepaid expenses and other ........................... 78,724 207,194 ------------ ------------ Total current assets .............................. 1,484,154 1,525,359 ------------ ------------ Property and equipment, net .......................... 472,561 352,838 Other assets ......................................... 15,850 19,288 ------------ ------------ Total assets .................................. $ 1,972,565 $ 1,897,485 ============ ============ LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable ..................................... $ 133,992 $ 76,620 Accrued liabilities .................................. 351,070 298,567 ------------ ------------ Total liabilities ................................. 485,062 375,187 ------------ ------------ Shareholders' equity: Convertible preferred stock, no par value; none at December 31, 1997 and authorized 750 shares; issued and outstanding 425 shares at June 30, 1998 ....... -- 836,172 Common stock, no par value; authorized 17,000,000 shares; issued and outstanding, 5,392,845 and 5,792,845 at December 31, 1997, and June 30, 1998, respectively ...................................... 11,457,505 12,257,505 Warrants ............................................. 195,687 195,687 Deficit accumulated during the development stage ..... (10,165,689) (11,767,066) ------------ ------------ Total shareholders' equity ........................ 1,487,503 1,522,298 ------------ ------------ Total liabilities and shareholders' equity .... $ 1,972,565 $ 1,897,485 ============ ============
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 (Inception) Three Months Ended June 30, Six Months Ended June 30, to --------------------------- ---------------------------- June 30, 1997 1998 1997 1998 1998 ---- ---- ---- ---- ---- Revenue: Software development and licensing............ $ 25,558 $ 41,866 $ 226,043 $ 54,776 $ 1,178,121 Other......................................... -- 1,410 -- 1,410 14,124 ------------ ------------ ------------ ------------ ------------ Total revenue............................... 25,558 43,276 226,043 56,186 1,179,335 ------------ ------------ ------------ ------------ ------------ Costs and expenses: Product development........................... 607,714 407,015 1,304,931 770,227 5,728,362 Sales and marketing........................... 370,691 221,624 809,409 521,491 3,870,092 General and administrative.................... 168,688 69,019 312,605 178,806 2,170,368 ------------ ------------ ------------ ------------ ------------ Total costs and expenses................... 1,147,093 697,658 2,426,945 1,470,524 11,768,822 ------------ ------------ ------------ ------------ ------------ Loss from operations....................... (1,121,535) (654,382) (2,200,902) (1,414,338) (10,576,577) Interest expense................................. -- -- (14,900) -- (127,232) Interest income.................................. 40,471 18,209 78,319 34,058 206,212 Amortization of discount and issuance cost associated with bridge financing............. -- -- (145,023) -- (1,029,250) Non-recurring restructuring costs................ -- (220,697) -- (220,697) (220,697) Other expenses................................... -- -- -- -- (14,322) ------------ ------------ ------------ ------------ ------------ Loss before income taxes.................... (1,081,064) (856,870) (2,282,506) (1,600,977) (11,761,866) Provision for income taxes....................... 200 200 400 400 (5,200) ------------ ------------ ------------ ------------ ------------ Net loss................................... $ (1,081,264) $ (857,070) $ (2,282,906) $ (1,601,377) $(11,767,066) ============ ============ ============ ============ ============ Basic net loss per share......................... $ (0.20) $ (0.15) $ (0.45) $ (0.28) ============ ============ ============ ============ Diluted net loss per share....................... $ (0.20) $ (0.15) $ (0.45) $ (0.28) ============ ============ ============ ============ Weighted average number of shares of common stock, basic and diluted...................... 5,392,845 5,792,845 5,028,279 5,679,309 ============ ============ ============ ============
The accompanying notes are an integral part of these financial statements. F-3 HealthDesk Corporation (A Development Stage Company) CONDENSED STATEMENTS OF CASH FLOWS (unaudited)
Six Months Ended June 30, August 28, 1992 ----------------------------------- (inception) to 1997 1998 June 30,1998 ---- ---- ------------ Cash flows from operating activities: Net loss ...................................... $ (2,282,906) $ (1,601,377) $(11,767,066) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization ............... 130,166 144,410 707,926 Amortization of non cash discount ........... 145,023 -- 1,029,250 Other ....................................... -- -- 28,800 Changes in assets and liabilities: (Increase) decrease in prepaid expenses and deferred costs ........................... 548,816 (128,470) (184,349) (Increase) decrease in other assets ....... 833 (3,438) (19,288) Increase (decrease) in accounts payable ... (741,032) (57,372) 76,620 Increase (decrease) in accrued liabilities (100,246) (52,501) 302,001 ------------ ------------ ------------ Net cash used in operating activities .... (2,299,346) (1,698,748) (9,826,106) ------------ ------------ ------------ Cash flows from investing activities: Additions to property and equipment ........... (97,557) (24,689) (1,115,843) ------------ ------------ ------------ Net cash used in investing activities ..... (97,557) (24,689) (1,115,843) ------------ ------------ ------------ 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 ...................................... -- -- 1,800,000 Proceeds from issuance of common stock and warrants, net of offering costs .............. 7,018,788 800,000 8,858,965 Net proceeds from issuance of preferred stock . -- 786,172 2,969,208 Proceeds from shareholders' loans ............. -- -- 118,164 Repayment of loans from shareholders .......... -- -- (118,164) Proceeds from the exercise of stock options ... 4,816 -- 111,191 ------------ ------------ ------------ Net cash provided by financing activities .. 5,023,604 1,586,172 12,210,114 ------------ ------------ ------------ Net increase (decrease) in cash and cash equivalents ................................ 2,626,701 (137,265) 1,268,165 Cash and cash equivalents at beginning of period . 198,277 1,405,430 -- ------------ ------------ ------------ Cash and cash equivalents at end of period ....... $ 2,824,978 $ 1,268,165 $ 1,268,165 ============ ============ ============
