UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For The Quarterly Period Ended June 30, 1997
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from _________________ to _________________
Commission File Number: 0-25530
LIFERATE SYSTEMS, INC.
(Exact name of Registrant as specified in its charter)
Minnesota 41-1682994
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
7210 Metro Boulevard
Edina, Minnesota 55439
(Address of principal executive offices, including zip code.)
(612) 844-0599
(Registrant's telephone number)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
As of July 28, 1997, there were 3,824,755 shares of Common Stock outstanding.
Transitional Small Business Disclosure Format (check one): Yes ____ No __X__
<PAGE>
LIFERATE SYSTEMS, INC.
INDEX TO FINANCIAL STATEMENTS
PAGE
ITEM 1. FINANCIAL STATEMENTS
Condensed Balance Sheets -
December 31, 1996 and June 30, 1997 3
Condensed Statements of Operations -
Three Months Ended June 30, 1996 and 1997 and six months ended
June 30, 1996 and 1997 and Date of Inception to June 30, 1997. 4
Statements of Cash Flow -
Six Months Ended June 30, 1996 and 1997
and Date of Inception to June 30, 1997. 5
Notes to Condensed Financial Statements 6
ITEM 2. Management's Discussion and Analysis 7
<PAGE>
LIFERATE SYSTEMS, INC.
(A DEVELOPMENT STAGE COMPANY)
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, June 30,
1996 1997
------------ ------------
ASSETS (NOTE) (UNAUDITED)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 2,072,000 $ 342,900
Accounts receivable, less allowance of $60,400 at
December 31, 1996 and $22,900 at June 30, 1997 142,400 264,200
Prepaid expenses and other current assets 122,700 81,900
------------ ------------
TOTAL CURRENT ASSETS 2,337,100 689,000
Furniture and fixtures 177,400 206,100
Computer equipment 837,200 839,300
------------ ------------
1,014,600 1,045,400
Less accumulated depreciation 325,900 474,400
------------ ------------
688,700 571,000
Software development costs, net of amortization of $100,800 at
December 31, 1996 and $151,300 at June 30, 1997 50,500 --
------------ ------------
TOTAL ASSETS $ 3,076,300 $ 1,260,000
============ ============
Liabilities and shareholders' equity
Current liabilities:
Accounts payable and accrued liabilities $ 417,800 $ 425,400
Accrued interest -- 41,500
Other current liabilities 73,900 54,200
Current portion of convertible notes payable-related parties -- 1,000,000
Current portion of notes payable 10,800 7,300
Current portion of capitalized lease obligations 1,000 8,300
------------ ------------
TOTAL CURRENT LIABILITIES 503,500 1,536,700
Convertible subordinated note 2,250,000 2,250,000
Accrued interest -- 28,100
Notes payable 1,800 --
Capitalized lease obligation -- 7,300
Deferred rent 16,800 10,900
Deferred revenue 151,800 210,500
Shareholders' equity:
Preferred stock, no par value:
Authorized shares - 1,000,000
Issued and outstanding shares-none in 1996 and 1997
Common stock, no par value:
Authorized shares - 10,000,000
Issued and outstanding shares - 3,811,639 at
December 31, 1996 and 3,824,755 at June 30, 1997 17,260,700 17,299,900
Deficit accumulated during the development stage (17,108,300) (20,083,400)
------------ ------------
Total shareholders' equity 152,400 (2,783,500)
------------ ------------
Total liabilities and shareholders' equity $ 3,076,300 $ 1,260,000
============ ============
</TABLE>
Note: The balance sheet at December 31, 1996 has been derived from the audited
financial statements at that date.
<PAGE>
LIFERATE SYSTEMS, INC.
