-----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, WH+7MfioS+eymPJ2IdHMSzXeUtdXxrvS7mYBXQYolHGJHNPAXl8PIjQ8cJyYVd5j BloZ9BSYkJMhQFbk5DPC4Q== 0001017062-99-002081.txt : 19991216 0001017062-99-002081.hdr.sgml : 19991216 ACCESSION NUMBER: 0001017062-99-002081 CONFORMED SUBMISSION TYPE: 8-K/A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19991001 ITEM INFORMATION: FILED AS OF DATE: 19991215 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MC INFORMATICS INC CENTRAL INDEX KEY: 0001023767 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-PREPACKAGED SOFTWARE [7372] IRS NUMBER: 943165144 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K/A SEC ACT: SEC FILE NUMBER: 000-21819 FILM NUMBER: 99775201 BUSINESS ADDRESS: STREET 1: 18881 VON KARMAN AVENUE STREET 2: SUITE 100 CITY: IRVINE STATE: CA ZIP: 92612 BUSINESS PHONE: 9492617100 MAIL ADDRESS: STREET 1: 18881 VON KARMAN AVENUE STREET 2: SUITE 100 CITY: IRVINE STATE: CA ZIP: 92612 FORMER COMPANY: FORMER CONFORMED NAME: HEALTHDESK CORP DATE OF NAME CHANGE: 19961015 8-K/A 1 FORM 8-K/A SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ------------ FORM 8-K/A CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Date of Report (Date of earliest event reported): October 1, 1999 ------------ MC INFORMATICS, INC. (Exact name of registrant as specified in its charter) California 0-21819 94-3165144 (State or other jurisdiction of (Commission File Number) (I.R.S. Employer) incorporation or organization) Identification No.) 18881 Von Karman Avenue, Suite 100 92612 Irvine, California (Zip Code) (Address of principal executive offices) Registrant's telephone number, including area code: (949) 261-7100 Item 7. Financial Statements and Exhibits. (a) Financial statements of business acquired. The required financial statements of the business acquired are filed with this report as pages F-1 through F-17 following the signature page. 1 (b) Pro Forma financial information. On October 1, 1999, MC Informatics, Inc. ("MCI" or the "Company") acquired all of the outstanding stock of HSG Acquisitions, Inc. dba Inteck, Inc. ("HSG") pursuant to the terms of a Stock Purchase Agreement for a purchase price of $1,812,500, subject to certain adjustments. 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 which approximated fair market value on October 1, 1999, 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 the sum of $600,000 plus 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 $13,414 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. The acquisition of HSG will be accounted for using the purchase method of accounting with the assets acquired and liabilities assumed recorded at their fair values. The required pro forma financial information of the business acquired is set forth below. The accompanying unaudited pro forma condensed statements of operations illustrate the effect of the acquisition of HSG on the Company's results of operations. The unaudited pro forma condensed statements of operations for the year ended December 31, 1998 and the nine months ended September 30, 1999, and the unaudited pro forma condensed balance sheet as of September 30, 1999 are based on historical financial statements of the Company and HSG for those periods. The unaudited pro forma condensed statements of operations assume the acquisition took place on January 1, 1998. The unaudited pro forma condensed balance sheet assumes the acquisition occurred on September 30, 1999. The unaudited pro forma condensed statements of operations and balance sheet are not intended to be indicative of the results of operations or financial position which actually would have been realized had the acquisition occurred at the times assumed, nor of the future results of operations of the combined entities. The accompanying unaudited pro forma condensed financial statements should be read in connection with the historical financial statements and notes of the Company and HSG. 2 MC Informatics, Inc. PRO FORMA CONDENSED STATEMENT OF OPERATIONS Nine Months Ended September 30, 1999 (Unaudited)
MCI HSG(2) Pro forma Pro Forma Adjustments Combined Revenues $ 6,665,751 $ 1,479,047 8,144,798 Direct Expenses 4,922,812 705,312 5,628,124 ------------ ----------- ---------- Gross Profit 1,742,939 773,735 2,516,674 Selling, General and Administrative expenses 2,973,363 618,485 3,591,848 Goodwill Amortization -- -- 187,361(3) 187,361 ------------ ---------- ---------- Income (loss) from operations (1,230,424) 155,250 (1,262,535) Interest expense 7,046 38,250(4) 45,296 Other expense 144,959 31,436 176,395 ------------ ----------- ---------- Income (loss) before income taxes (1,382,429) 123,814 (1,484,226) Provision for income taxes 1,200 42,100 43,300 ------------ ----------- ---------- Net income (loss) $ (1,383,629) $ 81,714 (1,527,526) ============ =========== ========== Net loss per share, basic & diluted(5) (0.11) (0.11) Weighted average shares of common stock, basic & diluted 13,066,530 13,311,530 See accompanying notes to the unaudited pro forma condensed financial statements.
