<PAGE>
================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC. 20549
-----------------
FORM 10-KSB
(Mark One)
|X| Annual report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the fiscal year ended December 31, 1998
or
|_| Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from __________ to ___________
Commission File Number 0-21819
-----------------
MC INFORMATICS, INC.
(Exact name of registrant as specified in its charter)
California 94-3165144
(State or other jurisdiction of (I.R.S. Employer
Incorporation or organization) Identification No.)
18881 Von Karmen Ave., Suite 100, Irvine, California, 92612
(Address of principal executive offices)
949-261-7100
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of Exchange on which registered
None None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, no par value
(Title of Class)
-----------------
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 | |
Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. |X|
The issuer's revenues for its most recent fiscal year was $55,038
As of March 3, 1999, the aggregate market value of MC Informatic's voting
stock held by non-affiliates was $6,353,112 (excludes 12,073,375 shares of
voting stock held by directors, officers and 5% or more shareholders). As of
March 3, 1999, there were 15,063,075 shares of MC Informatic's common stock
outstanding and redeemable warrants to purchase 2,125,000 shares of common
stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Parts of the definitive proxy statement to be filed with the Securities and
Exchange Commission pursuant to regulation 14A not later than 120 days after the
end of MC Informatic's fiscal year and relating to MC Informatic's 1999 Annual
Meeting of Shareholders (Item 10-12 of Part III of Form 10-KSB) are incorporated
by reference into Part III of the Form 10-KSB report.
Transitional Small Business Disclosure Format YES |X| NO |_|
The exhibit index appears on page 19 of this Form 10-KSB Report.
================================================================================
<PAGE>
PART I
ITEM 1. DESCRIPTION OF BUSINESS
Sale of Assets and Merger with MC Informatics, Inc.
In May 1998, the Company announced a major change in its strategic
direction. The Board of Directors approved a plan to discontinue its current
operations, to initiate the process of seeking an acquiror of its assets and to
pursue other strategic alternatives for the Company.
On September 24, 1998, the Company, then 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 the Company is
also a member of the Board of Directors of PATI. On August 18, 1998, HealthDesk
Corporation entered into an Agreement and Plan of Reorganization with MC
Acquisition Corporation, a California corporation and a wholly-owned subsidiary
of HealthDesk Corporation ("Sub"), MC Informatics, Inc., a California
corporation ("MCIF"), and certain shareholders of MCIF, pursuant to which, among
other things, Sub merged with and into MCIF, with MCIF surviving the merger and
becoming a wholly-owned subsidiary of HealthDesk Corporation. On February 26,
1999, the shareholders of the Company 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, the Company received approximately $697,000
and changed its name to MC Informatics, Inc. As a result of the foregoing, the
discussion below relates to the current business of MC Informatics, Inc. Unless
otherwise indicated, references to MCIF and the Company refer to the merged
HealthDesk Corporation-MCIF entity.
MCIF's Business.
MCIF is a professional services firm that provides a wide range of
information technology ("IT"), outsourcing, consulting, strategic and operations
management services to the healthcare marketplace. MCIF uses its in-depth
institutional knowledge and nationally deployed group of experienced consultants
to help clients plan and execute business strategies.
MCIF serves clients across a broad cross-section of the healthcare
industry. From its founding in April 1997, MCIF has provided services to over 32
healthcare clients on over 36 engagements. MCIF provides three principal types
of services: (i) management services, which includes outsourcing, facility
management and project management, (ii) technical services, which includes the
development of applications, system maintenance and implementation and (iii)
operations report cards which give CEO/CIO/CFO/CMO and other department heads a
critical review of their systems in relation to marketplace norms and standards.
This review covers costs, systems functions, performance, scope and user
satisfaction. The report card also highlights strengths and weaknesses of
systems, spending, compliance and staffing. MCIF believes that its long-term
relationships, in-depth knowledge of its clients' needs and its broad range of
services provide it with significant advantages over its competitors in
marketing additional services and winning new engagements. MCIF's goal is to be
the preferred, if not sole, provider of a broad range of IT consulting and
outsourcing services for each of its clients.
Industry Background.
General
The United States healthcare industry is undergoing rapid, profound
change. MCIF believes that the consolidation of healthcare systems and the aging
of the U.S. population should result in continued dramatic change in the
healthcare industry. Healthcare providers today face external and internal
pressures to meet the competitive demands of the marketplace, comply with
increasing government regulations and cope with the advent of managed care.
These challenges, combined with increased demands on capital resources, are
forcing healthcare providers to seek new ways to structure and manage their
organizations and deliver services. In the past, the financial risk of
healthcare delivery was absorbed principally by third-party payors, and
providers did not focus on cost containment. Today, through managed care
arrangements and provider capitation (under which providers are paid an annual
fixed fee per individual to deliver all healthcare services required by that
individual), the economic risk of healthcare delivery is shifting from payors to
providers. In order to manage this risk, providers must enhance their
1
<PAGE>
understanding of treatment costs, variability of costs and cost control and must
restructure their processes and organizations to enhance efficiency and
accountability. Providers must achieve each of these objectives, while at the
same time continuing to demonstrate increasing quality and consistency in
healthcare delivery.
The shifting of risk from payor to provider has also encouraged and
accelerated consolidation among healthcare providers. In order to achieve
economies of scale, operating efficiencies, and enhanced contracting
capabilities, healthcare organizations such as hospitals, primary care and
multi-specialty physician groups, laboratories, pharmacies, home health services
and nursing homes are integrating horizontally and vertically to create
integrated delivery networks ("IDNs"). The goal of IDNs is to deliver
comprehensive healthcare in a cost-effective manner and accordingly, their
success is dependent in part on effectively managing and delivering information
to the caregivers. As industry consolidation and IDN formations create larger
and increasingly far-reaching healthcare organizations, and as the demand for
information services is increasingly required to cross multiple points of care,
IDNs must place greater focus on information management and business process
solutions to control costs, demonstrate quality, measure performance, predict
outcomes and increase efficiency.
Information Technology
The increased demand for tools to collect, analyze and interpret
clinical, operational and financial information rapidly, flexibly and in a
technological framework that supports today's diverse healthcare environment is
intensifying the reliance of the healthcare industry on IT solutions. As a
result, the healthcare industry is rapidly increasing its spending for IT.
Healthcare IT spending is being driven not only by the heightened need for
better management information systems, but also continued price-performance
improvements in hardware and software, the ability to develop increasingly
user-friendly software applications and the emergence of better application
development tools.
The healthcare IT environment has grown increasingly complex, costly
and burdensome as a result of the challenges of deploying new technology,
maintaining older systems and meeting staffing requirements in a market with an
insufficient pool of qualified IT professionals. At the same time, external
economic factors have forced organizations to focus on core competencies and
trim work forces. MCIF believes that healthcare participants will continue to
turn to outside consultants, external management of internal information systems
and full outsourcing as a means of coping with the financial and technical
demands of information systems management. MCIF believes this dynamic is also
occurring across other industries as organizations look to external management
and outsourcing of their information systems in order to remain focused on their
core businesses.
Consulting
The changing business environment has also produced an evolving range
of strategic and operating options for healthcare entities, many of which are
unfamiliar to an industry that had long operated under a non-aligned, third
party payor environment. In response, healthcare participants are formulating
and implementing new strategies and tactics, including redesigning business
processes and workflows, acquiring better technology and adopting or remodeling
customer service and marketing programs. MCIF believes that healthcare
participants will continue to turn to outside consultants to assist in this
process for several reasons: the pace of change is eclipsing their own internal
resources and capacity to identify, evaluate and implement the full range of
options; consultants enable them to develop better solutions in shorter time
frames; and purchasing consulting expertise can be more cost effective. By
employing outside expertise, healthcare providers can often improve their
ability to compete by more rapidly deploying new processes.
The healthcare professional services industry is highly fragmented and
consists primarily of: (i) larger systems integration firms, including the
consulting divisions of the national accounting firms, which offer healthcare as
one of their specialty areas; (ii) healthcare information systems vendors which
focus on services relating to the software solutions they offer; (iii)
healthcare consulting firms, many of whom focus on selected specialty areas,
such as strategic planning or vendor-specific implementation; and (iv) large
general management consulting firms that do not specialize in healthcare
consulting and/or offer systems implementation. Increasingly, the competitive
advantage will be gained by those firms which (i) are able to marshal the
necessary expertise and resources to offer comprehensive skill sets to clients;
2
<PAGE>
(ii) have the strength and consistency of advice along the entire service
continuum (from strategy to selection to implementation); (iii) offer the
flexibility to meet the challenges of the rapidly changing healthcare and IT
industries; and (iv) have the ability to recruit, educate and deploy a diverse
set of personnel.
MCIF's Solution.
MCIF uses its in-depth knowledge of healthcare delivery systems and
nationally deployed group of experienced consultants to help clients plan and
execute business strategies. MCIF offers its clients a continuum of solutions,
ranging from strategic planning and operations management consulting, to
information system planning, implementation and integration, to interim
management and outsourcing. For each client and engagement, MCIF structures a
project team that understands the complexities of the healthcare environment for
that particular client and can concurrently address the management and technical
ramifications of change and improvement. In structuring an engagement, MCIF does
not impose any preordained program on its clients. Rather, utilizing the
professional judgment derived from their years of experience, MCIF's consultants
work in concert with each client to develop custom-tailored solutions. As each
client relationship evolves, MCIF's professionals add their experiences to its
knowledge and client resource databases and to collaboration with colleagues.
This unified team approach helps to ensure high quality, consistent and
geographically seamless client service.
MCIF's services integrate many diverse facets and constituencies of the
healthcare industry. Through its strategic consulting, MCIF brings together the
healthcare and business relationships required to establish and maintain
efficient and collaborative healthcare delivery networks. Through its operations
management consulting, MCIF links the needs and optimizes the contributions of
clinical, information and management personnel. MCIF's staff has in-depth
knowledge and experience in clinical and physician-use systems. This experience
dates back to 1968 and includes several systems. Through its value-added
information systems implementation and integration consulting, MCIF forges a
link between healthcare information systems vendors and their customers by
helping each group maximize the potential of existing technology. MCIF also
provides a bridge between existing and emerging technologies by supplying
vendors with needed knowledge to develop innovations focused on the changing
needs of the marketplace and by assisting healthcare industry participants to
assess the relative merits and risks of selecting and implementing new
technologies. This enables MCIF to help its clients take advantage of the
opportunities presented by emerging technologies such as the internet and
intranet, local and wide area communication networks, telemedicine and document
imaging solutions.
In addition, MCIF offers a flexible program of outsourcing services
ranging from interim management to personnel acquisition and facilities
management to total outsourcing. MCIF's outsourcing program enables healthcare
providers to simplify their management agenda, improve their return on
information systems investment and strengthen their technology management by
ensuring client access to MCIF's skilled technical labor pool.
To assist its clients in achieving the optimal strategic, operational
and/or IT solution for their business needs, MCIF implements solutions that are
unbiased toward specific organizations including hardware and software vendors.
MCIF offers an objective assessment of the advantages and disadvantages of each
particular strategic, operational and/or IT solution, including packaged
software applications, platforms and operating systems. Through its unbiased
solutions, MCIF can take a flexible approach to its clients' business problems
and provide them with the best solution.
MCIF's Strategy.
MCIF's goal is to become a leading outsourcing company that provides
services to a cross section of the healthcare market. MCIF's strategy for
achieving that goal includes the following key elements:
Recruit Experienced Personnel. MCIF's objective is to continue to
recruit experienced, highly skilled healthcare experts who are experienced in
virtually all major healthcare software and hardware configurations in acute
care, managed care, clinical and physician settings.
3
<PAGE>
Leverage Strategic Relationships. MCIF's founders, Bill W. Childs,
Chairman of the Board and Chief Executive Officer and Garfield E. Thompson,
Executive Vice President Sales, each have extensive, long-term healthcare
contacts in the industry. Bill Childs has been in the business of designing and
building healthcare information systems for professional use since 1968. On
September 21, 1998, David Koeller joined MCIF as its President and Chief
Operating Officer. Mr. Koeller was formerly a Vice President with HBOC, a
leading provider of systems to the healthcare industry and prior to that, was
the President of the Physician Division CyCare, a leading provider of ambulatory
and physician systems to the healthcare industry. MCIF seeks to leverage their
experience to establish strategic relationships with various healthcare market
participants.
Services.
MCIF offers its clients comprehensive services, from visioning, to
strategy, to selection of appropriate solutions, to implementation, on-going
management and outsourcing. MCIF offers custom-tailored solutions based on an
assessment of each client's needs. MCIF offers services in the following broadly
defined categories:
Information Technology Consulting. MCIF provides high quality services
in developing long term IT strategy through selection of technology and
products, systems implementation, integration and management, and contract
negotiation. While MCIF's consultants have a wide variety of skills, the
majority have concentrated capabilities in the IT area. This expertise is
derived from a combination of work for MCIF clients as well as experience gained
prior to joining MCIF and includes evaluation, implementation, operational or
other experience with one or more established and emerging healthcare
information systems or technologies offered by over 100 information system
vendors.
Management Consulting. MCIF's management consulting services include
focus areas such as strategic planning, analysis of current industry and
competitive conditions, integration services, formation of physician-hospital
alliances, mergers and affiliations, multi-specialty group practice formation,
facility planning, practice valuations and acquisitions, IDN formation,
financial advice and establishment of managed care organizations.
Information Technology Outsourcing. MCIF enables healthcare providers
to simplify their management agenda, improve their return on information systems
investment and strengthen their technology management by ensuring client access
to MCIF's skilled labor pool. MCIF's outsourcing program offers the client an
array of services, functions and economic elements which can be tailored to the
specific client program/agenda, including IT management, IT planning and
budgeting, applications support, applications implementation, IT operations,
network and financial management and risk sharing.
Operations Consulting. MCIF provides business process workflows and
operations improvement as methods to help clients eliminate organizational
redundancy, reduce cost and implement changes in the areas of patient care,
post-acute care, administrative services, clinical resource allocation, quality
management, finance, physician support and nursing. MCIF can provide executive
and staff education, interim management and operational assistance.
Set forth below is a list of the healthcare consulting services and
skills offered by MCIF:
<TABLE>
<CAPTION>
CATEGORY DESCRIPTION OF SERVICES
-------- -----------------------
<S> <C>
INFORMATION TECHNOLOGY CONSULTING Strategic information system planning, budgeting, development and
implementation
Systems and departmental audits and assessments
Interim management and facilities management
Legacy system maximization
System implementation and integration
Network and client-server planning and design
STRATEGIC AND OPERATIONS Strategic and tactical planning
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
CATEGORY DESCRIPTION OF SERVICES
-------- -----------------------
<S> <C>
MANAGEMENT CONSULTING Re-engineering and business process improvement and redesign
Project management
Decision Support and Executive Information Systems (DSS/EIS)
OUTSOURCING IT planning, budgeting and management
Operations and management staffing and resources
Project management
Applications implementation
FINANCIAL CONSULTING Revenue enhancement
Business office review
CLINICAL CONSULTING Clinical systems implementation
Clinical workflow analysis and re-engineering
Information systems selection and implementation
Interim management
Departmental operations analysis
AMBULATORY PRACTICE Ambulatory care strategic planning
MANAGEMENT CONSULTING Operations assessment and re-engineering
Systems selection and implementation
Practice revenue analysis
Facilities management
Integration strategies
PHYSICIAN SERVICES Primary care network development
Multi-specialty group practice formation
Financial modeling, budgeting and financial performance improvement
Managed care and market research
</TABLE>
Employees.
MCIF believes that one of its key strengths lies in its ability to
attract, develop, motivate and retain a talented, creative and highly skilled
work force of senior-level professionals who are specialists in one or more
areas of healthcare and/or information technology. MCIF's employees are highly
experienced, many of whom have established their credentials as healthcare
executives and senior management of healthcare entities, business office
managers, medical records administrators, nurse administrators, nurses,
laboratory technicians, physician assistants, medical technologists, physicians,
hospital admissions directors, and information management and information
systems technical personnel. As of March 3, 1999, MCIF employed 66 employees, 53
of whom were billable. In addition, MCIF has employed 18 independent
contractors.
Sales and Marketing.
MCIF's business development efforts are based upon a highly organized,
company-wide, consistent approach. All personnel are trained and reinforced in
MCIF's marketing methods and philosophy, and are encouraged to identify, develop
and pursue client service opportunities. MCIF's marketing efforts are directed
by senior management. The strategic service group leaders focus on client
development strategies, geographic market penetration and cross-selling clients.
Business development is an integral part of the formal responsibilities at all
levels of MCIF's management and MCIF sets business development goals on both a
departmental and individual basis.
5
<PAGE>
MCIF's business development efforts focus primarily on identifying key
decision makers in the healthcare industry, determining the value to be provided
to each potential client and then managing the sales process to completion. At
any given time, numerous MCIF professionals are active in the development of
business from either a new or existing client, and the client resource database
enables all MCIF personnel to access up-to-date information on MCIF's efforts
with respect to a client or client prospect, identifies other MCIF contacts with
that client, and highlights the particular needs expressed by the client to
date.
In addition, MCIF relies upon its reputation in the marketplace, the
personal contacts and networking of MCIF's professionals, direct industry
marketing programs, trade shows, and the industry presence maintained by MCIF
professionals to enhance its business development efforts. MCIF's marketing
efforts are enhanced by its presence within the healthcare industry by virtue of
its employees' speaking engagements and publications on topics affecting
healthcare. MCIF's views on a wide range of healthcare and IT topics are
frequently solicited and quoted for articles in major industry journals and
books. MCIF's healthcare consultants have been published extensively on current
and emerging topics in healthcare information and management and have
participated in external speaking engagements and presentations to industry
associations and client audiences across the nation.
