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U. S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the Quarterly Period Ended JUNE 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 August 12, 1999, there were 15,224,291 shares of the Company's Common
Stock outstanding and warrants to purchase 2,175,000 shares of Common Stock
outstanding.
Transitional Small Business Disclosure Format Yes [_] No [X]
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INDEX
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Part I Page
<S> <C>
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.................................... 10
Item 2 Changes in Securities and Use of Proceeds............ 10
Item 3 Defaults Upon Senior Securities...................... 10
Item 4 Submission of Matters to a Vote of Security Holders.. 10
Item 5 Other Information.................................... 10
Item 6 Exhibits and Reports on Form 8-K..................... 10
Item 7 Signature............................................ 12
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2
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Part I
Item 1. Financial Statements.
The following Financial Statements are filed with this report as pages F-1
through F-6 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 with MC Acquisition Corporation, a California corporation and
a wholly-owned subsidiary of HealthDesk Corporation ("Sub"), pursuant to which
among other things, Sub merged with and into MC Informatics, Inc. with MC
Informatics, Inc. surviving the merger and becoming a wholly-owned subsidiary of
HealthDesk.
On March 2, 1999, MC Informatics, Inc., was merged with and into a wholly-
owned subsidiary of HealthDesk Corporation through the issuance of 5,645,230
shares of HealthDesk Corporation common stock in exchange for all of the
outstanding common shares of MC Informatics pursuant to an Agreement and Plan of
Reorganization. In connection with the merger the corporation 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 Corporation was converted into 2,525,000 shares of 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.
Results of Operations
Three Month Period Ended June 30, 1999 Compared to the Three Month Period Ended
- -------------------------------------------------------------------------------
June 30, 1998
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The Company's revenues for the three months ended June 30, 1999 were
$2,225,845 as compared with $647,971 for the three months ended June 30, 1998.
The increase of $1,577,874 was primarily a result of an increase in the type of
services performed and a 485% increase in billable personnel employed to meet
contractual obligations.
3
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Gross profit increased to $584,495 for the three months ended June 30, 1999
from $296,959 for the same period of the previous year. Gross margin decreased
from 46% for the quarter ended June 30, 1998 to 26% for the quarter ended June
30, 1999. The decrease in gross margin percentage was primarily due to the
establishment of two new departments for which the Company 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.
For the three month period ended June 30, 1999, selling, general and
administrative expenses increased to $1,125,945 from $220,709 for the period
ended June 30, 1998. The $905,236 increase was primarily due to the acquisition
of Medical System Solutions, the relocation of the corporate headquarters and a
260% increase in personnel.
For the three month period ended June 30, 1999 other expense increased to
$128,641 from $0 for the period ended June 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 HealthDesk private placement prior to the
merger.
Six Month Period Ended June 30, 1999 compared to the Six Month Period Ended June
- --------------------------------------------------------------------------------
30, 1998
- --------
The Company's revenues for the six months ended June 30, 1999 were $4,193,995
as compared with $1,221,805 for the six months ended June 30, 1998. The increase
of $2,972,190 was primarily a result of an increase in the type of services
performed and a 485% increase in billable personnel employed to meet contractual
obligations.
Gross profit increased to $1,300,401 for the six months ended June 30, 1999
from $513,379 for the same period of the previous year. Gross margin decreased
from 42% for the six month period ended June 30, 1998 to 31% for the six month
period ended June 30, 1999. The 11.0% decrease in gross margin percentage was
primarily due to the expansion of operations into the Hawaii market and the
establishment of two new departments 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.
For the six month period ended June 30, 1999, selling, general and
administrative expenses increased to $1,894,074 from $441,191 for the period
ended June 30, 1998. The $1,452,883 increase was primarily due to the merger
with HealthDesk Corporation, the acquisition of Medical System Solutions, the
relocation of the corporate headquarters and a 206% increase in personnel.
For the six month period ended June 30, 1999 other expense increased to
$128,641 from $0 for the period ended June 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 HealthDesk private placement prior to the
merger.
Liquidity and Capital Resources
At June 30, 1999, the Company had cash and cash equivalents of $461,178, as
compared to $17,730 at December 31, 1998. Working capital at June 30, 1999 was
$1,267,312 as compared to a negative working capital of $276,834 at December 31,
1998.