MC Informatics, Inc. PRO FORMA CONSOLIDATED STATEMENT OF INCOME Year Ended December 31, 1998 (Unaudited)
MCI HSG Pro forma Pro Forma Adjustments Combined Revenue $ 3,716,585 $ 1,664,379 5,380,964 Direct Expenses 2,529,959 859,743 3,389,702 ------------ ----------- ----------- Gross Profit 1,186,626 804,636 1,991,262 Selling, General and Administrative expenses 1,691,609 1,125,681 2,817,290 Goodwill amortization - - 249,815(3) 249,825 ------------ ----------- ----------- Loss from operations (504,983) (321,045) (1,075,843) Interest expense (30,995) - 51,000(4) 81,985 Interest income (69,107) (23,927) (93,034) Non-cash financing cost associated with convertible preferred stock 864,000 0 864,000 ------------ ----------- ----------- Loss before income taxes (1,330,861) (297,118) (1,928,794) Provision for income taxes 4,600 (102,380) (97,780) ------------ ----------- ----------- Net loss $ (1,335,461) $ (194,738) (1,831,014) ============ =========== =========== Net loss per share, basic & diluted(5) (0.14) (0.14) Weighted average shares of common stock, basic & diluted 12,672,527 12,917,527 See accompanying notes to the unaudited pro forma condensed financial statements.
2 MC Informatics, Inc. PRO FORMA CONDENSED BALANCE SHEET September 30, 1999 (Unaudited)
Pro Forma Adjustments(1) Pro Forma MCI HSG Debit Credit Combined ----------------------------------------------------- -------------- Current assets: Cash and cash equivalents $ - 83,557 300,000 $ (216,443) Accounts receivable, net 1,955,754 337,357 2,293,111 Tax refund receivable - 113,660 113,660 Note from Related Party 179,370 - 179,370 Inventory 47,693 - 47,693 Prepaid expenses and other current assets 198,796 4,279 203,075 Deferred taxes - 11,500 11,500 ------------------------------------------------------------------------- Total current assets 2,381,614 550,353 - 300,000 2,631,967 Property & equipment, net 361,452 14,021 375,473 ----------- Goodwill 413,387 - 1,823,605 2,236,992 ----------- Deferred taxes - 33,200 33,200 Other Assets 60,117 5,141 65,258 ------------------------------------------------------------------------- Total assets $ 3,216,570 602,715 1,825,604 300,000 $ 5,342,890 ========================================================================= Current liabilities: Accounts payable $ 641,676 63,762 57,918 $ 763,356 Note payable - Bank 725,000 35,000 760,000 Loans Payable to Shareholder - 5,000 600,000 605,000 Accrued liabilities 267,852 102,913 106,362 477,127 Deferred revenue 148,260 79,881 228,141 Income tax payable 18,000 18,000 ------------------------------------------------------------------------- Total current liabilities 1,782,788 304,556 - 764,280 2,851,624 Long Term Debt 142,211 - 142,211 Deferred compensation Payable - 144,983 144,983 Other Liabilities - - 300,000 300,000 ------------------------------------------------------------------------- Total Liabilities 1,924,999 449,539 1,064,280 3,438,818 Stockholders' Equity: Common stock 2,995,349 40,100 40,100 612,500 3,607,849 Retained earnings (accumulated deficit) (1,703,778) 113,076 113,076 (1,703,779) ------------------------------------------------------------------------- Total Stockholders' equity 1,291,571 153,176 153,176 612,500 1,904,070 ------------------------------------------------------------------------- Total liabilities & stockholders' equity $ 3,216,570 602,715 2,129,956 2,129,956 $ 5,342,890 ========================================================================= See accompanying notes to the unaudited pro forma condensed financial statements