The accompany notes are an integral part of these financial statements. F-4 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 six months ended June 30, 1998 are not necessarily indicative of the results that may be expected for the year ending December 31, 1998. The organization and the business of the Company, the 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, 1997 on Form 10-KSB. This quarterly report should be read in conjunction with such annual report. 1. Organization and Basis of Presentation: In May 1998, as a result of ongoing difficulties in marketing its HealthDesk OnLine products, the Company announced a major restructuring of its operations. In connection therewith, in June 1998, the Company executed a letter of intent to merge (the "Merger") with MC Informatics, Inc. ("MCI"). In the event the Company entered into a definitive merger agreement, the Merger will still be subject to a number of closing conditions, including the approval of the Merger by the Company's shareholders. If the Merger closes, the Company will merge with MCI and assume its operations. MCI is a healthcare consulting firm that provides a wide range of information technology and strategic and operations management consulting services to a broad cross-section of healthcare industry participants and healthcare information system vendors. As a result of its restructuring, the Company's Chief Executive Officer, Peter O'Donnell, and its Chief Financial Officer, Timothy Yamauchi, resigned from the Company in May 1998. In addition, the Company eliminated seven other positions. During the restructuring process, the Company has established an Operating Committee, consisting of Messrs. Dunham, Brandt and Zieg, to manage the Company's operations. 2. Recently Issued Accounting Pronouncements: In June 1998, 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 also effective for the year ending December 31, 1998. The Company believes the adoption of these pronouncements will not have a material effect on its financial statement. In October 1997, the Accounting Standards Executive Committee issued Statement of Position 97-2 (SOP 97-2), Software Revenue Recognition, which delineates the accounting for software product and maintenance revenue. SOP 97-2 supersedes the Accounting Standards Executive Committee Statement of Position 91-1, Software Revenue Recognition, and is effective for transactions entered into in fiscal years beginning after December 15, 1997. The Company anticipates that SOP 97-2 will not have a material impact on its financial statements. F-5 HealthDesk Corporation (A Development Stage Company) NOTES TO CONDENSED FINANCIAL STATEMENTS (unaudited) 3. Concentrations of Credit Risk: The Company places its temporary cash investments with one financial institution. The Company performs ongoing credit evaluations of its customers and generally does not require collateral. Two customers accounted for approximately 98% of revenues in the six months ended June 30, 1998. 4. Legal Proceedings: The Company is subject to a complaint filed by a former employee with the California Department of Fair Employment & Housing. The claim alleges wrongful termination as a result of alleged denial of reasonable accommodation for a wrist and neck injury. The Company intends to defend this matter vigorously. There can be no assurance, however, that such matter will be resolved in a manner favorable to the Company. 5. Net Loss Per Share: In February 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards (SFAS) No. 128, Earnings Per Share, which establishes standards for computing and presenting earnings (loss) per share. Under the new standard, basic earnings per share is computed based on the weighted average number of common shares outstanding and excludes any potential dilution; diluted earnings per share reflects potential dilution from the exercise or conversion of securities into common stock. SFAS No. 128 is effective for financial statements issued for periods ending after December 15, 1997. The financial statements presented have been prepared in accordance with SFAS No. 128 and loss per share data for the prior period presented has been restated to conform with current year presentation. 425 shares of the Company's Series B Preferred Stock with a conversion price of $0.50 per share were outstanding as of June 30, 1998. Options to purchase 762,412 and 652,923 shares of common stock with exercise prices ranging from $1.04 to $5.00 and $1.00 to $5.00, respectively, were outstanding as of June 30, 1997 and 1998. Both the Series B Preferred Stock and options to purchase Common Stock were excluded from the loss per share calculation for the quarters then ended as they have the effect of decreasing loss per share. 6. Convertible Preferred Stock: As of June 30, 1998, the Company has a total of 425 shares of Series B Preferred Stock issued and outstanding as a result of the following private placements. On March 31, 1998, two existing shareholders agreed to purchase 250 shares of the Company's Series B Preferred Stock for proceeds of $500,000. On May 13, 1998, the Company received the $500,000 proceeds. On June 30, 1998, three existing shareholders purchased 175 shares of the Company's Series B Preferred Stock for total proceeds of $350,000, of which $300,000 was received on June 30, 1998 and $50,000 was received on July 8, 1998. The outstanding shares of Series B Preferred Stock are convertible, at any time, at the option of the holders into an aggregate of 1,700,000 shares of the Company's Common Stock. The shares of Series B Preferred Stock are subject to automatic conversion upon the closing of the contemplated Merger with MCI or five years from the date of their issuance at a conversion price of $0.50 per share. 7. Repricing of Warrants: On April 13, 1998, the Company announced that with respect to its outstanding publicly traded warrants, it was reducing (i) the exercise price from $5.00 per share to $2.50 per share, and (ii) the call price for the warrants from $7.50 to $3.75. F-6 HealthDesk Corporation (A Development Stage Company) NOTES TO CONDENSED FINANCIAL STATEMENTS (unaudited) 8. Stock Options: On May 26, 1998, the Company authorized a voluntary stock option repricing program in which options exercisable for an aggregate of 250,850 shares of Common Stock originally issued with exercise prices ranging from $3.13 to $3.75 per share, were reissued with an exercise price of $1.00 per share, the fair market value of the Company's Common Stock on May 26, 1998. 