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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarter ended December 31, 1997
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 No. 0-22947
HEALTHCORE MEDICAL SOLUTIONS, INC.
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(Exact name of registrant as specified in its charter)
DELAWARE 43-1771999
------------------------------ ---------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
11904 BLUE RIDGE BOULEVARD, GRANDVIEW, MISSOURI 64030
- ----------------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (816) 763-4900
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 the filing requirements for the past 90 days. YES [X] NO [_]
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date:
As of February 12, 1998, 3,008,000 shares of Class A Common Stock, $.01 par
value, and 216,000 shares of Class B Common Stock, $.01 par value, of the
registrant were issued and outstanding.
Transitional Small Business Disclosure Format (check one):
Yes [_] No [X]
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TABLE OF CONTENTS
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ITEM PAGE
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PART I
FINANCIAL INFORMATION
<S> <C> <C>
Item 1. Financial Statements (unaudited)
Balance Sheet as of December 31, 1997................................................... 3
Statement of Operations for the quarters ended December 31, 1997 and 1996............... 4
Statement of Cash Flows for the quarters ended December 31, 1997 and 1996............... 5
Notes to the Financial Statements....................................................... 6
Item 2. Management's Discussion and Analysis............................................................. 10
PART II
OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds........................................................ 12
Item 6. Exhibits and Reports on Form 8-K................................................................. 13
SIGNATURES ............................................................................................... 14
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2
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<TABLE>
HEALTHCORE MEDICAL SOLUTIONS, INC.
Successor to MegaVision, L.C.
BALANCE SHEET
(unaudited)
<CAPTION>
December 31, 1997
-----------------
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents .............................................................. $5,726,337
Prepaid expenses and other current assets .............................................. 154,539
----------
Total current assets ............................................................. 5,880,876
----------
Property and equipment, net ................................................................. 205,318
Other assets ................................................................................ 1,070
----------
206,388
----------
$6,087,264
==========
LIABILITIES
Current liabilities:
Accounts payable and accrued expenses .................................................. $ 94,515
Current portion of obligation under capital lease ...................................... 52,044
----------
Total current liabilities ........................................................ 146,559
Obligation under capital lease .............................................................. 73,026
----------
Total Liabilities ................................................................ 219,585
----------
Commitments and other matters ............................................................... --
SHAREHOLDERS' EQUITY
Preferred stock, $.01 par value; authorized 5,000,000 shares
Common stock, $.01 par value:
Class A, authorized, 19,784,000 shares; issued and outstanding 3,008,000 shares ........ 30,080
Class B, authorized, 216,000 shares; issued and outstanding 216,000 shares ............. 2,160
Additional paid-in capital ............................................................. 10,747,282
Deficit accumulated during the development stage ....................................... (4,911,843)
----------
Total shareholders' equity ....................................................... 5,867,679
----------
$6,087,264
==========
</TABLE>
See notes to financial statements
3
<PAGE>
HEALTHCORE MEDICAL SOLUTIONS, INC.
Successor to MegaVision, L.C.
STATEMENT OF OPERATIONS
(unaudited)
Three Months Ended
December 31, 1997 December 31, 1996
----------------- -----------------
Sales ........................................ $ 13,916 $ 0
Cost of sales ................................ 9,238 0
--------- ---------
Gross margin ................................. 4,678 0
--------- ---------
S, G & A expenses:
Selling and marketing ................... 83,166 52,236
General and administrative .............. 277,986 457,232
--------- ---------
Total S, G & A expenses ...................... 361,152 509,468
--------- ---------
Net (loss) from operations ................... (356,474) (509,468)
Non-operating income (expense):
Interest income ......................... 62,555 0
Interest expense ........................ (49,643) (5,748)
--------- ---------
Total non-operating income (expense): ........ 12,912 (5,748)
--------- ---------
Net loss ..................................... ($343,562) ($515,216)
========= =========
Net loss per share:
Basic ................................... ($ 0.18) ($ 1.85)
Diluted ................................. ($ 1.31)
=========
Weighted average number of shares outstanding:
Basic ................................... 1,938,529 278,467
========= =========
Diluted ................................. 392,067
` =========
See notes to financial statements
4
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HEALTHCORE MEDICAL SOLUTIONS, INC.