MC Informatics Notes to the Unaudited Pro Forma Condensed Financial Statements (unaudited) (1) The acquisition of HSG by the Company is accounted for using the purchase method of accounting. The pro forma adjustments to record the acquisition in the accompanying unaudited pro forma condensed balance sheet are as follows: Components of purchase price: Cash $ 300,000 Promissory note 600,000 Future obligation to issue 120,000 shares of the Company's common stock 300,000 Issuance of 245,000 shares of the Company's common stock 612,500 ---------- 1,812,500 Purchase price adjustment payable to seller 106,362 Acquisition costs 57,918 ---------- Total purchase price 1,976,780 Net assets acquired 153,176 ---------- Goodwill $1,823,604 ========== (2) The historical financial statements for HSG have been accounted for on a June 30 fiscal year end basis. These historical financial statements have been recast using a December 31 fiscal year end for purposes of the accompanying unaudited pro forma condensed statements of operations. (3) Goodwill is estimated to have a useful life of seven years and is amortized using the straight-line method. The unaudited Pro Forma Condensed Statements of Operations for the year ended December 31, 1998 and the nine months ended September 30, 1999, reflect twelve and nine months amortization for those periods, respectively. (4) The pro forma adjustment for interest expense reflects the interest associated with the promissory note issued in connection with the acquisition. (5) Pro forma loss per share is based on the weighted average number of shares of common stock outstanding during the periods. Options and warrants to purchase common stock were excluded in the calculation of the pro forma loss per share, as their effect would be antidilutive. 3 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto authorized. MC Informatics, Inc. December 15, 1999 By: /s/ JEFFREY L. POLLARD ------------------------ Jeffrey L. Pollard Chief Financial Officer HSG Acquisitions, Inc. D.B.A. Inteck, Inc. Index to Financial Statements Contents Report of Independent Certified Public Accountants F-2 Balance Sheets F-3 - F-4 Statements of Operations F-5 Statements of Stockholders' Equity and Comprehensive Income (Loss) F-6 Statements of Cash Flows F-7 Summary of Accounting Policies F-8 - F-11 Notes to Financial Statements F-12 - F-17 F-1 Report of Independent Certified Public Accountants Board of Directors HSG Acquisitions, Inc. D.B.A. Inteck, Inc. We have audited the accompanying balance sheets of HSG Acquisitions, Inc. D.B.A. Inteck, Inc. as of June 30, 1999 and 1998 and the related statements of operations, stockholders' equity and comprehensive income (loss), and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of HSG Acquisitions, Inc. D.B.A. Inteck, Inc. at June 30, 1999 and 1998, and the results of its operations and its cash flows for the years then ended in conformity with generally accepted accounting principles. /s/ BDO Seidman LLP - -------------------- BDO Seidman, LLP Denver, Colorado November 12, 1999 F-2 HSG Acquisitions, Inc. D.B.A. Inteck, Inc. Balance Sheets
September 30, June 30 1999 ------------------------ (unaudited) 1999 1998 - ---------------------------------------------------------------------------------------------- Current Assets: Cash and cash equivalents (Note 3) 83,557 $ 68,434 $ 91,854 Investment securities (Notes 1 and 3) - - 99,384 Accounts receivable, 337,357 508,308 212,176 Income tax receivable 113,660 112,769 156,453 Deferred taxes (Note 9) 11,500 13,100 2,100 Prepaid expenses and other current assets 4,279 3,186 11,516 - ---------------------------------------------------------------------------------------------- Total current assets 550,353 705,797 573,483 Property and equipment, net (Note 2) 14,021 12,797 24,231 Deferred taxes (Note 9) 33,200 32,900 31,175 Other assets 5,141 3,833 6,714 - ---------------------------------------------------------------------------------------------- Total assets 602,715 $755,327 $635,603 ============================================================================================== See accompanying summary of accounting policies and notes to financial statements.