9. Subsequent Events: On August 14, 1998, the Company loaned to MC Informatics, Inc. $250,000 pursuant to the terms of a promissory note. The interest rate on the loan is 8.50% and is payable on demand or August 14, 1999. F-7 Exhibit Index Description ----------- 10.12 Form of Convertible Securities Subscription Agreement 11.1 Statement Regarding Computation of Earnings per Share 27 Financial Data Schedule EX-10 2 EXHIBIT 10.12 CONVERTIBLE SECURITIES SUBSCRIPTION AGREEMENT This Convertible Securities Subscription Agreement (this "Agreement"), dated as of __________, 1998, has been executed by the undersigned (the "Subscriber") in connection with (a) the sale of certain shares of Series B Convertible Preferred Stock, no par value (the "Preferred Stock"), of HealthDesk Corporation, a California corporation, having an address at 2560 9th Street, Berkeley, California 94710 (the "Company"), convertible into shares of Common Stock, no par value (the "Common Stock"), of the Company. The rights and preferences of the Preferred Stock, including the terms on which the Preferred Stock may be converted into Common Stock, are set forth in the Certificate of Determination of the Series B Convertible Preferred Stock, attached hereto as Exhibit A (the "Certificate of Determination") and Exhibit B the amendment to the Certificate of Determination, which shall have been executed, acknowledged, filed, recorded and become effective in accordance with the California Corporations Code prior to the acceptance by the Company of this Agreement. The solicitation of this Agreement and, if accepted by the Company, the offer and sale of the Preferred Stock, and of the Common Stock issuable upon conversion or exercise of the Preferred Stock, are being made in reliance upon the provisions of Regulation D ("Regulation D") promulgated by the Securities and Exchange Commission ("SEC") under the Securities Act of 1933, as amended (the "Securities Act"), or under the exemption from registration set forth in Section 4(2) of the Securities Act. The Preferred Stock and the Common Stock issuable upon conversion or exercise thereof are sometimes collectively referred to in this Agreement as the "Securities." The shares of Common Stock issuable upon conversion of the Preferred Stock is sometimes referred to as the "Underlying Stock." This Agreement is one of a series of subscription agreements, dated as of the date hereof, entered into between the Company and the subscriber thereof. The subscribers, together with the Subscriber, are sometimes collectively referred to as the "Subscribers" and individually as "Subscriber." The Subscriber wishes to subscribe for, and the Company wishes to issue, the number of shares of Preferred Stock at the aggregate purchase price set forth in Section 13 and in accordance with the other terms and conditions of this Agreement. In consideration of the mutual promises, representations, warranties and conditions set forth herein, and intending to be legally bound hereby, the Company and the Subscriber agree as follows: 1. Purchase and Sale of Securities; Closing Conditions. 1.1. Purchase and Sale of Securities. (a) Initial Issuance. The Company shall issue and sell to the Subscriber and the Subscriber shall purchase from the Company such number of shares of Preferred Stock as is set forth in Section 13 hereof for an aggregate purchase price as specified in such Section (the "Purchase Price"). -2- (b) Form of Payment. On the Closing Date (as defined below), (i) the Subscriber shall pay the portion of the Purchase Price for the Preferred Stock to be issued and sold to the Subscriber at the applicable Closing by wire transfer to the Company, in accordance with the Company's written wiring instructions, against delivery of the duly executed share certificates representing the Preferred Stock which the Subscriber is then purchasing, and (ii) the Company shall deliver to the Subscriber such Preferred Stock certificates against delivery of such Purchase Price. (c) Closing Date. The date and time of the issuance and sale of the Preferred Stock pursuant to this Agreement shall be, 12:00 noon Pacific Daylight Time, on __________, 1998. The Closing shall occur at such places and times, as the parties shall determine. 1.2. Lock-up. Notwithstanding anything to the contrary set forth herein, Subscriber agrees that it will not, without the prior written consent of the Company, directly or indirectly, offer, sell, offer to sell, contract to sell, pledge, grant any option to purchase or otherwise sell or dispose or transfer (or announce any offer, sale, offer of sale, contract of sale or grant of any option to purchase or other sale or disposition or transfer) of any of the Underlying Stock for a period of 180 days subsequent to the date of this Agreement. The Company agrees that if requested by Subscriber, the Company will enter into a registration rights agreement pursuant to which Subscriber shall be granted two "demand" and two "piggy-back" registrations following the expiration of such lock-up period. The terms and conditions of such registration rights agreement shall be consistent with the Company's existing obligations regarding same. 1.3. Series B Conversion Price: Notwithstanding anything to the contrary in the Certificate of Designation, as amended, or the Company's Articles of Incorporation, as amended, the Subscribers agree and acknowledge that the Series B Conversion Price, as set forth in Section 4(d) of the Certificate of Designation, as amended, shall be $0.50 per share, and that such Conversion Price shall apply to all shares of Series B Preferred Stock, including those shares previously acquired by the Subscribers. 1.4. Automatic Conversion of Series B Preferred Stock: Notwithstanding anything to the contrary in the Certificate of Designation, as amended, or the Company's Articles of Incorporation, as amended, the Subscribers acknowledge that the Company is currently in negotiations with MC Informatics ("MCI") regarding a potential acquisition of the business of MCI (the "Acquisition"). It is a condition to the proposed transaction with MCI that the Company's Series B Preferred Stock converts upon the closing of such transaction. Accordingly, the Subscribers agree and acknowledge that the Series B Preferred Stock purchased herein or previously acquired by the Subscribers, shall automatically convert into shares of the Company's Common Stock upon the closing of the Acquisition. Each of the Subscribers agrees to return their certificate representing Series B Preferred Stock for -3- exchange and to execute any other documents reasonably requested by the Company in order to effectuate the provisions of this paragraph. 