Successor to MegaVision, L.C.
STATEMENT OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended
December 31, 1997 December 31, 1996
----------------- -----------------
<S> <C> <C>
Cash flows used for operating activities:
Net loss ................................................................... ($ 343,562) ($515,216)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization ........................................ 13,514 8,290
Amortization of discount on notes payable-bridge units ............... 31,764
Common stock issued for services ..................................... 226,980
Changes in:
Prepaid expenses and other assets .................................... (45,410) 1,649
Accounts payable and accrued expenses ................................ (451,407) 200,885
Other liabilities .................................................... 2,419
----------- ---------
Net cash used in operating activities ........................... (792,682) (77,412)
----------- ---------
Cash flows from investing activities:
Acquisition of property and equipment ...................................... (43,201) 0
----------- ---------
Cash flows from financing activities:
(Decrease) in bank overdraft ............................................... (9,914)
Decrease in restricted cash ................................................ 85,000
Net proceeds from private stock transactions ............................... 6,300
Net proceeds from initial public offering .................................. 8,747,714
Principal payments on notes payable - bridge units ......................... (2,300,000)
Changes in notes payable - banks ........................................... (103,600) 61,674
Principal payments on obligation under capital lease ....................... (14,244)
Changes in notes payable - related parties ................................. 30,083
----------- ---------
Net cash provided by financing activities ....................... 6,414,870 88,143
----------- ---------
Net increase in cash and cash equivalents ....................................... 5,578,987 10,731
Cash and cash equivalents - beginning of period ................................. 147,350 0
----------- ---------
Cash and cash equivalents - end of period ....................................... $ 5,726,337 $ 10,731
=========== =========
Supplemental disclosure of cash flow information:
Cash paid for:
Interest ............................................................. $ 155,300 $ 2,679
See notes to financial statements
</TABLE>
5
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HEALTHCORE MEDICAL SOLUTIONS, INC.
Successor to MegaVision, L.C.
Notes to Financial Statements
December 31, 1997
(unaudited)
NOTE A - THE COMPANY AND BASIS OF PRESENTATION
General
These financial statements have been prepared by HealthCore Medical Solutions,
Inc. ("HealthCore" or the "Company") in accordance with generally accepted
accounting principles for interim financial reporting and in accordance with
Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the
information and notes required by generally accepted accounting principles for
complete financial statements. In the opinion of management, the unaudited
financial statements include all adjustments (consisting only of normal
recurring adjustments) necessary to present fairly the financial position, the
results of operations and the statement of cash flows for the periods presented.
The unaudited financial statements presented herein were prepared using the
underlying accounting principles utilized in the Company's September 30, 1997
audited financial statements filed on Form 10-KSB with the Securities and
Exchange Commission on December 29, 1997. Operating results for the three months
ended December 31, 1997 are not necessarily indicative of the results that may
be expected for the year ending September 30, 1998.
HealthCore was organized as a Delaware corporation in February 1997 as a
business successor to MegaVision, L.C. ("MegaVision"). The Company is a early
stage enterprise organized to develop, market and administer a health care
benefit services program which is designed to enable participants ("Members") to
obtain discounts on purchases of ancillary health care products and services
through certain networks ("Networks") of health care providers ("Providers").
The Networks with which the Company currently maintains contracts comprise an
aggregate of approximately 67,000 participating Providers of eye care, dental,
hearing, pharmacy, physical and occupational therapy and chiropractic benefits
throughout the United States. Members can access the Networks through the use of
a discount membership card (the "HealthCare Solutions Card"). The HealthCare
Solutions Card is currently being marketed, directly and through independent
brokers, insurance agents and consumer marketing organizations, to individuals
and to employers, health maintenance organizations and businesses and other
associations who may either purchase the HealthCare Solutions Card for, or offer
it to, their employees or members.