F-3 HSG Acquisitions, Inc. D.B.A. Inteck, Inc. Balance Sheets
September 30, June 30 1999 ------------------------------- (Unaudited) 1999 1998 - -------------------------------------------------------------------------------------------------------------- Liabilities and Stockholders' Equity Current liabilities: Line of credit (Note 3) 35,000 $ 35,000 $ - Accounts payable 63,762 94,050 34,620 Notes payable - employee - - 43,289 Due to shareholder (Note 4) 5,000 72,370 25,000 Accrued liabilities 102,913 142,396 135,429 Income taxes payable (Note 9) 18,000 18,000 - Customer deposits 79,881 109,351 123,792 - -------------------------------------------------------------------------------------------------------------- Total current liabilities 304,556 471,167 362,130 Deferred compensation agreement (Note 5) 144,983 144,983 129,783 - -------------------------------------------------------------------------------------------------------------- Total liabilities 449,539 616,150 491,913 - -------------------------------------------------------------------------------------------------------------- Commitments and contingencies (Notes 5, 7 and 12) Stockholders' equity: Common stock, no par value, 100,000 shares authorized, 12,820 shares issued and outstanding 40,100 40,100 40,100 Accumulated other comprehensive income, net - - 15,627 Retained earnings 113,076 99,077 87,963 - -------------------------------------------------------------------------------------------------------------- Total stockholders' equity 153,176 139,177 143,690 - -------------------------------------------------------------------------------------------------------------- Total liabilities and stockholders' equity 602,715 $755,327 $635,603 ============================================================================================================== See accompanying summary of accounting policies and notes to financial statements.
F-4 HSG Acquisitions, Inc. D.B.A Inteck, Inc. Statements of Operations
Three Months Ended September 30 (Unaudited) Years Ended June 30 ------------------------------- -------------------------- 1999 1998 1999 1998 - ------------------------------------------------------------------------------------------------------------ Revenues $458,748 $348,721 $1,855,637 $1,861,570 Direct expenses 233,300 262,843 991,578 774,659 - ------------------------------------------------------------------------------------------------------------ Gross profit 225,448 85,878 864,059 1,086,911 Selling, general and administrative expenses 201,615 201,077 833,811 1,353,016 - ------------------------------------------------------------------------------------------------------------ Income (loss) from operations 23,833 (115,199) 30,248 (266,105) - ------------------------------------------------------------------------------------------------------------ Other income (expense): Gain on sale of investments (Note 1) -- 25,346 25,011 28,699 Investment income 702 187 651 6,414 Interest expense (4,236) (1,844) (30,226) (24,881) - ------------------------------------------------------------------------------------------------------------ Total other income (expense) (3,534) 23,689 (4,564) 10,232 - ------------------------------------------------------------------------------------------------------------ Income (loss) before taxes 20,299 (91,510) 25,684 (255,873) Income tax expense (benefit) (Note 9) 6,300 (32,430) 14,570 (101,240) - ------------------------------------------------------------------------------------------------------------ Net income (loss) $ 13,999 $(59,080) $ 11,114 $ (154,633) ============================================================================================================ See accompanying summary of accounting policies and notes to financial statements.