2. Representations and Warranties of Subscriber. The Subscriber represents and warrants to the Company that: 2.1. No Government Recommendation or Approval. The Subscriber understands that no United States federal or state agency or similar agency of any other country has passed upon or made any recommendation or endorsement of the Company or the offering of the Securities. 2.2. Intent. The Subscriber is purchasing the Securities for its own account and not with a view towards distribution thereof and the Subscriber has no present arrangement (whether or not legally binding) at any time to sell the Securities to or through any person or entity; provided, however, that by making the representations herein, the Subscriber does not agree to hold the Securities for any minimum or other specific term and reserves the right to dispose of the Securities at any time in accordance with federal and state securities laws applicable to such disposition. The Subscriber understands that the Securities must be held indefinitely unless such Securities are subsequently registered under the Securities Act or an exemption from registration is available. The Subscriber has been advised or is aware of the provisions of Rule 144 under the Securities Act. 2.3. Sophisticated Investor. The Subscriber is an accredited investor (as defined in Rule 501 of Regulation D) and the Subscriber has such experience in business and financial matters that it is capable of evaluating the merits and risks of an investment in the Securities. The Subscriber acknowledges that the Securities are speculative and involve a high degree of risk. The Subscriber acknowledges that there exists no public market for the Preferred Stock. 2.4. Independent Investigation. The Subscriber, in making its decision to purchase the Securities subscribed for hereunder, has relied upon an independent investigation made by it and/or its representatives and has not relied on any information or representations made by third parties or on any oral or written representations or assurances from the Company or any representative or agent of the Company, other than as set forth in this Agreement, in the public filings of the Company and in the documents described below. Prior to the date hereof, the Subscriber has been furnished with and has reviewed the Company's latest proxy statement and Annual Report on Form 10-K sent to the Company's shareholders and all documents filed by the Company with the SEC pursuant to sections 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act") (excluding preliminary proxy statement filings) (such documents are collectively referred to in this Agreement as the "Exchange Act Reports"). The Subscriber has had a reasonable opportunity to ask questions of and receive answers from the Company concerning the Company and the offering. The Subscriber acknowledges that the price and terms of the -4- Securities offered hereby has been determined by negotiation based, in part, on the market price for the Common Stock, and does not necessarily bear any relationship to the assets, book value or potential performance of the Company or any other recognized criteria of value. 2.5. Authority. This Agreement has been duly authorized and validly executed and delivered by the Subscriber and is a valid and binding agreement of the Subscriber enforceable against the Subscriber in accordance with its terms, subject to general principles of equity and to bankruptcy or other laws affecting the enforcement of creditors' rights generally. 2.6. No Legal Advice From Company. The Subscriber acknowledges that it has had the opportunity to review this Agreement and the transactions contemplated by this Agreement with his or its own legal counsel and tax advisors. Except for any statements or representations of the Company made in this Agreement and in the Exchange Act Reports, the Subscriber is relying solely on its counsel and advisors and not on any statements or representations of the Company or any of its representative or agents for legal, tax or investment advice with respect to this investment, the transactions contemplated by this Agreement or the securities laws of any jurisdiction. 2.7. No Brokers. The Subscriber has taken no action which would give rise to any claim by any person for brokerage commissions, finder's fees or similar payments by the Company relating to this Agreement, the Certificate of Determination, or the transactions contemplated hereby and thereby. 2.8. Reliance on Representations and Warranties. The Subscriber understands that the Securities are being offered and sold to it in reliance on specific provisions of United States federal and state securities laws and that the Company is relying upon the truth and accuracy of the representations, warranties, agreements, acknowledgments and understandings of the Subscriber set forth in this Agreement in order to determine the applicability of such provisions. 2.9. Residency. The Subscriber is a resident of the jurisdiction identified on the signature page of this Agreement. 2.10. Compliance With Laws. No governmental notifications, orders, permissions, consents, approvals or authorizations are required to be made or obtained by Subscriber and no registrations or declarations are required to be filed by Subscriber in connection with the execution and delivery of this Agreement or the acquisition of the Securities. 3. Representations and Warranties of the Company. The Company represents and warrants to the Subscriber that: -5- 3.1. Company Status. The Company has registered its Common Stock pursuant to Section 12(b) or 12(g) of the Exchange Act, is in full compliance with all reporting requirements of the Exchange Act, and the Company has maintained all requirements for the continued listing of its Common Stock, and such Common Stock is currently listed on the Exchange. 