-----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, GDPleHgco2GnARw27vjzu6EbHl3YqZaxrfQ/9LusDcH5NjELQOaFjdUrYsufz0gj WNLH75H/gjF5LXhNAANceA== 0001021408-99-001982.txt : 19991115 0001021408-99-001982.hdr.sgml : 19991115 ACCESSION NUMBER: 0001021408-99-001982 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990930 FILED AS OF DATE: 19991112 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: 10QSB SEC ACT: SEC FILE NUMBER: 000-21819 FILM NUMBER: 99746686 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 10QSB 1 QUARTERLY REPORT ON FORM 10-QSB - -------------------------------------------------------------------------------- U. S. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-QSB [X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the Quarterly Period Ended September 30, 1999 [_] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Commission File Number. 0-21819 MC INFORMATICS, INC. (Exact name of Company as specified in charter) California 94-3165144 (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 18881 Von Karman Ave., Suite 100, Irvine, California 92612 (Address of principal executive offices) (Zip Code) 949-261-7100 (Company's telephone number, including area code) Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [_] As of November 8, 1999, there were 15,469,291 shares of the Company's Common Stock outstanding and warrants to purchase 2,175,000 shares of Common Stock outstanding. Transitional Small Business Disclosure Format Yes [_] No [X] - -------------------------------------------------------------------------------- 1 INDEX
Part I Page Item 1 Financial Statements.....................................3 Item 2 Management's Discussion and Analysis of Financial Condition and Results of Operations.....................3 Part II Item 1 Legal Proceedings.......................................12 Item 2 Changes in Securities and Use of Proceeds...............12 Item 3 Defaults Upon Senior Securities.........................12 Item 4 Submission of Matters to a Vote of Security Holders.....12 Item 5 Other Information.......................................12 Item 6 Exhibits and Reports on Form 8-K........................12 Item 7 Signature...............................................13
2 Part I Item 1. Financial Statements. The following Financial Statements are filed with this report as pages F-1 through F-7 following the signature page: Index to Condensed Financial Statements Condensed Balance Sheet Condensed Statements of Operations Condensed Statements of Cash Flows Notes to Condensed Financial Statements Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. The Company's operating performance each quarter is subject to various risks and uncertainties. The information set forth in "Management's Discussion and Analysis of Financial Condition and Results of Operations" below includes "forward-looking statements" within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and is subject to the safe harbor created by such section. Readers are cautioned not to place undue reliance on these forward-looking statements as they speak only as of the date hereof. Overview On August 18, 1998, MC Informatics, Inc., a California corporation, and certain shareholders of MC Informatics, Inc. entered into an Agreement and Plan of Reorganization (the "Agreement") with MC Acquisition Corporation, a California corporation and a wholly-owned subsidiary of HealthDesk Corporation ("Sub"). On March 2, 1999, pursuant to the terms of the Agreement, MC Informatics, Inc., was merged with and into the Sub through the issuance of 5,645,230 shares of HealthDesk Corporation common stock in exchange for all of the outstanding shares of common stock of MC Informatics pursuant to the terms of the Agreement. In connection with the merger, the surviving corporation changed its name to MC Informatics, Inc. and, unless otherwise noted, the surviving Corporation is referred to herein as the Company. In addition, in accordance with the Agreement, upon the closing of the merger in March 1999, all of the outstanding shares of series B preferred stock of HealthDesk Corporation were converted into 2,525,000 shares of the Company's common stock. As a result of the foregoing, the discussion below relates to the current and historical business of MC Informatics, Inc. The statements below regarding the Company's future cash requirements are forward looking statements that are subject to risks and uncertainties, which could result in, the Company's inability to meet its funding requirements for the time period indicated. 3 Results of Operations Three Month Period Ended September 30, 1999 Compared to the Three Month Period Ended September 30, 1998 - ------------------------------------------------------------------------------- The Company's revenues for the three months ended September 30, 1999 were $2,471,756 as compared with $1,084,294 for the three months ended September 30, 1998. The increase of $1,387,462 was primarily a result of an increase in the type of services performed and an increase in the number of billable personnel employed by the Company to meet contractual obligations. Gross profit increased to $442,538 for the three months ended September 30, 1999 from $306,142 for the same period of the previous year. Gross margin decreased from 28% for the quarter ended September 30, 1998 to 18% for the quarter ended September 30, 1999. The decrease in gross margin was primarily due to the establishment of two new departments, Physician Care and Clinical Care, for which the Company incurred significant start up costs, principally salary and travel expenses without realizing substantial gross revenues yet. Gross margin also decreased because several consultants were not billable