In February 1997, MegaVision, L.C., a Missouri limited liability company in the
development stage, merged into HealthCore. In conjunction with the merger, 1,100
member units of MegaVision were exchanged for 708,000 shares of Class A common
stock of HealthCore and 600 member units of MegaVision were exchanged for
360,000 shares of Class B common stock of HealthCore. The business of the
Company was conducted by MegaVision from June 1, 1995 to February 19, 1997. The
merger described above has been accounted for in a manner similar to a pooling
of interests and, except as otherwise indicated or where the context otherwise
requires, the information set forth in these financial statements has been
adjusted to give retroactive effect to the reorganization.
HealthCore and MegaVision have been principally devoted to organizational
activities, raising capital, marketing, building a sales network and negotiating
provider agreements.
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
[1] CASH AND CASH EQUIVALENTS:
Cash and cash equivalents include cash on hand, demand deposits and all highly
liquid investments with a maturity of three months or less at the time of
purchase.
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HEALTHCORE MEDICAL SOLUTIONS, INC.
Successor to MegaVision, L.C.
Notes to Financial Statements
December 31, 1997
(unaudited)
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
[2] MANAGEMENT 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.
[3] REVENUE AND COST OF SALE RECOGNITION:
All monthly and single annual payment sales and their corresponding expenses,
including the costs of issuance of HealthCare Solutions Cards, sales
commissions, provider fees and a provision for cancellations from potential
guarantee-related refunds incurred by the Company at the time of sale, are
recognized in the monthly period for which the card sale is billed.
The Company currently offers a full money-back guarantee to Members who,
after the first full year of enrollment, are not satisfied with the HealthCare
Solutions Card. The Company intends to establish reserves therefor.
[4] PROPERTY AND EQUIPMENT:
Property and equipment are recorded at cost. Depreciation and amortization are
being provided on the straight-line method over the estimated useful lives of
the assets. Equipment is depreciated over periods ranging from five to seven
years. Leasehold improvements are amortized over the shorter of the lease term
or their estimated useful life.
Equipment under capital leases is recorded at the lesser of the present value of
the lease payments or fair value of the equipment. Such equipment is amortized
on a straight-line basis over the shorter of the lease term or its estimated
useful life.
[5] NET LOSS PER SHARE:
Net loss per share was computed based upon the weighted average number of shares
of common stock outstanding during each year presented, excluding 900,000 shares
placed in escrow. Those escrowed shares are common stock equivalents for
purposes of calculating earnings per share. Upon the Company exceeding certain
income levels or the common stock exceeding certain market prices per share,
some or all of the common shares held in escrow are to be released. Since in
1996 and 1997, certain shares of common stock were issued at less than the price
of the shares in the Company's initial public offering (the "IPO") and warrants
which are exercisable at a price less than the price of the shares in the
Company's IPO, all such shares of common stock and shares issuable upon the
exercise of the warrants have been included in the calculation of the weighted
average shares outstanding for the quarter ended December 31, 1996 for basic
loss per share and diluted loss per share, respectively, using the treasury
stock method based on the IPO price pursuant to the requirements of the
Securities and Exchange Commission. (see Note F).
7
<PAGE>
HEALTHCORE MEDICAL SOLUTIONS, INC.
Successor to MegaVision, L.C.
Notes to Financial Statements
December 31, 1997
(unaudited)
NOTE C - NOTES PAYABLE - BRIDGE UNITS
In February and March 1997, the Company sold 46 Bridge Units, each consisting of
(i) a $50,000 10% subordinated note and (ii) warrants to purchase 25,000 shares
of Class A common stock. The notes, aggregating $2.3 million in principal amount
and $142,979 in accrued interest, were repaid on October 17, 1997 from the
proceeds of the IPO. Concurrently with the IPO, the warrants were converted into
IPO warrants. The Company received $1,964,154, net of offering costs, in the
Bridge Unit offering. One Bridge Unit was purchased by the Chairman of the Board
and his wife and one-half of one Bridge Unit was purchased by a director, on the
same terms as the other Bridge Units.
