<PAGE>
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
<PAGE>
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
<PAGE>
(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
<PAGE>
MC Informatics, Inc.
PRO FORMA CONDENSED STATEMENT OF OPERATIONS
Nine Months Ended September 30, 1999
(Unaudited)
<TABLE>
<CAPTION>
MCI HSG(2) Pro forma Pro Forma
Adjustments Combined
<S> <C> <C> <C> <C>
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.
</TABLE>
<PAGE>
MC Informatics, Inc.
PRO FORMA CONSOLIDATED STATEMENT OF INCOME
Year Ended December 31, 1998
(Unaudited)
<TABLE>
<CAPTION>
MCI HSG Pro forma Pro Forma
Adjustments Combined
<S> <C> <C> <C> <C>
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.
</TABLE>
2
<PAGE>
MC Informatics, Inc.
PRO FORMA CONDENSED BALANCE SHEET
September 30, 1999
(Unaudited)
<TABLE>
<CAPTION>
Pro Forma Adjustments(1) Pro Forma
MCI HSG Debit Credit Combined
----------------------------------------------------- --------------
<S> <C> <C> <C> <C> <C>
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
</TABLE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
HSG Acquisitions, Inc. D.B.A. Inteck, Inc.
Balance Sheets
<TABLE>
<CAPTION>
September 30, June 30
1999 ------------------------
(unaudited) 1999 1998
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
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.
</TABLE>
F-3
<PAGE>
HSG Acquisitions, Inc. D.B.A. Inteck, Inc.
Balance Sheets
<TABLE>
<CAPTION>
September 30, June 30
1999 -------------------------------
(Unaudited) 1999 1998
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
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.
</TABLE>
F-4
<PAGE>
HSG Acquisitions, Inc. D.B.A Inteck, Inc.
Statements of Operations
<TABLE>
<CAPTION>
Three Months Ended September 30
(Unaudited) Years Ended June 30
------------------------------- --------------------------
1999 1998 1999 1998
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
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.
</TABLE>
F-5
<PAGE>
HSG Acquisitions, Inc. D.B.A Inteck, Inc.
Statements of Stockholders Equity
and Comprehensive Income (Loss)
<TABLE>
<CAPTION>
====================================================================================================================================
Accumulated
Common Stock Other Total
---------------------- Comprehensive Retained Stockholders'
Years Ended June 30, 1998 and 1999 Shares Amount Income (Loss) Earnings Equity
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
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
====================================================================================================================================
</TABLE>
See accompanying summary of accounting policies and notes to financial
statements.
F-6
<PAGE>
HSG Acquisitions, Inc. D.B.A. Inteck, Inc.
Statements of Cash Flows
<TABLE>
<CAPTION>
Three Months Ended September 30,
(Unaudited) Years Ended June 30,
-------------------------------- ------------------------------
1999 1998 1999 1998
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
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.
</TABLE>
F-7
<PAGE>
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
<PAGE>
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
<PAGE>
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:
<TABLE>
<CAPTION>
Years Ended June 30
(net of tax)
1999 1998
----------------------------------------------------------------------
<S> <C> <C>
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)
======================================================================
</TABLE>
F-10
<PAGE>
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
<PAGE>
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:
<TABLE>
<CAPTION>
Gross Gross
Unrealized Unrealized Estimated
June 30, 1998 Cost Gains Loss Fair Value
------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Equity Securities $74,447 $24,937 $ - $ 99,384
========================================================================
</TABLE>
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:
<TABLE>
<CAPTION>
September 30 June 30,
1999 ---------------------------
(Unaudited) 1999 1998
-------------------------------------------------------------------------------
<S> <C> <C> <C>
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
===============================================================================
</TABLE>
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
<PAGE>
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:
<TABLE>
<CAPTION>
Years Ending June 30,
----------------------------------------------
<S> <C>
2000 $ 49,000
2001 49,000
2002 32,000
----------------------------------------------
$ 130,000
==============================================
</TABLE>
F-13
<PAGE>
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:
<TABLE>
<CAPTION>
Three Months Ended
September 30,
(Unaudited) Years Ended June 30,
--------------------- ------------------------
1999 1998 1999 1998
----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
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)
-----------------------------------------------------------------------------------------------
</TABLE>
F-14
<PAGE>
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:
<TABLE>
<CAPTION>
Three Months Ended
September 30
(Unaudited) Years Ended June 30
1999 1998 1999 1998
------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
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
==========================================================================================
</TABLE>
F-15
<PAGE>
<TABLE>
<C> <S>
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.
</TABLE>
F-16
<PAGE>
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