Competition.
The market for MCIF's services is highly fragmented, highly competitive
and is subject to rapid change. MCIF believes that it currently competes
principally with systems integration firms, national consulting firms, including
the consulting divisions of the national 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 MCIF's competitors have significantly greater
financial, technical and marketing resources than MCIF, generate greater
revenues and have greater name recognition than MCIF. 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 MCIF, 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 MCIF's implementation work for those systems. There are
relatively low barriers to entry into MCIF's markets, and MCIF has faced and
expects to continue to face additional competition from new entrants into its
markets. In addition, combinations and consolidations in the consulting industry
will give rise to larger competitors, whose relative strengths are impossible to
predict. MCIF 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 internal information management
capabilities.
MCIF believes that the principal competitive factors in its market
include reputation, highly experienced workforce, industry expertise, full array
of offerings, project management expertise, vendor neutrality, price, quality of
service, responsiveness and speed of implementation and delivery. There can be
no assurance that MCIF will be able to compete effectively on pricing or other
requirements with current and future competitors or that competitive pressures
faced by MCIF will not cause MCIF's revenue or operating margins to decline or
otherwise materially adversely affect its business, financial condition and
results of operations.
Intellectual Property and other Proprietary Rights
MCIF's success is in part dependent upon its proprietary internal
information and communications systems, tools, and the methods and procedures
that it has developed specifically to serve its clients. MCIF has no patents;
consequently, it relies on a combination of non-disclosure and other contractual
arrangements and copyright, trademark and trade secret laws to protect its
proprietary systems, information, and procedures. There can be no assurance that
the steps taken by MCIF to protect its proprietary rights will be adequate to
prevent misappropriation of such rights or that MCIF will be able to detect
unauthorized use and take appropriate steps to enforce its proprietary rights.
MCIF believes that its systems and procedures and other proprietary rights do
not infringe upon the proprietary rights of third parties. There can be no
assurance, however, that third parties will not assert infringement claims
against MCIF in the future or that any such claims will not require MCIF to
enter into materially adverse license arrangements or result in protracted and
costly litigation, regardless of the merits.
6
<PAGE>
ITEM 2. DESCRIPTION OF PROPERTIES
Facilities
On March 27, 1999, MCIF relocated its corporate offices. MCIF leases
approximately 5,900 square feet of office space in Irvine, California. The lease
expires in March 2002 and provides for an annual rental of $151,936 through
March 2000, $158,296 through March 2001 and $164,656 through March 2002.
ITEM 3. LEGAL PROCEEDINGS
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Market Information. MCIF's common stock and redeemable
warrants are currently traded on the Nasdaq SmallCap Market under the symbol
"MCIF" and "MCIFW", respectively. As of March 3, 1999, there were 15,063,075
shares of common stock and warrants to purchase 2,125,000 shares of common stock
outstanding.
The following table sets forth the range of the high and low bid
information, as provided by Nasdaq, of the common stock and warrants for the
period from January 16, 1997 through December 31, 1998. Such information may
reflect inter-dealer prices, without retail mark-up, mark-down or commission,
and may not reflect actual transactions.
<TABLE>
<CAPTION>
Common Stock Warrants
-------------------------------- --------------------------------
Low Bid High Bid Low Bid High Bid
----------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
1/17/97 to 3/31/97 3 3/4 5 1/2 3/4 1 7/8
4/1/97 to 6/30/97 3 4 1/4 5/8 1 1/8
7/1/97 to 9/30/97 3 1/4 4 1/4 7/8 1 1/2
10/1/97 to 12/31/97 3 1/4 4 3/4 13/16 1 3/8
1/1/98 to 3/31/98 2 5/8 3 13/32 13/16 14/16
4/1/98 to 6/30/98 1 1/32 3 1/8 1/2 13/16
7/1/98 to 9/30/98 3/4 1 15/16 9/16 9/16
10/1/98 to 12/31/98 1 1 5/8 9/16 9/16
</TABLE>
Approximate Number of Security Holders. As of March 3, 1999, there were
approximately 44 holders of record of the common stock and 5 holders of record
of the warrants, and approximately 700 beneficial holders of the common stock.
Dividends. MCIF has never paid any cash dividends on the common stock,
and its board of directors does not intend to declare or pay any dividends on
the common stock in the foreseeable future. The board currently intends to
retain all available earnings, if any, generated by MCIF's operations for the
development and growth of its business.
7
<PAGE>
Sale of unregistered securities
(1) In February 1998, MCIF issued 400,000 shares of common stock to
two individuals at a price of $2.00 per share.
(2) From March 1998 to September 1998, MCIF issued 632 shares of
series B preferred stock at a price of $2,000 per share to 7
individuals and entities. These shares converted into 2,525,000
shares of MCIF common stock on March 2, 1999.
(3) On February 26, 1999, MCIF sold 1,000,000 shares of common stock
to 10 individuals at a price of $1.00 per share.
(4) On March 2, 1999, MCIF issued 150,000 shares of common stock to
one entity for $.050 per share.
(5) On March 2, 1999, in connection with the merger of MC Informatics,
Inc. and HealthDesk Corporation, MCIF issued 5,645,230 shares of
common stock to 6 individuals.
The issuances of securities described in items (1)-(5) are deemed to be
exempt from registration under the Securities Act in reliance on Section 4(2) of
the Securities Act as transactions by an issuer not involving a public offering.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Management's Discussion and Analysis of Financial Condition and Results
of Operations relate to the financial condition and results of operations for
HealthDesk Corporation for 1997 and 1998. As noted above, on February 26, 1999,
the shareholders of HealthDesk Corporation approved the sale of HealthDesk's
assets to PATI and the merger of HealthDesk with MC Informatics, Inc.
Overview
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, and is subject to the safe harbor created by the section. Readers are
cautioned not to place undue reliance on these forward-looking statements as
they speak only as of the date hereof. Reference is also made to the matters set
forth under the heading "Risk Factors" in Part II hereof.
The statements regarding MCIF's future cash requirements are forward
looking statements that are subject to risks and uncertainties which could
result in MCIF's inability to meet its funding requirements for the time period
indicated. Such risks and uncertainties include, but are not limited to, those
described under the heading "Risk Factors" in Part II hereof.
Recent Events
On February 25, 1998, HealthDesk completed an $800,000 private placement.
This private placement consisted of the sale of 400,000 shares of common stock,
at a price of $2.00 per share, to two of the Company's existing shareholders.
On April 13, 1998, HealthDesk announced that with respect to its
outstanding publicly traded warrants, it was reducing the exercise price from
$5.00 per share to $2.50 per share, and the call price for the warrants from
$7.50 to $3.75.
The Company issued 632 shares of series B preferred stock as a result of
the following private placements. On March 31, 1998, two existing shareholders
agreed to purchase 250 shares of the Company's series B preferred stock for
proceeds of $500,000. On May 13, 1998, the Company received the $500,000
proceeds. On June 30, 1998, three existing shareholders purchased 175 shares of
the Company's series B preferred stock for total proceeds of $350,000, of which
8
<PAGE>
$300,000 was received on June 30, 1998, and $50,000 was received on July 8,
1998. On August 14 and September 3, 17, and 25, 1998, the Company received
proceeds of $412,500 in connection with the private placement of additional
shares of series B preferred stock to one existing shareholder and one new
investor. The shares of series B preferred stock converted into 2,525,000 shares
of MCIF common stock on March 3, 1999.
On February 26, 1999, the shareholders of HealthDesk approved the sale of
assets to PATI and the merger with MC Informatics, Inc. In connection with these
transactions, HealthDesk changed its name to MC Informatics, Inc.
On February 26, 1999, HealthDesk sold 1,000,000 shares of common stock to
10 individuals at a price of $1.00 per share.
Results of Operations
1998 Compared to 1997
As a result of the decision of HealthDesk's board of directors in May 1998
to discontinue its operations, all revenues, cost of sales, product development
and sales and marketing expenses prior to that date, have been accounted for as
loss from discontinued operations. In addition, the sale of the software,
computer hardware and office furniture, which resulted in a gain, was offset
against the provision for losses during the phase-out period included in the
loss on disposal from discontinued operations. Because of the above, the
comparisons of revenue and expenses associated with the product sales from 1997
to 1998 are not included herein.
General and administrative costs increased by 47.7% from $258,567 for the
year ended December 31, 1997 to $382,008 for the year ended December 31, 1998.
This increase was primarily attributable to the elimination of the allocation of
resources to marketing and development activities in 1998. In 1997, a portion of
the general and administrative costs were allocated to marketing and development
activities, which are included in the loss from discontinued operations.
Other income (expense), net for the year ended December 31, 1998 includes
interest income less a charge to expense of non-cash financing cost associated
with convertible preferred stock. Interest income decreased by 49.7 % from
$137,375 for the year ended December 31, 1997 to $69,107 for the year ended
December 31, 1998. This decrease was primarily attributable to cash required to
fund the current year's operating loss. In 1998, the Company sold 632 shares of
Series B Preferred Stock. Of that amount, 432 shares were sold to certain
shareholders and directors of the former HealthDesk Corporation and an officer
of MCIF. The convertible preferred stock issued to these related parties, which
is convertible at a discount to the market, has been accounted for by treating
such discount to the market as additional incremental yield on the security.
Accordingly, the $864,000 non-cash financing cost associated with convertible
preferred stock has been charged to expense and included in Series B preferred
stock. The remaining 200 shares were sold to third parties. Accordingly, the
associated discount of $400,000 related to these shares, has been recorded as an
imputed dividend and considered in the calculation of loss per share.
Loss from discontinued operations decreased by 71.2% from $3,535,332 for
the year ended December 31, 1997 to $1,017,556 for the year ended December 31,
1998. The decrease was primarily attributable to the reduction in staff, and
related expenses in connection with the Company's restructuring that was
announced in May 1998.
In 1997, HealthDesk had $145,023 of amortization of non-recurring bridge
discount and deferred debt issuance costs. Since this was fully amortized in
1997, there is no similar expense in 1998.
In May 1998, the Company's Board of Directors approved a plan to
discontinue its current operations, seek an acquirer of the Company's assets and
pursue other strategic alternatives. The Company entered into an agreement
with Patient Infosystems, Inc. to sell its intellectual property rights and
inventories and certain office equipment and packaged software. Effective March
2, 1999, such assets were sold to and certain liabilities assumed by the
acquiring company for cash of $696,993, which resulted in a gain on the sale of
$627,882. The disposition has been accounted for as discontinued operations and
prior year's financial statements have been restated to reflect the
discontinuation of operations. The net assets and liabilities relating to the
sale have been segregated from their historic classifications to separately
identify them at their net realizable value. Such amounts are included in assets
held for sale in the 1998 balance sheet. Included in accrued liabilities is an
accrual aggregating $248,253 for accrued costs directly associated with the
discontinued operations.
As a result of the foregoing, HealthDesk incurred a net loss of $3,066,122
for the year ended December 31, 1998, as compared to a net loss of $3,817,247
for 1997.
9
<PAGE>
Liquidity and Capital Resources
At December 31, 1998, HealthDesk had cash and cash equivalents of $85,925,
as compared to $1,405,430 at December 31, 1997. In 1998, $2,504,162 of cash was
used in operating activities, principally as a result of the $3,066,122 net loss
for 1998 and partially offset by the net effect of certain non-cash expenses
aggregating $1,240,946. The cash used in operating activities combined with the
cash used in investing activities as a result of the advances on notes
receivable of $711,819 was partially offset by the $2,048,673 cash provided upon
issuance of preferred and common stock. Working capital at December 31, 1998 was
$1,334,054, as compared to working capital of $999,092 at December 31, 1997.
MCIF's primary capital requirements will be to fund its operational growth
and capital asset acquisition requirements. MCIF has historically financed its
operations through the issuance of debt and equity securities.
In February 1998, the Company completed a private placement of 400,000
shares of common stock at $2.00 per share to Mr. Pappajohn and Edgewater, a
principal shareholder of the Company of whom, Mr. Gordon, a director of the
company serves as general partner. See "Factors Affecting the Company's
Business, Operating Results and Financial Conditions Potential Conflicts of
Interest" and Note 5 to the Financial Statements.
On February 26, 1999, the shareholders of HealthDesk approved the sale of
assets to PATI and the merger with MC Informatics, Inc. In connection with these
transactions, HealthDesk changed its name to MC Informatics, Inc. See "Note 2 to
the Financial Statements".
In addition, on February 26, 1999, HealthDesk completed a private placement
of 1,000,000 shares of common stock at $1.00 per share.
Other than as described in this Form 10-KSB, MCIF has no material
commitments for capital expenditures. MCIF recently relocated its offices to
Irvine, California. In connection with the relocation, MCIF purchased
approximately $150,000 of furniture, telephone, computers and other equipment.
MCIF believes that its internally generated working capital together with the $1
million private placement and the proposed $1.7 million line of credit will be
sufficient to meet its projected cash requirements for the next 12 months. MCIF
does not have the line of credit currently in place. MCIF cannot be certain that
it will be able to secure the $1.7 million line of credit on reasonable terms or
at all. If MCIF is unable to secure the $1.7 million line of credit, it may have
to reduce the scope of its operations, which would materially adversely affect
its business financial condition and results of operations.
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 has begun 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.
10
<PAGE>
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 work stations 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 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:
o 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;
o 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
o 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:
o accelerated replacement of affected equipment or software;
o short- to medium-term use of backup equipment and software;
o increased work hours for our personnel; and
11
<PAGE>
o use of contract personnel to correct on an accelerated schedule any year
2000 problems that arise or to provide manual workarounds for information
systems.
The Company's implementation of any of these contingency plans could have a
material adverse effect on its business, operating results and financial
condition.
Disclaimer. The discussion of the Company's efforts and expectations
relating to year 2000 compliance are forward-looking statements. The Company's
ability to achieve year 2000 compliance and the level of incremental costs
associated therewith, could 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.
Risk Factors.
Assumption of Operations. The success of the merger depends in
substantial part on the ability of HealthDesk Corporation to incorporate the
operations of MC Informatics, Inc. in an efficient and effective manner. The
assumption of a new business requires the dedication of management resources
which may temporarily distract attention from the day-to-day operations of MC
Informatics, Inc. There can be no assurance that the assumption of the business
operation of MC Informatics, Inc. will occur smoothly or successfully. The
inability of HealthDesk Corporation to successfully assume MC Informatics Inc.'s
operations could materially adversely affect the business, results of operations
and financial condition of MCIF.
Retention of MCIF Customers. There can be no assurance that the current
customers of MCIF will continue to seek the services of MCIF now that the merger
has been consummated. If a substantial number of customers elect not to seek the
services of MCIF, MCIF's business, results of operations and financial condition
may be materially adversely affected.
Retention and Recruitment of Professional Staff. MCIF's business now
involves the delivery of professional services and is labor-intensive. MCIF'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 MCIF 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 MCIF 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 MCIF's
inability to hire a sufficient number of qualified consultants would adversely
affect MCIF's ability to secure, service and complete client engagements and
could have a material adverse effect on MCIF's business, operating results and
financial condition.
Transition Charges. The Company had incurred approximately $248,000 in
expenses in the first quarter of 1999 which the Company had accrued for as of
December 31, 1998. In addition, the Company incurred transaction costs
associated with the merger estimated to be approximately $175,000, consisting of
fees for investment banking, legal, accounting, financial printing, proxy
solicitation and other related charges, and certain other expenses to be
incurred by MCIF estimated to be approximately $60,000. These amounts will be
treated as deferred acquisition costs. Additional unanticipated expenses may be
incurred relating to the assumption of MCIF's business.
Client Concentration. MCIF derives a significant portion of its
revenues from a relatively limited number of clients. For example, during 1997
and 1998, MCIF's five largest clients accounted for approximately 76% and 58%,
respectively, of MCIF's revenues. Clients will typically engage MCIF 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 MCIF's
services required by any individual client can diminish over the life of its
relationship with MCIF, and there can be no assurance that MCIF will be
12
<PAGE>
successful in establishing relationships with new clients as this occurs.
Moreover, there can be no assurance that MCIF's clients prior to the merger with
HealthDesk Corporation will continue to engage MCIF for additional projects or
do so at the same revenue levels. The loss of any significant client could have
a material adverse effect on MCIF's business, financial condition and results of
operations.
Project Risks; Limited Outsourcing Experience. Many of MCIF's
engagements involve projects which are critical to the operations of its
clients' business and which provide benefits that may be difficult to quantify.
MCIF's failure to meet a client's expectations in the performance of its
services could damage MCIF's reputation and adversely affect its ability to
attract new business. In addition, MCIF 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. MCIF has assisted and
expects to continue to assist clients in selecting and implementing software
applications for the clients' use in their business. While MCIF is not aware of
any existing or potential claims, the occurrence of year 2000 related systems
failures in the information systems or other systems of clients of MCIF could
involve MCIF in disputes and negatively impact client relationships, which in
turn could have a material adverse effect on MCIF's business, financial
condition and results of operations, whether or not MCIF bears any
responsibility, legal or otherwise, for the occurrence of those problems.