The Company valued the warrants at $310,500. Accordingly, additional paid-in
capital has been credited with $305,677 which represents the value of the
warrants less the allocable portion of the offering costs. The short-term notes
were discounted by the value of the warrants and the offering costs. The
discount was amortized as additional interest expense from the date of issuance
to October 17, 1997, when these notes were repaid.
NOTE D - CAPITAL STOCK
[1] ISSUANCE OF CLASS B COMMON STOCK:
In November 1996, Megavision, L.C. entered into an agreement to issue 360
member units (which member units were exchanged for 216,000 shares of the
Company's Class B common stock in February 1997) for $6,300 to the Chairman of
the Board and Chief Executive Officer of the Company. The Company valued these
shares at $233,280, their estimated fair value at the date of issuance, and
charged $226,980 to operations as compensation in the quarter ended December 31,
1996.
[2] ISSUANCE OF WARRANTS:
In September 1997, the Company granted warrants to purchase 284,000 shares
of Class A Common Stock to its Chairman of the Board and Chief Executive
Officer. The warrants are exercisable at $1.00 per share and expire in September
2007. The Company valued these warrants at $416,922, the estimated fair market
value of the warrants at the date of grant and incurred a noncash charge to
operations of $416,922 on such date. Of the 284,000 warrants granted, 142,000
are immediately exercisable and the remaining 142,000 will become exercisable if
either (a) the Company's minimum pretax income, as defined, equals or exceeds
$3,800,000 for the fiscal year ending September 30, 1998, $5,500,000 for the
fiscal year ending September 30, 1999 or $7,500,000 for the fiscal year ending
September 30, 2000 or (b) the average closing price of the common stock equals
or exceeds $12.50 per share for a 30 day trading period in the 18-month period
beginning with the consummation of the IPO or $16.50 per share for 30 trading
days in the period beginning after 18 months after the consummation of the IPO
to 36 months after the IPO. If these targets are not met, the 142,000
conditional warrants will be canceled. However, should the goals be met, the
Company will recognize an additional expense equal to the fair market value of
the portion of the warrants subject to such targets.
[3] STOCK OPTION PLAN:
In 1997, the Company adopted a stock option plan under which 200,000 shares of
Class A common stock are reserved for issuance upon exercise of either incentive
or non-incentive stock options which may be granted from time to time by the
board of directors to employees and others. In May and July 1997, the Company
granted options to purchase 57,500 shares of Class A common stock at $5.00 per
share. The options become exercisable during the period from August 1997 through
July 2000 and expire in February 2007.
8
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HEALTHCORE MEDICAL SOLUTIONS, INC.
Successor to MegaVision, L.C.
Notes to Financial Statements
December 31, 1997
(unaudited)
[4] SHARES RESERVED FOR ISSUANCE:
The Company has reserved 3,849,000 shares of its Class A common stock for
issuance upon exercise of the outstanding warrants and options, including
warrants issued in connection with the IPO.
[5] COMMON AND PREFERRED STOCK:
The shares authorized aggregate 19,784,000 shares of Class A common stock,
216,000 shares of Class B common stock and 5,000,000 shares of preferred stock
all with $.01 par value. The Class A and Class B shares of common stock are
substantially identical except that the Class A common stockholders have the
right to cast one vote per share and the Class B common stockholder has the
right to cast five votes per share. Class B shares automatically convert to
Class A shares on a one-for-one basis upon (i) the sale, gift or transfer, (ii)
death of the original stockholder thereof, (iii) termination of employment of
the stockholder by the Company for any reason or (iv) if, for the year ended
September 30, 1999, the minimum pretax income, as defined, is less than
$1,000,000 or if, for any subsequent year through September 30, 2002, the
Company's minimum pretax income does not equal or exceed 110% of the prior
year's minimum pretax income.