(A DEVELOPMENT STAGE COMPANY)
CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
July 18, 1990
Three Months Six Months (Date of
Ended June 30 Ended June 30 Inception) to
------------- ------------- -------------
1996 1997 1996 1997 June 30, 1997
----------- ----------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Net revenues $ 150,100 $ 44,800 $ 259,300 $ 243,600 $ 1,433,900
Cost of revenues 35,900 25,200 79,800 67,800 291,200
----------- ----------- ----------- ----------- ------------
Gross profit 114,200 19,600 179,500 175,800 1,142,700
Operating expenses:
Sales and marketing 617,800 509,300 1,236,700 1,045,000 6,525,600
Research and development 560,400 374,000 1,052,300 793,500 8,805,100
General and administrative 727,500 714,800 1,210,900 1,262,600 6,167,500
----------- ----------- ----------- ----------- ------------
Loss from operations (1,791,500) (1,578,500) (3,320,400) (2,925,300) (20,355,500)
Interest income 77,000 8,200 168,100 21,900 380,800
Interest expense 1,400 71,400 2,700 71,700 108,700
----------- ----------- ----------- ----------- ------------
Net loss $(1,715,900) $(1,641,700) $(3,155,000) $(2,975,100) $(20,083,400)
=========== =========== =========== =========== ============
Net loss per share $ (0.45) $ (0.43) $ (0.84) $ (0.78)
=========== =========== =========== ============
Weighted average number of common
shares outstanding 3,804,973 3,819,708 3,762,955 3,819,708
=========== =========== =========== ============
</TABLE>
<PAGE>
LIFERATE SYSTEMS, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
JULY 18, 1990
(DATE OF
SIX MONTHS ENDED INCEPTION) TO
JUNE 30 JUNE 30,
1996 1997 1997
----------- ----------- ------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net loss $(3,155,000) $(2,975,100) $(20,083,400)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization 82,200 198,900 626,200
Writedown of software development costs to net realizable value -- -- 599,600
Stock issued for services -- -- 187,500
Value of stock options granted for services rendered -- 8,300 982,300
Convertible subordinated note issued for services rendered -- -- 2,250,000
Changes in operating assets and liabilities:
Accounts receivable (95,400) (94,200) (236,600)
Prepaid and other current assets (108,600) 13,200 (109,500)
Other assets 11,800 -- --
Accounts payable and other accrued liabilities (487,400) (10,600) 816,900
Accrued interest -- 69,600 69,600
Deferred revenue 277,600 58,700 210,500
Deferred rent (6,000) (5,900) 10,900
----------- ----------- ------------
Net cash used in operating activities (3,480,800 (2,737,100) (14,676,000)
INVESTING ACTIVITIES
Software development costs -- -- (750,900)
Purchase of furniture and equipment (483,800) (30,700) (1,003,100)
----------- ----------- ------------
Net cash used in investing activities (483,800) (30,700) (1,754,000)
FINANCING ACTIVITIES
Payments on notes payable and capital lease obligations (16,000) (9,700) (171,100)
Stock subscription received -- -- 5,000
Proceeds from issuance of notes payable and capital lease obligations -- 1,017,500 1,307,700
Proceeds from issuance of common stock 1,908,900 30,900 15,631,300
----------- ----------- ------------
Net cash provided by financing activities 1,892,900 1,038,700 16,772,900
----------- ----------- ------------
Increase (Decrease) in cash and cash equivalents (2,071,700) (1,729,100) 342,900
Cash and cash equivalents at beginning of period 7,750,500 2,072,000 --
----------- ----------- ------------
Cash and cash equivalents at end of period $ 5,678,800 $ 342,900 $ 342,900
=========== =========== ============
</TABLE>
See accompanying notes
<PAGE>
LIFERATE SYSTEMS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONDENSED FINANCIAL STATEMENTS
JUNE 30, 1997
1. Organization and Description of Business
LifeRate Systems, Inc. is a development stage enterprise engaged in
marketing proprietary clinical software systems to health care
providers and payors to produce information to measure and quantify the
quality and cost of health care.
2. Basis of Presentation
The financial information presented as of June 30, 1996 and 1997 has
been prepared from the books and records without audit. Financial
information as of December 31, 1996 is based on audited financial
statements of LifeRate Systems, Inc. but does not include all
disclosures required by generally accepted accounting principles. In
the opinion of management, all adjustments, consisting only of normal
recurring adjustments necessary for a fair presentation of the
financial information for the periods indicated have been included. For
further information regarding the Company's accounting policies, refer
to the financial statements and attached notes included in the
Company's Form 10-KSB for the fiscal year ended December 31, 1996 as
filed with the Securities and Exchange Commission.