MCIF 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 MCIF is successful in implementing its outsourcing
strategy, MCIF anticipates that competitors may increase their focus on this
market which could adversely affect MCIF's ability to obtain new outsourcing
contracts as well as the profitability of any such contracts. In addition, any
failure by MCIF to perform adequately under its outsourcing agreements may
adversely effect its ability to obtain future consulting engagements from these
or other clients. MCIF's failure to obtain future consulting engagements could
have a material adverse affect on MCIF's business, financial condition and
results of operations.
Competition. The market for MCIF's services is highly fragmented,
highly competitive and subject to rapid change. MCIF 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 MCIF, generate greater
revenues and have greater name recognition than MCIF. 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 MCIF, 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 MCIF's implementation work for those systems. There are
relatively low barriers to entry into MCIF's markets, and MCIF 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 larger competitors whose relative strengths are
impossible to predict. MCIF 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
MCIF 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 MCIF will not cause MCIF'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. MCIF has not
achieved profitability and cannot be certain that MCIF will realize sufficient
revenue to achieve profitability. As of December 31, 1998, HealthDesk
Corporation had incurred a cumulative net loss of approximately $13,600,000. In
connection with the merger, MCIF anticipates continuing to incur significant
general and administrative expenses and, as a result, MCIF will need to generate
higher revenue to achieve and sustain profitability. There can be no assurance
that MCIF will be able to generate meaningful revenues or achieve profitable
operations.
13
<PAGE>
Negative Cash Flow; Need for Additional Financing. MCIF's capital
requirements relating to its professional services organization are expected to
be significant. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations - Recent Events." MCIF believes that its internally
generated working capital together with the $1 million private placement and a
proposed $1.7 million line of credit will be sufficient to meet its projected
cash requirements for the next 12 months. There can be no assurance, however,
that MCIF 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 MCIF's common stock and
warrants, there can be no assurance that MCIF will be able to raise additional
cash through public or private offerings of its common stock. There also can be
no assurance that MCIF's funding requirements will not increase significantly as
a result of unforeseen circumstances or that MCIF's cash used for operating
activities will not increase. Any of these developments will materially
adversely affect MCIF's business financial condition and operating results.
Possible Delisting of Securities from NASDAQ System; Disclosure
Relating to Low-Priced Stocks. MCIF's common stock and warrants are currently
quoted on NASDAQ SmallCap Market ("NASDAQ"). On August 28, 1998, MCIF received a
letter from NASDAQ advising MCIF that it had to submit a proposal for coming
into compliance with the maintenance criteria on or before September 11, 1998.
After submitting a proposal and additional exchanges with NASDAQ, NASDAQ
officials held a hearing with MCIF on March 18, 1999 to review the MCIF proposal
to come into compliance with the NASDAQ requirements for continued inclusion on
the SmallCap market. As MCIF currently does not satisfy NASDAQ's requirements,
there can be no assurance that NASDAQ will allow MCIF to continue to be listed
on the SmallCap Market. If MCIF does not prevail, its common stock and warrants
will be delisted from the NASDAQ SmallCap market. See "Notes to the Financial
Statements."
If NASDAQ delists MCIF's securities, an investor may find it more
difficult to dispose of, or to obtain accurate quotations as to the market value
of, MCIF's securities. In addition, if the common stock were delisted from
trading on NASDAQ and the trading price of the common stock was less than $5.00
per share, trading in the common stock would also be 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
purchasers in the offering to sell the common stock in the secondary market.
Control by Management. As of March 3, 1999, the officers and directors
of MCIF beneficially owned, in the aggregate, approximately 80 % of the
outstanding shares of common stock (assuming no exercise of outstanding warrants
to purchase common stock). Accordingly, such persons, acting together, are in a
position to control MCIF's affairs.
Potential Conflicts of Interest. MCIF has entered into various
transactions with certain of its directors and principal shareholders and their
affiliates, which could result in potential conflicts of interest. Mr. John
Pappajohn and Mr. James Gordon, a director of MCIF and a general managing
partner of Edgewater, are principal shareholders of MCIF and have from time to
time made loans to MCIF. In February 1998, MCIF completed a private placement of
400,000 shares of common stock for $800,000 from Mr. Pappajohn and Edgewater. In
addition, between March and June 1998, MCIF sold an aggregate of 400 shares of
Series B preferred stock to Mr. Pappajohn and Edgewater for an aggregate
consideration of $800,000. Furthermore, Mr. Rudick, a director of MCIF,
purchased between June and September 1998 an aggregate of 57 shares of series B
preferred stock for $112,500. In February 1999, the Company completed a
$1,000,000 private placement, whereby Mr. Pappajohn and Mr. Rudick .purchased
150,000 and 20,000 shares of common stock respectively at $1.00 per share. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Recent Events." MCIF believes that all of these transactions or
14
<PAGE>
arrangements were fair and reasonable to MCIF and were on terms no less
favorable than could have been obtained from unaffiliated third parties. There
can be no assurance, however, that future transactions or arrangements between
MCIF and its affiliates will continue to be advantageous to MCIF, that conflicts
of interest will not arise with respect thereto, or that if conflicts do arise,
they will be resolved in a manner favorable to MCIF. Any such future
transactions will be on terms no less favorable to MCIF than could be obtained
from unaffiliated parties and will be approved by a majority of the independent
and disinterested members of the Board of Directors, outside the presence of any
interested directors and, to the extent deemed appropriate by the Board of
Directors, MCIF will obtain shareholder approval or fairness opinions in
connection with any such transactions.
Outstanding Options. As of March 3, 1999, MCIF had outstanding options
to purchase an aggregate of 2,168,900 shares of common stock at exercise prices
ranging from $1.00 to $5.00. Exercise of any of the foregoing options will have
a dilutive effect on MCIF's shareholders. Furthermore, the terms upon which MCIF
may be able to obtain additional equity financing may be adversely affected,
since the holders of the options can be expected to exercise them, if at all, at
a time when MCIF would, in all likelihood, be able to obtain any needed capital
on terms more favorable to MCIF than those provided in the options.
No Dividends. To date, MCIF has not paid any cash dividends and does
not expect to declare or pay dividends on the common stock in the foreseeable
future.
Authorized Preferred Stock. MCIF's Restated Articles of Incorporation
authorizes MCIF'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 MCIF'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 MCIF thereby delaying, deferring or preventing a
change in control of MCIF.
Volatility of Stock and Warrants Prices. MCIF's common stock and
warrants to purchase common stock have experienced substantial price
fluctuations since MCIF's initial public offering. In addition, the stock market
has experienced significant price and volume fluctuations that have especially
affected the market prices of equity securities of many high technology
companies, which often have been unrelated to the operating performance of such
companies. These broad market fluctuations may adversely affect the market price
of MCIF's common stock and warrants. 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 MCIF's
business, operating results and financial condition.
ITEM 7. FINANCIAL STATEMENTS
The financial statements of the Company are filed with this report on
pages F-1 through F-23 following the signature page.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
15
<PAGE>
On August 12, 1998, PricewaterhouseCoopers LLP resigned as accountants
of HealthDesk. In connection with the audit of the past two fiscal years ended
December 31, 1996 and December 31, 1997, respectively, and through the date of
dismissal, there were no disagreements with PricewaterhouseCoopers LLP on any
matter of accounting principles or practices, financial statement disclosure, or
auditing scope and procedures which, if not resolved to the satisfaction of
PricewaterhouseCoopers LLP, would have caused them to make reference to the
matter in its report. The report of PricewaterhouseCoopers LLP on the financial
statements of HealthDesk for the years ended December 31, 1996 and December 31,
1997 did not contain an adverse opinion or disclaimer of opinion and was not
qualified or modified as to uncertainty, scope, or accounting principle.
On February 18, 1999, MCIF appointed BDO Seidman, LLP as its
independent accounting firm. Prior to the appointment of BDO, MCIF did not
consult with BDO regarding either the application of accounting principles to a
specified transaction, either completed or proposed, or the type of audit
opinion that might be rendered on MCIF's financial statements, or a reportable
event.
16
<PAGE>
Part III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
The following are the names and ages of all directors and executive
officers of MCIF as of March 3, 1999, as well as the positions and officers that
each such person holds with MCIF:
Name Age Position
---- --- --------
Bill Childs 59 Chairman of the Board,
Chief Executive Officer,
Director
David Koeller 51 President,
Chief Operating Officer
Jeffrey Pollard 56 Chief Financial Officer
John Pappajohn 69 Director
Joseph R. Dunham 35 Director
James A. Gordon 47 Director
Dr. Joseph Rudick, Jr. 42 Director
Dr. Molly J. Coye 51 Director
Bill Childs joined MC Informatics, Inc. in April 1997. He has been the
Chief Executive Officer of MC Informatics, Inc. and Chairman of the Board since
that date. Mr. Childs was a co-founder of Technicon Data Systems in 1968.
Technicon is currently a $200 million company, operating under the name
Eclipsys, providing services to the healthcare industry. Mr. Childs, in 1980,
also founded Healthcare Informatics magazine along with several other magazines.
He sold Healthcare Informatics to McGraw-Hill in 1995. In 1995, Mr. Childs
joined CyCare Systems as Senior Vice President - Product management.
David Koeller joined MC Informatics, Inc. in September 1998 as
President and Chief Operating Officer. Mr. Koeller joined CyCare Systems in 1970
as a computer programmer. Since 1970 he has held several officer positions
within CyCare. Mr. Koeller's last position with CyCare was as President of their
Physician Division. CyCare was acquired in 1996 by HBOC. Mr. Koeller remained
with HBOC until March 1997.
Jeffrey Pollard has been the Chief Financial Officer and Senior Vice
President since August 1998. From 1980 to 1998, Mr. Pollard was owner of his own
public accounting firm. The firm specialized in accounting, consulting and tax
matters to the healthcare field. Mr. Pollard received a B.S. degree in
accounting from California State University at Northridge in 1965 and is a
Certified Public Accountant.
John Pappajohn has been a director of the Company since 1993. Mr.
Pappajohn also serves as a director of the following companies: PACE Health
Management Systems, Inc., Patient Infosystems, Inc., and American Physicians
Partners, Inc. Mr. Pappajohn has been the sole owner of Pappajohn Capital
Resources, a venture capital firm, and has served as President of Equity
Dynamics, Inc., a financial consulting firm, since 1969. Mr. Pappajohn received
a B.S.C. degree from the University of Iowa in 1952.
Joseph R. Dunham has been a director of the Company since 1998, and
since 1997, he has been Senior Vice President of Equity Dynamics, a venture
capital firm owned by John Pappajohn, a principal shareholder of MCIF. Mr.
Dunham has been involved in capital formation in the venture capital and banking
industries for over 10 years. He is currently on the board of several
privately-held companies including: Advanced analytical Technologies, inc.,
TeleDirect International, inc., and Renaissance Software. Prior to Equity
Dynamics, from 1973 to 1997, Mr. Dunham was manager of
17
<PAGE>
Investment Services at Wellmark Blue Cross Blue Shield of Iowa and from 1990 to
1973, he was Vice President of Corporate Finance at ALLIED Group Merchant
Banking. Mr. Dunham received his B.A. in Business Education and Computer
Sciences from Warburg College and his M.B.A. from Drake University.
James A. Gordon has been director of the Company since September 1996.
Mr. Gordon is the President of the General Partner of Edgewater II Management,
L.P., a venture capital management firm. Mr. Gordon is also the General Partner
of Edgewater Private Equity Fund II, L.P., a venture capital firm. Mr. Gordon
also serves as a director of the following companies: IMNET systems, Inc.,
Advanced Photonix, Inc., Dac Vision, Pride Industries, Microware Systems,
Pangea, Ltd., Ultimo, Ltd., and Cellular World Corp. Mr. Gordon has been
President of Gordon Management, an investment management company, since February
1992. Mr. Gordon received a B.A. degree summa cum laude from Northwestern
University.
Dr. Joseph Rudick, Jr., a founder of the Company, has been a director
of the Company since August 1992. Dr. Rudick has been employed as a physician
with Associate Ophthalmologist, P.C. since 1988. Dr. Rudick has also served as
Vice President of Castle Group/Paramount Capital, a venture capital firm, since
1993. Dr. Rudick currently serves as a director of Headland Technologies, Optex
Ophthalmics and Channel Pharmaceuticals. Dr. Rudick received A B.A. from
Williams College in 1978 and an M.D. from University of Pennsylvania in 1983.
Dr. Molly J. Coye is currently the Director of the West Coast Office
for the Lewin Group. Until September 1997, Dr. Coye served as Senior Vice
President of Strategic Development for the Company. Dr. Coye served as Senior
Vice President of the Good Samaritan Health System, a non-profit, integrated
health care system, from September 1993 to January 1996. From June 1991 to
September 1993, Dr. Coye was the Commissioner of Health for the State of New
Jersey. Dr. Coye received a B.S. degree in political science from the University
of California at Berkeley in 1968, an M.A. degree in Asian history from Stanford
University in 1972, and a M.D. and a M.P.H. from Johns Hopkins University in
1977. Dr. Coye completed an internship in Family Medicine at San Francisco
General Hospital and a residency in Preventative Medicine at the Robert Wood
Johnson Foundation Clinical Scholars Program at the University of California at
San Francisco.
Each officer serves at the discretion of the board of directors. There
are no family relationships among any of the directors or officers of MCIF.
MCIF has established a compensation committee of the board of directors
which is currently comprised of Messrs. Pappajohn and two vacancies, which are
expected to be filled by two outside directors. The compensation committee makes
recommendations to the board concerning salaries and incentive compensation for
MCIF's executive officers and key personnel and administers MCIF's Stock Option
Plan. MCIF has also established an audit committee of the board of directors
which is currently comprised of Messrs. Pappajohn and two vacancies, which are
expected to be filled by two outside directors.
ITEM 10. EXECUTIVE COMPENSATION
The information required by this item regarding executive compensation
is incorporated by reference to information set forth in the sections entitled
"Proposal No. 1: Election of Directors-Director Compensation" and "Executive
Officer Compensation" in MCIF's Proxy Statement for the 1999 Annual Meeting of
Shareholders (the "definitive Proxy Statement") to be filed with the Commission
within 120 days after the end of MCIF's fiscal year ended December 31, 1998.
The information required by this item with respect to compliance with
Section 16(a) of the Securities Exchange Act of 1934 is incorporated by
reference to information set forth in the section entitled, "Executive Officer
Compensation" in MCIF's definitive Proxy Statement to be filed within 120 days
after the end of MCIF's fiscal year ended December 31, 1998.
18
<PAGE>
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item regarding security ownership of
certain beneficial owners and management is incorporated by reference to the
information set forth in the section entitled "Security Ownership of Certain
Beneficial Owners and Management" in MCIF's definitive Proxy Statement to be
filed with the Commission within 120 days after the end of MCIF's fiscal year
ended December 31, 1998.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item regarding certain relationships
and related transactions is incorporated by reference to the information set
forth in the section entitled "Certain Transactions" in MCIF's definitive Proxy
Statement to be filed with the Commission within 120 days after the end of
MCIF's fiscal year ended December 31, 1998.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits:
2.1** Asset Purchase Agreement by and between HealthDesk
Corporation and PATI, dated September 24, 1998, as
amended
2.2** Agreement and Plan of Reorganization by and among
HealthDesk Corporation, MCIF and certain shareholders
of MCIF, dated August 18, 1998, as amended
3.1 Amended and Restated Articles of Incorporation of
HealthDesk Corporation
3.2* Bylaws of HealthDesk Corporation
4.1* Form of Stock Certificate
4.2* Form of Warrant Agreement
4.3 Registration Rights Agreement by and between
HealthDesk Corporation and certain shareholders,
dated February 26, 1999
10.1* 1994 Founder's Stock Option Plan, as amended
10.2* Form of Indemnification Agreement
10.3* Registration Rights Agreement dated March 1993 by and
among Registrant and the Investors named therein
10.4* Form of Registration Rights Agreement between the
Registrant and Purchasers of the Registrant's Series
A Preferred Stock
10.8* Form of Warrant Agreement granted to Whale Securities
Limited
10.9* Form of Bridge Financing Registration Rights
Agreement dated October 11, 1996
23.1 Consent of BDO Seidman, LLP
24.1 Powers of Attorney (included on page 21)
27 Financial Data Schedule
19
<PAGE>
- ---------------
* Incorporated by reference to the Registrant's Form SB-2 (Registration
No. 333-14519).
** Incorporated by reference to the Registrant's Form 8-K, filed October
6, 1998 and March 16, 1999.
b) Reports on Form 8-K.
In the quarter ended December 31, 1998, HealthDesk filed the
following reports on Form 8-K.
(i) Form 8-K filed on December 7, 1998
(ii) Form 8-K filed on October 6, 1998
20
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized thereunto duly authorized on this 15th day of April,
1999.
MC INFORMATICS, INC.
By: /s/ Jeffrey L. Pollard
-------------------------
Jeffrey L. Pollard
Chief Financial Officer
POWER OF ATTORNEY
KNOW ALL THESE PERSON BY THESE PRESENTS, that each person whose
signature appears below constitutes and appoints and Bill Childs and Jeffrey L.