The Company's operating activities used net cash of $1,568,691 for the six
months ended June 30, 1999 primarily as a result of the cash portion of the net
loss and increases in accounts receivable, and in accruals partially offset by
cash provided by increases in accounts payable. For the six months ended June
30, 1998, the Company's operating activities used net cash of $107,616 primarily
due to an increase in accounts receivable partially offset by an increase in
accruals.
4
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The Company's investing activities provided net cash of $1,346,247 for the six
months ended June 30, 1999, while the Company did not have any investing
activity for the same period of the previous year. For the current period, the
Company collected proceeds of $871,267 upon the reverse acquisition and
collected $1,111,819 from a related party notes receivable offset by $195,264
used to acquire Medical System Solutions, $167,751 advances to related party and
$273,824 in capital expenditures related to the relocation of the Company's
corporate facility.
The Company's financing activity provided net cash of $665,892 for the six
months ended June 30, 1999 while financing activities for the same period of the
previous year generated net cash of $151,572. For the current period, the
Company withdrew $742,211 on its revolving credit facility, collected $725,000
from a pre-merger subscription receivable offset by a $801,319 repayment of a
related party note payable. Net cash provided by financing activities for the
six months ended June 30, 1998, of $151,572 was due to proceeds received from a
note payable to a related party.
The Company believes that it has working capital sufficient to meet its
projected cash requirements for the next twelve months. In addition, the Company
obtained a $1.7 million revolving line of credit from a bank in May 1999. 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
obtained. In addition, given the trading history of the Company's Common Stock
and warrants, there can be no assurance that the Company will be able to raise
additional cash through public or private offerings of its Common Stock. There
also can be no assurance that the Company's funding requirements will not
increase significantly as a result of unforeseen circumstances or that the
Company's cash used in operating activities will not increase.
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 expects to identify most of the major
computers, software applications, and related equipment used in connection with
our internal operations that will need to be evaluated to determine if they must
be modified, upgraded or replaced to minimize the possibility of a material
disruption to our business by August 1999. Upon completion of such evaluation,
the Company expects to commence the process of modifying, upgrading, and
replacing major systems that have been assessed as adversely affected, and
expects to complete this process before the occurrence of any material
disruption of our business.
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 is currently assessing the
potential effect and costs of
5
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remediating the year 2000 problem on its office equipment at its facilities in
Irvine, California. 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
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. The Company expects to
complete its contingency plans by the end of September 1999. 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.
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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
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.
Since the merger of MC Informatics, Inc. and HealthDesk Corporation was
determined to be a reverse merger, Nasdaq required the Company to comply with
initial listing requirements to remain listed on the Nasdaq Small Cap Market. As
the Company did not meet the net tangible assets, net income, market
capitalization and bid price requirements for initial listing requirements, the
Company was delisted on June 9, 1999. As a result, the trading of the Company's
securities are 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
addition, the level of the Company's services required by any individual client
can diminish over the life of its relationship with the
7
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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
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
8
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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 or otherwise materially adversely affect its
business, financial condition and results of operations.
Limited Revenues: Significant and Continuing Losses. The Company has not
achieved annual profitability and management cannot be certain that the Company
will realize sufficient revenue to achieve profitability. There can be no
assurance that the Company will be able to generate meaningful revenues or
achieve profitable operations.
Negative Cash Flow; Need for Additional Financing. The Company's capital
requirements relating to its professional services organization are expected to
be significant. The Company believes that its internally generated working
capital together with the $1.7 million bank revolving line of credit will be
sufficient to meet its projected cash requirements for the next 12 months.
There can be no assurance, however, that the Company will be able to obtain
public or private third-party sources of financing or, if obtained, that
favorable terms for such financing would be obtained. In addition, given the
trading history of the Company's Common Stock and warrants, there can be no
assurance that the Company will be able to raise additional cash through public
or private offerings of its common stock. There also can be no assurance that
the Company's funding requirements will not increase significantly as a result
of unforeseen circumstances or that the Company's cash used in operating
activities will not increase. Any of these developments could materially
adversely affect the Company's business, financial condition and operating
results.
Outstanding Options. As of June 30, 1999, the Company had outstanding options
to purchase an aggregate of 2,381,900 shares of common stock at exercise prices
ranging from $1.00 to $5.00. Exercise of any of the aforementioned 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.
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Part II
Item 1. Legal Proceedings.
None.
Item 2. Changes in Securities and Use of Proceeds.
(c) Recent Sales of Unregistered Securities
None.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Submission of Matters to a Vote of Security Holders.