for a period of time while they transitioned from one engagement to another. For the three months ended September 30, 1999, selling, general and administrative expenses increased to $1,079,289 from $408,667 for the three months ended September 30, 1998. The $670,622 increase was primarily due to costs incurred in connection with the acquisition of Medical System Solutions and an increase in personnel, increasing corporate overhead. For the three month period ended September 30, 1999, other expense increased to $23,364 from $3,800 for the period ended September 30, 1998. The increase was primarily due to interest expense incurred from the Company's line of credit. Nine Month Period Ended September 30, 1999 Compared to the Nine Month Period Ended September 30, 1998 - ------------------------------------------------------------------------------- The Company's revenues for the nine months ended September 30, 1999 were $6,665,751 as compared with $2,306,099 for the nine months ended September 30, 1998. The increase of $4,359,652 was primarily a result of an increase in the type of services performed and an increase in the number of billable personnel employed by the Company, from 35 to 56, to meet contractual obligations. Gross profit increased to $1,742,939 for the nine months ended September 30, 1999 from $819,521 for the same period of the previous year. Gross margin decreased from 36% for the nine month period ended September 30, 1998 to 26% for the nine month period ended September 30, 1999. The decrease in gross margin was primarily due to the expansion of the Company's operations into the Hawaii market and the establishment of two new departments, Physician Care and Clinical Care, which have incurred significant start up costs, principally salary and travel expenses. Gross margin also decreased because several consultants were not billable for a short period of time while they transitioned from one engagement to another. 4 For the nine month period ended September 30, 1999, selling, general and administrative expenses increased to $2,973,363 from $849,858 for the nine month period ended September 30, 1998. The $2,123,505 increase was primarily due to the merger with HealthDesk Corporation in March 1999, the acquisition of Medical System Solutions in June, 1999, the relocation of the Company's corporate headquarters and an increase from 10 to 27 in personnel. For the nine month period ended September 30, 1999, other expense increased to $152,005 from $3,800 for the nine month period ended September 30, 1998. The increase was primarily due to the incremental yield on common stock issued at a discount to market to certain employees in connection with a private placement by HealthDesk Corporation prior to the merger with MC Informatics, Inc. in March 1999, and interest expense incurred on the line of credit. Liquidity and Capital Resources At September 30, 1999, the Company had cash and cash equivalents of $0, as compared to $17,730 at December 31, 1998. Working capital at September 30, 1999 was $598,826 as compared to a negative working capital of $276,834 at December 31, 1998. The Company's operating activities used net cash of $2,054,019 for the nine months ended September 30, 1999 primarily as a result of the cash portion of the net loss and increases in accounts receivable and decreases in accrued liabilities partially offset by cash provided by increases in accounts payable. For the nine months ended September 30, 1998, the Company's operating activities used net cash of $344,759 primarily due to an increase in accounts receivable partially offset by an increase in accrued liabilities and accounts payable. The Company's investing activities provided net cash of $1,245,397 for the nine months ended September 30, 1999, while the Company used net cash of $2,730 for the same period of the previous year. For the current period, the Company received proceeds of $871,267 upon the reverse merger with HealthDesk Corporation and collected $1,111,819 from related party notes receivable which amounts were offset by $195,264 used to acquire Medical System Solutions, $172,085 in advances to related parties, and $370,340 in capital expenditures, primarily related to the relocation of the Company's corporate facility. The Company's financing activities provided net cash of $790,892 for the nine months ended September 30, 1999 while financing activities for the same period of the previous year generated net cash of $372,000. For the current period, the Company received proceeds aggregating $867,211 on its revolving credit facility, and long term debt, collected $725,000 from a pre-merger subscription receivable and repaid $801,319 on a related party note payable. The Company's financing activities provided net cash of $372,000 for the nine months ended September 30, 1998, relating to proceeds received from a note payable to a related party. The Company obtained a $1.7 million revolving line of credit from a bank in May 1999. In October, the remaining amount available under the line of credit was utilized for the acquisition of Inteck, Inc. The Company believes that it will have to obtain additional funds to meet its projected cash requirements for the next twelve months. However, there can be no assurance that the Company will be able to secure additional financing with reasonable terms, if at all or that the 5 Company's funding requirements will not increase significantly as a result of unforeseen circumstances or that the Company's cash used in operating activities will not increase. In the event the Company exceeds its projected cash requirements, there can be no assurance that the Company would be able to obtain public or private third- party sources of financing or that favorable