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U. S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB/A
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the Quarterly Period Ended March 31, 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 May 1, 1999, there were 15,113,075 shares of the Company's Common
Stock outstanding and warrants to purchase 2,125,000 shares of Common Stock
outstanding.
Transitional Small Business Disclosure Format Yes [_] No [X]
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INDEX
Page
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Part I
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..................................... 11
Item 6. Exhibits and Reports on Form 8-K...................... 11
Signature...................................................... 12
2
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Part I
Explanatory Note:
On June 9, 1999, Nasdaq informed the Company that it had concluded that the
merger of MC Informatics, Inc., a California corporation, with and into a wholly
owned subsidiary of HealthDesk Corporation, a California corporation,
constituted a reverse acquisition with MC Informatics, Inc. being the acquiring
corporation. Accordingly, this Form 10-QSB/A is being filed to restate our
financial statements and other Form 10-QSB disclosures to reflect management's
revised determination of the proper accounting for the merger. Unless otherwise
indicated, references to the Company refer to the merged HealthDesk Corporation-
MC Informatics, Inc. entity (the "Company").
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 Information Inc. with MC
Informatics, Inc. surviving the merger and becoming a wholly-owned subsidiary of
HealthDesk Corporation.
On September 24, 1998, HealthDesk Corporation entered into an agreement to
sell substantially all of its assets, including its HealthDesk Online operations
as well as substantially all of its intellectual property rights and
inventories, and certain office equipment and packaged software, to Patient
Infosystems, Inc. ("PATI"). A director of HealthDesk Corporation is also a
member of the Board of Directors of PATI.
On February 26, 1999, HealthDesk Corporation sold 1,000,000 shares of its
restricted common stock at $1.00 per share, which was at a discount to the
market, in a private equity offering. Of the total shares of common stock sold,
certain directors and an employee of HealthDesk Corporation purchased an
aggregate of 420,000 of these shares. The cash proceeds were $1,000,000.
On February 26, 1999, the shareholders of HealthDesk Corporation approved
the sale of assets to PATI and the merger with MC Informatics, Inc. In
connection with the closing of the asset sale and merger, on March 2, 1999,
HealthDesk Corporation received approximately $697,000 and changed its name to
MC Informatics, Inc.
3
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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
The Company's revenues for the three months ended March 31, 1999 were
$1,968,150 as compared with $573,834 for the three months ended March 31, 1998.
The increase of $1,394,316 resulted from an increase in the number of contracts
and from additional work on current engagements. The gross profit decreased
slightly from 37.7% for the three months ended March 31, 1998 to 36.4% for the
three months ended March 31, 1999. The decrease resulted primarily from
expanding operations into the Hawaii market which has higher costs than other
engagements.
Selling, general and administrative expenses for the three months ended
March 31, 1999 were 39.0% of revenues. This compares with similar expenses of
38.4% of revenue for the three months ended March 31, 1998. The increase was
primarily attributable to the merger with HealthDesk Corporation, the relocation
of the corporate headquarters, and an overall increase in personnel.
As a result of the foregoing, the Company incurred a net loss of $52,623 for
the three months ended March 31, 1999, as compared to a net loss of $4,062 for
the comparable period in 1998.
Liquidity and Capital Resources
At March 31, 1999, the Company had cash and cash equivalents of $1,106,117,
as compared to $17,730 at December 31, 1998. Working capital at March 31, 1999
was $1,995,825, as compared to a negative working capital of $276,834 at
December 31, 1998.
The Company's operating activities used net cash of $615,488 for the three
months ended March 31, 1999 primarily as a result of increases in accounts
receivable, prepaid and other assets, and a decrease in accruals offset by cash
provided by increases in accounts payable. For the three months ended March 31,
1998, the Company's operating activities used net cash of $19,225 primarily due
to an increase in accounts receivable and a decrease in accounts payable offset
by an increase in accruals.
The Company's investing activities generated $591,375 which was primarily
due to the proceeds received upon the reverse acquisition offset by capital
expenditures and advances to shareholders.
The Company's financing activities provided net cash of $1,112,500 primarily
due to the collection of a pre-merger subscription receivable and the proceeds
from the notes payables.
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
4
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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. To date, 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 July 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
expect 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 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
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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.
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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.
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
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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 in the NASDAQ Small Cap Market. As
of March 31, 1999, the Company did not meet the net tangible assets, net income,
market capitalization and bid price requirements for initial listing
requirements. As a result, the Company was delisted on June 9, 1999 and the
trading of the Company's
6
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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.