Pollard and each of them, jointly and severally, his attorneys-in-fact, each
with full power of substitution, for him in any and all capacities, to sign any
and all amendments to this Form 10-KSB, and to file the same, with exhibits
thereto and other documents in connection therewith, with the Securities and
Exchange Commission, hereby ratifying and confirming all that each said
attorneys-in-fact or his substitute or substitutes, may do or cause to be done
by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Form 10-KSB has been signed below by the following persons on the date
indicated on behalf of the Registrant and in the capacities and on the dates
indicated:
<TABLE>
<CAPTION>
Name Title Date
- ---------------------------------------- ------------------------------------- --------------
<S> <C> <C>
/s/ Bill Childs Chief Executive Officer and Director April 15, 1999
- ---------------------------------------- (principal executive officer)
Bill Childs
/s/ David Koeller President, Chief Operating Officer April 15, 1999
- ----------------------------------------
David Koeller
/s/ Jeffrey L. Pollard Chief Financial Officer (principal April 15, 1999
- ---------------------------------------- financial and accounting officer)
Jeffrey L. Pollard
/s/ John Pappajohn Director April 15, 1999
- ----------------------------------------
John Pappajohn
/s/Joseph R. Dunham Director April 15, 1999
- ----------------------------------------
Joseph R. Dunham
Director April 15, 1999
- ----------------------------------------
James Gordon
/s/Dr. Joseph Rudick, Jr. Director April 15, 1999
- ----------------------------------------
Dr. Joseph Rudick, Jr.
Director April 15, 1999
- ----------------------------------------
Dr. Molly J. Coye
</TABLE>
21
<PAGE>
Exhibit Index
Description
-----------
2.1** Asset Purchase Agreement by and between HealthDesk
Corporation and PATI, dated September 24, 1998, as amended
2.2** Agreement and Plan of Reorganization by and among HealthDesk
Corporation, MCIF and certain shareholders of MCIF, dated August 18,
1998, as amended
3.1 Amended and Restated Articles of Incorporation of HealthDesk
Corporation
3.2* Bylaws of HealthDesk Corporation
4.1* Form of Stock Certificate
4.2* Form of Warrant Agreement
4.3 Registration Rights Agreement by and between HealthDesk
Corporation and certain shareholders, dated February 26, 1999
10.1* 1994 Founder's Stock Option Plan, as amended
10.2* Form of Indemnification Agreement
10.3* Registration Rights Agreement dated March 1993 by and among
Registrant and the Investors named therein
10.4* Form of Registration Rights Agreement between the Registrant
and Purchasers of the Registrant's Series A Preferred Stock
10.8* Form of Warrant Agreement granted to Whale Securities Limited
10.9* Form of Bridge Financing Registration Rights Agreement dated
October 11, 1996
23.1 Consent of BDO Seidman, LLP
24.1 Powers of Attorney (included on page 21)
27 Financial Data Schedule
- ---------------
* Incorporated by reference to the Registrant's Form SB-2 (Registration
No. 333-14519).
** Incorporated by reference to the Registrant's Form 8-Ks, filed October
6, 1998 and March 16, 1999.
b) Reports on Form 8-K.
In the quarter ended December 31, 1998, HealthDesk filed the
following reports on Form 8-K.
(i) Form 8-K filed on December 7, 1998
(ii) Form 8-K filed on October 6, 1998
22
<PAGE>
MC INFORMATICS, INC.
INDEX TO FINANCIAL STATEMENTS
Page
Report of Independent Certified Public Accountants (BDO Seidman, LLP) F-2
Report of Independent Accountants (PriceWaterhouseCoopers LLP) F-3
Balance Sheet as of December 31, 1998 F-4
Statements of Operations for the years ended
December 31, 1998 and 1997 F-5
Statements of Shareholders'Equity for the years ended
December 31, 1998 and 1997 F-6
Statements of Cash Flows for the years ended
December 31, 1998 and 1997 F-7
Notes to Financial Statements F-9
F-1
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors
MC Informatics, Inc.
We have audited the accompanying balance sheet of MC Informatics, Inc. (formerly
known as HealthDesk Corporation) as of December 31, 1998, and the related
statements of operations, shareholders' equity and cash flows for the year 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 audit.
We conducted our audit 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 audit provides 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 MC Informatics, Inc. (formerly
known as HealthDesk Corporation) at December 31, 1998, and the results of its
operations and its cash flows for the year then ended in conformity with
generally accepted accounting principles.
As more fully discussed in Note 2 to the financial statements, HealthDesk
Corporation merged with MC Informatics, Inc. on March 2, 1999. An uncertainty
exists as to the ultimate identification of the acquiring corporation in the
merger and as to the method of accounting that will be utilized to record the
transaction in the Company's 1999 financial statements.
BDO Seidman, LLP
Orange County, California
March 18, 1999
F-2
<PAGE>
MC Informatics, Inc.
Balance Sheet
<TABLE>
<CAPTION>
December 31, 1998
------------------
ASSETS
<S> <C>
Current assets:
Cash and cash equivalents $ 85,925
Notes receivable (Note 3) 728,477
Assets held for sale (Note 4) 696,993
Deferred acquisition costs (Note 2) 128,343
Other current assets 36,196
--------------
Total assets $ 1,675,934
==============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 27,074
Accrued liabilities (Note 4) 314,806
--------------
Total liabilities 341,880
--------------
Commitments and contingencies (Notes 8 and 11)
Subsequent events (Notes 2, 4 and 11)
Shareholders' equity (Notes 5 and 11):
Convertible preferred stock, no par value. Authorized 3,000,000
shares; issued and outstanding 632 shares of Series B preferred stock
(aggregate liquidation preference of $1,262,500) 2,512,673
Common stock, no par value. Authorized 40,000,000 shares; issued and
outstanding 5,792,845 shares 12,257,505
Warrants 195,687
Accumulated deficit (13,631,811)
--------------
Total shareholders' equity 1,334,054
--------------
Total liabilities and shareholders' equity $ 1,675,934
==============
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE>
MC Informatics, Inc.
Statements of Operations
<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------------
1998 1997
--------------- ---------------
<S> <C> <C>
General and administrative expenses $ (382,008) $ (258,567)
Other income (expense):
Interest income 69,107 137,375
Interest expense -- (14,900)
Amortization of discount and issuance costs associated with bridge
financing -- (145,023)
Non-cash financing cost associated with convertible preferred stock
(Note 5) (864,000) --
--------------- ---------------
Loss before provision for income taxes (1,176,901) (281,115)
Provision for income taxes (Note 6) (800) (800)
--------------- ---------------
Loss from continuing operations (1,177,701) (281,915)
--------------- ---------------
Discontinued operations (Note 4):
Loss from discontinued operations (1,017,556) (3,535,332)
Loss on disposal, including provision for losses during phase-out
period of $1,498,747, and estimated gain on sale of net assets of
$627,882 (870,865) --
--------------- ---------------
Loss from discontinued operations (1,888,421) (3,535,332)
--------------- ---------------
Net loss $ (3,066,122) $ (3,817,247)
=============== ===============
Basic and diluted loss per share (Note 7):
Loss from continuing operations $ (.27) $ (.05)
Loss from discontinued operations (.33) (.68)
--------------- ---------------
Net loss $ (.60) $ (.73)
=============== ===============
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE>
MC Informatics, Inc.
Statements of Shareholders' Equity
<TABLE>
<CAPTION>
Preferred Stock Common Stock Common
---------------------------- ---------------------------- Stock
Shares Amount Shares Amount Warrants
----------- ------------ ----------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1996 1,059,600 $2,183,036 2,530,120 $ 1,946,552 $ --
Common stock and warrants issued in connection
with the initial public offering, net of
issuance costs totaling $1,676,712 -- -- 1,700,000 6,823,101 195,500
Preferred stock converted to common stock (1,059,600) (2,183,036) 1,059,600 2,183,036 --
Convertible notes converted to common stock -- -- 100,000 500,000 --
Issuance of warrants in connection with the
initial public offering -- -- -- -- 187
Common stock issued upon exercise of options -- -- 3,125 4,816 --
Net loss -- -- -- -- --
---------- ---------- --------- ----------- --------
Balance at December 31, 1997 -- -- 5,392,845 11,457,505 195,687
Preferred stock issued for cash, net of issuance
costs totaling $13,827 632 1,248,673 -- -- --
Common stock issued for cash -- -- 400,000 800,000 --
Financing cost associated with convertible
preferred stock (Note 5) -- 864,000 -- -- --
Discount associated with convertible preferred
stock (Note 5) -- 400,000 -- -- --
Net loss -- -- -- -- --
---------- ----------- --------- ----------- --------
Balance at December 31, 1998 632 $ 2,512,673 5,792,845 $12,257,505 $195,687
========== =========== ========= =========== ========
</TABLE>
<PAGE>
[RESTUBBED]
<TABLE>
<CAPTION>
Total
Accumulated Shareholders'
Deficit Equity
------------- ------------
<S> <C> <C> <C> <C>
Balance at December 31, 1996 $ (6,348,442) $(2,218,854)
Common stock and warrants issued in connection
with the initial public offering, net of
issuance costs totaling $1,676,712 -- 7,018,601
Preferred stock converted to common stock -- --
Convertible notes converted to common stock -- 500,000
Issuance of warrants in connection with the
initial public offering -- 187
Common stock issued upon exercise of options -- 4,816
Net loss (3,817,247) (3,817,247)
----------- ----------
Balance at December 31, 1997 (10,165,689) 1,487,503
Preferred stock issued for cash, net of issuance
costs totaling $13,827 -- 1,248,673
Common stock issued for cash -- 800,000
Financing cost associated with convertible
preferred stock (Note 5) -- 864,000
Discount associated with convertible preferred
stock (Note 5) (400,000) --
Net loss (3,066,122) (3,066,122)
------------ ----------
Balance at December 31, 1998 $(13,631,811) $1,334,054
============ ==========
</TABLE>
See accompanying notes to financial statements.
F-6
<PAGE>
MC Informatics, Inc.
Statements of Cash Flows
<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------------
1998 1997
------------------ ---------------
Cash flows from operating activities:
<S> <C> <C>
Loss from continuing operations $ (1,177,701) $ (281,915)
Adjustments to reconcile loss from continuing
operations to net cash used in
operating activities:
Loss from discontinued operations (1,888,421) (3,535,332)
Gain on sale of assets (627,882) --
Depreciation and amortization 233,537 268,805
Amortization of non-cash discount -- 145,023
Non-cash financing costs 864,000 --
Write-down assets to net realizable value 143,409 --
Changes in operating assets and liabilities:
Prepaid expenses and deferred costs -- 585,680
Other assets 27,078 1,667
Accounts payable (106,918) (723,436)
Accrued liabilities 28,736 (103,615)
--------------
------------
Net cash used in operating activities (2,504,162) (3,643,123)
-------------- ------------
Cash flows from investing activities:
Issuance of notes receivable (711,819) --
Purchases of property and equipment (23,854) (173,328)
Deferred acquisition costs (128,343) --
-------------- ------------
Net cash used in investing activities (864,016) (173,328)
-------------- ------------
Cash flows from financing activities:
Payments of short-term notes payable -- (2,000,000)
Proceeds from issuance of common stock 800,000 8,695,500
Proceeds from issuance of preferred stock 1,248,673 --
Payment of debt issuance costs -- (1,676,712)
Proceeds from the exercise of stock options -- 4,816
-------------- ------------
Net cash provided by financing activities 2,048,673 5,023,604
-------------- ------------
</TABLE>
F-7
<PAGE>
MC Informatics, Inc.
Statements of Cash Flows (Continued)
<TABLE>
<CAPTION>
Years Ended December 31,
---------------------------------
1998 1997
------------------ --------------
<S> <C> <C>
Net increase (decrease) in cash and cash equivalents (1,319,505) 1,207,153
Cash and cash equivalents, beginning of year 1,405,430 198,277
-------------- --------------
Cash and cash equivalents, end of year $ 85,925 $ 1,405,430
============== ==============
Supplemental disclosures of cash flow information: Cash paid during the year
for:
Interest $ -- $ 70,192
============== ==============
Income taxes $ 800 $ 800
============== ==============
Supplemental disclosures of non-cash investing and financing activities:
Preferred stock converted to common stock $ -- $ 2,183,036
============== ==============
Convertible notes converted to common stock $ -- $ 500,000
============== =============
Convertible preferred stock discount $ 400,000 $ --
============== =============
</TABLE>
See accompanying notes to financial statements.
F-8
<PAGE>
MC Informatics, Inc.
Note to Financial Statements
December 31, 1998 and 1997
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Basis of Presentation
MC Informatics, Inc. (the "Company"), formerly known as HealthDesk
Corporation ("HealthDesk"), changed its name in March 1999. Such name
change has been retroactively reflected in these financial statements.
The Company was previously engaged in the design, development and
marketing of certain consumer-focused healthcare management and
information systems which were intended to enable consumers to take a
more active roll in their personal and family health.
In May 1998, the Company announced a major change in its strategic
direction. The Board of Directors approved a plan to discontinue its
current operations (see Note 4), to initiate the process of seeking an
acquiror of its assets and to pursue other strategic alternatives for
the Company. In connection therewith, the Company entered into a
definitive agreement in August 1998 to merge with MC Informatics, Inc.
("MCIF"), an unaffiliated entity (see Note 2). In addition, the Company
entered into a definitive agreement to sell substantially all of the
Company's assets (see Note 4). The aforementioned proposed transactions
required approval by the Company's shareholders, which was received on
February 26, 1999.
MCIF 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.
The Company was a developmental stage enterprise from August 1992
(inception) until the Company discontinued its development stage
activities and initiated its merger with MCIF. The Company is no longer
considered to be a development stage enterprise and accordingly, the
accompanying financial statements have been prepared on this basis.
Revenue Recognition
During 1997, the Company's revenue was generated primarily from a
software development contract. This revenue was recognized when the
Company achieved designated milestones and received customer acceptance
as specified in the related contract. During 1998, the Company's
revenues were insignificant. Revenues for 1998 and 1997 have been
reflected as a component of discontinued operations in the accompanying
statements of operations (see Note 4).
Cash and Cash Equivalents
Cash and cash equivalents include all cash balances, money market
instruments and other highly liquid investments with insignificant
interest rate risk and original maturities of three months or less.
F-9
<PAGE>
MC Informatics, Inc.
Notes to Financial Statements (Continued)
December 31, 1998 and 1997
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Property and Equipment
Property and equipment are stated at cost, less accumulated depreciation
and amortization. Depreciation and amortization are computed principally
using the straight-line method over the estimated useful lives of the
assets (or lease term, if shorter).
Software Development Costs
Statement of Financial Accounting Standards No. 86, "Accounting for the
Costs of Computer Software to be Sold, Leased, or Otherwise Marketed,"
requires that software development costs be capitalized once the
technological feasibility of the software product has been established.
To date, such amounts eligible for capitalization have been
insignificant and have been charged to product development expense in
the period incurred, which have been reflected as a component of
discontinued operations in the accompanying statements of operations
(see Note 4).
Long-Lived Assets
The Company reviews the carrying amount of its long-lived assets and
identifiable intangible assets for possible impairment whenever events
or changes in circumstances indicate that the carrying amount of the
assets may not be recoverable. Recoverability of assets to be held and
used is measured by a comparison of the carrying amount of an asset to
future undiscounted net cash flows expected to be generated by the
asset. If such assets are considered to be impaired, the impairment to
be recognized is measured by the amount by which the carrying amount of
the assets exceeds the fair value of the assets. Assets to be disposed
of (see Note 4) are reported at the lower of the carrying amount or fair
value less costs to sell.
Income Taxes
The Company uses the liability method of accounting for income taxes in
accordance with Statement of Financial Accounting Standards No. 109
"Accounting for Income Taxes." Deferred income taxes are recognized
based on the differences between financial statement and income tax
bases of assets and liabilities using enacted tax rates in effect for
the year in which the differences are expected to reverse. Valuation
allowances are established, when necessary, to reduce deferred tax
assets to the amount expected to be realized. The provision for income
taxes represents the tax payable for the period and the change during
the period in deferred tax assets and liabilities.
F-10
<PAGE>
MC Informatics, Inc.
Notes to Financial Statements (Continued)
December 31, 1998 and 1997
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Stock-Based Compensation
The Company applies APB Opinion 25, "Accounting for Stock Issued to
Employees," and related interpretations in accounting for its employee
stock-based compensation plans. Accordingly, no compensation cost is
recognized for its employee stock option plans, unless the exercise
price of options granted is less than fair market value on the date of
grant. The Company has adopted the disclosure provisions of Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" (see Note 5).
Loss Per Share
Loss per share is calculated pursuant to Statement of Financial
Accounting Standards No. 128, "Earnings per Share". Basic earnings
(loss) per share includes no dilution and is computed by dividing loss
available to common shareholders by the weighted average number of
shares outstanding during the period. Diluted earnings (loss) per share
reflects the potential dilution of securities that could share in the
earnings of the Company (see Note 7).
Fair Value of Financial Instruments
Statement of Financial Accounting Standards No. 107, "Disclosures about
Fair Value of Financial Instruments" requires all entities to disclose
the fair value of financial instruments, both assets and liabilities
recognized and not recognized on the balance sheet, for which it is
practicable to estimate fair value. This statement defines fair value of
a financial instrument as the amount at which the instrument could be
exchanged in a current transaction between willing parties. As of
December 31, 1998, the fair value of all financial instruments
approximated carrying value.
The carrying amount of accounts payable and accrued liabilities are
reasonable estimates of their fair value because of the short maturity
of these items. The Company believes the carrying amount of its notes
receivable approximates fair value because the interest rates on these
instruments approximate market interest rates.
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-11
<PAGE>
MC Informatics, Inc.