terms for such financing would be available. In addition, given the trading history of the Company's Common Stock and warrants to purchase common stock, there can be no assurance that the Company will be able to raise additional cash through public or private offerings of its Common Stock. Year 2000 Issues Some computers, software, and other equipment include computer code in which calendar year data is abbreviated to only two digits. As a result of this design decision, some of these systems could fail to operate or fail to produce correct results if "00" is interpreted to mean 1900, rather than 2000. These problems are widely expected to increase in frequency and severity as the year 2000 approaches, and are commonly referred to as the "year 2000 problem." Assessment. The year 2000 problem affects the computers, software and other equipment that we use, operate or maintain for our operations. Accordingly, the Company has hired an individual to monitor the assessment and remediation status of our year 2000 projects and report such status to our board of directors. This individual began assessing the potential effect and costs of remediating the year 2000 problem for the Company's internal systems in March 1999. The Company has not obtained verification or validation from any independent third parties of its processes to assess and correct any of its year 2000 problems or the costs associated with these activities. Internal infrastructure. The Company believes that all of its significant internal information technology systems are currently year 2000 compliant and, accordingly, does not anticipate any significant expenditures to replace existing internal use systems. Systems other than information technology systems. In addition to computers and related systems, the operation of office and facilities equipment, such as fax machines, telephone switches, security systems, and other common devices may be affected by the year 2000 problem. The Company recently purchased a new telephone system and network server and workstations which the Company believes are year 2000 compliant. The Company estimates the total cost to it of completing any required modifications, upgrades or replacements of the Company's internal systems will not exceed $10,000, almost all of which the Company believes will be incurred during 1999. This estimate is being monitored and the Company will revise it as additional information becomes available. Based on the activities described above, the Company does not believe that the year 2000 problem will have a material adverse effect on its business or operating results. In addition, the Company has not deferred any material information technology projects as a result of its year 2000 problem activities. Suppliers. The Company is in the process of contacting its third-party suppliers to resolve issues involving the year 2000 problem. However, the Company has limited or no control over the actions of these third-party 6 suppliers. Thus, while the Company expects that it will be able to resolve any significant year 2000 problems with these third parties, there can be no assurance that these suppliers will resolve any or all year 2000 problems before the occurrence of a material disruption to the operation of its business. Any failure of these third parties to timely resolve year 2000 problems with their systems could have a material adverse effect on the Company's business, operating results and financial condition. Most likely consequences of year 2000 problems. The Company expects to identify and resolve all year 2000 problems that could materially adversely affect its business operations. However, the Company believes that it is not possible to determine with complete certainty that all year 2000 problems affecting it have been identified or corrected. The number of devices that could be affected and the interactions among these devices are simply too numerous. In addition, no one can accurately predict how many year 2000 problem-related failures will occur or the severity, duration, or financial consequences of these perhaps inevitable failures. As a result, the Company believes that the following consequences are possible: . A significant number of operational inconveniences and inefficiencies for the Company and its customers that will divert management's time and attention and financial and human resources from ordinary business activities; . Several business disputes and claims for pricing adjustments or penalties due to year 2000 problems by the Company's customers, which the Company believes will be resolved in the ordinary course of business; and . A few serious business disputes alleging that the Company failed to comply with the terms of contracts or industry standards of performance, some of which could result in litigation or contract termination. Contingency plans. The Company is currently developing contingency plans to be implemented if its efforts to identify and correct year 2000 problems affecting its internal systems are not effective. Depending on the systems affected, these plans could include: . Accelerated replacement of affected equipment or software; . Short- to medium-term use of backup equipment and software; . Increased work hours for our personnel; and . Use of contract personnel to correct on an accelerated schedule any year 2000 problems that arise or to provide manual workarounds for information systems. The Company's implementation of any of these contingency plans could have a material adverse effect on its business, operating results and financial condition. Disclaimer. The discussion of the Company's efforts and expectations relating to year 2000 compliance are forward-looking statements. The Company's ability to