Retention and Recruitment of Professional Staff. The Company's business
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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
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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 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
7
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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,
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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 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 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 proceeds from the $1 million private placement
obtained from the merger and 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
8
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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 March 31, 1999, the Company had outstanding
-------------------
options to purchase an aggregate of 2,193,900 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
On February 26, 1999, HealthDesk Corporation sold 1,000,000 shares of common
stock to 10 individuals at $1.00 per share.
On March 2, 1999, HealthDesk Corporation issued 150,000 shares to one entity
at a price of $1.00 per share.
In connection with the merger of MC Informatics, Inc. and HealthDesk
Corporation, HealthDesk Corporation issued 5,645,230 shares of common stock to
six individuals.
The foregoing transactions were not registered under the Securities Act of
1933, as amended (the "1933 Act") in reliance upon the exemptions provided by
Section 4(2) of the 1933 Act and/or Regulation D promulgated thereunder as a
transaction by an issuer not involving a public offering.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Submission of Matters to a Vote of Security Holders.
1. HealthDesk Corporation held a special Meeting of the Shareholders on
February 26, 1999. The shareholders voted on the following proposals:
(1) To consider and vote upon a proposal to approve an agreement to sell
substantially all of HealthDesk Corporation's assets, including
HealthDesk's online operations and substantially all of its
intellectual property rights and inventories, and certain office
equipment and packaged software, to Patient Infosystems, Inc. The
proposal was approved by the following vote :
For Against Abstain
--- ------- -------
2,230,330 21,500 0
(2) To consider and vote upon a proposal to approve an Agreement and Plan
of Reorganization with MC Acquisition Corporation, a California
corporation and wholly-owned subsidiary of HealthDesk Corporation
("Sub"), MC Informatics, Inc., a California corporation and certain
shareholders of MC Informatics, pursuant to which, among other things,
Sub merged with and into MC Informatics, with MC Informatics surviving
the merger and becoming a wholly-owned subsidiary of HealthDesk
Corporation. The proposal was approved by the following vote:
For Against Abstain
--- ------- -------
2,236,330 15,500 0
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(3) To consider and vote upon a proposal to approve the Amended and
Restated Articles of Incorporation of MC Informatics which, among other
things, increased the authorized number of shares of Common Stock from
seventeen million (17,000,000) to forty million (40,000,000) shares.
The proposal was approved by the following vote:
For Against Abstain
--- ------- -------
2,228,330 23,500 0
(4) To approve amendments to HealthDesk Corporation's 1994 Stock Option
Plan (the "Option Plan") to (i) increase the number of shares reserved
for issuance under the Option Plan from 844,755 to 3,000,000; and (ii)
limit to 500,000 the maximum number of shares for which options may be
granted to any employee in any fiscal year. The proposal was approved
by the following vote:
For Against Abstain
--- ------- -------
2,220,330 31,500 0
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 March 16, 1999, the Company filed a Form 8-K in connection with
the merger of MC Informatics, Inc. and HealthDesk Corporation.
11
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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 13, 1999
---------------------------
Jeffrey Pollard
Chief Financial Officer and Chief Accounting
Officer
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MC INFORMATICS, INC.
CONDENSED FINANCIAL STATEMENTS
CONTENTS
Page
----
Condensed Balance Sheet as of March 31, 1999 (unaudited) ............. F-2
Condensed Statements of Operations for the three months
ended March 31, 1999 and 1998 (unaudited)............................ F-3
Condensed Statements of Cash Flows for the three months
ended March 31, 1999 and 1998 (unaudited)............................ F-4
Notes to Condensed Financial Statements............................... F-5
F-1
<PAGE>
MC INFORMATICS, INC.
CONDENSED BALANCE SHEET
MARCH 31, 1999
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents............................ $ 1,106,117
Accounts receivable, net............................. 1,521,304
Notes receivable -- related parties.................. 1,248,290
Prepaid expenses and other current assets............ 328,021
-----------
Total current assets.................................. 4,203,732
Property and equipment, net........................... 163,442
Other assets.......................................... 69,708
-----------
Total assets...................................... $ 4,436,882
===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable -- related parties..................... $ 1,188,819
Accounts payable..................................... 479,599
Accrued liabilities.................................. 435,790
Other current liabilities............................ 103,699
-----------
Total liabilities, all current...................... 2,207,907
-----------
Commitments and contingencies
Shareholders' equity:
Common stock......................................... 2,601,747
Accumulated deficit.................................. (372,772)
-----------
Total shareholders' equity.......................... 2,228,975
-----------
Total liabilities and shareholders' equity......... $ 4,436,882
===========
See accompanying notes to condensed financial statements.