3. Net Loss Per Share
Net loss per share is computed using the weighted average number of
common shares outstanding during the period. Common equivalent shares
from stock options and warrants are excluded from the computation as
their effect is antidilutive. In February 1997, the Financial
Accounting Standards Board (FASB) issued FASB Statement No. 128,
"EARNINGS PER SHARE." This Statement replaces the presentation of
primary earnings per share (EPS) with basic EPS and also requires dual
representation of basic and diluted EPS for entities with complex
capital structures. This Statement is effective for the fiscal year
ended December 31, 1997. For the three and six month periods ended June
30, 1997, there is no difference between basic earnings per share under
Statement No. 128 and primary net loss per share as reported.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
Introduction
During the second quarter of 1997, the Company completed a new release of the
LifeRate Clinical Information System, which enables the System to capture more
detailed information on a patient's past surgical procedures. LifeRate also
enhanced the System's outpatient visit note, a summary of the patient's visit
with the physician, to allow customization by the physician. The Company
believes that these features will allow the physician to better monitor
outcomes. The Company also continued development of its Cath Lab product during
the quarter, which is scheduled for release later in 1997.
In June 1997, the Company signed an agreement to install the LifeRate System at
Washington Hospital Center in Washington, DC. In July 1997, Red Oak
Cardiovascular Center in Houston, Texas entered into an agreement for the
installation of a LifeRate System. Prior to these agreements, the Company has
installed the LifeRate System at seven cardiovascular practice groups and three
asthma and allergy practices.
The Company has experienced continued losses during 1997. Accordingly, the
Company implemented stronger cost containment programs beginning in the first
quarter of 1997 which remained in place throughout the second quarter of 1997.
These programs have been developed to conserve cash while still allowing the
continued development of the LifeRate System and its sales and marketing
efforts.
Results of Operations
The Company generated revenues of $44,800 for the three months ended June 30,
1997, all of which resulted from recurring license fees. This compares to
$150,100 of revenues generated for the three months ended June 30, 1996.
Recurring licenses were $12,500 during the second quarter of 1996 as there were
only two installed systems at the beginning of this period. Installation fees
contributed $40,000 of revenue in the second quarter of 1996 while the remainder
of revenues were related to development and other one time fees.
Revenues of $243,600 for the six months ended June 30, 1997 include $150,000 of
development fees related to the previously announced National Jewish contract
and $92,800 of recurring license fees. This compares to $259,300 in revenues for
the six months ended June 30, 1996, which consisted of $177,100 of development
fees, $12,500 of recurring license fees, and $50,000 of installation fees.
Costs of revenues were $25,200 and $35,900 for the three months ended June 30,
1997 and 1996, respectively. Amortization of capitalized software costs
contributed $25,200 of these amounts in both periods. For the three months ended
June 30, 1996, cost of revenues also included $10,700 of development expense
related to the development contract generating the majority of revenue in that
period. Cost of revenues were $67,800 and $76,800 for the six months ended June
30, 1997 and 1996, respectively. Amortization of capitalized software costs of
$50,400 in both periods contributed the majority of expense. During the first
quarter of 1997, the Company incurred royalty expense, which is included in cost
of revenues, of $14,900 under an agreement with Anthony Furnary, M.D., a
director of the Company. In March 1997, the Company and Dr. Furnary modified
this Agreement, which now provides for LifeRate to pay Dr. Furnary royalties at
3% of all gross revenues beginning in 1999 (or sooner if the Company reaches
$20,000,000 of cumulative revenues) up to $100,000,000 and, thereafter, at 3.6%
on all gross revenues. No royalty expense was recorded in the second quarter of
1997 or for the comparable period of 1996. For the first six months of 1996,
cost of revenues included $29,400 of development expense recorded against the
development contract generating the majority of revenue in that period.
<PAGE>
Sales and marketing expenses were $509,300 and $1,045,000 for the three and six
months ended June 30, 1997, respectively. This compares to $617,800 and
$1,236,700 for the three and six months ended June 30, 1996, respectively.
During 1995, Clinical Sales & Service ("CSSI") provided substantially all of the
Company's sales, marketing and clinical support functions. During the first
quarter of 1996, the employees of CSSI became employees of the Company. Expenses
for the three and six months ended June 30, 1996 are higher than those in the
comparable period of 1997 due to relocation and other one time costs associated
with this integration. As previously discussed, the Company has implemented a
cost containment program, which has also decreased sales and marketing expenses.