1. MC Informatics, Inc. held an annual Meeting of the Shareholders on May 24,
1999. The shareholders voted on the following proposals:
(1) To consider and vote upon the election of the Board of Directors of
the Company to serve for the ensuing year. The Board of Directors
consists of five (5) directors, and the Board of Directors nominated
those persons set forth in the Proxy Statement for this Meeting. The
five (5) nominees were:
Bill Childs
Joseph R. Dunham
David Joiner
John Papajohn
Bruce Ryan
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For Against Abstain
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Bill Childs 9,769,266 0 0
Joseph R. Dunham 9,769,266 0 0
David Joiner 9,769,266 0 0
John Pappajohn 9,769,266 0 0
Bruce Ryan 9,769,266 0 0
</TABLE>
(2) To consider and vote upon the ratification of the selection of BDO
Seidman, LLP as the independent auditors of the Company for the fiscal
year ending December 31, 1999. The proposal was approved by the
following vote:
For Against Abstain
--------- ------- -------
9,769,266 0 0
Item 5. Other Information.
Not applicable
Item 6. Exhibits and Reports on Form 8-K/A.
a) Exhibits:
27 Financial Data Schedule
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b) Form 8-K
On May 17, 1999, the Company filed a Form 8-K/A in connection with the
merger of MC Informatics, Inc. and HealthDesk Corporation.
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SIGNATURE
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.
By: /s/Jeffrey Pollard, C.P.A. Date: August 10, 1999
--------------------------
Jeffrey Pollard
Chief Financial Officer and Chief Accounting
Officer
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MC INFORMATICS, INC.
Condensed Financial Statements
CONTENTS
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Page
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Condensed Balance Sheet as of June 30, 1999 (unaudited) ................ F-2
Condensed Statements of Operations for the three months and six months
ended June 30, 1999 and 1998 (unaudited)............................... F-3
Condensed Statements of Cash Flows for the six months
ended June 30, 1999 and 1998 (unaudited)............................... F-4
Notes to Condensed Financial Statements................................. F-5
</TABLE>
F-1
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MC INFORMATICS, INC.
CONDENSED BALANCE SHEET
JUNE 30, 1999
(UNAUDITED)
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ASSETS
Current assets:
Cash and cash equivalents................................. $ 461,178
Note receivable - related party........................... 175,036
Accounts receivable, net.................................. 1,955,266
Inventories............................................... 47,693
Prepaid expenses and other current assets................. 202,984
-----------
Total current assets......................................... 2,842,157
Property and equipment, net.................................. 289,448
Goodwill, net................................................ 438,521
Other assets................................................. 61,820
-----------
Total assets................................... $ 3,631,946
===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Note payable to bank...................................... $ 600,000
Accounts payable.......................................... 578,900
Accrued liabilities....................................... 395,945
-----------
Total current liabilities.................................... 1,574,845
Long term debt............................................... 142,211
-----------
Total liabilities........................................ $ 1,717,056
-----------
Commitments and contingencies
Shareholders' equity:
Common stock.............................................. 2,958,153
Accumulated deficit....................................... (1,043,263)
-----------
Total shareholders' equity............................... 1,914,890
-----------
Total liabilities and shareholders' equity.............. $ 3,631,946
===========
</TABLE>
See accompanying notes to condensed financial statements.
F-2
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MC INFORMATICS, INC.
CONDENSED STATEMENTS OF OPERATIONS
(unaudited)
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<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
1999 1998 1999 1998
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Revenues......................................... $ 2,225,845 $ 647,971 $ 4,193,995 $1,221,805
Direct expenses.................................. 1,641,350 351,012 2,893,594 708,426
----------- ---------- ----------- ----------
Gross profit.................................. 584,495 296,959 1,300,401 513,379
Selling, general and administrative
expenses........................................ 1,125,945 220,709 1,894,074 441,191
----------- ---------- ----------- ----------
Income (loss) from operations.................... (541,450) 76,250 (593,673) 72,188
Other expense.................................... 128,641 -- 128,641 --
----------- ---------- ----------- ----------
Income (loss) before provision for income taxes (670,091) 76,250 (722,314) 72,188
Provision for income taxes....................... 400 -- 800 --
----------- ---------- ----------- ----------
Net income (loss)................................ $ (670,491) $ 76,250 $ (723,114) $ 72,188
=========== ========== =========== ==========
Net income (loss) per share, basic and diluted $(0.04) $0.01 $(0.06) $0.01
=========== ========== =========== ==========
Weighted average number of shares of
common stock, basic and diluted.................. 15,149,740 5,645,230 11,975,663 5,645,230
=========== ========== =========== ==========
</TABLE>
See accompanying notes to condensed financial statements.