NOTE E - INCOME TAXES
The Company's deferred tax asset as of September 30, 1997 represented a benefit
from net operating loss carryforwards of $827,000 which has been reduced by a
valuation allowance of $827,000 since the future realization of such tax benefit
is not presently determinable. As of September 30, 1997, the Company had a net
operating loss carryforward of approximately $2,433,000 expiring in 2012. As a
result of the IPO, usage of this net operating loss carryforward is limited to
approximately $789,000 per year.
NOTE F - INITIAL PUBLIC OFFERING
In October and November 1997 the Company, in its IPO, sold an aggregate of
2,024,000 units at a unit price of $5.00. Each unit consisted of one share of
Class A common stock and one warrant to purchase one share of Class A common
stock at $6.50, expiring October 2002. Proceeds from the IPO, net of expenses of
$1,745,000, approximated $8,375,000. Of the expenses incurred in the IPO,
approximately $372,000 was recorded in the year ended September 30, 1997.
Additionally, in connection with the IPO, the underwriter was granted an option
to purchase up to 176,000 units at $6.00 per unit.
In conjunction with its IPO, the pre-IPO stockholders placed 900,000
shares of their common stock into an escrow account. Some or all of these shares
are to be released upon the Company meeting certain performance goals or the
stock price exceeding certain targets. If these goals are not met the shares
will be canceled. However, should the goals be met, the release of the shares
owned by officers, directors and consultants aggregating 432,000 shares of the
900,000 shares in escrow will result in the Company recognizing an additional
expense equal to the market value of the shares released. A total of 400,000
shares of common stock held in escrow are to be released if either (a) the
Company's minimum pretax income, as defined, equals or exceeds $3,800,000 for
the year ending September 30, 1998, $5,500,000 for the year ending September 30,
1999 or $7,500,000 for the year ending September 30, 2000 or (b) the average
closing price of the common stock equals or exceeds $12.50 per share for a 30
trading day period in the 18-month period beginning with the consummation of the
IPO or $16.50 per share for 30 trading days in the period beginning after 18
months after the consummation of the IPO and ending 36 months after the IPO. All
shares of common stock held in escrow are to be released if either (a) the
Company's minimum pretax income, as defined, equals or exceeds $4,600,000
9
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for the year ending September 30, 1998, $6,600,000 for the year ending September
30, 1999 or $9,000,000 for the year ending September 30, 2000 or (b) the average
closing price of the common stock equals or exceeds $15.00 per share for a 30
trading day period in the 18 month period beginning with the consummation of the
IPO or $18.00 per share for 30 trading days in the period beginning after 18
months after the consummation of the IPO and ending 36 months after the IPO.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
Statements in this Form 10-QSB that are not descriptions of historical
facts are forward-looking statements that are subject to risks and
uncertainties. Actual results could differ materially from those currently
anticipated due to a number of factors, including those set forth under "Risk
Factors" in the Company's Form 10-KSB for the year ended September 30, 1997 and
including, in particular, risks relating to the early stage of the Company and
its products; the commercialization of the Company's products, such as uncertain
market acceptance, limited marketing capabilities, competition and other risks;
risks relating to product launches, if any, and managing growth; government
regulation; and dependence on third parties.
GENERAL
The Company is a early stage enterprise organized to develop, market and
administer a health care benefit services program which is designed to enable
Members to obtain discounts on purchases of ancillary health care products and
services through Networks of health care providers with which the Company has
executed provider agreements. The Company's initial revenues, substantially all
of which have been received in the quarter ended December 31, 1997, have been
derived principally from the receipt of annual or monthly enrollment fees paid
by or on behalf of Members for the right to obtain discounts at the point of
purchase from providers in the Networks. The Company currently anticipates that
a significant portion of its future revenue will be received in the form of
monthly bank drafts and monthly payroll deductions made by employers on behalf
of their employees. Accordingly, all monthly payment sales and their
corresponding expenses, including sales commissions and provider fees, will be
recognized in the monthly periods for which they are billed. However, since the
initial cost of delivering the cards to the Company's customers will be incurred
and expensed in the first month, the gross profit associated with each new
individual card issued will be lower in the month of issuance than in the
remaining eleven months prior to the card's expiration date. In addition, since
all renewal cards will be subject to the same costs of issuance, this twelve
month pattern of lower gross profits in the first month will likely continue for
any renewal periods.