Research and development expenses for the three months ended June 30, 1997 were
$374,000, a decrease of $186,400, or 33.3%, from the three months ended June 30,
1996. For the six months ended June 30, 1997, research and development expenses
were $735,500, a $ 258,000, or 24.6%, decrease from the six months ended June
30, 1996. These decreases reflect a number of one time expenses incurred in 1996
related to the recruitment and relocation of key staff members combined with the
cost containment programs implemented in 1997. The Company plans to continue to
invest the resources needed to meet customer and market requirements.
General and administrative expenses of $714,800 were incurred in the three
months ended June 30, 1997. These expenses are $12,700 lower than the $727,500
of general and administrative expenses incurred in the three months ended June
30, 1996. This decrease reflects the effects of the cost containment program
implemented in 1997 offset by a $100,000 milestone payment related to
renegotiated agreement with Dr. Furnary described above, and $57,600 in
increased depreciation expense related to the office expansion that occurred in
the third quarter of 1996. General and administrative expenses increased from
$1,210,900 for the six months ended June 30, 1996 to $1,262,600 for the six
months ended June 30, 1997. This increase is due to $ 93,900 in legal and
professional fees related to the renegotiation of the agreement with Dr. Furnary
and the cancellation of a royalty agreement with Atlanta Cardiology Group P.C.
("ACG"), $76,000 in recruiting fees for a new Chief Executive Officer, $116,700
in increased depreciation expense related to equipment purchased during 1996 and
the $100,000 milestone payment to Dr. Furnary. These increases were offset by
lower payroll and travel related expenses resulting from the change in
management that occurred in the second quarter of 1996 and the 1997 cost
containment program.
Interest income decreased from $77,100 and $168,100 in the three and six months
ended June 30, 1996 to $8,200 for the three months ended June 30, 1997 and
$21,900 for the six months ended June 30,1997. These decreases reflect the lower
overall cash position in 1997 compared to 1996.
Prior to the second quarter of 1997, interest expense had not been a significant
expense to the Company. However, the Company incurred interest expense of
$71,700 in the quarter ended June 30, 1997 under the instruments described
below. In April 1997, interest began to accrue on a $2,250,000 convertible
subordinated note payable. This note was issued in connection with the
cancellation of a royalty agreement with ACG. The note bears interest at 10%.
Interest will be paid at a rate of 5%, with the remaining 5% accruing until the
end of the note term in 2002. In addition, the Company issued convertible
promissory notes in the aggregate amount of $1,000,000 in May 1997 and $500,000
in July 1997. These notes bear interest at the prime rate and are described in
more detail below under the heading "Liquidity and Capital Resources".
Accordingly, the Company expects to incur interest expense in future periods.
Liquidity and Capital Resources
The Company has financed its operations since inception primarily through
private and public placement of Common Stock.
At June 30, 1997, the Company had $342,900 in cash and cash equivalents, a
$1,729,200 decrease from December 31, 1996. The primary use of this cash was to
fund operations. The Company does not have significant capital equipment
purchase commitments but does plan to continue to fund software develpment
efforts.
<PAGE>
In May 1997, the Company issued a convertible promissory note in the principal
amount of $1,000,000 to Medtronic, Inc., a principal shareholder of the Company
with a representative that serves on the Company's Board of Directors. This note
bears interest at the prime rate. The note will become due upon the earlier of
the completion by the Company of an equity financing raising gross proceeds of
at least $5,000,000 or November 30, 1997. In addition, the note is convertible,
at the option of the holder, into Common Stock at a conversion price equal to
the lower of $2.00 or the average per share price in the Company's next equity
financing. The Company also granted Medtronic a warrant to purchase a number of
shares of Common Stock equal to 10% of the principal amount of the note. The
warrant is exercisable at the same price as the conversion price of the note.
The Company has agreed to grant additional warrants if the note is not paid when
due. In July 1997, the Company issued additional notes in the aggregate
principal amount of $500,000 and warrants to certain private investors on the
same terms as the notes and warrants issued to Medtronic. The Company is using
the proceeds from these note issuance to fund operations.
The Company currently estimates that its cash on hand will be sufficient to meet
the Company's cash needs through September 30, 1997. Thereafter, the Company
will require substantial additional capital to continue operations. There is no
assurance that the Company will be able to secure additional financing or that,
if available, that terms of such financing will be satisfactory to the Company.
Without additional financing the Company will be forced to cease operations.