3.2. No Directed Selling Efforts or General Solicitation in Regard to this Transaction. Neither the Company nor any of its affiliates nor any distributor or any person acting on its or their behalf has conducted any "directed selling efforts" with respect to the Preferred Stock nor has the Company conducted any general solicitation (as that term is used in Regulation D) with respect to any of the Securities, nor has any such person made any offers or sales of any security or solicited any offers to buy any security, under circumstances that would require registration of the Securities under the Act. 3.3. Capitalization; Valid Issuance of Securities and Capital Stock. The Company has an authorized capitalization as disclosed in the Exchange Act Reports. Other than the Securities and except for options granted pursuant to the Company's stock option plan and warrants issued by the Company in connection with the Company's initial public offering, there are no other outstanding options, warrants, scrip, rights to subscribe to, or securities or rights convertible into or exchangeable for, any shares of capital stock of the Company or arrangements by which the Company is or may become bound to issue additional shares of its capital stock. All of the issued and outstanding shares of capital stock of the Company have been duly and validly authorized and issued and are fully paid and non-assessable; assuming the filing of a Certificate of Amendment to the Certificate of Determination increasing the authorized number of shares of Series B Preferred Stock from 250 shares to 750 shares, upon issuance of the Securities, the Securities will be duly and validly issued, fully paid and non-assessable; the shares of Common Stock issuable upon conversion of the Preferred Stock, when issued and delivered in accordance with the terms of the Certificate of Determination, as amended, will be duly and validly issued, fully paid and non-assessable; and the holders of outstanding capital stock of the Company are not and shall not be entitled to preemptive or other rights afforded by the Company to subscribe for the capital stock or other securities of the Company as a result of the sale of the Securities or the issuance of Common Stock upon the conversion or exercise thereof. The issuance of the Preferred Stock will not cause any anti-dilution or similar adjustment to the conversion or exchange rate of outstanding options or convertible securities exercisable for or convertible into Common Stock. As of the Closing Date, the Company shall have filed the Certificate of Determination, as amended, and all of the rights, preferences and privileges of the Preferred Stock shall be as set forth in the Certificate of Determination, as amended, and this Agreement. 3.4. Intentionally Omitted. 3.5. Organization and Qualification. The Company and each of its subsidiaries, if any, is a corporation duly incorporated and validly existing in good standing under the laws -6- of the jurisdiction of its incorporation and has the requisite corporate power to own its properties and to carry on its business as now being conducted. The Company does not have any active subsidiaries, except for those listed in the Exchange Act Reports. The Company and each such subsidiary, if any, is duly qualified as a foreign corporation to do business and is in good standing in every jurisdiction in which the nature of the business conducted or property owned by it makes such qualification necessary other than those in which the failure so to qualify would not have a Material Adverse Effect. "Material Adverse Effect" means any effect on the business, operations, properties or prospects, or financial condition of the entity and its subsidiaries, with respect to which such term is used and which is material and adverse to such entity, its subsidiaries and any other entity controlling or controlled by such entity, on a consolidated basis, and/or any condition or situation which would prohibit or otherwise interfere with the ability of the entity and its subsidiaries, on a consolidated basis, with respect to which said term is used to enter into and perform its obligations under this Agreement. 3.6. Authorization; Enforcement. (i) The Company has the requisite corporate power and authority to enter into and perform this Agreement and to issue the Securities in accordance with the terms hereof and thereof; (ii) the execution, delivery and performance of this Agreement, and the Certificate of Determination, as amended, by the Company and the consummation by it of the transactions contemplated hereby and thereby; (iii) this Agreement and the Certificate of Determination, as amended, have been duly executed and delivered by the Company, and (iv) this Agreement and the Certificate of Determination, as amended, constitute, and upon issuance and delivery thereof the Preferred Stock shall be, valid and binding obligations of the Company enforceable against the Company in accordance with their terms, except as such enforceability may be limited by applicable bankruptcy, insolvency, or similar laws relating to, or affecting generally the enforcement of, creditors' rights and remedies or by other equitable principles of general application. 3.7. Corporate Documents. The Company has furnished or made available to the Subscriber true and correct copies of the Company's Articles of Incorporation as amended and in effect on the date hereof (the "Articles"), and the Company's Bylaws as amended and in effect on the date hereof (the "Bylaws"). 3.8. No Conflicts. The execution, delivery and performance by the Company of this Agreement, the Certificate of Determination, as amended, and the consummation by the Company of the transactions contemplated hereby and thereby, including without limitation the issuance of Common Stock upon the conversion or exercise thereof, do not and will not (i) result in a violation of the Articles or Bylaws or (ii) conflict with or constitute a default (or an event which with notice or lapse of time or both would become a default) under, or give to others any rights of termination, amendment, acceleration or cancellation of, any agreement, indenture or instrument to which the Company or any of its subsidiaries is a party, or result in a violation of any federal, state, local or foreign law, rule, regulation, order, judgment or decree (including federal and state securities laws and regulations) applicable to the Company or any of its subsidiaries or by which any property or asset of the -7- Company or any of its subsidiaries is bound or affected (except for such conflicts, defaults, terminations, amendments, accelerations, cancellations and violations as would not, individually or in the aggregate, have a Material Adverse Effect); provided, that, for purposes of such representation as to federal, state, local or foreign law, rule or regulation, no representation is made herein with respect to any of the same applicable solely to the Subscriber and not to the Company. The business of the Company is not being conducted in violation of any law, ordinance or regulation of any governmental entity, in any manner that is inconsistent with or in violation of the Articles or Bylaws, or in violation of any contract or agreement to which the Company is a party, except for possible violations which either singly or in the aggregate do not and will not have a Material Adverse Effect. The Company is not required under federal, state or local law, rule or regulation in the United States to obtain any consent, authorization or order of, or make any filing or registration with, any court or governmental agency in order for it to execute, deliver or perform any of its obligations under this Agreement, the Certificate of Determination, as amended, or any of the Securities or to issue and sell the Securities in accordance with the terms hereof and thereof (other than any SEC, NASD, Exchange (as defined below) or state securities filings which may be required to be made by the Company from time to time, and any registration statement which may be filed pursuant hereto); provided, that, for purposes of the representation made in this sentence, the Company is assuming and relying upon the accuracy of the relevant representations and agreements of the Subscriber herein. 