Notes to Financial Statements (Continued)
December 31, 1998 and 1997
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Concentrations of Credit Risk
The Company maintains, at times, cash balances at certain financial
institutions in excess of amounts insured by Federal agencies.
Reporting Comprehensive Income
In June 1997, the FASB issued Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income". This statement
establishes standards for reporting the components of comprehensive
income and requires that all items that are required to be recognized
under accounting standards as components of comprehensive income be
included in a financial statement that is displayed with the same
prominence as other financial statements. Comprehensive income includes
net income as well as certain items that are reported directly within a
separate component of shareholders' equity and bypass net income. The
Company adopted the provisions of this statement in 1998. For the years
presented, the Company has no elements of other comprehensive income, as
defined by this statement.
Disclosures About Segments of an Enterprise and Related Information
In June 1997, the FASB issued Statement of Financial Accounting
Standards No. 131, "Disclosures About Segments of an Enterprise and
Related Information". The provisions of this statement require
disclosures of financial and descriptive information about an
enterprise's operating segments in annual and interim financial reports
issued to stockholders. The statement defines an operating segment as a
component of an enterprise that engages in business activities that
generate revenue and incur expense, whose operating results are reviewed
by the chief operating decision maker in the determination of resource
allocation and performance, and for which discrete financial information
is available. The Company adopted the provisions of this statement for
1998 annual reporting. These disclosure requirements had no impact on
the Company's financial position or results of operations, or the
Company's existing disclosures.
New Accounting Pronouncements
Statement of Financial Accounting Standards No. 133, "Accounting for
Derivative Financial Instruments and Hedging Activities" issued by the
FASB is effective for all fiscal quarters of fiscal years beginning
after June 15, 1999. This statement provides a comprehensive and
consistent standard for the recognition an measurement of derivatives
and hedging activities. The Company does not expect the adoption of this
statement to have a material effect on its financial position or results
of operations.
F-12
<PAGE>
MC Informatics, Inc.
Notes to Financial Statements (Continued)
December 31, 1998 and 1997
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Reclassifications
Certain reclassifications have been made to the prior year financial
statements to be consistent with the 1998 presentation.
2. MERGER
On March 2, 1999, MCIF was merged with and into a wholly-owned
subsidiary of 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 accordance with the agreement,
upon the closing of the merger in March 1999, all the outstanding shares
of series B preferred stock of HealthDesk were converted into 2,525,000
shares of common stock.
The merger is intended to qualify as a reorganization under Section
368(a) of the Internal Revenue Code. The continuing operations of the
combined entity will be substantially that of the current MCIF. In
connection with the merger, the Company changed its name from HealthDesk
Corporation to MC Informatics, Inc. The Company incurred direct costs
aggregating $128,343 with respect to the merger. Such costs have been
capitalized and are included in the accompanying balance sheet.
Management has accounted for the merger of HealthDesk with MCIF as an
acquisition, utilizing the purchase method of accounting in accordance
with APB Opinion No. 16. In accounting for a purchase, the acquiring
corporation must be identified, which requires careful consideration of
various attributes of the two companies on a standalone basis and of the
newly combined entity. An issue has arisen as to whether HealthDesk
should be identified as the acquiring corporation for accounting
purposes in the merger.
Certain factors with respect to the merger lead to the identification of
HealthDesk as the acquiring corporation and other factors point to MCIF
as the acquiring corporation. Management carefully evaluated such
factors and determined that HealthDesk is the acquiring corporation. The
Nasdaq staff has also evaluated such factors. In a letter to the Company
dated January 4, 1999, Nasdaq determined that the transaction represents
a reverse merger and identified MCIF as the acquiring corporation. The
Company appealed the decision and appeared before Nasdaq on March 18,
1999 to present the factors that management believes rebut Nasdaq's
determination. Nasdaq's final ruling with respect to this matter is
expected within 45 days of the hearing date, the outcome of which is
currently unknown.
F-13
<PAGE>
MC Informatics, Inc.
Notes to Financial Statements (Continued)
December 31, 1998 and 1997
2. MERGER (Continued)
Although management believes that the facts support that HealthDesk is
the acquiring corporation, as a result of Nasdaq's stated position there
is an uncertainty as to the ultimate identification of the acquiring
corporation in the merger and as to the method of accounting that will
be utilized to record the transaction in the Company's 1999 financial
statements. If MCIF is determined to be the acquiring corporation, then
the Company may be required to amend and restate certain documents
previously filed with the Securities and Exchange Commission.
3. NOTES RECEIVABLE
During 1998, the Company loaned amounts aggregating $711,819 to certain
directors and officers of MCIF. The funds were subsequently loaned to
MCIF 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. Unpaid principal and
accrued interest aggregated $728,477 at December 31, 1998.
4. DISCONTINUED OPERATIONS
In May 1998, the Company's Board of Directors approved a plan to
discontinue its current operations, seek an acquiror of the Company's
assets and pursue other strategic alternatives. In connection therewith,
the Company entered into an agreement with Patient Infosystems, Inc.
("PATI") to sell its intellectual property rights and inventories, and
certain office equipment and packaged software. A director and officer
of the former HealthDesk is also a member of the Board of Directors and
shareholder of PATI.
Effective March 2, 1999, such assets were sold to and certain
liabilities were assumed by PATI for cash of $696,993, which resulted in
a gain on the sale of $627,882. The disposition has been accounted for
as discontinued operations and prior year's financial statements have
been restated to reflect the discontinuation of operations. The net
assets and liabilities relating to the PATI sale have been segregated
from their historic classifications to separately identify them at their
net realizable value. Such amounts are included in assets held for sale
in the accompanying balance sheet. Included in accrued liabilities is an
accrual aggregating $248,253 for accrued costs directly associated with
the discontinued operations.
F-14
<PAGE>
5. SHAREHOLDERS' EQUITY
Convertible Preferred Stock
The Company is authorized to issue 3,000,000 shares of preferred stock.
Of the authorized preferred stock, 1,200,000 shares are designated as
Series A and 750 shares are designated as Series B. During 1998, the
Company sold 632 shares of Series B convertible preferred stock for
$2,000 per share. These securities are convertible at the election of
the holder into the Company's common stock at a conversion rate per
share of preferred stock equal to $2,000 divided by the lessor of $1.00
per share or 50% of the average closing trading price for shares of
common stock for the three trading days prior to conversion. In March
1999, the Series B preferred stock was converted into 2,528,000 shares
of common stock upon the closing of the merger (see Note 2).
Of the total shares of Series B convertible preferred stock sold,
certain directors of the former HealthDesk and officers of MCIF
purchased an aggregate of 432 of these shares. The Series B convertible
preferred stock issued to these related parties, which was convertible
at a discount to the market, has been accounted for by treating such
discount to the market as additional incremental yield on the security.
The Company has computed the amount of the discount based on the
difference between the conversion price and the fair value of the
underlying common stock on the date these preferred shares were issued.
Accordingly, $864,000 has been charged to expense and included in
preferred stock for the discount related to the embedded incremental
yield on the Series B convertible preferred stock.
The remaining 200 shares of Series B convertible preferred stock were
sold to third parties. Accordingly, the associated discount of $400,000
related to these shares has been recorded as an imputed dividend and
considered in the calculation of loss per share (see Note 7).
Common Stock
On January 16, 1997, the Company completed its initial public offering
("IPO") of 1,700,000 shares of common stock at a price of $5.00 per
share and redeemable warrants ("Warrants") to purchase 2,125,000 shares
of common stock. The IPO yielded gross proceeds of $8,695,500 and net
proceeds of $7,018,788 after deducting the underwriter's discount, fees
and other financing costs aggregating $1,676,712.
F-15
<PAGE>
MC Informatics, Inc.
Notes to Financial Statements (Continued)
December 31, 1998 and 1997
5.SHAREHOLDERS' EQUITY (Continued)
During 1998, the Company sold 400,000 shares of common stock at $2.00
per share which approximated fair market value. Of the total shares of
common stock sold, 250,000 shares were sold to a director and
shareholder of the former HealthDesk.
Stock Options and Warrants
The Warrants issued in connection with the IPO entitle the registered
holder thereof to purchase one share of common stock at a price of
$5.00, subject to adjustment in certain circumstances, at any time
through and including January 16, 2002. The Warrants are redeemable by
the Company, upon the consent of the underwriter, at any time, upon
notice of not less than 30 days, at a price of $.10 per Warrant,
provided that the closing bid quotation of the Common Stock on all 30 of
the trading days ending on the third day prior to the day on which the
Company gives notice has been at least 150% ($7.50, subject to
adjustment) of the then effective exercise price of the Warrants.
During 1998, the Board of Directors approved a reduction in the exercise
price of the Warrants from $5.00 to $2.50 and the warrant holders agreed
to reduce the call price of the Warrants from $7.50 to $3.75 per share.
F-16
<PAGE>
MC Informatics, Inc.
Notes to Financial Statements (Continued)
December 31, 1998 and 1997
5. SHAREHOLDERS' EQUITY (Continued)
In addition, in connection with the IPO the Company sold to the
underwriter, for an aggregate of $187, warrants ("Underwriter's
Warrants") to purchase up to 170,000 shares of common stock at an
exercise price of $6.00 per share and provided for the right to purchase
up to 170,000 additional warrants at a purchase price of $.12 per
warrant (each exercisable to purchase one share of common stock at a
price of $8.25 per share). The Underwriter's Warrants are exercisable
over a five-year period beginning January 16, 1997.
In June 1994, the Company adopted the 1994 Stock Option Plan (the
"Plan") under which eligible employees, directors, and consultants can
receive options to purchase shares of the Company's common stock at a
price generally not less than 100% and 85% of the fair value of the
common stock on the date of the grant for incentive stock options and
non-statutory stock options, respectively. However, the Company never
granted options at below fair value as determined by the Board of
Directors. The Plan, as amended, allows for the issuance of a maximum of
950,000 shares of the Company's common stock. This number of shares of
common stock has been reserved for issuance under the Plan. The options
granted under the Plan are exercisable over a maximum term of ten years
from the date of grant. Shares purchased under the Plan are subject to a
right of repurchase by the Company at the original exercise price. This
repurchase right lapses with respect to 25% of the shares upon
completion of one year of service and the balance in equal successive
monthly installments upon completion of each of the next 36 months of
service. With respect to certain of the options issued, the repurchase
right is eliminated in the event there is a change in control of the
Company
The Company accounts for stock-based compensation under the "intrinsic
value" method. Under this method, no compensation expense is recorded
for the Plan and arrangements for current employees whose grants provide
for exercise prices at or above the market price on the date of grant.
Compensation or other expense is recorded based on intrinsic value
(excess of market price over exercise price on date of grant) for
employees, and fair value of the option awards for others.
A summary of the activity under the Plan is set forth below:
<TABLE>
<CAPTION>
Weighted
Price Average
Number of Per Aggregate Exercise
Shares Share Price Price
--------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1996 747,058 $ 1.04-5.00 $ 2,274,572 $ 3.04
Options granted 362,150 3.13-3.75 1,170,645 3.23
Options exercised (3,125) 1.04-2.08 (4,816) 1.54
Options forfeited/canceled (398,431) 1.04-5.00 (1,540,523) 3.87
--------------------------------------------------------------------------------------------------------------
Balance, December 31, 1997 707,652 1.04-5.00 1,899,878 2.64
Options granted 300,850 1.00 300,850 1.00
Options forfeited/canceled (717,102) 1.00-5.00 (1,503,547) 2.10
--------------------------------------------------------------------------------------------------------------
Balance, December 31, 1998 291,400 $ 1.00-5.00 $ 697,181 $ 2.39
==============================================================================================================
</TABLE>
F-17
<PAGE>
MC Informatics, Inc.
Notes to Financial Statements (Continued)
December 31, 1998 and 1997
5. SHAREHOLDERS' EQUITY (Continued)
The following table summarizes information with respect to stock options
outstanding at December 31, 1998:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
---------------------------------------------------- -----------------------------------
Weighted
Number Avg. Weighted Number Weighted
Outstanding at Remaining Average Exercisable at Average
Range of December 31, Contractual Exercise December 31, Exercise
Exercise Price 1998 Life (Years) Price 1998 Price
--------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 1.00-1.67 141,000 5.5 $ 1.06 50,312 $ 1.16
3.13-3.28 119,000 6.6 3.28 86,964 3.29
5.00 31,400 6.7 5.00 17,254 5.00
--------------------------------------------------------------------------------------------------------------
$ 1.00-5.00 291,400 3.9 $ 2.39 154,530 $ 2.79
==============================================================================================================
</TABLE>
At December 31, 1998, options for 136,870 shares of common stock are
subject to the Company's repurchase provision.
If the Company had elected the fair value method of accounting for
stock-based compensation, compensation cost would be accrued at the
estimated fair value of all stock option grants over the service period,
regardless of later changes in stock prices and price volatility. The
fair value of each option granted has been estimated on the date of
grant using the Black-Scholes option valuation model with the following
weighted average assumptions used for grants in 1998 and 1997.
1998 1997
-------- ---------
Risk-free interest rates 5.3% 5.7%
Expected life .5 years 4 years
Volatility 50% 50%
Dividend -- --
The weighted average expected life was calculated based on the estimated
exercise behavior of the Company's employees. The weighted average fair
value of those options granted in 1998 and 1997 was $.15 and $1.47,
respectively.
The following table sets forth the net loss and loss per share amounts
for the periods presented as if the Company elected the fair value
method of accounting for stock options.
F-18
<PAGE>
MC Informatics, Inc.
Notes to Financial Statements (Continued)
December 31, 1998 and 1997
5. SHAREHOLDERS' EQUITY (Continued)
<TABLE>
<CAPTION>
1998 1997
----------- ------------
<S> <C> <C>
Net loss
As reported $(3,066,122) $ (3,817,247)
=========== ============
Pro forma $(3,175,303) $ (4,100,259)
=========== ============
Basic and diluted net loss per share
As reported $ (.60) $ (.73)
=========== ============
Pro forma $ (.62) $ (.79)
=========== ============
</TABLE>
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting
restrictions and are fully transferable. In addition, option valuation
models require the input of highly subjective assumptions including the
expected stock price volatility. Because the Company's employee stock
options have characteristics significantly different from those of
traded options, and because changes in the subjective input assumptions
can materially affect the fair value estimate, in management's opinion,
the existing models do not necessarily provide a reliable single measure
of the fair value of its employee stock options.
Additional incremental compensation expense includes the excess of fair
values of options granted during the period over any compensation
amounts recorded for options whose exercise prices were less than the
market value at date of grant, and for any expense recorded for
non-employee grants. All such incremental compensation is amortized over
the related vesting period, or expensed immediately if fully vested. The
above calculations include the effects of all grants in the periods
presented. Because options often vest over several years and additional
awards are made each year, the results shown above may not be
representative of the effects on net income (loss) in future years.
At December 31, 1998, the total number of shares of common stock
reserved for issuance upon exercise of stock options and warrants, and
conversion of convertible preferred stock was 5,603,000 shares.
Restrictions on Dividends
Pursuant to state laws, the Company may be restricted from paying
dividends to its stockholders as a result of its accumulated deficit as
of December 31, 1998.
F-19
<PAGE>
MC Informatics, Inc.
Notes to Financial Statements (Continued)
December 31, 1998 and 1997
6. INCOME TAXES
The provision for income taxes for the years ended December 31, 1998 and
1997 is comprised of the minimum current state income tax. Differences
between the 1998 and 1997 statutory and effective tax rates are
primarily due to valuation allowances recorded to offset deferred tax
benefits associated with net operating losses and tax credits.
The estimated tax effect of significant temporary differences and
carryforwards that gave rise to deferred income tax assets as of
December 31, 1998 and 1997, is as follows:
<TABLE>
<CAPTION>
1998 1997
-------------------------------- -------------------------------
Federal State Federal State
----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Deferred tax assets:
Net operating loss carryforwards $ 4,149,000 $ 363,000 $3,370,000 $ 460,000
Research and experimentation
credit carryforwards and other 192,000 75,000 160,000 110,000
----------------------------------------------------------------------------------------------------------
4,341,000 438,000 3,530,000 570,000
Valuation allowance (4,341,000) (438,000) (3,530,000) (570,000)
==========================================================================================================
Net deferred tax assets $ -- $ -- $ -- $ --
==========================================================================================================
</TABLE>
Due to the uncertainty of realization, a valuation allowance has been
provided to eliminate the net deferred tax assets at both December 31,
1998 and 1997. The increase in the valuation allowance was $679,000 and
$1,747,000 during the years ended December 31, 1998 and 1997,
respectively.
As of December 31, 1998, the Company had net operating loss
carryforwards of approximately $12,200,000 and $6,050,000 for federal
income tax and California state franchise tax purposes, respectively.
The federal carryforwards expire through 2018 (through 2003 for state
carryforwards). As of December 31, 1998, the Company also had research
and experimentation tax credit carryforwards of $111,000 and $61,000 for
federal and state tax purposes, respectively. These carryforwards expire
in the years ending 2008 through 2013.
The utilization of the net operating loss carryforwards could be limited
due to restrictions imposed under federal and state laws upon a change
in ownership. The amount of the limitation, if any, has not been
determined at this time.
F-20
<PAGE>
MC Informatics, Inc.