In those instances when a sale of the Company's HealthCare Solutions Card
is collected as a single annual fee, the Company recognizes all of its single
payment sales in the period in which the card is delivered, since all of the
expenses resulting from the purchase of an annual card, including the costs of
issuance, sales commissions, provider fees and a provision for cancellations
from potential guarantee-related refunds, are incurred by the Company at the
time of sale. The Company incurs only nominal additional direct costs associated
with each cardholder in the following eleven months due to the fact that under
all of its provider network contracts, each provider is obligated to continue to
provide discounts to all cardholders until the annual card expires, even if the
provider network contract has been terminated. The Company also currently offers
a full money-back guarantee to Members who, after the first full year of
enrollment, are not satisfied with the HealthCare Solutions Card and the Company
intends to establish reserves therefor.
From its inception through September 30, 1997, the Company's primary
activities consisted of (i) designing and developing a network administration
system to facilitate data processing and enhance its customer service
capabilities, (ii) negotiating contracts with Networks of Providers, (iii)
organizing a marketing force to market the HealthCare Solutions Card and (iv)
test marketing. The Company has only recently begun to market the HealthCare
Solutions Card and has primarily focused its initial marketing efforts in the
states of Illinois, Indiana, Missouri and Texas. There can be no assurance that
the Company will successfully maintain or expand the Networks and/or market the
HealthCare Solutions Card.
10
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The following discussion and analysis should be read in conjunction with
the financial statements and notes thereto appearing elsewhere in this report.
RESULTS OF OPERATIONS
QUARTERS ENDED DECEMBER 31, 1996 AND 1997. Operating revenues for the
quarter ended December 31, 1997 (the "1997 Quarter") were approximately $14,000
compared to $0 for the quarter ended December 31, 1996 (the "1996 Quarter").
This revenue is the result of the Company's recent initiation of sales and
marketing activities and the resultant sales of the HealthCare Solutions Card to
cardholders who purchased a HealthCare Solutions Card during the 1997 Quarter.
Selling, general and administrative expenses decreased by 29% from
approximately $509,000 in the 1996 Quarter to approximately $361,000 in the 1997
Quarter primarily as a result of a non-recurring, non-cash charge in 1996 of
approximately $227,000 relating to the fair market value adjustment of 216,000
shares of Class B common stock issued to the Chairman of the Board of the
Company, net of an increase of approximately $79,000 in (i) professional fees;
(ii) certain other expenses, primarily marketing, incurred in connection with
the development of the HealthCare Solutions Card and (iii) an increase in the
number of management-level, marketing and sales employees at the Company.
Interest expense increased from approximately $6,000 in the 1996 Quarter to
approximately $50,000 in the 1997 Quarter primarily as a result of (i) accrued
interest of approximately $9,000 recorded on certain notes (the "Bridge Notes")
issued in a bridge financing completed in February and March 1997 (the "Bridge
Financing"), (ii) accretion of the discount related to the Bridge Financing of
approximately $32,000 and (iii) an increase of approximately $3,000 related to
various other borrowings by the Company. Interest income increased by
approximately $63,000 primarily as a result of short term investments of the
balance of proceeds received by the Company from the Bridge Financing and the
net proceeds received by the Company from the completion of its initial public
offering in October and November, 1997 (the "IPO").
Net loss decreased by approximately 33% from approximately $515,000 in the
1996 Quarter to approximately $344,000 in the 1997 Quarter as a result of the
foregoing factors. Net loss per share decreased by approximately 90% as a result
of the decrease in net loss and the dilutive impact resulting from the
completion of the Company's IPO.