achieve year 2000 compliance and the level of incremental costs associated therewith, would be adversely affected by, among other things, the availability and cost of programming and testing resources, third party suppliers' ability to 7 modify proprietary software, and unanticipated problems identified in the ongoing compliance review. Factors that May Affect Future Operating Results The Company's future operating results are dependent on a number of factors, including those set forth below. Because the Company concluded that the merger of MC Informatics, Inc. with HealthDesk Corporation constituted a reverse merger, Nasdaq required the Company to comply with the initial listing requirements to remain listed on the Nasdaq Small Cap Market. Since the Company did not meet these initial listing requirements, the Company was delisted on June 9, 1999. As a result, the trading of the Company's securities is now conducted in the non-Nasdaq over-the- counter market. Due to the delisting, an investor may find it more difficult to dispose of, or to obtain accurate quotations as to the market value of, the Company's securities. Also, the trading of securities is subject to certain rules promulgated under the Exchange Act, which require additional disclosure by broker-dealers in connection with any trades involving a stock defined as a penny stock (generally, any non-NASDAQ equity security that has a market price of less than $5.00 per share, subject to certain exceptions). Such rules require the delivery, prior to any penny stock transaction, of a disclosure schedule explaining the penny stock market and the risks associated therewith, and impose various sales practice requirements on broker-dealers who sell penny stock to persons other than established customers and accredited investors (generally institutions). For these types of transactions, the broker-dealer must make a special suitability determination for the purchaser and have received the purchaser's written consent to the transactions prior to sale. The additional burdens imposed upon broker-dealers by such requirements may discourage broker-dealers from effecting transactions in the Common Stock, which could severely limit the market liquidity of the Common Stock and the ability of holders of common stock to sell the Common Stock in the secondary market. There can be no assurance that the Company's Common Stock will be listed on Nasdaq in the foreseeable future. Retention and Recruitment of Professional Staff. The Company's business involves the delivery of professional services and is labor-intensive. The Company's success depends in large part upon its ability to attract, develop, motivate and retain highly skilled consultants. There is significant competition for employees with the skills required to perform the services offered by the Company from other consulting firms, healthcare providers and other healthcare industry participants, health information systems vendors, clients, systems integrators and many other enterprises. There can be no assurance that the Company will be able to attract and retain a sufficient number of highly skilled employees in the future or that it will continue to be successful in training, retaining, and motivating employees. The loss of a significant number of consultants and/or the Company's inability to hire a sufficient number of qualified consultants would adversely affect the Company's ability to secure, service and complete client engagements and could have a material adverse effect on the Company's business, operating results and financial condition. Client Concentration. The Company derives a significant portion of its revenues from a relatively limited number of clients. Clients will typically engage the Company on an assignment-by-assignment basis, and a client will be able to generally terminate an assignment at any time without penalty. In 8 addition, the level of the Company's services required by any individual client can diminish over the life of its relationship with the Company, and there can be no assurance that the Company will be successful in establishing relationships with new clients as this occurs. Moreover, there can be no assurance that the Company's clients prior to the merger with HealthDesk Corporation will continue to engage the Company for additional projects or do so at the same revenue levels. The loss of any significant client could have a material adverse effect on the Company's business, financial condition and results of operations. Project Risks; Limited Outsourcing Experience. Many of the Company's engagements involve projects which are critical to the operations of its clients' business and which provide benefits that may be difficult to quantify. The Company's failure to meet a client's expectations in the performance of its services could damage the Company's reputation and adversely affect its ability to attract new business. In addition, the Company could incur substantial costs and expend significant resources correcting errors in its work, and could possibly become liable for damages caused by such errors. For example, the healthcare industry faces potential difficulties with its information systems and business operations arising out of potential year 2000 problems. The Company has assisted and expects to continue to assist clients in selecting and implementing software applications for the clients' use in their business. While the Company is not aware of any existing or potential claims, the occurrence of year 2000 related system failures in the information systems or other systems of clients of the Company could involve the Company in disputes and negatively impact client relationships, which in turn could have a material adverse effect on