<PAGE>
PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On May 22, 1997 the Company held its Annual Meeting of Shareholders (the
"Meeting"). At the Meeting, the following individuals were elected to serve one
year terms as directors of the Company as indicated:
William W. Chorske 2,905,796 votes for; 24,707 votes withheld
David D. Koentopf 2,883,697 votes for; 46,806 votes withheld
Stanley R. Cowle 2,905,496 votes for; 25,007 votes withheld
William D. Knopf, M.D. 2,905,296 votes for; 25,207 votes withheld
Daniel A. Pelak 2,883,797 votes for; 46,706 votes withheld
Kevin L. Roberg 2,905,796 votes for; 24,707 votes withheld
Carl J. Schramm 2,883,797 votes for; 46,706 votes withheld
Donald C. Wegmiller 2,905,796 votes for; 24,707 votes withheld
In addition, the following matters were submitted to the shareholders for their
vote and approved as indicated: (i) a proposal to amend the Corporation's
Amended And Restated Articles of Incorporation to increase the number of Common
Stock to 20,000,000 shares (2,770,456 votes for, 146,874 votes against, 13,173
votes abstaining and zero broker non-votes); (ii) a proposal to ratify the
selection of Ernst and Young LLP as independent auditors of the Company for the
fiscal year ending December 31, 1997 (2,882,769 votes for; 35,899 votes against,
11,835 votes abstaining and zero broker non-votes).
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
<TABLE>
<CAPTION>
ITEM NUMBER ITEM METHOD OF FILING
<S> <C> <C> <C>
10.1 Convertible Promissory Note dated Filed herewith
May 12, 1997, from the Company to
Medtronic, Inc.
10.2 Warrant, dated May 12, 1997, from the Filed herewith
Company to Medtronic, Inc.
27.1 Financial Data Schedule Filed herewith
</TABLE>
(b) Reports of Form 8-K
On May 5, 1997, the Company filed a report on Form 8-K to
report various changes in its executive officers and
directors.
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the Registrant has
caused this report to be signed on its behalf by the undersigned, thereunder
duly authorized.
Dated: August 14, 1997
LifeRate Systems, Inc.
By: /S/ William W. Chorske
------------------------------------
William W. Chorske
Chairman of the Board
By: /S/John Goodrich
------------------------------------
John Goodrich
Principle Executive, Financial and
Accounting Officer
<PAGE>
LIFERATE SYSTEMS, INC.
EXHIBIT INDEX TO QUARTERLY
REPORT ON FORM 10-QSB
for the quarterly Period ended June 30, 1997
<TABLE>
<CAPTION>
ITEM NUMBER ITEM METHOD OF FILING
<S> <C> <C>
10.1 Convertible Promissory Note, dated May 12, 1997, from the Filed herewith
Company to Medtronic, Inc.
10.2 Warrant, dated May 12, 1997, from the Company to Medtronic, Inc. Filed herewith
27.1 Financial Data Schedule Filed herewith
</TABLE>
THIS NOTE, AND THE SHARES OF COMMON STOCK ISSUABLE UPON ANY CONVERSION HEREOF,
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
APPLICABLE STATE SECURITIES LAWS AND MAY NOT BE REOFFERED OR SOLD, TRANSFERRED,
PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF, EXCEPT PURSUANT TO (1)
REGISTRATION OR (2) AN OPINION OF COUNSEL FOR LIFERATE OR OTHER COUNSEL
REASONABLY ACCEPTABLE TO LIFERATE TO THE EFFECT THAT SUCH REGISTRATION IS NOT
REQUIRED.
$1,000,000 May 12, 1997
Prime Minneapolis, Minnesota
CONVERTIBLE PROMISSORY NOTE
For good and valuable consideration, the receipt of which is hereby
acknowledged, the undersigned, LifeRate Systems, Inc., a Minnesota corporation
("LifeRate"), agrees to pay Medtronic, Inc., or its registered assigns (the
"Holder") at 7000 Central Avenue N.E., Minneapolis, Minnesota 55432 or such
other address provided to LifeRate by written notice from the Holder, the
principal sum of One Million Dollars ($1,000,000.00), plus accrued interest
thereon at the rate specified below, upon the earlier of (i) 10 days following
completion of the Next Equity Financing (as defined in Section 2 hereof), or
(ii) November 30, 1997.