3.9. Exchange Act Reports. The Company has delivered or made available to the Subscriber true and complete copies of the Exchange Act Reports (including, without limitation, proxy information and solicitation materials). As of their respective dates, the Exchange Act Reports complied in all material respects with the requirements of the Exchange Act and rules and regulations of the SEC promulgated thereunder and other federal, state and local laws, rules and regulations applicable to such Exchange Act Reports, and none of the Exchange Act Reports contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. The financial statements of the Company included in the Exchange Act Reports comply as to form in all material respects with applicable accounting requirements and the published rules and regulations of the SEC or other applicable rules and regulations with respect thereto. Such financial statements have been prepared in accordance with generally accepted accounting principles applied on a consistent basis during the periods involved (except (i) as may be otherwise indicated in such financial statements or the notes thereto or (ii) in the case of unaudited interim statements, to the extent they may not include footnotes or may be condensed or summary statements) and fairly present in all material respects the financial position of the Company as of the dates thereof and the results of operations and cash flows for the periods then ended (subject, in the case of unaudited statements, to normal year-end audit adjustments). As of the Closing Date, the Company has filed all reports required to be filed by it pursuant to the Exchange Act. -8- 3.10. No Material Adverse Change. Since March 31, 1998, no event or circumstance has occurred or arisen which has had or is reasonably likely to have a Material Adverse Effect on the Company or its subsidiaries, except as noted in the press releases which relate to the restructuring of the Company and the resignation of certain officers. Since March 31, 1998, neither the Company nor any of its subsidiaries has (i) incurred or become subject to any material liabilities (absolute or contingent) except liabilities incurred in the ordinary course of business consistent with past practices; (ii) discharged or satisfied any material lien or encumbrance or paid any material obligation or liability (absolute or contingent), other than current liabilities paid in the ordinary course of business consistent with past practices; (iii) declared or made any payment or distribution of cash or other property to stockholders with respect to its capital stock, or purchased or redeemed, or made agreements to purchase or redeem, any shares of its capital stock; (iv) sold, assigned or transferred any other tangible assets with a value greater than in the aggregate, or canceled any debts or claims, except in the ordinary course of business consistent with past practices; (v) suffered any substantial losses or waived any rights of material value, whether or not in the ordinary course of business, or suffered the loss of any material amount of existing business; (vi) made any changes in employee compensation except in the ordinary course of business consistent with past practices; or (vii) experienced any material problems with labor or management in connection with the terms and conditions of their employment. 3.11. No Undisclosed Liabilities. The Company and its subsidiaries have no liabilities or obligations which are material, individually or in the aggregate, and are not disclosed in the Exchange Act Reports, other than those incurred in the ordinary course of the Company's or its subsidiaries' respective businesses since March 31, 1998 and which, individually or in the aggregate, do not or would not have a Material Adverse Effect on the Company or any of its subsidiaries, except such liabilities, which may arise as the result of the restructuring of the Company and the resignation of certain officers. 3.12. No Undisclosed Events or Circumstances. No event or circumstance has occurred or exists with respect to the Company or its subsidiaries or their respective businesses, properties, prospects, operations or financial condition, which, under applicable law, rule or regulation, requires public disclosure or announcement prior to the date hereof by the Company but which has not been so publicly announced or disclosed. 3.13. No Integrated Offering. Neither the Company, nor any of its affiliates, nor any person acting on its or their behalf has, directly or indirectly, at any time since March 31, 1998, made any offers or sales of any security or solicited any offers to buy any security under circumstances that would eliminate the availability of the exemption from registration under Regulation D promulgated under the Securities Act in connection with the offer and sale of the Securities as contemplated hereby. 3.14. No Brokers. The Company has taken no action which would give rise to any claim by any person for brokerage commissions, finder's fees or similar payments by the -9- Subscriber relating to this Agreement, or the Certificate of Determination, as amended, for the transactions contemplated hereby and thereby. 3.15. Absence of Litigation. Except as disclosed in the Exchange Act Reports, there is no action, suit, proceeding, inquiry or organization or body pending or, to the knowledge of the Company or any of its subsidiaries, threatened against or affecting the Company or any of its subsidiaries, wherein an unfavorable decision, ruling or finding would have a Material Adverse Effect. 