the Company's business, financial condition and results of operations, whether or not the Company bears any responsibility, legal or otherwise, for the occurrence of those problems. The Company has had limited experience to date as an outsourcing provider, and there can be no assurance that it will be able to assess accurately the investment required and negotiate and perform in a profitable manner any of its outsourcing contracts. If the Company is successful in implementing its outsourcing strategy, the Company anticipates that competitors may increase their focus on this market which could adversely affect the Company's ability to obtain new outsourcing contracts as well as the profitability of any such contracts. In addition, any failure by the Company to perform adequately under its outsourcing agreements may adversely effect its ability to obtain future consulting engagements from these or other clients. The Company's failure to obtain future consulting engagements could have a material adverse affect on the Company's business, financial condition and results of operations. Competition. The market for the Company's services is highly fragmented, highly competitive and subject to rapid change. The Company believes that it will compete principally with systems integration firms, national consulting firms, including the consulting divisions of large accounting firms, information system vendors, service groups of computer equipment companies, facilities management companies, general management consulting firms, and regional and specialty consulting firms. Many of these competitors have significantly greater financial, technical and marketing resources than the Company, generate greater revenues and have greater name recognition than the Company. Moreover, those competitors that sell or license their own software may in the future attempt to limit or eliminate the use of third party consultants, such as the Company, to 9 implement and/or customize such software. In addition, vendors whose systems may enjoy wide market acceptance and large market share could enter into exclusive or restrictive agreements with other consulting firms which could eliminate or substantially reduce the Company's implementation work for those systems. There are relatively low barriers to entry into the Company's markets, and the Company faces and expects to face additional competition from new entrants into the healthcare consulting industry. In addition, combinations and consolidations in the consulting industry will give rise to large competitors whose relative strengths are impossible to predict. The Company also competes with its clients' internal resources, particularly where these resources represent a fixed cost to the client. This internal client competition may heighten as consolidation of healthcare providers creates organizations large enough to support more sophisticated internal information management capabilities. There can be no assurance that the Company will be able to compete effectively with current and future competitors or that competitive pressures, including wage pressures as the consultant labor market tightens, faced by the Company will not cause the Company's revenue, or operating margins to decline. Limited Revenues: Significant and Continuing Losses. The Company has not achieved annual profitability and management cannot be certain that the Company will realize sufficient revenues to achieve profitability. There can be no assurance that the Company will be able to generate meaningful revenues or achieve profitable operations. Year 2000 Issues. Apprehension in the marketplace over year 2000 compliance issues may lead businesses, including the customers of the Company to defer significant capital investment in information technology programs. They could elect to defer those investments because they decide to focus their capital budgets on the expenditures necessary to bring their own existing systems into compliance. If these deferrals are significant, the Company may not achieve expected revenue or earnings levels. Negative Cash Flow; Need for Additional Financing. The Company obtained a $1.7 million revolving line of credit from a bank in May 1999. In October, the remaining amount available under the line of credit was utilized for the acquisition of Inteck, Inc. The Company believes that it will have to obtain additional funds to meet its projected cash requirements for the next twelve months. The Company's capital requirements relating to its professional services organization are expected to be significant. There can be no assurance that the Company will be able to secure additional financing with reasonable terms, if at all or that the Company's funding requirements will not increase significantly as a result of unforeseen circumstances or that the Company's cash used in operating activities will not increase. In the event the Company exceeds its projected cash requirements, there can be no assurance that the Company would be able to obtain public or private third-party sources of financing or, that favorable terms for such financing would be available. In addition, given the trading history of the Company's Common Stock and warrants to purchase common stock, there can be no assurance that the Company will be able to raise additional cash through public or private offerings of its common stock. Any of these developments could materially adversely affect the Company's business, financial condition and operating results. Outstanding Options. As of September 30, 1999, the Company had outstanding options to purchase an aggregate of 2,524,114 shares of common stock at exercise prices ranging from $1.00 to $5.00. Exercise of any of the aforementioned 10 options may