F-5 HSG Acquisitions, Inc. D.B.A Inteck, Inc. Statements of Stockholders Equity and Comprehensive Income (Loss)
==================================================================================================================================== Accumulated Common Stock Other Total ---------------------- Comprehensive Retained Stockholders' Years Ended June 30, 1998 and 1999 Shares Amount Income (Loss) Earnings Equity - ------------------------------------------------------------------------------------------------------------------------------------ Balance, July 1, 1997 10,000 $ 100 $ 26,266 $ 242,596 $ 268,962 Comprehensive loss: Net loss - - - (154,633) (154,633) Change in net unrealized gains on securities available for sale - - (10,639) - (10,639) ------------ Total comprehensive loss (165,272) Shares issued for services (Note 6) 2,820 40,000 - - 40,000 - ------------------------------------------------------------------------------------------------------------------------------------ Balance, June 30, 1998 12,820 40,100 15,627 87,963 143,690 Comprehensive income: Net income - - - 11,114 11,114 Change in net unrealized gains on securities available for sale - - (15,627) - (15,627) ------------ Total comprehensive loss (4,513) - ------------------------------------------------------------------------------------------------------------------------------------ Balance, June 30, 1999 12,820 40,100 - 99,077 139,177 Comprehensive Income Net Income (unaudited) - - - 13,999 13,999 - ------------------------------------------------------------------------------------------------------------------------------------ Balance, September 30, 1999 (unaudited) $12,820 $40,100 $ - $113,076 $153,176 ====================================================================================================================================
See accompanying summary of accounting policies and notes to financial statements. F-6 HSG Acquisitions, Inc. D.B.A. Inteck, Inc. Statements of Cash Flows
Three Months Ended September 30, (Unaudited) Years Ended June 30, -------------------------------- ------------------------------ 1999 1998 1999 1998 - ------------------------------------------------------------------------------------------------------------------------ Cash flows from operating activities: Net income (loss) $ 13,999 $(59,080) $ 11,114 $(154,633) Adjustments to reconcile net income (loss) to net cash used in operating activities: Depreciation and amortization expense - 2,080 9,821 11,826 Issuance of common stock for services - - - 40,000 Realized gain on sale of investments - (25,346) (25,011) (28,699) Loss on disposal of fixed assets - - 4,558 - Deferred taxes 1,300 (10,725) (3,000) 11,013 Deferred compensation - 15,200 (31,529) Changes in operating assets and liabilities: Accounts receivable 170,951 (73,920) (296,132) 81,635 Prepaid expenses and other current assets (1,093) (730) 8,330 (7,653) Income tax receivable (891) 2,990 43,684 (112,522) Other assets (1,308) - 2,881 60,984 Customer Deposits (29,470) 13,100 (14,441) (58,430) Accounts payable (30,288) (1,560) 59,430 (10,907) Income taxes payable - - 18,000 - Accrued liabilities (39,483) (32,239) 6,967 (19,822) - --------------------------------------------------------------------------------------------------------------------- Net cash provided by (used in) operating activities 83,717 (185,430) (158,599) (218,737) - --------------------------------------------------------------------------------------------------------------------- Cash flows from investing activities: Purchases of property and equipment (1,224) (374) (2,945) (13,936) Proceeds from sale of investments - 109,103 99,043 117,508 Purchases of investments - - - (65,253) - -------------------------------------------------------------------------------------------------------------------- Net cash provided by (used in) investing activities (1,224) 108,729 96,098 38,319 - -------------------------------------------------------------------------------------------------------------------- Cash flows from financing activities: Repayment of notes payable to employee - (43,289) (43,289) (30,000) Due to shareholder (67,370) 28,180 47,370 25,000 Proceeds from line of credit - 35,000 35,000 - - -------------------------------------------------------------------------------------------------------------------- Net cash provided by (used in) financing activities (67,370) 19,891 39,081 (5,000) - -------------------------------------------------------------------------------------------------------------------- Net increase (decrease) in cash and cash equivalents 15,123 (56,810) (23,420) (185,418) Cash and cash equivalents, beginning of period 68,434 91,854 91,854 277,272 - -------------------------------------------------------------------------------------------------------------------- Cash and cash equivalents, end of period $ 83,557 $ 35,044 $ 68,434 $ 91,854 ==================================================================================================================== See accompanying summary of accounting policies and notes to financial statements.