The following terms, covenants, statements of holders' rights and
conditions shall apply to this Note:
1. Interest. The principal amount of this Note shall bear interest
(calculated on the basis of a 360-day year and the actual number of days such
principal amount remains outstanding) at an annual percentage rate equal to the
Prime Rate. The "Prime Rate" shall mean a fluctuating interest rate announced by
Norwest Bank Minnesota, N.A. from time to time as its "base," "prime," or
"reference" rate. Such interest rate shall be adjusted with each change in the
Prime Rate, to take effect as of the date of such change.
2. Conversion. Upon the closing of the Next Equity Financing prior to
the date this Note has been paid in full in accordance with its terms, the
Holder shall have the right (the "Conversion Right") to convert all or any
portion of the outstanding principal amount of this Note, together with all
accrued interest hereon to the date of conversion, into LifeRate Common Stock at
a per share price equal to the Conversion Price (as defined below). The
Conversion Right shall be exercisable at any time or from time to time prior to
the date of payment in full of the principal of and interest on this Note by
surrendering this Note with the Conversion Form attached hereto as Exhibit A
completed and duly executed by such Holder or by such Holder's duly authorized
attorney to LifeRate at its principal office. In order to permit the Holder
hereof to exercise the Conversion Right, LifeRate shall give to Medtronic
written notice of the closing of the Next Equity Financing at least 30 days
prior thereto.
For purposes of this Section:
<PAGE>
"Conversion Price" means the lesser of (i) $2.00 per share of
Common Stock, or (ii) the average price per share of Common Stock
(reflecting conversion of any convertible preferred stock) paid by all
purchasers of Common Stock in the Next Equity Financing; and
"Next Equity Financing" means LifeRate's receipt in one or
more transactions of an aggregate Five Million Dollars ($5,000,000) or
more of new cash funds from the sale of Common Stock or securities
convertible into Common Stock, to occur pursuant to a private placement
financing conducted by Miller, Johnson and Kuehn Incorporated or any
other agent for LifeRate.
3. Common Stock Issued on Conversion. Upon conversion hereof pursuant
to Section 2, LifeRate shall promptly deliver to the Holder a certificate or
certificates representing the number of fully paid and nonassessable shares of
Common Stock into which the portion of this Note specified in Section 2 above
has been converted, together with cash payable in lieu of issuing any fractional
share. LifeRate shall also pay to the Holder at such time all principal of and
interest on this Note then remaining unpaid that has not been converted into
Common Stock pursuant to Section 2.
4. Event of Default. The occurrence of any one or more of the following
events (whether such occurrence shall be voluntary or involuntary or occur or be
effected by operation of law or otherwise) shall constitute an "Event of
Default" hereunder:
(a) if LifeRate fails to pay the entire amount of the
principal of and interest on this Note when due; or
(b) if LifeRate defaults in the payment of principal or
interest on any obligation for borrowed money in excess of $100,000
beyond any period of grace provided with respect thereto, or in the
performance of any other covenant, term or condition in any agreement
involving any obligation in excess of $100,000 if the effect of such
default is to cause or permit the holder or holders of such obligation
to cause such obligation to become due prior to its stated maturity; or
(c) if any creditor of LifeRate commences any foreclosure,
levy, attachment or other action or proceeding to enforce or collect a
judgment involving any obligation in excess of $100,000 owed by
LifeRate; or
(d) if LifeRate makes an assignment for the benefit of
creditors; or
(e) if any order, judgment, or decree is entered adjudicating
LifeRate bankrupt or insolvent; or
(f) if LifeRate petitions or applies to any tribunal for the
appointment of a trustee, receiver, or liquidator of LifeRate, or
commences any proceedings relating to
<PAGE>
LifeRate under any bankruptcy, reorganization, insolvency, dissolution,
or liquidation law of any jurisdiction, whether now or hereafter in
effect; or
(g) if an order, judgment, or decree is entered appointing any
such trustee, receiver, or liquidator, or approving the petition in any
such proceedings, and such order, judgment, or decree remains unstayed
and in effect for more than 30 days; or
(h) if any order, judgment, or decree is entered in any
proceedings against LifeRate decreeing the dissolution of LifeRate and
such order, judgment, or decree remains unstayed and in effect for more
than 30 days.