F-2
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MC INFORMATICS, INC.
CONDENSED STATEMENTS OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended March 31,
1999 1998
-------------- -------------
<S> <C> <C>
Revenues................................................................ $1,968,150 $ 573,834
Direct expenses......................................................... 1,252,244 357,414
---------- ----------
Gross profit........................................................... 715,906 216,420
Selling, general and administrative expenses............................ 768,129 220,482
---------- ----------
Loss from operations.................................................... (52,223) (4,062)
Provision for income taxes.............................................. 400 --
---------- ----------
Net loss................................................................ $ (52,623) $ (4,062)
========== ==========
Net loss per share, basic and diluted................................... $ (0.01) $ --
========== ==========
Weighted average number of shares of common stock, basic and diluted.... 8,730,258 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>
Three Months Ended March 31,
1999 1998
--------------- ------------
<S> <C> <C>
Cash flows from operating activities:
Net Loss...................................................................... $ (52,623) $ (4,062)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization................................................ 5,993
Changes in operating assets and liabilities:
Accounts receivable......................................................... (554,518) (5,045)
Prepaid expenses and other current assets................................... (112,967) --
Other assets................................................................ (33,327) --
Accounts payable............................................................ 257,043 (51,603)
Accrued expenses............................................................ (125,089) 41,485
---------- --------
Net cash used in operating activities...................................... (615,488) (19,225)
---------- --------
Cash flows from investing activities:
Purchases of property and equipment........................................... (150,706) --
Proceeds received upon reverse acquisition..................................... 871,267 --
Advances to shareholders...................................................... (129,186)
---------- --------
Net cash provided by investing activities ................................. 591,375 --
---------- --------
Cash flows from financing activities:
Repayment of notes payable to related parties................................. (12,500) --
Proceeds from note payable to related party .................................. 400,000 65,686
Collection of pre-merger subscription receivable.............................. 725,000 --
---------- --------
Net cash provided by financing activities.................................. 1,112,500 65,686
---------- --------
Net increase in cash and cash equivalents.................................. 1,088,387 46,461
Cash and cash equivalents at beginning of period............................... 17,730 --
---------- --------
Cash and cash equivalents at end of period..................................... $1,106,117 $ 46,461
========== ========
</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
March 31, 1999 and the results of operations and cash flows for the related
interim periods ended March 31, 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 three months ended March 31, 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 discontinued its 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. Restatement
The Company previously recorded the reverse acquisition with HealthDesk as
an acquisition by HealthDesk of MCIF. In June 1999, Nasdaq informed the Company
that it had concluded that the merger should be accounted for as a reverse
acquisition with MCIF being the acquiring corporation. Accordingly, management
has determined that the accounting for
F-5
<PAGE>
the merger should be revised to comply with generally accepted accounting
principles and has retroactively restated the financial statements for all
periods presented to properly reflect the effects of the reverse acquisition.
3. 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 are unsecured, bear interest at 8.5%, are
payable on demand, and if no demand is made then they are due one year from the
date advanced through December 31, 1999. It is expected that the Company and the
related parties will repay such notes within the next quarter.
4. Lease Agreement
On February 4, 1999, the Company entered into an agreement to lease a new
corporate facility. The lease requires annual rental payments of $151,936
through March 2000, $158,296 through March 2001 and $164,656 through March
2002.
F-6
<PAGE>
Exhibit Index
Description
-----------
27 Financial Data Schedule
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<RESTATED>
<CIK> 0001023767
<NAME> MC INFORMATICS, INC.
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<EXCHANGE-RATE> 1
<CASH> 1,106,117
<SECURITIES> 0
<RECEIVABLES> 1,581,200
<ALLOWANCES> 59,896
<INVENTORY> 0
<CURRENT-ASSETS> 4,203,732
<PP&E> 170,624
<DEPRECIATION> 7,182
<TOTAL-ASSETS> 4,436,882
<CURRENT-LIABILITIES> 2,207,907
<BONDS> 0
0
0
<COMMON> 2,601,747
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 4,436,882
<SALES> 0
<TOTAL-REVENUES> 1,968,150
<CGS> 0
<TOTAL-COSTS> 1,252,244
<OTHER-EXPENSES> 768,129
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (52,223)
<INCOME-TAX> 400
<INCOME-CONTINUING> (52,623)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (52,623)
<EPS-BASIC> (0.01)
<EPS-DILUTED> (0.01)
</TABLE>