3.16. Intellectual Property Rights. There is no claim, action or proceeding being made or brought against, or to the Company's knowledge, being threatened against, the Company or any of its subsidiaries, with respect to the infringement by the Company or any of its subsidiaries of any trademarks, trade name rights, patents, patent rights, copyrights, inventions, licenses, service names, service marks, service mark registrations, trade secret or other similar rights of others, or of any such development of similar or identical trade secrets or technical information by others. The Company and its subsidiaries have taken reasonable security measures to protect the secrecy, confidentiality and value of all of their intellectual properties. 3.17. Title to Properties and Assets, Liens, etc. The Company has good and marketable title to its tangible properties and assets, subject to no mortgage, pledge, lien, encumbrance or charge, other than liens resulting from taxes which have not yet become delinquent and liens and encumbrances which do not in any case materially detract from the value of the property subject thereto or materially impair the operations of the Company. 3.18. Tax Status. The Company and each of its subsidiaries has made or filed all federal and state income and all other tax returns, reports and declarations required by any jurisdiction to which it is subject (unless and only to the extent that the Company and each of its subsidiaries has set aside on its books provisions reasonably adequate for the payment of all unpaid and unreported taxes) and has paid all taxes and other governmental assessments and charges that are material in amount, shown or determined to be due on such returns, reports and declarations, except those being contested in good faith, and has set aside on its books provisions reasonably adequate for the payment of all taxes for periods subsequently to the periods to which such returns, reports or declarations apply. There are no unpaid taxes in any material amount claimed to be due by the taxing authority of any jurisdiction, and the officers of the Company know of no basis for any such claim. 4. Covenants of the Company. 4.1. Reservation of Common Stock. As of the date hereof, the Company has reserved and the Company shall continue to reserve and keep available at all times, free of preemptive rights, a sufficient number of shares of Common Stock for the purpose of enabling the Company to satisfy any obligation to issue shares of its Common Stock upon conversion of the Preferred Stock. The number of shares so reserved may be reduced by the -10- number of shares actually delivered pursuant to conversion of Preferred Stock and the number of shares so reserved shall be increased to reflect stock splits, stock dividends and other distributions. 4.4. Listing of Underlying Shares. The Company hereby agrees, promptly following the Closing, to use its reasonable best efforts to cause the Underlying Stock to be listed on the Nasdaq SmallCap Market (the "Exchange"). The Company further agrees, if the Company applies to have the Common Stock traded on any other principal stock exchange or market, it will include in such application the Underlying Stock will take such other action as is necessary or desirable to cause the Underlying Stock to be listed on such other exchange or market. 4.5. Exchange Act Registration. The Company will cause its Common Stock to continue to be registered under Section 12(g) or 12(b) of the Exchange Act, will comply in all respects with its reporting and filing obligations under the Exchange Act, and will not take any action or file any document (whether or not permitted by said Act or the rules thereunder) to terminate or suspend such registration or to terminate or suspend its reporting and filing obligations under said Act. The Company will take all action under its control to continue the listing and trading of its Common Stock on the Exchange and will comply in all respects with the Company's reporting, filing and other obligations under the bylaws or rules of the NASD and the Exchange. 4.6. Corporate Existence. The Company will take all steps necessary to preserve and continue its corporate existence. 5. Legends. 5.1. Legends. The Company will issue one or more certificates representing the Preferred Stock, in the name of the Subscriber. The Preferred Stock (including the additional shares of Preferred Stock) and certificates evidencing any shares of Common Stock issued upon conversion or exercise thereof will bear the following legend (the "Legend"): THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR ANY STATE SECURITIES LAWS. THEY MAY NOT BE SOLD OR OFFERED FOR SALE EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SAID ACT AND ANY APPLICABLE STATE SECURITIES LAWS OR AN APPLICABLE EXEMPTION FROM SUCH REGISTRATION REQUIREMENTS. THESE SECURITIES ARE SUBJECT TO A LOCK-UP AGREEMENT BY AND AMONG THE HOLDERS OF THE SECURITIES, HEALTHDESK CORPORATION (THE "CORPORATION") PURSUANT TO WHICH THE HOLDER OF SUCH SECURITY MAY NOT, WITHOUT THE PRIOR -11- WRITTEN CONSENT OF THE UNDERWRITER, DIRECTLY OR INDIRECTLY, SELL, OFFER FOR SALE, TRANSFER OR OTHERWISE DISPOSE OF SUCH SECURITIES FOR A PERIOD OF 180 DAYS FOLLOWING _________, 1998. If applicable, the Company shall reissue certificates representing the Preferred Stock, or the Underlying Stock, as the case may be, without the Legend set forth above at such time as the Holder thereof is permitted to dispose thereof pursuant to Rule 144(k) under the Act. 5.2. No Other Legend or Stock Transfer Restrictions. No Legend has been or shall be placed on the share certificates representing the Securities and no instructions or "stop transfers," "stock transfer restrictions," or other restrictions have been or shall be given to the Company's transfer agent with respect thereto other than as set forth in this Section 5. 5.3. Subscriber's Compliance. Nothing in this section shall affect in any way the Subscriber's obligations under and agreement to comply with all applicable securities laws upon resale of the Securities. 6. Choice of Law and Venue. This Agreement shall be construed under the laws of the State of California, without regard to principles of conflicts of law or choice of law thereof. The parties hereby (i) irrevocably submits to the exclusive jurisdiction of the United States District Court for the Northern District of California for the purposes of any suit, action or proceeding arising out of or relating to this Agreement, or the Certificate of Determination, as amended, and (ii) waives, and agrees not to assert in any such suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of such court, that the suit, action or proceeding is brought in an inconvenient forum or that the venue of the suit, action or proceeding is improper. Each of the parties consents to process being served in any such suit, action or proceeding by sending a copy thereof to such party by following the provision for notices to it under this Agreement and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing in this paragraph shall affect or limit any right to serve process in any other manner permitted by law. 7. Assignment; Entire Agreement; Amendment. 