have a dilutive effect on the Company's shareholders. Furthermore, the terms upon which the Company may be able to obtain additional equity financing may be adversely affected, since the holders of the options can be expected to exercise them at a time when the Company would, in all likelihood, be able to obtain any needed capital on terms more favorable to the Company than those provided in the options. No Dividends. To date, the Company has not paid any cash dividends and does not expect to declare or pay dividends on common stock in the foreseeable future. Authorized Preferred Stock. The Company's Restated Articles of Incorporation authorize the Company's board of directors to issue 3,000,000 shares of "blank check" preferred stock and to fix the rights and restrictions, including voting rights, of these shares, without further shareholder approval. The rights of the holders of the Company's Common Stock will be subject to and may be adversely affected by the rights of holders of any preferred stock that may be issued in the future. The ability to issue Preferred Stock without shareholder approval could have the effect of making it more difficult for a third party to acquire a majority of the voting stock of the Company thereby delaying, deferring or preventing a change in control of the Company. Volatility of Stock and Warrants Prices. The Company's common stock and warrants to purchase common stock have experienced substantial price fluctuations. In addition, the stock market has experienced significant price and volume fluctuations that have especially affected the market prices of equity securities of many companies, which often have been unrelated to the operating performance of such companies. In the past, following periods of volatility in the market price of a company's securities, securities class action litigation has often been instituted against such a company. Such litigation could result in substantial costs and a diversion of management's attention and resources, which would have a material adverse effect on the Company's business, operating results and financial condition. These broad market fluctuations may adversely affect the market price of the Company's Common Stock and warrants. 11 Part II Item 1. Legal Proceedings. None. Item 2. Changes in Securities and Use of Proceeds. None. Item 3. Defaults Upon Senior Securities. None. Item 4. Submission of Matters to a Vote of Security Holders. None. Item 5. Other Information. Not applicable Item 6. Exhibits and Reports on Form 8-K. a) Exhibits: 27 Financial Data Schedule b) Form 8-K On July 14, 1999, the Company filed a Form 8-K in connection with the acquisition of Medical System Solutions. On September 28, 1999, the Company filed a Form 8-K/A Amendment #2 in connection with the merger of MC Informatics, Inc. and HealthDesk Corporation. 12 SIGNATURE In accordance with the requirements of the Securities Exchange Act of 1934, the Registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. MC Informatics, Inc. By: /s/ Jeffrey Pollard, C.P.A. Date: November 10, 1999 --------------------------- Jeffrey Pollard Chief Financial Officer and Chief Accounting Officer 13 MC INFORMATICS, INC. Condensed Financial Statements CONTENTS
Page ---- Condensed Balance Sheet as of September 30, 1999 (unaudited).............. F-2 Condensed Statements of Operations for the three months and nine months ended September 30, 1999 and 1998 (unaudited)............................ F-3 Condensed Statements of Cash Flows for the nine months ended September 30, 1999 and 1998 (unaudited)............................ F-4 Notes to Condensed Financial Statements (unaudited)....................... F-5
F-1 MC INFORMATICS, INC. CONDENSED BALANCE SHEET SEPTEMBER 30, 1999 (UNAUDITED) ASSETS Current assets: Cash and cash equivalents................................. $ - Accounts receivable, net.................................. 1,955,754 Note receivable from related party........................ 179,370 Inventories............................................... 47,693 Prepaid expenses and other current assets................. 198,797 ----------- Total current assets....................................... 2,381,614 Property and equipment, net............................... 361,452 Goodwill, net............................................. 413,387 Other assets.............................................. 60,117 ----------- Total assets........................................ $ 3,216,570 =========== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Note payable to bank...................................... $ 725,000 Accounts payable.......................................... 641,676 Accrued liabilities....................................... 416,112 ----------- Total current liabilities.................................. 1,782,788 Long-term debt............................................. 142,211 ----------- Total liabilities........................................ $ 1,924,999 ----------- Shareholders' equity: Common stock.............................................. 2,995,349 Accumulated deficit....................................... (1,703,778) ----------- Total shareholders' equity............................... 1,291,571 ----------- Total liabilities and shareholders' equity.............. $ 3,216,570 ===========
See accompanying notes to condensed financial statements. F-2 MC INFORMATICS, INC. CONDENSED STATEMENTS OF OPERATIONS (unaudited)