LifeRate shall immediately notify the Holder of the occurrence of any Event of
Default. Upon or at any time following the occurrence of an Event of Default,
the holder hereof may immediately declare the entire unpaid principal balance of
and all interest accrued on this Note to be immediately due and payable, and the
unpaid principal balance of and accrued interest on this Note shall thereupon be
due and payable without further demand, presentation, protest, or further notice
of any kind, all of which are hereby waived.
5. Common Stock. As used herein, the term "Common Stock" shall mean and
include LifeRate's presently authorized shares of common stock and shall also
include any capital stock of any class of LifeRate hereafter authorized that
shall not be limited to a fixed sum or percentage in respect of the rights of
the holders thereof to participate in dividends or in the distribution,
dissolution or winding up of LifeRate.
6. No Voting Rights. This Note shall not entitle the holder hereof to
any voting rights or other rights as a shareholder of LifeRate unless and until
converted pursuant to Section 2.
7. Warrants. Simultaneously with the execution and delivery of this
Note on the date hereof, LifeRate is issuing to Medtronic a Warrant for the
purchase of 100,000 shares of Common Stock. LifeRate shall issue additional
Warrants to Medtronic upon the occurrence of the following events and on the
following terms:
(a) Without limiting any other remedies that Medtronic may
have under this Note, in the event that LifeRate has not paid in full
the principal of and all accrued interest on this Note on or before
November 30, 1997, LifeRate shall issue to Medtronic an additional
Warrant for the purchase of 50,000 shares of Common Stock. Such Warrant
shall expire five years after the date of issuance and shall otherwise
be substantially in the form of and contain the same exercise price and
other terms as the Warrant issued on the date hereof.
(b) Without limiting any other remedies that Medtronic may
have under this Note, in the event that LifeRate has not paid in full
the principal of and all accrued interest on this Note on or before
February 28, 1998, LifeRate shall issue to Medtronic an additional
Warrant for the purchase of 50,000 shares of Common Stock. Such Warrant
shall expire five years after the date of issuance and shall otherwise
be substantially in the
<PAGE>
form of and contain the same exercise price and other terms as the
Warrant issued on the date hereof.
8. Registration Rights. The holders of the shares of Common Stock
issuable upon any conversion of this Note are entitled to the benefits of all of
the terms, provisions and conditions of Article 8 of that certain Investment
Agreement dated December 26, 1995, which is hereby amended if and to the extent
necessary to include such shares of Common Stock within the definition of
"Registrable Securities" thereunder.
9. Miscellaneous.
(a) LifeRate agrees to pay all costs (including reasonable
attorneys' fees, whether or not suit is brought) incurred by the holder
of this Note in enforcing the terms and conditions hereof and in
effecting the holder's remedies hereunder.
(b) LifeRate hereby waives presentment, demand for payment,
notice of dishonor, notice of protest, and all other notices or demands
in connection with the delivery, acceptance, performance, default or
endorsement of this Note. No delay or failure on the part of the
Holder, its agents or representatives, to collect this Note or to
exercise any power or right in connection with its collection shall
operate as a waiver thereof and such rights and powers shall be deemed
continuous.
(c) No amendment, modification or waiver of any provision of
this Note shall be effective unless the same shall be in writing and
signed by the holder hereof.
(d) This Note shall be governed by and construed in accordance
with the laws of the State of Minnesota.
IN WITNESS WHEREOF, the LifeRate has caused this Convertible Promissory
Note to be signed by its authorized officers and dated as of the date stated
above.
LIFERATE SYSTEMS, INC.
By /s/ William W. Chorske
--------------------------------
Its Chairman
-----------------------------
ATTEST: /s/ John R. Goodrich
---------------------------
<PAGE>
Exhibit A
NOTICE OF CONVERSION OF NOTE -- To Be Executed by the Holder in Order to
Convert the Note
The undersigned hereby irrevocably elects to convert an aggregate
$___________ in principal amount and $__________ in accrued interest on the
attached Convertible Promissory Note into shares of Common Stock as determined
by Section 2 of the Note. The undersigned requests that certificates for such
shares be issued in the name of __________________________________.