7.1. Assignment. Neither this Agreement nor any rights of the Subscriber hereunder may be assigned by either party to any other person, except that the Subscriber may transfer rights under this Agreement to its affiliates. Notwithstanding the foregoing, the provisions of this Agreement shall inure to the benefit of, and be enforceable by, any transferee of any of the Securities purchased or acquired by the Subscriber hereunder with respect to the Securities held by such person. -12- 7.2. Entire Agreement; Amendment. This Agreement, the Certificate of Determination, and the other documents delivered pursuant hereto constitute the full and entire understanding and agreement between the parties with regard to the subject matter hereof and thereof, and no party shall be liable or bound to any other party in any manner by any warranties, representations or covenants except as specifically set forth in this Agreement or therein. Except as expressly provided in this Agreement, neither this Agreement nor any term hereof may be amended, waived, discharged or terminated other than by a written instrument signed by the party against whom enforcement of any such amendment, waiver, discharge or termination is sought. 8. Publicity. The Company agrees that it will not disclose, and will not include in any public announcement regarding this Agreement, the name of the Subscriber without its consent, unless and until such disclosure is required by law or applicable regulation, and then only to the extent of such requirement and with the prior approval of the Subscriber which the Subscriber agrees will not be unreasonably withheld or delayed. 9. Notices, etc.; Expenses; Indemnity. 9.1. Notices. Any notice, demand or request required or permitted to be given by either the Company or the Subscriber pursuant to the terms of this Agreement shall be in writing and shall be deemed given when delivered personally or by facsimile, with a hard copy to follow by two day courier addressed to the parties at the addresses of the parties set forth at the end of this Agreement or such other address as a party may request by notifying the other in writing. Copies of all notices to the Subscriber shall be sent to its designee or representative. 9.2. Cost and Expenses. The Company and the Subscribers shall each be responsible for their own costs and expenses (including legal fees) incurred in entering into this Agreement. In connection with any suit or other proceeding arising out of any breach by any party to this Agreement of any of the representations, covenants or agreements of such party hereunder, or in connection with the exercise by any party of any of its rights or remedies hereunder or under applicable law upon any breach by the other party of any of its representations, covenants or agreements under this Agreement, or with respect to the Company, the Certificate of Determination, the prevailing party in such suit or proceeding shall be entitled to receive from the non-prevailing party all of such prevailing party's reasonable costs and expenses (including legal fees) incurred in connection therewith. -13- 10. Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be enforceable against the parties actually executing such counterparts, and all of which together shall constitute one instrument. 11. Survival; Severability. The representations, warranties, covenants and agreements of the parties hereto shall survive the Closing; provided that the representations and warranties shall survive only until the third anniversary of the Closing. In the event that any provision of this Agreement becomes or is declared by a court of competent jurisdiction to be illegal, unenforceable or void, this Agreement shall continue in full force and effect without said provision. 12. Title and Subtitles. The titles and subtitles used in this Agreement are used for convenience only and are not to be considered in construing or interpreting this Agreement. [The remainder of this page has been intentionally left blank.] -14- 13. Amount. The undersigned Subscriber hereby subscribes for [_______] shares of Preferred Stock and agrees to pay therefor funds in the amount of _______ Million Dollars (U.S. $___________). The undersigned acknowledges that this subscription shall not be effective unless accepted by the Company as indicated below. Name of Subscriber: ------------------------------- By_____________________________ Name: Title: Date of Subscription: ---------------------- Place of Execution: ------------------------ Place of Organization or Citizenship: ------------------------------ Place of Residency and/or Principal Place of Business: --------------------- Address: -------------------------- -------------------------- THIS SUBSCRIPTION IS ACCEPTED BY THE COMPANY ON THE _____ DAY OF ______ 1998. HEALTHDESK CORPORATION By: ___________________________________ Name: _________________________________ Title: ________________________________ EX-11 3 EXHIBIT 11.1 HealthDesk Corporation Computation of Earnings per Share
Three Months Ended June 30, Six Months Ended June 30, ------------------------------- ------------------------------- 1997 1998 1997 1998 ---- ---- ---- ---- Weighted average number of common shares outstanding used for both Basic and Diluted calculations..................................... 5,392,845 5,792,845 5,028,279 5,679,309 ------------- ------------- ------------- ------------- Net Loss......................................... $ (1,081,264) $ (857,070) $ (2,282,906) $ (1,601,377) ============== ============== ============= ============= Basic net loss per share......................... $ (0.20) $ (0.15) $ (0.45) $ (0.28) ============== ============== ============== ============== Diluted net loss per share....................... $ (0.20) $ (0.15) $ (0.45) $ (0.28) ============== ============== ============== ==============
EX-27 4
5 0001023767 HEALTHDESK CORPORATION 1 U.S. DOLLARS 6-MOS DEC-31-1998 APR-01-1998 JUN-30-1998 1 1,268,165 0 0 0 0 1,525,359 972,246 619,408 1,897,485 375,187 0 0 836,172 12,257,505 0 1,897,485 56,186 56,186 0 1,470,524 0 0 0 (1,600,977) 400 (1,601,377) 0 0 0 (1,601,377) (0.28) (0.28)
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