Notes to Financial Statements (Continued)
December 31, 1998 and 1997
7. LOSS PER SHARE
The following table illustrates the computation of basic and diluted
loss per share:
<TABLE>
<CAPTION>
1998 1997
------------- --------------
<S> <C> <C>
Numerator:
Loss from continuing operations $ (1,177,701) $ (281,915)
Less: excess of the fair value of the
underlying common stock over the
conversion price of preferred stock
(Note 5) (400,000) --
------------- --------------
Total loss from continuing operations
applicable to common shareholders (1,577,701) (281,915)
Loss from discontinued operations (1,888,421) (3,535,332)
------------- --------------
Net loss applicable to common shareholders $ (3,466,122) $ (3,817,247)
============= ==============
Denominator:
Weighted average number of common shares
outstanding during the year 5,736,544 5,212,060
============= ==============
Basic and diluted loss per share:
Loss from continuing operations $ (.27) $ (.05)
Loss from discontinued operations (.33) (.68)
------------- --------------
Net loss $ (.60) $ (.73)
============= ==============
</TABLE>
The computation of diluted loss per share excludes the effect of
incremental common shares attributable to the exercise of outstanding
common stock options and warrants and conversion of preferred stock
because their effect was antidilutive due to losses incurred by the
Company. See summary of outstanding stock options and warrants in
Note 5.
F-21
<PAGE>
MC Informatics, Inc.
Notes to Financial Statements (Continued)
December 31, 1998 and 1997
8. COMMITMENTS AND CONTINGENCIES
Leases
The Company entered into a noncancellable lease for its office in
January 1996 which was terminated in November 1998. Total rent expense
for 1998 and 1997 aggregated $113,414 and $112,253, respectively.
Agreements
The Company has also entered into various agreements granting it a
non-exclusive right to use products of third parties in exchange for
royalties based on usage levels. The Company incurred $47,633 and
$95,308 in royalty expenses under these agreements as of December 31,
1998 and 1997, respectively.
The Company entered into an agreement with a content provider pursuant
to which it is committed to pay, as of December 31, 1998, a
non-refundable minimum royalty of $65,000. In September 1998, the
content provider consented to assign the agreement to PATI (see Note 4).
Litigation
The Company is subject to certain legal proceedings and claims arising
in connection with its business. In the opinion of management, the
ultimate resolution of these claims will not have a material adverse
affect on the Company's financial position, results of operations or
cash flows.
9. EMPLOYEE BENEFIT PLANS
On February 28, 1996, the Company adopted a 401(k) plan for employees.
All employees who meet certain service requirements are eligible to
participate. Matching contributions are at the discretion of the
Company. As of December 31, 1998 and 1997, the Company had not elected
to make any discretionary contributions.
10. FOURTH QUARTER ADJUSTMENTS
Discontinued Operations
The Company recorded results from operations for the quarters ended June
30, 1998 and September 30, 1998 without considering the impact of
discontinued operations on the financial statements. The Company has
since determined that the prior presentation was not appropriate.
Estimated gains and losses from operations through the disposal date,
and any costs directly associated with the disposal, should have been
estimated as of May 5, 1998, the measurement date, in determining the
net gain or loss from disposal (see Note 4).
F-22
<PAGE>
MC Informatics, Inc.
Notes to Financial Statements (Continued)
December 31, 1998 and 1997
10. FOURTH QUARTER ADJUSTMENTS (Continued)
Preferred Stock Convertible at a Discount to the Market
In the fourth quarter of 1998, the Company recorded $864,000 of non-cash
financing expense related to the embedded incremental yield on preferred
stock issued to certain related parties. The preferred stock issued was
convertible at a discount to the market (see Note 5). Of this amount,
$450,000 should have been recorded in the second quarter and $414,000
should have been recorded in the third quarter.
In addition, the Company issued the remaining preferred stock, which was
convertible at a discount to market, to a third party (see Note 5). The
associated discount of $400,000 related to these shares should have been
recorded in the second quarter and considered in the calculation of loss
per share.
Effect on Quarters
If the aforementioned fourth quarter adjustments had been properly
recorded, the net loss would have increased by $834,692 ($.21 per share)
in the second quarter, decreased by $56,682 ($.01 per share) in the
third quarter and decreased by $778,010 ($.13 per share) in the fourth
quarter. The Company considers these amounts to be material and
therefore intends to restate its financial statements for the quarterly
periods ended June 30, 1998 and September 30, 1998 on Form 10-QSB/A for
the respective periods.
11. SUBSEQUENT EVENTS
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.
Private Equity Offering
On February 26, 1999, the Company 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 officers of the Company purchased an
aggregate of 320,000 of these shares. The cash proceeds were $1,000,000.
F-23
<PAGE>
AMENDED AND RESTATED ARTICLES OF INCORPORATION OF
HEALTHDESK CORPORATION
John Pappajohn and Terry Brandt do hereby certify that:
One: They are the Chairman of the Board and the Vice President,
respectively, of HealthDesk Corporation, a California corporation (the
"Company").
Two: The Articles of Incorporation of the Company are hereby
amended and restated to read in their entirety as follows:
"I.
The name of the Company is MC Informatics, Inc.
II.
The purpose of the Company is to engage in any lawful act or activity
for which a corporation may be organized under the General Corporation Law of
California other than the banking business, the trust company business or the
practice of a profession permitted to be incorporated by the California
Corporations Code.
A. The Company is authorized to issue two classes of stock to be
designated, respectively, "Common Stock" and "Preferred Stock." The total number
of shares which the Company is authorized to issue is forty three million
(43,000,000) shares, forty million (40,000,000) shares of which shall be Common
Stock (the "Common Stock") and three million (3,000,000) shares of which shall
be Preferred Stock (the "Preferred Stock").
B. The Preferred Stock may be issued from time to time in one or more
series. Subject to shareholder approval rights set forth in subsection 2(b) of
this Article III, the Board of Directors is hereby authorized to fix or alter
the rights, privileges, preferences and restriction granted to or imposed upon
any series of Preferred Stock, including, but not limited to, dividend, rights,
dividend rate, conversion rights, voting rights, rights and terms of redemption
(including sinking fund provisions), the redemption price or prices, the
liquidation preferences of any wholly unissued series of Preferred Stock, and
the number of shares constituting any such series and the designation thereof,
or any of them; and to increase or decrease the number of shares of any series
subsequent to the issue of shares of that series, but not below the number of
shares of such series then outstanding. In case the number of shares of any
series shall be so decreased, the shares constituting such decrease shall resume
the status which they had prior to the adoption of the resolution originally
fixing the number of shares of such series.
C. Seven Hundred and Fifty (750) of the authorized shares of Preferred
Stock are hereby designated "Series B Preferred Stock" (the "Series B
Preferred").
1
<PAGE>
D. The rights, preferences, privileges, restriction and other matters
relating to the Series B Preferred are as follows:
Section 1. Voting. The holders of the Series B Preferred Stock shall
have such voting rights as are set forth below except as otherwise required by
law from time to time.
The affirmative approval (by vote or written consent as permitted by
applicable law) of the holders of at least a majority of the outstanding shares
of the Series B Preferred Stock, voting separately as a class, will be required
for (i) any amendment, alteration or repeal of the Corporation's Articles of
Incorporation, as amended from time to time, (including any Certificate of
Determination) if such amendment, alteration or repeal adversely affects the
powers, preferences or rights of the Series B Preferred Stock (including,
without limitation, by creating any class or series of equity securities having
a preference over the Series B Preferred Stock with respect to dividends,
redemption, distribution upon liquidation or in any other respect), or (ii) any
amendment to or waiver of the terms of the Series B Convertible Preferred Stock
or this Certificate.
Except as provided in the preceding paragraph, to the extent that under
applicable law or under the Corporation's Articles of Incorporation or Bylaws,
each as amended from time to time, the approval of the holders of the Series B
Preferred Stock, voting separately as a class, is required to authorize a given
action of the Corporation, the affirmative approval (by vote or written consent
as permitted by applicable law) of the holders of a majority of the outstanding
shares of the Series B Preferred Stock shall constitute the approval of such
action by the class. Except as otherwise provided under applicable law or under
the Corporation's Articles of Incorporation or Bylaws, each as amended from time
to time, the holders of the Series B Preferred Stock shall vote on all matters
with holders of the Common Stock, voting together as one class, and each share
of Series B Preferred Stock shall be entitled to that number of votes as shall
be equal to the number of shares of the Corporation's Stock (the "Common Stock")
into which each share of Series B Preferred Stock is convertible on the record
date for any meeting of stockholders or on the date of any written consent of
stockholders, as applicable. Holders of the Series B Preferred Stock shall be
entitled to notice of all shareholder meetings or written consents (whether or
not they are entitled to vote there at), which notice will be provided pursuant
to the Corporation's Bylaws, as amended from time to time, and applicable
statutes.
Section 2. Dividends. No dividends shall be paid on any Common Stock
unless a dividend is paid with respect to all outstanding shares of Series B
Preferred Stock, in an amount for each such share of Series B Preferred Stock,
that is equal to the aggregate amount of such dividends for all Common Stock
into which each such share of Series B Preferred Stock could then be converted.
Section 3. Liquidation Preference.
(a) Preference. In the event of any liquidation, dissolution or
winding up of the affairs of the Corporation, voluntarily or involuntarily, the
holders of each share of Series B Preferred Stock shall be entitled to be paid
pro rata out of the assets of the Corporation available
2
<PAGE>
for distribution to its stockholders, whether such assets are capital, surplus,
or earnings, before any payment or declaration and setting apart for payment of
any amount shall be made in respect of any shares of the Corporation's Common
Stock or shares of any other capital stock of the Corporation ranking junior to
the Series B Preferred Stock (collectively, "Junior Stock"), a preferential
amount equal to Two Thousand Dollars ($2,000) per share of Series B Preferred
Stock held by them (such preferential amount, as adjusted to reflect any stock
split, stock dividend, combination, recapitalization or reorganization, being
hereinafter referred to as the "Series B Preferred Stock Liquidation
Preference"). Except as otherwise provided herein, upon payment of the Series B
Preferred Stock Liquidation Preference upon each share of Series B Preferred
Stock, the Corporation shall have no further obligation to make any other
payments or distributions out of the assets of the Corporation on any shares of
Series B Preferred Stock in connection with such liquidation, dissolution or
winding up of the Corporation. If upon such liquidation, dissolution or winding
up, the assets of the Corporation are insufficient (after payment of the
liquidation preference of any class of preferred stock ranking senior on
liquidation to the Series B Preferred Stock) to provide for the payment in full
of the Series B Preferred Stock Liquidation Preference for each share of Series
B Preferred Stock outstanding, such assets as are available shall be paid out
pro rata (determined in accordance with the liquidation preferences of the
relevant series of preferred stock) to the outstanding shares of Series B
Preferred Stock.
(b) Remaining Assets. After the payment or distribution to the
holders of the Series B Preferred Stock of the full Series B Preferred Stock
Liquidation Preference, the holders of the Junior Stock then outstanding shall
be entitled to receive all remaining assets of the Corporation to be
distributed.
Section 4. Conversion.
The holders of the Series B Preferred Stock shall have conversion
rights in accordance with the following provisions:
(a) Voluntary Conversion. Each holder of one or more shares of
Series B Preferred Stock shall be entitled, at any time and from time to time
and at such holder's option, to convert into fully paid and nonassessable shares
of Common Stock (as such shares of Common Stock may be constituted on the
conversion date) the number of shares of Series B Preferred Stock then held by
such holder.
(b) Mandatory Conversion. On the fifth anniversary of the date
shares of Series B Convertible Preferred Shares are first issued (the "Original
Issuance Date"), each outstanding share of Series B Preferred Stock shall be
converted automatically and without further action into fully paid and
nonassessable shares of Common Stock (as such shares of Common Stock may be
constituted on the conversion date) at the rate specified in Section 4(d)
hereof, subject to adjustment in accordance with Section 5 hereof, and a
conversion notice shall be deemed to have been given by the holder of each such
outstanding share of Series B Preferred Stock on such date.
3
<PAGE>
(c) Conversion Rate. The number of shares of Common Stock into
which each share of Series B Preferred Stock may be converted pursuant to this
Section 4(d), as such may be adjusted from time to time in accordance with
Section 5 hereof, is hereinafter referred to as the "Conversion Rate." The
number of shares of Common Stock to be received upon conversion of Series B
Preferred Stock will be determined by dividing the Conversion Amount by the
Conversion Price (as defined in Section 4(e)) subject to adjustment in
accordance with Section 5 hereof. The "Conversion Amount" will be $2,000 per
share of Series B Preferred Stock being converted.
(d) Conversion Price. The "Conversion Price" shall be $0.50 per
share.
(e) Mechanics of Conversion. Unless conversion is mandatory in
accordance with Section 4(c) hereof any or all shares of Series B Preferred
Stock may be converted by the holder thereof by giving written notice (the
"Conversion Notice") by facsimile by 5:00 p.m. Eastern Standard Time, together
with the holder's calculation of the Conversion Rate to the Corporation, that
the holder elects to convert the number of shares specified therein, which
notice and election shall be irrevocable by the holder; and by delivering the
certificate or certificates representing the Series B Preferred Stock to be
converted, duly endorsed, by either overnight courier or two-day courier, to the
principal office of the Corporation or of any transfer agent for the Series B
Preferred Stock, provided, however, in the event that such certificate or
certificates have been lost, stolen or destroyed, in lieu of delivering such
certificate or certificates the holder may notify the Corporation of such loss,
theft or destruction and deliver to the Corporation an instrument reasonably
satisfactory to the Corporation indemnifying the Corporation from any loss
incurred by it in connection with such lost, stolen or destroyed certificate or
certificates.
The Corporation shall, as soon as possible and in any event within
three business days, verify the holder's calculation of the Conversion Rate as
calculated by the holder, or if the Corporation disagrees with the holder's
calculation of the Conversion Rate, deliver to the holder the Corporation's
calculation of the Conversion Rate. The Corporation shall use its best efforts
to issue and deliver as soon as possible, and in any event within five business
days after delivery to the Corporation of a Conversion Notice, to the holder of
Series B Preferred Stock requesting conversion of shares thereunder, or to its
designee, one or more certificates representing that number of shares of Common
Stock to which such holder shall be entitled, together with one or more
certificates representing any shares of Series B Preferred Stock represented by
the certificate or certificates delivered by such holder but not submitted for
conversion. The Corporation shall be deemed to have received the Conversion
Notice on the date of dispatch by the holder to the Corporation (the "Holder
Conversion Date") and the person or persons entitled to receive the shares of
Common Stock issuable upon the conversion specified therein shall be treated for
all purposes as the record holder or holders of such shares of Common Stock on
such date, provided that the certificate or certificates representing the shares
of Series B Preferred Stock to be converted (or a notice of loss, theft or
destruction and an indemnification instrument in lieu thereof), are received by
the Corporation or any transfer agent for the Series B Preferred Stock within
five (5) business days thereafter. If such certificate or certificates (or such
notice and indemnification instrument) are not received by the Corporation or
any transfer agent for the Series B Preferred Stock within five (5) business
days after the Holder Conversion Date,
4
<PAGE>
the Conversion Notice shall, at the election of the Corporation by written
notice to the holder requesting such conversion, become null and void unless the
holder delivers such certificate or certificates (or such notice and instrument
of indemnification) within three (3) business days after receipt by the holder
of such election by the Corporation.
Section 5. Adjustments; Reorganizations.
(a) Adjustment for Stock Splits and Combinations. If, at any
time or times after the Original Issuance Date, the Corporation effects a
subdivision (by any stock split, stock dividend, recapitalization or otherwise)
of the Common Stock into a greater number of shares or combination (by reverse
stock split or otherwise), of the outstanding Common Stock into a smaller number
of shares, the Conversion Rate in effect immediately before such subdivision
shall be proportionately increased or decreased, as appropriate.
(b) Adjustment for Certain Dividends and Distributions. If the
Corporation at any time or from time to time after the Original Issuance Date
makes, or fixes a record date for the determination of holders of Common Stock
entitled to receive a dividend or other distribution payable in additional
shares of Common Stock or in other securities of the Corporation, then and in
each such event provision shall be made so that the holders of Series B
Preferred Stock shall receive that number of shares of Common Stock or other
securities of the Corporation, as the case may be, to which such holders would
be entitled to receive had such holders converted each share of Series B
Preferred Stock then outstanding into Common Stock immediately prior to the
record date for the determination of holders of Common Stock entitled to receive
such dividend or other distribution (without regard to any restrictions on
conversion).
(c) Adjustment for Other Dividends and Distributions. In the
event that the Corporation, at any time or from time to time after the Original
Issuance Date, makes or fixes a record date for the determination of holders of
Common Stock entitled to receive a dividend or other distribution payable other
than in securities of the Corporation, then and in each such event provision
shall be made so that the holders of Series B Preferred Stock shall receive the
amount of such dividend or other distribution, payable in the form in which such
dividend or other distribution is to be paid to holders of Common Stock, to
which such holders would be entitled to receive had such holders converted each
share of Series B Preferred Stock then outstanding into Common Stock immediately
prior to the record date for the determination of holders of Common Stock
entitled to receive such dividend or other distribution (and without regard to
any restrictions on conversion).
(d) Adjustment for Reclassification, Exchange and Substitution.