LIQUIDITY AND CAPITAL RESOURCES
As of December 31, 1997, the Company had a working capital balance of
approximately $5,734,000. From its inception through October 14, 1997, the
Company funded its activities primarily through loans and capital contributions
from principal stockholders and private placements of equity and debt
securities.
In February and March 1997, the Company completed the Bridge Financing
which consisted of $2,300,000 principal amount of Bridge Notes bearing interest
at an annual rate of 10% and warrants to purchase an aggregate of 1,150,000
shares of Class A Common Stock. The proceeds of the Bridge Financing, which were
approximately $1,964,000 (net of $230,000 in commissions and a $69,000 expense
allowance paid to the placement agent and other expenses of the private
placement) were utilized by the Company for the repayment of certain
indebtedness and for working capital purposes, including general and
administrative expenses and expenses of the IPO. On October 17, 1997, the
Company paid, with a portion of the proceeds of the IPO, approximately
$2,443,000 to the holders of the Bridge Notes, which amount represented all of
the principal and accrued interest due on the Bridge Notes issued in the Bridge
Financing.
In October and November, 1997, the Company completed the IPO in which it
sold to the public 2,024,000 units (including the underwriters' over-allotment
option exercised in November 1997) at $5.00 per unit. Each unit consisted of one
share of Class A Common Stock and one redeemable Class A Warrant to purchase one
share of Class A Common Stock at an exercise price of $6.50, subject to
adjustment, at any time until October 2002. The net proceeds from the IPO
of approximately $8,375,000 have been, and are being, utilized by the Company
for the repayment of the Bridge Financing, certain other indebtedness and for
working capital purposes, including general and administrative expenses. The
Company intends to use the remaining proceeds of the IPO to implement its
business plan, which includes the refinement, sales and marketing of the
HealthCare Solutions Card and the possible development of a physician and
11
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hospital network. The Company may also seek to acquire or invest in businesses
and products that are complementary to those of the Company, although the
Company has no present commitments or agreements with respect to any such
acquisition or investments.
The Company expects to continue to incur substantial costs in the near term
in connection with sales and marketing activities, all of which is expected to
be financed from a substantial portion of the remaining proceeds of the IPO. The
Company also expects that general and administrative costs necessary to support
the establishment of a sales and marketing organization and other infrastructure
will increase in the future. Unless the Company is able to generate significant
commercial sales of the HealthCare Solutions Card, the Company will continue to
incur operating losses. There can be no assurance that the Company will ever
achieve profitable operations.
The Company believes that its existing resources will provide the necessary
liquidity and capital resources to sustain its planned operations for
approximately 18 months following the IPO. In the event that the Company's
internal estimates relating to its planned expenditures prove materially
inaccurate, the Company may be required to reallocate funds among its planned
activities and curtail certain planned expenditures. In any event, the Company
anticipates that it will likely require substantial additional financing after
such time, which financing could be in the form of equity or debt financing or
money received in connection with collaborative arrangements that may be entered
into in the future. The Company has no commitments for any future financing and
there can be no assurance as to the availability or terms of any required
additional financing, when and if needed. In the event that the Company fails to
raise any funds it requires, it may be necessary for the Company to
significantly curtail its activities or cease operations.