F-7 HSG Acquisition, Inc. D.B.A. Inteck, Inc. Summary of Accounting Policies Organization HSG Acquisitions, Inc. D.B.A. Inteck, Inc. (the "Company") is a healthcare consulting corporation, which was incorporated in October 1989 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. Cash Equivalents For purposes of the statement of cash flows, the Company considers all highly liquid investments purchased with a maturity at date of purchase of three months or less to be cash equivalents. Concentrations of The Company's financial instruments that are Credit Risk exposed to concentrations of credit risk consist primarily of cash balances in excess of the insurance provided by governmental insurance authorities and investments in equity obligations. The Company's cash is placed with financial institutions and are primarily in demand deposit accounts. The Company holds securities for sale in a variety of corporate equity instruments. Concentrations of credit risk with respect to accounts receivable reflects balances due from a few customers dispersed across geographic areas. The Company reviews a customer's credit history before extending credit and establishes an allowance for doubtful accounts based upon the credit risk of specific customers, historical trends and other information. Generally, the Company has a policy of receiving retainers from new customers. Marketable Marketable securities classified as available for Securities sale are those securities that the Company does not have a positive intent to hold to maturity or does not intend to trade actively. These securities are reported at fair value with unrealized gains and losses reported as as a net amount (net of applicable income taxes), as a component of stockholder's equity. F-8 HSG Acquisition, Inc. D.B.A. Inteck, Inc. Summary of Accounting Policies Property, Property and equipment are recorded at cost. Equipment and Depreciation is provided on property and Depreciation and equipment by charging against earnings, amounts Amortization sufficient to amortize the costs of the assets over their estimated useful lives. The ranges of estimated useful lives in computing depreciation and amortization are three to ten years. Depreciation is computed using the straight-line and accelerated tax depreciation methods. Any difference between the accelerated tax depreciation method and the straight-line depreciation method are not significant. Taxes on Income The Company accounts for income taxes under SFAS No. 109. Deferred income taxes result from temporary differences. Temporary differences are differences between the tax basis of assets and liabilities and their reported amounts in the financial statements that will result in taxable or deductible amounts in future years. Revenue and Revenues are recognized as services are provided. Cost Recognition Direct costs include all direct material and labor costs. General and administrative costs are charged to expense as incurred. Significant The Company has historically received greater than 10% Customers of its annual revenues from one or two customers. One customer accounted for 11% of revenues for the year ended June 30, 1999 and two customers accounted for 23% and 19% of revenues for the year ended June 30, 1998. In addition, balances due from three customers accounted for 43% of accounts receivable at June 30, 1999 and 1998. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. F-9 HSG Acquisition, Inc. D.B.A. Inteck, Inc. Summary of Accounting Policies Interim Financial In the opinion of management, the accompanying unaudited Statements interm financial statements contain all adjustments (consisting of normal recurring accruals) necessary to present fairly the Company's financial position as of September 30, 1999 and the results of operations and cash flows for the three months ended September 30, 1999 and 1998, and are not necessarily indicative of the results to be expected for the full year. Comprehensive Effective July 1, 1997, the Company adopted Income (Loss) FASB Statement No. 130, Reporting Comprehensive Income ("SFAS No. 130"). SFAS No. 130 requires the reporting of comprehensive income in addition to net income (loss) from operations. Comprehensive income (loss) is a more inclusive financial reporting methodology that includes disclosure of certain financial information that historically has not been recognized in the calculation of net income (loss). The change in net unrealized securities gains (losses) recognized in other comprehensive income includes two components: (1) unrealized gains (losses) that arose during the period from changes in market value of securities that were held during the period (Holding gains (losses)), and (2) gains or (losses) that were previously unrealized, but have been recognized in current period net income due to sales of available-for sale securities (reclassification for realized gains). This reclassification has no effect on total comprehensive income or stockholder's equity. The following table presents the components of other comprehensive income (loss), net of tax:
Years Ended June 30 (net of tax) 1999 1998 ---------------------------------------------------------------------- Holding gains $ 9,384 $ 18,060 Reclassification for realized gains (25,011) (28,699) ---------------------------------------------------------------------- Decrease in net unrealized securities gains recognized in other comprehensive income $(15,627) $(10,639) ======================================================================