In the event that at any time or from time to time after the Original Issuance
Date, the Common Stock issuable upon the conversion of the Series B Preferred
Stock is changed into the same or a different number of shares of any class or
classes of stock, whether by recapitalization, reclassification or otherwise
(other than a subdivision or combination of shares or stock dividend or
reorganization provided for elsewhere in this Section 5), then and in each such
event each holder of shares of Series B Preferred Stock shall have the right
thereafter to convert such stock into the kind of stock receivable upon such
recapitalization, reclassification or other change by
5
<PAGE>
holders of shares of Common Stock, all subject to further adjustment as provided
herein. In such event, the formula set forth herein for conversion shall be
equitably adjusted to reflect such change in number of shares or, if shares of a
new class of stock are issued, to reflect the market price of the class or
classes of stock issued in connection with the above described transaction.
(e) Reorganization. If at any time or from time to time after
the Original Issuance Date there is a capital reorganization of the Common Stock
(other than a recapitalization, subdivision, combination, reclassification, or
exchange of shares provided for elsewhere in this Section 5), then as a part of
such reorganization, provision shall be made so that the holders of the Series B
Preferred Stock shall thereafter be entitled to receive upon conversion of
shares of Series B Preferred Stock the number of shares of stock or other
securities or property to which a holder of the number of shares of Common Stock
deliverable upon conversion would have been entitled on such capital
reorganization. In any such case, appropriate adjustment shall be made in the
application of the provisions of this Section 5 with respect to the rights of
the holders of the Series B Preferred Stock after the reorganization to the end
that the provisions of this Section 5 (including adjustment of the Conversion
Rate then in effect and the number of shares issuable upon conversion of shares
of the Series B Preferred Stock) shall be applicable after that event and be as
nearly equivalent as may be practicable, including, by way of illustration and
not limitation, by equitably adjusting the formula set forth herein for
conversion to reflect the market price of the securities or property issued in
connection with the above described transaction.
(f) Acquisition. In the event of (i) a sale or other
disposition of all or substantially all of the assets of the Corporation or (ii)
any merger, consolidation or other corporate reorganization or transaction or
series of related transactions in which in excess of 50% of the Corporation's
voting power is transferred, the holders of the Series B Preferred Stock shall
vote with respect to the approval of such transaction as a separate class. The
holders of the Series B Preferred Stock shall be entitled to receive on
consummation of any such transaction the consideration which they would have
received had all Series B Preferred Stock been converted to Common Stock
immediately prior to the consummation of such transaction (without regard to any
then applicable restrictions on conversion).
Section 6. Fractional Shares. No fractional shares of Common Stock or
scrip representing fractional shares of Common Stock shall be issuable
hereunder. The number of shares of Common Stock that are issuable upon any
conversion of one or more shares of Series B Preferred Stock shall be rounded up
or down to the nearest whole share.
Section 7. Reservation of Stock Issuable Upon Conversion.
(a) Reservation Requirement. The Corporation has reserved and
the Corporation shall continue to reserve and keep available at all times, free
of preemptive rights, shares of Common Stock for the purpose of enabling the
Corporation to satisfy any obligation to issue shares of its Common Stock upon
conversion of the authorized shares of Series B Preferred Stock. The number of
shares so reserved may be reduced by the number of shares actually delivered
pursuant to conversion of shares of Series B Preferred Stock; provided that in
no event
6
<PAGE>
shall the number of shares so reserved be less than 125% of the maximum number
required to satisfy remaining conversion rights on the unconverted shares of
Series B Preferred Stock (and without regard to any restrictions on conversion
hereunder) and the number of shares so reserved shall be increased to reflect
stock splits and stock dividends and distributions.
(b) Default. If the Corporation does not have a sufficient
number of shares of Common Stock available to satisfy the Corporation's
obligations to a holder of one or more shares of Series B Preferred Stock upon
receipt of a Conversion Notice, or if the Corporation is otherwise prohibited by
applicable law, regulation, or stock exchange or trading market rule from
issuing shares of Common Stock upon receipt of a Conversion Notice (each, a
"Conversion Default"), or if the Corporation fails for any other reason (other
than due to the failure of any holder of Series B Preferred Stock to timely
deliver the stock certificate for the shares of Series B Preferred Stock to be
converted or reasonably satisfactory indemnification instruments) to issue
shares of Common Stock upon receipt of any Conversion Notice for a period of 30
days, the holder of one or more shares of Series B Preferred Stock requesting
conversion shall have the right, upon notice to the Corporation, to require the
Corporation to redeem such shares of Series B Preferred Stock, as soon as
possible and in any event within 30 days of such notice, at a price per share
which shall be the product of the Conversion Rate and the closing trading price
of the Common Stock on the applicable Conversion Date, such redemption amount to
be payable in cash, in readily marketable securities (the marketability and
value of which shall be mutually agreed upon by the Corporation and the holder
or shall be determined by a nationally recognized investment banking firm), or
in a combination thereof.
Section 8. No Reissuance of Shares of Series B Preferred Stock. No
share or shares of Series B Preferred Stock acquired by the Corporation by
reason of redemption, purchase, conversion or otherwise shall be reissued as
Series B Preferred Stock, and all such shares shall be retired and shall return
to the status of authorized, unissued and retired and undesignated shares of
preferred stock of the Corporation. Except as provided in the Subscription
Agreements entered into by the Corporation and the initial holders of shares of
Series B Preferred Stock on or about the Original Issuance Date, no additional
shares of Series B Preferred Stock shall be authorized or issued without the
consent of at least a majority in interest of the holders of shares of Series B
Preferred Stock outstanding immediately prior thereto.
Section 9. No Impairment. The Corporation shall not intentionally take
any action which would impair the rights and privileges of the shares of Series
B Preferred Stock set forth herein.
Section 10. Notice of Adjustment. Upon the occurrence of any of the
events specified in Section 5, then and in each such case, the Corporation shall
give written notice to each holder of such shares subject to conversion under
Section 4 hereof, which notice shall describe in reasonable detail such event
and the resulting adjustment and shall set forth in reasonable detail the method
by which such adjustment was determined.
7
<PAGE>
Section 11. Other Notices. In case at any time:
(i) the Corporation shall declare any dividend
upon its Common Stock payable in cash, stock or convertible securities or make
any other distribution to the holders of its Common Stock;
(ii) the Corporation shall offer for subscription
pro rata to the holders of its Common Stock any additional shares of stock of
any class, any convertible securities, or other rights;
(iii) there shall be any capital reorganization
or reclassification of the capital stock of the Corporation, or a consolidation
or merger of the Corporation with or into, or a sale of all or substantially all
its assets to, another entity or entities; or
(iv) there shall be a voluntary or involuntary
dissolution, liquidation or winding up of the Corporation;
then, in any one or more of said cases, the Corporation shall give to each
holder of any shares of Series B Preferred Stock (a) at least ten (10) days'
prior written notice of the date on which the books of the Corporation shall
close or a record shall be taken for such dividend, distribution or subscription
rights or for determining rights to vote in respect of any such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation or
winding up and (b) in the case of any such reorganization, reclassification,
consolidation, merger, sale, dissolution, liquidation or winding up, at least
twenty (20) days' prior written notice of the date when the same shall take
place. Such notice in accordance with the foregoing clause (a) shall also
specify, in the case of any such dividend, distribution or subscription rights,
the date on which the holders of Common Stock shall be entitled thereto and such
notice in accordance with the foregoing clause (b) shall also specify the date
on which the holders of Common Stock shall be entitled to exchange their Common
Stock for securities or other property deliverable upon such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation or
winding up, as the case may be. The Corporation shall simultaneously make public
disclosure of all such information delivered to the holders of Series B
Preferred Stock.
Section 12. Notice Requirements. Unless otherwise provided herein,
notices and other deliveries to be made hereunder shall be made by hand or
registered or certified mail, postage and charges prepaid, or by express
overnight delivery, or by telecopy or telex (in which cases, the original notice
shall be sent by means reasonably intended to result in delivery of the original
notice to the recipient thereof on the next business day). Such notices and
other deliveries shall be addressed, in the case of the Corporation, to the
Corporation at its principal place of business, and in the case of any holder of
one or more shares of Series B Preferred Stock, to such holder at the address of
such holder appearing on the books of the Corporation or given by such holder to
the Corporation for the purpose of notice, or, if no such address appears or is
so given, at the last known address of such holder. Notices are deemed delivered
upon receipt in accordance with any of the foregoing methods.
8
<PAGE>
Section 13. No Reissuance of Series B Preferred. Any and all shares of
Series B Preferred acquired by the Company by reason of redemption, purchase,
conversion or otherwise shall be canceled and shall not be reissued.
Section 14. No Preemptive Rights. Shareholders shall have no preemptive
rights except as granted by the Company pursuant to written agreements.
III.
A. The liability of the directors of the Company for monetary damages
shall be eliminated to the fullest extent permissible under California law.
B. The Company is authorized to indemnify the directors and officers of
the Company to the fullest extent permissible under California law.
C. Any repeal or modification of this Article shall only be prospective
and shall not effect the rights under this Article in effect at the time of the
alleged occurrence of any action or omission to act giving rise to liability."
Three: The foregoing amendment and restatement of the Articles of
Incorporation has been duly approved by the Board of Directors of the Company
Four: The foregoing amendment and restatement of the Articles of
Incorporation has been duly approved by the required vote of shareholders in
accordance with Section 902 of the California Corporations Code. The Company has
two classes of stock outstanding, each of which is entitled to vote with respect
to the amendment herein set forth. The total number of outstanding shares of
Common Stock and Series B Preferred Stock of the Company is 5,792,845 and 632,
respectively. The number of shares voting in favor of the amendment equaled or
exceeded the vote required. The percentage vote required was more than fifty
percent (50%) of the outstanding Common Stock and fifty percent (50%) of the
Series B Preferred Stock, each voting as a class.
I further declare under penalty of perjury that the matters set forth
in the foregoing certificate are true and correct of our own knowledge.
Executed at Berkeley, California, on February ____, 1999.
__________________________________________
John Pappajohn
__________________________________________
Terry Brandt
9
<PAGE>
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT is made as of the ____ day of
February, 1999, by and between HealthDesk Corporation, a California corporation
(the "Company"), and each other person or entity executing this Agreement.
RECITALS
WHEREAS, the Company has issued shares of its common stock, no par
value (the "Common Stock") to certain investors (the "Investors") pursuant to
the terms of the Agreement and Plan of Reorganization by and among the Company,
MC Acquisition Corporation, a California corporation and a wholly-owned
subsidiary of the Company, MC Informatics, Inc., a California corporation
("MCI") and certain shareholders of MCI (the "Merger");
WHEREAS, the Company and the Investors desire to provide for certain
arrangements with respect to the registration of shares of Common Stock of the
Company under the Securities Act of 1933, as amended (the "Securities Act"),
held by the Investors as provided in this Agreement;
NOW, THEREFORE, in consideration of the mutual promises and agreements
contained herein and for other good and valuable consideration the receipt and
sufficiency of which are hereby acknowledged, the Company and the Investors
hereby agree as follows:
AGREEMENT
1. Registration Rights. The Company covenants and agrees as follows:
1.1. Definitions. For purposes of this Paragraph 1:
(a) The term "register," and "registered," and "registration"
refer to a registration effected by preparing and filing a registration
statement or similar document in compliance with the Securities Act and the
declaration or ordering of effectiveness of such registration statement or
document;
(b) The term "Registrable Securities" means (1) the shares of
Common Stock issued to the Investors in connection with the Merger and (2) any
Common Stock of the Company issued as (or issuable upon the conversion or
exercise of any warrant, right or other security which is issued as) a dividend
or other distribution with respect to, or in exchange for or in replacement of,
such Common Stock, excluding in all cases, however, any Registrable Securities
sold by a person in a transaction in which his rights under this Section 1 are
not assigned or pursuant to an effective registration statement or to the public
pursuant to an exemption from registration requirements under the Securities
Act;
1
<PAGE>
(c) The number of shares of "Registrable Securities then
outstanding" shall be determined by the number of shares of Common Stock
outstanding which are Registrable Securities; and
(d) The term "Holder" means any person owning or having the
right to acquire Registrable Securities or any assignee thereof in accordance
with Section 1.12 hereof.
1.2. Request for Registration.
(a) If the Company shall receive at any time after the date of
this Agreement and prior to the one year anniversary of this Agreement, a
written request from the Holders of more than fifty percent (50%) of the
Registrable Securities then outstanding that the Company file a registration
statement under the Securities Act covering the registration of at least fifty
percent (50%) of the Registrable Securities then outstanding, then the Company
shall promptly give written notice of such request to all Holders and shall,
subject to the limitations of subsection 1.2(b), effect as soon as practicable
the registration under the Securities Act of all Registrable Securities which
the Holders request to be registered within thirty (30) days of the mailing of
such notice by the Company in accordance with Section 2.5.
(b) If the Holders initiating the registration request
hereunder ("Initiating Holders") intend to distribute the Registrable Securities
covered by their request by means of an underwriting, they shall so advise the
Company as a part of their request made pursuant to this Section 1.2 and the
Company shall include such information in the written notice referred to in
subsection 1.2(a). The underwriter will be selected by a majority in interest of
the Initiating Holders and approved by the Company, which approval shall not
unreasonably be withheld. In such event, the right of any Holder to include his
Registrable Securities in such registration shall be conditioned upon such
Holder's participation in such underwriting to the extent provided herein. All
Holders proposing to distribute their securities through such underwriting shall
(together with the Company as provided in subsection 1.4(e)) enter into an
underwriting agreement in customary form with the underwriter or underwriters
selected for such underwriting by a majority in interest of the Initiating
Holders. Notwithstanding any other provision of this Section 1.2, if the
underwriter advises the Initiating Holders in writing that marketing factors
require a limitation of the number of shares to be underwritten, then the
Initiating Holder shall so advise all Holders of Registrable Securities that may
be included in the underwriting that such number of Registrable Securities to be
included shall be allocated among all such Holders thereof, including the
Initiating Holders, in proportion (as nearly as practicable) to the amount of
Registrable Securities of the Company owned by each Holder; provided, however,
that the number of shares of Registrable Securities to be included in such
underwriting shall not be reduced unless all other securities are first entirely
excluded from the underwriting.
(c) The Company is obligated to effect only one (1) such
registration pursuant to this Section 1.2.
(d) Notwithstanding the foregoing, if the Company shall furnish
to Holders requesting a registration statement pursuant to this Section 1.2 a
certificate signed by the President of the Company stating that in the good
faith judgment of the Board of Directors of the
2
<PAGE>
Company it would be seriously detrimental to the Company and its shareholders
for such registration statement to be filed and it is therefore essential to
defer the filing of such registration statement, the Company shall have the
right to defer taking action with respect to such filing for a period of not
more than sixty (60) days after receipt of the request of the Initiating
Holders; provided, however, that the Company may not utilize this right more
than once in any twelve month period.
1.3. Company Registration.
(a) If (but without any obligation to do so) at any time after
February 26, 2000, and prior to February 26, 2001, the Company proposes to
register (including for this purpose a registration effected by the Company for
shareholders other than the Holders) any of its stock or other securities under
the Securities Act in connection with the public offering of such securities
solely for cash (other than a registration relating solely to the sale of
securities to participants in a Company stock plan, or a registration on any
form which does not include substantially the same information as would be
required to be included in a registration statement covering the sale of the
Registrable Securities), the Company shall, at such time, promptly give each
Holder written notice of such registration. Upon the written request of each
Holder given within thirty (30) days after mailing of such notice by the Company
in accordance with Section 2.5, the Company shall, subject to the provisions of
Section 1.8, cause to be registered under the Securities Act all of the
Registrable Securities that each such Holder has requested to be registered.
(b) The Company is obligated to effect only two (2) such
registrations pursuant to this Section 1.3.
1.4. Obligations of the Company. Whenever required under this
Paragraph 1 to effect the registration of any Registrable Securities, the
Company shall, as expeditiously as reasonably possible:
(a) Prepare and file with the SEC a registration statement with
respect to such Registrable Securities and use its best efforts to cause such
registration statement to become effective and, upon the request of the Holders
of a majority of the Registrable Securities registered thereunder, keep such
registration statement effective for up to one hundred twenty (120) days for the
purpose of selling all stock or securities registered with the SEC.
(b) Prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used in connection
with such registration statement as may be necessary to comply with the
provisions of the Securities Act with respect to the disposition of all
securities covered by such registration statement.
(c) Furnish to the Holders such numbers of copies of a
prospectus, including a preliminary prospectus, in conformity with the
requirements of the Securities Act, and such other documents as they may
reasonably request in order to facilitate the disposition of Registrable
Securities owned by them.
3
<PAGE>
(d) Use its best efforts to register and qualify the securities
covered by such registration statement under such other securities or Blue Sky
laws of such jurisdictions as shall be reasonably requested by the Holders,
provided that the Company shall not be required in connection therewith or as a
condition thereto to qualify to do business or to file a general consent to
service of process in any such states or jurisdictions.
(e) In the event of any underwritten public offering, enter
into and perform its obligations under an underwriting agreement, in usual and
customary form, with the managing underwriter or such offering. Each Holder
participating in such underwriting shall also enter into and perform its
obligations under such an agreement.
(f) Notify each Holder of Registrable Securities covered by
such registration statement at any time when a prospectus relating thereto is
required to be delivered under the Securities Act of the happening of any event
as a result of which the prospectus included in such registration statement, as
then in effect, includes an untrue statement of a material fact or omits to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading in the light of the circumstances then
existing.