Three Months Nine Months Ended September 30, Ended September 30, 1999 1998 1999 1998 ------------ ------------- ------------ ----------- Revenues.............................................. $ 2,471,756 $ 1,084,294 $ 6,665,751 $2,306,099 Direct expenses....................................... 2,029,218 778,152 4,922,812 1,486,578 ----------- ------------ ----------- ---------- Gross profit........................................ 442,538 306,142 1,742,939 819,521 Selling, general and administrative expenses............................................. 1,079,289 408,667 2,973,363 849,858 ----------- ------------ ----------- ---------- Loss from operations.................................. (636,751) (102,525) (1,230,424) (30,337) Other expense......................................... 23,364 3,800 152,005 3,800 ----------- ------------ ----------- ---------- Loss before provision for income taxes..................................... (660,115) (106,325) (1,382,429) (34,137) Provision for income taxes............................ 400 -- 1,200 -- ----------- ------------ ----------- ---------- Net loss.............................................. $ (660,515) $ (106,325) $(1,383,629) $ (34,137) =========== ============ =========== ========== Net loss per share, basic and diluted $ (0.04) $ (0.02) $ (0.11) $ (0.01) =========== ============ =========== ========== Weighted average number of shares of common stock, basic and diluted....................... 15,224,291 5,645,230 13,066,530 5,645,230 =========== ============ =========== ==========
See accompanying notes to condensed financial statements. F-3 MC INFORMATICS, INC. CONDENSED STATEMENTS OF CASH FLOWS (unaudited)
Nine Months Ended September 30, 1999 1998 ---------- ----------- Cash flows from operating activities: Net loss........................................................ $(1,383,629) $ (34,137) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization.................................. 86,091 7,425 Non cash financing cost associated with discounted common stock................................................ 131,250 -- Stock option compensation expense.............................. 48,792 -- Changes in operating assets and liabilities: Accounts receivable........................................... (988,968) (526,071) Prepaid expenses and other current assets..................... (84,885) 2,048 Other assets.................................................. (33,324) (7,725) Accounts payable.............................................. 419,120 44,077 Accrued liabilities........................................... (248,466) 169,624 ----------- --------- Net cash used in operating activities........................ (2,054,019) (344,759) ----------- --------- Cash flows from investing activities: Purchases of property and equipment............................. (370,340) (2,730) Proceeds received upon reverse acquisition...................... 871,267 -- Collection of notes receivable from related party............... 1,111,819 Advances to related party....................................... (172,085) -- Acquisition of Medical Systems Solutions........................ (195,264) -- ----------- --------- Net cash provided by (used in) Investing activities....................................... 1,245,397 (2,730) ----------- --------- Cash flows from financing activities: Repayment of notes payable to related party..................... (801,319) -- Proceeds from related party note payable........................ 372,000 Collection of pre-merger subscription receivable................ 725,000 -- Net proceeds from note payable to bank.......................... 725,000 -- Proceeds from long-term debt.................................... 142,211 -- ----------- --------- Net cash provided by financing activities.................... 790,892 372,000 ----------- --------- Net increase in cash and cash equivalents.................... (17,730) 24,511 Cash and cash equivalents at beginning of period................ 17,730 -- ----------- --------- Cash and cash equivalents at end of period...................... $ -- $ 24,511 =========== =========
See accompanying notes to condensed financial statements. F-4 MC INFORMATICS, INC. NOTES TO CONDENSED FINANCIAL STATEMENTS (unaudited) 1. Basis of Presentation and Business The accompanying unaudited condensed financial statements have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission. The unaudited condensed financial statements include all adjustments, consisting of all normal recurring adjustments, which are in the opinion of management necessary to fairly state the financial position as of September 30, 1999 and the results of operations and cash flows for the related interim periods ended September 30, 1999 and 1998. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations, although the Company believes that the disclosures included herein are adequate to make the information presented not misleading. Operating results for the periods ended September 30, 1999 are not necessarily indicative of the results that may be expected for the year ending December 31, 1999 or any other period. The accounting policies followed by the Company and other information are contained in the notes to the Company's financial statements filed on May 17, 1999 as part of the Company's current report on Form 8-K/A. This quarterly report should be read in conjunction with such current report. The Company is a healthcare consulting firm, which was established in April 1997 and provides a wide range of information technology, strategic and operations management consulting services to a broad cross-section of healthcare industry participants and healthcare information system vendors. On March 2, 1999, MC Informatics, Inc., a California Corporation, ("MCIF") was merged with and into a wholly-owned subsidiary of HealthDesk Corporation ("HealthDesk") through the issuance of 5,645,230 shares of HealthDesk's common stock in exchange for all the outstanding common shares of MCIF pursuant to the terms of an Agreement and