Release of Escrow Shares. In connection with the IPO, the pre-IPO
stockholders of the Company placed, on a pro rata basis, a portion of their
shares into escrow pending the Company's attainment of certain earnings
thresholds or per share stock price thresholds. The Commission has taken the
position with respect to the release of securities from escrow that in the event
the Escrow Shares are released from escrow to directors, officers, employees or
consultants of the Company, the release will be treated, for financial reporting
purposes, as compensation expense to the Company. Accordingly, in the event of
the release of the Escrow Shares, the Company will recognize during the period
in which the earnings or market price targets are met or become probable of
being met, a substantial non-cash charge which would substantially increase the
Company's loss or reduce or eliminate earnings, if any, at such time. The amount
of compensation expense recognized by the Company will not affect the Company's
total stockholders' equity. There can be no assurance that the Company will
attain the targets which would enable the Escrow Shares to be released from
escrow. In addition, a portion of the warrants issued to the Chairman of the
Board of Directors will become exercisable only upon the attainment by the
Company of certain earnings or market price thresholds. In the event that such
warrants become exercisable, the Company will recognize during the period in
which the earnings thresholds are probable of being met or such stock levels
achieved, an additional non-cash charge to earnings equal to the fair market
value of the portion of the warrants subject to such earnings or market price
thresholds, which could have the effect of significantly increasing the
Company's loss or reducing or eliminating earnings, if any, at such time.
The recognition of the potential charges to income described above may
have a depressive effect on the market price of the Company's securities.
PART II
OTHER INFORMATION
Item 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
The 2,024,000 units of the Company and the underlying securities,
consisting of one share of Class A Common Stock and one warrant to purchase one
share of Class A Common Stock per unit (the "Units"), issued in the IPO were
registered under a registration statement on Form SB-2 (File No. 333-28233)
which was declared effective by the Securities and Exchange Commission on
October 14, 1997 (the "Registration Statement"). In addition, in connection with
the IPO, the Company issued to D.H. Blair Investment Banking Corp., the managing
Underwriter in the IPO, options to purchase 176,000 Units which Units and the
securities underlying the Units were registered on the Registration Statement.
The offering of the securities did not terminate prior to the sale of all of the
registered securities. The gross proceeds
12
<PAGE>
from the IPO were $10,120,176. The Company paid the underwriters of the
IPO, $971,520 in underwriting discounts and commissions and $303,600 for
non-accountable expenses. The Company incurred additional expenses related to
the IPO of approximately $470,000 and the net proceeds to Company from the IPO
were approximately $8,375,000.
A portion of the net proceeds from the IPO have been used (i) to repay
the principal and interest on the Bridge Notes of $2,442,979, of which $52,986
and $26,590 was paid to Neal J. Polan, the Chairman of the Board and Chief
Executive Officer of the Company, and Eli Levitin, a director of the Company, as
repayment of Bridge Notes held by them, (ii) to purchase equipment in the amount
of approximately $43,200 and (iii) for working capital purposes in the amount of
approximately $700,000. The remaining portion of the net proceeds from the IPO
in the amount of approximately $5,200,000 has been invested in short-term,
interest-bearing, investment grade securities.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27 Financial Date Schedule
(b) Reports on Form 8-K
None
13
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
HEALTHCORE MEDICAL SOLUTIONS, INC.
By: /s/ Neal J. Polan
--------------------------------
Neal J. Polan
Chairman and Chief Executive Officer
By: /s/ James H. Steinheider
--------------------------------
James H. Steinheider
Chief Operating Officer and Chief Financial Officer
Date: February 13, 1997
14
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
financial statements of HealthCore Medical Solutions, Inc. for the three months
ended December 31, 1997 and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> OCT-1-1997
<PERIOD-END> DEC-31-1997
<EXCHANGE-RATE> 1
<CASH> 5,726,337
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 5,880,876
<PP&E> 285,754
<DEPRECIATION> (80,446)
<TOTAL-ASSETS> 6,087,264
<CURRENT-LIABILITIES> 146,559
<BONDS> 0
0
0
<COMMON> 32,240
<OTHER-SE> 5,835,439
<TOTAL-LIABILITY-AND-EQUITY> 6,087,264
<SALES> 13,916
<TOTAL-REVENUES> 13,916
<CGS> 9,238
<TOTAL-COSTS> 9,238
<OTHER-EXPENSES> 361,152
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 49,643
<INCOME-PRETAX> (343,562)
<INCOME-TAX> 0
<INCOME-CONTINUING> (343,562)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (343,562)
<EPS-PRIMARY> (0.18)
<EPS-DILUTED> (0.18)
</TABLE>