(g) Furnish, at the request of any Holder requesting
registration of Registrable Securities pursuant to this Paragraph 1, on the date
that such Registrable Securities are delivered to the underwriters for sale in
connection with a registration pursuant to this Paragraph 1 if such securities
are being sold through underwriters, or, if such securities are not being sold
through underwriters on the date that the registration statement with respect to
such securities becomes effective, (i) an opinion dated such date of the counsel
representing the Company for the purposes of such registration, in form and
substance as is customarily given to underwriters in an underwritten public
offering, addressed to the underwriters, if any, and to the Holders requesting
registration of Registrable Securities and (ii) a "cold comfort" letter dated
such date from the independent certified public accountants of the Company, in
form and substance as is customarily given by independent certified public
accountants to underwriters in an underwritten public offering, addressed to the
underwriters, if any, and to the Holders requesting registration of Registrable
Securities.
1.5. Furnish Information.
(a) It shall be a condition precedent to the obligations of the
Company to take any action pursuant to this Section 1 with respect to the
Registrable Securities of any selling Holder that such Holder shall furnish to
the Company such information regarding itself, the Registrable Securities held
by it, and the intended method of disposition of such securities as shall be
required to effect the registration of such Holder's Registrable Securities.
(b) The Company shall have no obligation with respect to any
registration requested pursuant to Section 1.2 if, due to the operation of
subsection 1.5(a), the number of shares or the anticipated aggregate offering
price of the Registrable Securities to be included in the registration does not
equal or exceed the number of shares or the anticipated aggregate offering price
required to originally trigger the Company's obligation to initiate such
registration as specified in subsection 1.2(a).
4
<PAGE>
1.6. Expenses of Demand Registration. All expenses other than
underwriting discounts and commissions incurred in connection with
registrations, filings, or qualifications pursuant to Section 1.2, including
without limitation all registration, filing and qualification fees, printers'
and accounting fees, fees and disbursements of counsel for the Company, and the
reasonable fees and disbursements of one counsel for the selling Holders shall
be borne by the Company; provided, however, that the Company shall not be
required to pay for any expenses of any registration proceeding begun pursuant
to Section 1.2 if the registration request is subsequently withdrawn at the
request of the Holders of a majority of the Registrable Securities to be
registered (in which case all Participating Holders shall bear such expenses),
unless the Holders of a majority of the Registrable Securities agree to forfeit
their right to demand registration pursuant to Section 1.2; provided further,
however, that if at the time of such withdrawal, the Holders have learned of a
material adverse change in the condition, business, or prospects of the Company
from that known to the Holders at the time of their request and have withdrawn
the request with reasonable promptness following disclosure by the Company of
such material adverse change, then the Holders shall not be required to pay any
of such expenses and shall retain their rights pursuant to Section 1.2. Fees and
disbursements of counsel and accountants for the selling Holders and any other
expenses incurred by the selling Holders not expressly included above shall be
borne by the selling Holders.
1.7. Expenses of Company Registration. The Company shall bear and
pay all expenses incurred in connection with any registration, filing or
qualification of Registrable Securities with respect to all registrations
pursuant to Section 1.3 for each Holder (which right may be assigned as provided
in Section 1.12), including, without limitation, all registration, filing, and
qualification fees, printers and accounting fees relating or apportionable
thereto and the fees and disbursements of one counsel for the selling Holders
selected by them, but excluding underwriting discounts and commissions relating
to Registrable Securities.
1.8. Underwriting Requirements. In connection with any offering
involving an underwriting of shares of the Company's capital stock, the Company
shall not be required under Section 1.3 to include any of the Holders'
securities in such underwriting unless they accept the terms of the underwriting
as agreed upon between the Company and the underwriters selected by it (or by
other persons entitled to select the underwriters), and then only in such
quantity as the underwriters determine in their sole discretion will not
jeopardize the success of the offering by the Company. If the total amount of
securities, including Registrable Securities, requested by shareholders to be
included in such offering exceeds the amount of securities sold other than by
the Company that the underwriters determine in their sole discretion is
compatible with the success of the offering, then the Company shall be required
to include in the offering only that number of such securities, including
Registrable Securities, which the underwriters determine in their sole
discretion will not jeopardize the success of the offering (the securities so
included to be apportioned pro rata among the selling shareholders according to
the total amount of securities entitled to be included therein owned by each
selling shareholder or in such other proportions as shall mutually be agreed to
by such selling shareholders) but in no event shall (i) the amount of
securities, including Registrable Securities and all other securities the
holders of which have similar rights, of the selling shareholders included in
the offering be reduced below thirty percent (30%) of the total amount of
securities included in such offering, or (ii) notwithstanding (i) above, any
shares being sold by a shareholder exercising a demand registration right
similar to that granted in Section 1.2 be excluded from such offering. For
purposes of the preceding parenthetical concerning apportionment of any selling
shareholder which is a holder of Registrable Securities and which is a
partnership or corporation, the partners, retired partners and shareholders of
such holder, or the estates and family members of any such partners and retired
partners and any trusts for the benefit of any of the foregoing persons shall be
deemed to be a single "selling shareholder," and any pro-rata reduction with
respect to such "selling shareholder" shall be based upon the aggregate amount
of shares carrying registration rights owned by all entities and individuals
included in such "selling shareholder," as defined in this sentence.
5
<PAGE>
1.9. Delay of Registration. No Holder shall have any right to obtain
or seek any injunction restraining or otherwise delaying any such registration
as a result of any controversy that might arise with respect to the
interpretation or implementation of this Paragraph 1.
1.10. Indemnification. In the event any Registrable Securities are
included in a registration statement under this Paragraph 1:
(a) To the extent permitted by law, the Company will indemnify
and hold harmless each Holder, any underwriter (as defined in the Securities
Act) for such Holder and each person, if any, who controls such Holder or
underwriter within the meaning of the Securities Act or the Securities and
Exchange Act of 1934, as amended (the "1934 Act"), against any losses, claims,
damages, or liabilities (joint or several) to which they may become subject
under the Securities Act, or the 1934 Act or other federal or state law, insofar
as such losses, claims, damages, or liabilities (or actions in respect thereof)
arise out of or are based upon any of the following statements, omissions or
violations (collectively, a "Violation"): (i) any untrue statement or alleged
untrue statement of a material fact contained in such registration statement,
including any preliminary prospectus or final prospectus contained therein or
any amendments or supplements thereto, (ii) the omission or alleged omission to
state therein a material fact required to be stated therein, or necessary to
make the statements therein not misleading, or (iii) any violation or alleged
violation by the Company of the Securities Act, the 1934 Act, any state
securities law or any rule or regulation promulgated under the Securities Act,
or the 1934 Act or any state securities law; and the Company will pay to each
such Holder, underwriter or controlling person, as incurred, any legal or other
expenses reasonably incurred by them in connection with investigating or
defending any such loss, claim, damage, liability or action; provided, however,
that the indemnity agreement contained in this subsection 1.10(a) shall not
apply to amounts paid in settlement of any such loss, claim, damage, liability,
or action if such settlement is effected without the consent of the Company
(which consent shall not be unreasonably withheld), nor shall the Company be
liable in any such case for any such loss, claim, damage, liability, or action
to the extent that it arises out of or is based upon a Violation which occurs in
reliance upon and in conformity with written information furnished expressly for
use in connection with such registration by any such Holder, underwriter or
controlling person.
6
<PAGE>
(b) To the extent permitted by law, each selling Holder will
indemnify and hold harmless the Company, each of its directors, each of its
officers who has signed the registration statement, each person, if any, who
controls the Company within the meaning of the Securities Act, any underwriter,
any other Holder selling securities in such registration statement and any
controlling person of any such underwriter or other Holder, against any losses,
claims, damages, or liabilities (joint or several) to which any of the foregoing
persons may become subject, under the Securities Act, or the 1934 Act or other
federal or state law, insofar as such losses, claims, damages, or liabilities
(or actions in respect thereto) arise out of or are based upon and in conformity
with written information furnished by such Holder for use in connection with
such registration; and each such Holder will pay, as incurred, any legal or
other expenses reasonably incurred by any person intended to be indemnified
pursuant to this subsection 1.10(b), in connection with investigating or
defending any such loss, claim, damage, liability, or action; provided, however,
that the indemnity agreement contained in this subsection 1.10(b) shall not
apply to amounts paid in settlement of any such loss, claim, damage, liability
or action if such settlement is effected without the consent of the Holder,
which consent shall not be unreasonably withheld; provided that in no event
shall any indemnity under this subsection 1.10(b) exceed the gross proceeds from
the offering received by such Holder.
(c) Promptly after receipt by an indemnified party under this
Section 1.10 of notice of the commencement of any action (including any
governmental action), such indemnified party will, if a claim in respect thereof
is to be made against any indemnifying party under this Section 1.10, deliver to
the indemnifying party a written notice of the commencement thereof and the
indemnifying party shall have the right to participate in, and, to the extent
the indemnifying party so desires, jointly with any other indemnifying party
similarly noticed, assume the defense thereof with counsel mutually satisfactory
to the parties; provided, however, that an indemnified party (together with all
other indemnified parties which may be represented without conflict by one
counsel) shall have the right to retain one separate counsel, with the fees and
expenses to be paid by the indemnifying party, if representation of such
indemnified party by the counsel retained by the indemnifying party would be
inappropriate due to actual or potential differing interests between such
indemnified parties. The failure to deliver written notice to the indemnifying
party within a reasonable time of the commencement of any such action, if
prejudicial to its ability to defend such action, shall relieve such
indemnifying party of any liability to the indemnified party under this Section
1.10, but the omission to deliver written notice to the indemnifying party will
not relieve it of any liability that it may have to any indemnified party
otherwise than under this Section 1.10.
(d) If the indemnification provided for in this Section 1.10
is held by a court of competent jurisdiction to be unavailable to an indemnified
party with respect to any loss, liability, claim, damage, or expenses referred
to therein, then the indemnifying party, in lieu of indemnifying such
indemnified party hereunder, shall contribute to the amount paid or payable by
such indemnified party as a result of such loss, liability, claim, damage, or
expense in such proportion as it appropriate to reflect the relative fault of
the indemnifying party on the one hand and of the indemnified party on the other
in connection with the statements or omissions that resulted in such loss,
liability, claim, damage, or expense as well as any other relevant equitable
considerations. The relative fault of the indemnifying party and of the
indemnified party shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission to state a material fact relates to information supplied by the
indemnifying party or by the indemnified party and the parties' relative intent,
knowledge, access to information, and opportunity to correct or prevent such
statement or omission.
7
<PAGE>
(e) Notwithstanding the foregoing, to the extent that the
provisions on indemnification and contribution contained in the underwriting
agreement entered into in connection with the underwritten public offering are
in conflict with the foregoing provisions, the provisions in the underwriting
agreement shall control.
(f) The obligations of the Company and Holders under this
Section 1.10 shall survive the completion of any offering of Registrable
Securities in a registration statement under this Paragraph 1, and otherwise.
1.11. Reports Under Securities Exchange Act of 1934. With a view to
making available to the Holders the benefits of Rule 144 promulgated under the
Securities Act and any other rule or regulation of the SEC that may at any time
permit a Holder to sell securities of the Company to the public without
registration, the Company agrees to:
(a) make and keep public information available, as those terms
are understood and defined in SEC Rule 144, at all times;
(b) file with the SEC in a timely manner all reports and other
documents required of the Company under the Securities Act and 1934 Act; and
(c) furnish to any Holder, so long as the Holder owns any
Registrable Securities, forthwith upon request (i) a written statement by the
Company that it has complied with the reporting requirements of SEC Rule 144,
the Securities Act and the 1934 Act, (ii) a copy of the most recent annual or
quarterly report of the Company and such other reports and documents so filed by
the Company, and (iii) such other information as may be reasonably requested in
availing any Holder of any rule or regulation of the SEC which permits the
selling of any such securities without registration.
1.12. Assignment of Registration Rights. The rights to cause the
Company to register Registrable Securities pursuant to this Paragraph 1 may be
assigned (but only with all related obligations) by a Holder to a transferee or
assignee of such securities provided the Company is, within a reasonable time
after such transfer, furnished with written notice of the name and address of
such transferee or assignee and the securities with respect to which such
registration rights are being assigned; and provided, further, that such
assignment shall be effective only if immediately following such transfer the
further disposition of such securities by the transferee or assignee is
restricted under the Securities Act.
1.13. Limitation on Subsequent Registration Rights. From and after
the date of this Agreement, the Company shall not, without the prior written
consent of the Holders of a majority of the outstanding Registrable Securities,
enter into any agreement with any holder or prospective holder of any securities
of the Company which would allow such holder or prospective holder to include
such securities in any registration filed under Section 1.2 hereof, unless under
the terms of such agreement, such holder or prospective holder may include such
securities in any such registration only to the extent that the inclusion of his
securities will not reduce the amount of the Registrable Securities of the
Holders which is included.
1.14. Termination of Registration Rights. No Holder shall be
entitled to exercise any right provided for in this Section 1 after February 26,
2001.
8
<PAGE>
2. Miscellaneous.
2.1. Successors and Assigns. Except as otherwise provided herein,
the terms and conditions of this Agreement shall inure to the benefit of and be
binding upon the respective successors and assigns of the parties (including
transferees of the Registrable Securities). Nothing in this Agreement, express
or implied, is intended to confer upon any party other than the parties hereto
or their respective successors and assigns any rights, remedies, obligations, or
liabilities under or by reason of this Agreement, except as expressly provided
in this Agreement.
2.2. Governing Law. This Agreement shall be governed by and
construed under the laws of the State of California without giving effect to
principles of conflicts of laws.
2.3. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
2.4. Titles and Subtitles. The titles and subtitles used in this
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
2.5. Notices. Unless otherwise provided, any noticed required or
permitted under this Agreement shall be given in writing and shall be deemed
effectively given upon person delivery to the party to be notified or upon
deposit with the United States Post Office, by registered or certified mail,
postage prepaid and addressed to the party to be notified at the address
indicated for such party on the signature page hereto, or at such other address
as such party may designate by ten (10) days advance written notice to the other
parties.
2.6. Amendments and Waivers. Any term of this Agreement may be
amended and the observance of any term of this Agreement may be waived (either
generally or in a particular instance and either retroactively or
prospectively), only with the written consent of the Company and the holders of
a majority of the Registrable Securities then outstanding. Any amendment or
waiver effected in accordance with this Section 2.6 shall be binding upon each
holder of any Registrable Securities then outstanding, each future holder of all
such Registrable Securities, and the Company.
2.7. Severability. If one or more provisions of this Agreement are
held to be unenforceable under applicable law, such provision shall be excluded
from this Agreement and the balance of the Agreement shall be interpreted as if
such provision were so excluded and shall be enforceable in accordance with its
terms.
9
<PAGE>
2.8. Aggregation of Stock. All shares of Registrable Securities held
or acquired by affiliated entities or persons shall be aggregated together for
the purpose of determining the availability of any rights under this Agreement.
2.9. Entire Agreement. This Agreement (including the Exhibits
hereto, if any) constitutes the full and entire understanding and agreement
between the parties with regard to the subjects hereof and thereof.
Remainder of Page Intentionally Left Blank
10
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Registration Rights
Agreement as of the date first above written.
HealthDesk Corporation
By:_____________________________________________________
Terry Brandt, Vice President
Address: c/o 2116 Financial Center
Des Moines, Iowa 50309
INVESTOR:
________________________________________________________
[Type or Print Name]
By:_____________________________________________________
Print Title:____________________________________________
Address: _______________________________________________
_______________________________________________
_______________________________________________
11
<PAGE>
Consent of Independent Certified Public Accountants
The Board of Directors
MC Informatics, Inc.
We hereby consent to the incorporation by reference in the Registration
Statement (No. 333-14519) on Form SB-2 of our report dated March 18, 1999,
relating to the financial statements of MC Informatics, Inc. (formerly known as
HealthDesk Corporation) appearing in the Company's Annual Report on Form 10-KSB
for the year ended December 31, 1998.
BDO SEIDMAN, LLP
Orange County, California
April 15, 1999
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS FOR DECEMBER 31, 1998 AS FILED ON FORM 10-KSB WITH THE
SECURITIES EXCHANGE COMMISSION AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000000000
<NAME> MC INFORMATICS, INC.
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1998
<EXCHANGE-RATE> 1
<CASH> 85,925
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,675,934
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 1,675,934
<CURRENT-LIABILITIES> 341,880
<BONDS> 0
0
2,512,673
<COMMON> 12,257,505
<OTHER-SE> 195,687
<TOTAL-LIABILITY-AND-EQUITY> 1,675,934
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,246,008
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (1,176,901)
<INCOME-TAX> 800
<INCOME-CONTINUING> (1,177,701)
<DISCONTINUED> (1,888,421)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,066,122)
<EPS-PRIMARY> (.60)
<EPS-DILUTED> (.60)
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS FOR DECEMBER 31, 1997 AS FILED ON FORM 10-KSB WITH THE
SECURITIES EXCHANGE COMMISSION AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000000000
<NAME> MC INFORMATICS, INC.
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<EXCHANGE-RATE> 1
<CASH> 1,405,430
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,484,154
<PP&E> 948,392
<DEPRECIATION> 475,831
<TOTAL-ASSETS> 1,972,565
<CURRENT-LIABILITIES> 485,062
<BONDS> 0
0
0
<COMMON> 11,457,505
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 1,972,565
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 403,590
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 14,900
<INCOME-PRETAX> (281,115)
<INCOME-TAX> 800
<INCOME-CONTINUING> (281,915)
<DISCONTINUED> (3,535,332)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,817,247)
<EPS-PRIMARY> (.73)
<EPS-DILUTED> (.73)
</TABLE>