Plan of Reorganization, dated August 18, 1998 (the "Agreement"). In connection with the merger, HealthDesk changed its name to MC Informatics, Inc. In accordance with the Agreement, upon the closing of the merger in March 1999, all of the outstanding shares of series B preferred stock of HealthDesk were converted into 2,525,000 shares of common stock. As HealthDesk had no significant operations prior to the merger, the transaction has been accounted for as a reverse acquisition whereby MCIF has been identified as the acquiring corporation for financial reporting purposes. Accordingly, the accompanying financial statements reflect the accounts of MCIF for all periods presented. The accompanying financial statements include the accounts of HealthDesk from the date of the stock-for-stock exchange (March 2, 1999). The 5,645,230 shares of common stock issued to acquire the common stock of MCIF are reflected in the accompanying financial statements as if the shares were issued and outstanding for all periods presented. The 9,467,845 shares retained by the original HealthDesk shareholders (including the 2,525,000 shares F-5 of common stock issued upon conversion of the HealthDesk series B preferred stock) are reflected in the accompanying financial statements as consideration issued by MCIF to acquire the net assets of HealthDesk. The historical cost of the net assets acquired and, accordingly, the recorded value of the common stock issued was $2,531,747. As used herein, the term the Company refers to the entity resulting from the merger of MCIF and HealthDesk Corporation. 2. Notes receivable and payable - related parties During 1998 and through February 1999, HealthDesk loaned amounts aggregating $1,111,819 to certain of its directors and officers. These funds were subsequently loaned on substantially the same terms back to the Company by said directors and officers. The notes were unsecured bearing interest at 8.5%. As of September 30, 1999, the notes receivable and notes payable had been collected and repaid in full. 3. Note Payable to Bank and Long Term Debt On May 28, 1999, the Company entered into an agreement with a bank for a revolving line of credit of up to $1,700,000, which includes a $200,000 sub- facility for an equipment term loan and a $150,000 sub-limit for the issuance of commercial or standby letters of credit. In connection with the line of credit, the Company issued warrants to purchase 50,000 shares of the Company's common stock, exercisable at $2.87 per share and expiring on May 27, 2004. The Company has ascribed an estimated fair value to these warrants aggregating $38,966 which was capitalized at the date of issuance and is amortized over the term of the revolving line of credit. As of September 30, 1999, the Company had drawn $725,000 on the credit line and $142,211 on the equipment term loan. The line of credit is collateralized by substantially all assets of the Company and bears interest at the bank's prime rate plus 1.50%. The revolving line of credit and the standby letters of credit are payable in monthly installments of interest only, with the unpaid principal balance and accrued interest due at May 26, 2000. The equipment term loan is payable in monthly installments of interest only, commencing on June 5, 1999 continuing to maturity. Commencing on June 5, 2000, the principal balance is payable in thirty six equal monthly payments, with the unpaid principal balance and accrued interest due at May 26, 2003. 4. Acquisition Effective June 1, 1999, the Company acquired substantially all of the assets of Medical Systems Solutions, Inc. pursuant to the terms of an Asset Purchase Agreement. The assets purchased include inventory of computer hardware and software programs, computer equipment and all of the current customer contracts of Medical Systems Solutions, Inc. The purchase price for the acquisition included the issuance of 111,216 shares of common stock (with a fair value of $305,844) and a cash payment of $195,264. The cost in excess of the net assets acquired was $438,415 which is being amortized on a straight-line basis over the estimated useful life of five years. F-6 5. Subsequent Event On October 1, 1999, the Company acquired all of the outstanding stock of HSG Acquisition, Inc. (dba Inteck, Inc.) pursuant to the terms of a Stock Purchase Agreement for a purchase price of $1,812,500. The purchase price for the acquisition included the issuance of 245,000 shares of the Company's Common Stock valued at $2.50 per share (fair market value), an additional issuance of 120,000 shares of Common Stock valued at $2.50 per share on January 5, 2000, a cash payment of $300,000 and a promissory note for $600,000 bearing interest at the rate of 8.5% per annum commencing October 1, 1999. The terms of the promissory note include an interest only payment of $13,413 due on January 5, 2000, and nine monthly payments of principal and interest of $36,650 commencing January 5, 2000, with a balloon payment of $300,000 due on October 1, 2000. In October 1999, certain officers and directors loaned an aggregate amount of $500,000 to the Company. The notes are unsecured, bear interest at 10.0% per annum and are payable with a $200,000 installment on December 31, 1999 and the remaining balances are payable upon demand and if no demand is made, then they are due one year from the date advanced. F-7 EX-27 2 FINANCIAL DATE SCHEDULE
5 0001023767 MC INFORMATICS, INC. 1 U.S. DOLLARS 6-MOS DEC-31-1998 JAN-01-1999 SEP-30-1999 1 0 0 2,026,815 71,061 47,693 2,381,614 405,260 43,808 3,216,570 1,782,788 0 0 0 2,995,349 0 1,291,571 0 6,665,751 0 4,922,812 2,973,363 0 0 (1,382,429) 1,200 (1,383,629) 0 0 0 (1,383,629) (0.11) (0.11)
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