F-3
<PAGE>
MC INFORMATICS, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
Six Months Ended June 30,
1999 1998
----------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss).................................. $ (723,114) $ 72,189
Adjustments to reconcile net income (loss)
to net cash used in operating activities:
Depreciation and amortization..................... 34,505
Non cash financing cost associated with discounted
common stock.................................. 131,250
Stock option issued as compensation............... 20,693
Changes in operating assets and liabilities:
Accounts receivable.............................. (988,480) (231,048)
Prepaid expenses and other current assets........ (96,229) --
Other assets................................... (35,027) --
Accounts payable................................. 356,344 (6,502)
Accrued expenses................................. (268,633) 57,745
----------- ---------
Net cash used in operating activities........... (1,568,691) (107,616)
----------- ---------
Cash flows from investing activities:
Purchases of property and equipment................ (273,824) --
Proceeds received upon reverse acquisition......... 871,267 --
Collection of notes receivable from related party.. 1,111,819
Advances to shareholders........................... (167,751) --
Acquisition of Medical Systems Solutions........... (195,264) --
----------- ---------
Net cash provided by investing activities....... 1,346,247 --
----------- ---------
Cash flows from financing activities:
Repayment of notes payable to related party........ (801,319) --
Proceeds from related party note payable........... 151,572
Collection of pre-merger subscription receivable... 725,000 --
Net proceeds from note payable to bank............. 600,000 --
Proceeds from long term debt....................... 142,211
----------- ---------
Net cash provided by financing activities....... 665,892 151,572
----------- ---------
Net increase in cash and cash equivalents....... 443,448 43,956
Cash and cash equivalents at beginning of period.... 17,730 --
----------- ---------
Cash and cash equivalents at end of period.......... $ 461,178 $ 43,956
=========== =========
</TABLE>
See accompanying notes to condensed financial statements.
F-4
<PAGE>
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
June 30, 1999 and the results of operations and cash flows for the related
interim periods ended June 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 June 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.
MC Informatics, Inc. (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, the pre-merger MC Informatics, Inc. ("MCIF") was merged
with and into a wholly-owned subsidiary of HealthDesk Corporation ("HealthDesk")
through the issuance of 5,645,230 shares of the former HealthDesk's common stock
in exchange for all the outstanding common shares of MCIF pursuant to an
agreement and plan of reorganization, dated August 18, 1998. 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. 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 (March 2, 1999) of the stock-for-stock exchange.
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
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.
2. Notes receivable and payable - related parties
During 1998 and through February 1999, HealthDesk loaned amounts
aggregating $1,111,819 to certain directors and officers of the Company. The
funds were subsequently loaned with substantially the same terms to the Company
by said directors and officers. The notes were unsecured bearing interest at
8.5%. As of June 30, 1999, the notes receivable and notes payable were collected
and repaid in full.
F-5
<PAGE>
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 50,0000 warrants to purchase the Company's common stock,
exercisable at $2.87 per share and expiring 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 June 30, 1999 the Company had drawn $600,000 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 for
interest only, with the unpaid principle balance and accrued interest due at May
26, 2000. The equipment term loan is payable in monthly installments for
interest only, with the unpaid principle balance and accrued interest due at May
26, 2003. The credit agreement requires the Company to meet certain financial
ratios and covenants. As of June 30, 1999, the Company was in compliance with
all covenants.
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
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<CIK> 0001023767
<NAME> MC INFORMATICS, INC.
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<EXCHANGE-RATE> 1
<CASH> 461,178
<SECURITIES> 0
<RECEIVABLES> 2,039,125
<ALLOWANCES> 83,859
<INVENTORY> 47,693
<CURRENT-ASSETS> 2,842,157
<PP&E> 308,742
<DEPRECIATION> 19,294
<TOTAL-ASSETS> 3,631,946
<CURRENT-LIABILITIES> 1,574,845
<BONDS> 0
0
0
<COMMON> 2,958,153
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 3,631,946
<SALES> 0
<TOTAL-REVENUES> 4,193,995
<CGS> 0
<TOTAL-COSTS> 2,893,594
<OTHER-EXPENSES> 2,022,715
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (722,314)
<INCOME-TAX> 800
<INCOME-CONTINUING> (723,114)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (723,114)
<EPS-BASIC> (0.06)
<EPS-DILUTED> (0.06)
</TABLE>