F-10 HSG Acquisition, Inc. D.B.A. Inteck, Inc. Summary of Accounting Policies New Accounting In June 1998, the FASB issued SFAS No. 133, Pronouncement "Accounting for Derivative Instruments and Hedging Activities" which requires companies to record derivatives on the balance sheet as assets or liabilities, measured at fair market value. Gains or losses resulting from changes in the values of those derivatives would be accounted for depending on the use of the derivative and whether it qualifies for hedge accounting. The key criterion for hedge accounting is that the hedging relationship must be highly effective in achieving offsetting changes in fair value or cash flows. SFAS No. 133 is effective for fiscal years beginning after June 15, 2000. Management believes the adoption of this statement will have no material impact on the Company's financial statements. F-11 HSG Acquisition, Inc. D.B.A. Inteck, Inc. Notes to Financial Statements 1. Investment The Company's market value of available for sale Securities securities consisted of the following:
Gross Gross Unrealized Unrealized Estimated June 30, 1998 Cost Gains Loss Fair Value ------------------------------------------------------------------------ Equity Securities $74,447 $24,937 $ - $ 99,384 ========================================================================
The Company realized net gains of $25,011 and $28,699 on the sale of investment securities for the years ended June 30, 1999 and 1998. 2. Property and The Company's property and equipment is summarized as Equipment follows:
September 30 June 30, 1999 --------------------------- (Unaudited) 1999 1998 ------------------------------------------------------------------------------- Computer equipment $ 94,469 $ 93,245 $ 98,150 Computer software 11,176 11,176 10,861 Furniture, fixtures and equipment 7,043 7,043 7,043 ------------------------------------------------------------------------------- 112,688 111,464 116,054 Less accumulated depreciation and amortization 98,667 98,667 91,823 ------------------------------------------------------------------------------- $ 14,021 $ 12,797 $ 24,231 ===============================================================================
Depreciation and amortization expense was $9,821 and $11,826 for the years ended June 30, 1999 and 1998. 3. Line of Credit The Company entered into a $35,000 revolving line-of- credit agreement with a bank on July 28, 1998. The line of credit bears interest at an annual rate equal to the bank's Prime Rate (8.5% at June 30, 1999) plus 2.5%. The balance is due on demand. The revolving line of credit is collateralized by all of the Company's bank and investment accounts. The balance outstanding at June 30, 1999 under this agreement was $35,000. F-12 HSG Acquisition, Inc. D.B.A. Inteck, Inc. Notes to Financial Statements 4. Due to The Company has balances due to a shareholder at Shareholder June 30, 1999 and 1998 of $72,370 and $25,000. The liability consists of moneys received by the Company from various short-term debt obligations of the shareholder. The Company pays the debt requirements of those shareholders short-term debt obligations to the lending institutions for the shareholder, including any required interest payments. 5. Deferred The Company has an agreement with a shareholder to Compensation defer a portion of the shareholder's compensation. Agreement The agreement does not represent a qualified plan under Internal Revenue Service provisions. The agreement is to provide to the shareholder, upon reaching the age of 61 or retirement, payments over the balance of his life or a minimum of 10 years. The payments are to be based on the three highest years of compensation paid to the shareholder by the Company. The balances recorded as a liability to the shareholder under this agreement at June 30, 1999 and 1998 were $144,983 and $129,783. 6. Stockholders' During December 1997, the Company issued 2,820 of shares Equity as compensation for past services provided by two employees. The Company established the total value of the shares issued at $40,000. 7. Operating The Company leases office space under an operating Lease lease. The lease expires in March 2002. Commitments Minimum annual lease commitments are as follows:
Years Ending June 30, ---------------------------------------------- 2000 $ 49,000 2001 49,000 2002 32,000 ---------------------------------------------- $ 130,000 ==============================================
F-13 HSG Acquisition, Inc. D.B.A. Inteck, Inc. Notes to Financial Statements Rental expense for years ended June 30, 1999 and 1998 totaled $56,000 and $50,000. 8. Profit The Company has a qualified profit sharing plan Sharing with a 401(k) deferred compensation provision Plan covering substantially all employees. The plan allows employees to defer up to 15% of their annual salary with a discretionary matching contribution by the Company. The expense charged to operations for the plan was $11,000 and $27,000 for the years ended June 30, 1999 and 1998. 9. Income Income taxes are provided on all revenue and expense Taxes items included in the income statement, with the exception of permanent differences between financial earnings and taxable income. Deferred income taxes result principally from utilizing the accrual basis of accounting for financial reporting purposes and the cash basis for income tax purposes. The provision for income taxes consisted of the following:
Three Months Ended September 30, (Unaudited) Years Ended June 30, --------------------- ------------------------ 1999 1998 1999 1998 ---------------------------------------------------------------------------------------------- Current: Federal 5,000 (31,000) $ 18,000 $ (110,000) ----------------------------------------------------------------------------------------------- Deferred benefit: Federal 2,000 1,000 (7,000) 20,000 State (1,000) (3,000) 2,000 (8,000) ----------------------------------------------------------------------------------------------- 1,000 (2,000) (5,000) 12,000 ----------------------------------------------------------------------------------------------- 6,000 (33,000) 13,000 (98,000) Change in valuation allowance - 1,000 2,000 (3,000) ----------------------------------------------------------------------------------------------- $ 6,000 ($32,000) $ 15,000 $ (101,000) -----------------------------------------------------------------------------------------------
F-14 HSG Acquisitions, Inc. D.B.A. Inteck, Inc. Notes to Financial Statements A reconciliation of income tax expense (benefit) at the federal statutory rate to the effective tax rate is as follows:
Three Months Ended September 30 (Unaudited) Years Ended June 30 1999 1998 1999 1998 ------------------------------------------------------------------------------------------ Income tax expense (benefit) computed at the federal statutory rate 2,000 (31,000) $ 9,000 $ (87,000) State income tax expense (benefit), net of federal tax expense (benefit) 1,000 (3,000) 1,000 (8,000) Other (2,000) 2,000 3,000 (3,000) Increase (decrease) in valuation allowance 2,000 (3,000) ------------------------------------------------------------------------------------------ Income tax expense (benefit) $ 6,000 $(32,000) $ 15,000 $(101,000) ========================================================================================== Temporary differences that give rise to a significant portion of the deferred tax asset are as follows: September 30 1999 June 30 (Unaudited) 1999 1998 ------------------------------------------------------------------------------------------ Deferred tax assets: Net operating loss carryforward $12,000 $ 11,000 $ 15,000 Deferred compensation 54,000 54,000 48,000 Accrued vacation and officers salaries 24,000 26,000 23,000 ------------------------------------------------------------------------------------------ Net deferred tax assets 90,000 91,000 86,000 Less valuation allowance 45,000 45,000 43,000 ------------------------------------------------------------------------------------------ Net deferred tax asset 45,000 46,000 43,000 Deferred tax liability: Net unrealized gain on securities available for sale - - (10,000) ------------------------------------------------------------------------------------------ Net deferred tax asset $45,000 $ 46,000 $ 33,000 ==========================================================================================
F-15 HSG Acquisition, Inc. D.B.A. Inteck, Inc. Notes to Financial Statements A valuation allowance equal to 50% the net deferred tax asset has been recorded, as management of the Company has not been able to determine that it is more likely than not that the full benefit from the deferred tax assets will be realized. At June 30, 1999, the Company had state net operating loss carryforwards of approximately $386,000 with expirations through 2018. The state operating losses maybe limited due to changes in ownership. The Company carried back all of its federal net operating losses to prior years. 10. Supplemental Data to Three Months Ended September 30 Years Ended June 30, 1999 ------------------------- (Unaudited) 1999 1998 ------------------------------------------------------------------------- Statements of Cash Flows Cash paid for interest $4,236 $ 30,226 $ 24,881 ========================================================================= 11. Subsequent On October 1, 1999, MC Informatics, Inc., a publicly Event traded company, acquired all of the outstanding stock of HSG Acquisitions, Inc. D.B.A. Inteck, Inc. The acquisition was accounted for under the purchase method of accounting.
F-16 HSG Acquisitions, Inc. D.B.A. Inteck, Inc. Notes to Financial Statements 12. Year 2000 Like other companies, HSG Acquisitions, Inc. D.B.A. Issues Inteck, Inc. could be adversely affected if the computer (Unaudited) systems the Company, its suppliers or customers use do not properly process and calculate date-related information and data from the period surrounding and including January 1, 2000. This is commonly known as the "Year 2000" issue. Additionally, this issue could impact non-computer systems and devices such as production equipment, elevators, etc. At this time, because of the complexities involved in the issue, management cannot provide assurances that the Year 2000 issue will not have an impact on the Company's operations. The Company has implemented a plan to modify its business technologies to be ready for the year 2000 and is in the process of converting critical data processing systems. The project is expected to be substantially complete by December 31, 1999. The Company has incurred de minimus costs ensuring it is Year 2000 compliant and, based upon its reviews, expects only de minimus costs in the future. The Company does not expect this effort to have a significant effect on operations. F-17 -----END PRIVACY-ENHANCED MESSAGE-----