Date: _________________, ______ _____________________________________
[name of registered Holder]
_____________________________________
[signature]
_____________________________________
[street address]
_____________________________________
[city, state, zip]
_____________________________________
[tax identification number]
THIS WARRANT, AND THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE HEREOF, HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE
STATE SECURITIES LAWS AND MAY NOT BE REOFFERED OR SOLD, TRANSFERRED, PLEDGED,
HYPOTHECATED OR OTHERWISE DISPOSED OF, EXCEPT PURSUANT TO (1) REGISTRATION OR
(2) AN OPINION OF COUNSEL FOR THE COMPANY OR OTHER COUNSEL REASONABLY ACCEPTABLE
TO THE COMPANY TO THE EFFECT THAT SUCH REGISTRATION IS NOT REQUIRED.
WARRANT
To Purchase 100,000
Shares of Common Stock of
LIFERATE SYSTEMS, INC.
May 12, 1997
LifeRate Systems, Inc., a Minnesota corporation (the "Company"), for
value received, hereby certifies that Medtronic, Inc., a Minnesota corporation
("Medtronic"), or its registered assigns (the "Holder"), is entitled, subject to
the terms set forth below, upon exercise of this Warrant to purchase from the
Company, at any time or from time to time after the date hereof and on or before
11:59 p.m. (Minneapolis, Minnesota time) on May 12, 2002 (the five-year
anniversary of the date hereof), up to one hundred thousand (100,000) shares of
Common Stock, without par value, of the Company ("Common Stock"), at a purchase
price (subject to adjustment in accordance with Section 4 hereof) equal to the
lesser of (i) $2.00 per share or (ii) the average price per share of Common
Stock (reflecting conversion of any convertible preferred stock) paid by all
purchasers of Common Stock in the Next Equity Financing. For these purposes, the
"Next Equity Financing" shall mean the Company's receipt in one or more
transactions of an aggregate Five Million Dollars ($5,000,000) or more of new
cash funds from the sale of Common Stock or securities convertible into Common
Stock pursuant to a private placement financing, as described in greater detail
in the $1,000,000 Convertible Promissory Note (the "Note") dated May 12, 1997,
issued by the Company in favor of Medtronic. The shares issuable upon exercise
or conversion of this Warrant, and the purchase price per share, each as
adjusted from time to time pursuant to the provisions of this Warrant, are
hereinafter referred to as the "Warrant Shares" and the "Exercise Price,"
respectively.
This Warrant is being issued in connection with the execution and
delivery of the Note on the date hereof.
This Warrant is further subject to the following provisions, terms and
conditions:
1. Exercise of Warrant. This Warrant may be exercised by the Holder, in
whole or in part (but not as to any fraction of a share of Common Stock), by
surrendering this Warrant,
<PAGE>
with the Exercise Form attached hereto as Exhibit A completed and duly executed
by such Holder or by such Holder's duly authorized attorney, to the Company at
its principal office accompanied by payment of the Exercise Price in the form of
a cashier's or certified check or wire transfer in the amount of the Exercise
Price multiplied by the number of shares as to which the Warrant is being
exercised.
2. Conversion of Warrant.
(a) In lieu of exercising its rights under Section 1 hereof, the Holder
shall also have the right (the "Conversion Right") to convert all or any portion
of this Warrant into such number of shares (rounded to the nearest whole share)
of Company Common Stock equal to the quotient obtained by dividing (i) the
"Aggregate Warrant Spread" as of the close of business on the date the
Conversion Right is exercised, by (ii) the "Market Price of the Common Stock" as
of the close of business on the date the Conversion Right is exercised. The
Conversion Right shall be exercisable at any time or from time to time prior to
expiration of this Warrant by surrendering this Warrant with the Conversion Form
attached hereto as Exhibit B completed and duly executed by such Holder or by
such Holder's duly authorized attorney to the Company at its principal office.
(b) For purposes of this Section 2, the "Aggregate Warrant Spread" of
all or a portion of this Warrant as of a particular date shall equal (i) the
Market Price of the Common Stock multiplied by the number of shares of Common
Stock purchasable upon exercise of all or such portion of this Warrant on such
date, minus (ii) the Exercise Price multiplied by the number of shares of Common
Stock purchasable upon exercise of all or such portion of this Warrant on such
date. For purposes of this Section 2, the "Market Price of the Common Stock" as
of a particular date shall equal: (i) if the Common Stock is traded on an
exchange or is quoted on the Nasdaq National Market, then the average closing or
last sale prices, respectively, reported for the 10 trading days immediately
preceding such date, or (ii) if the Common Stock is not traded on an exchange or
on the Nasdaq National Market but is traded on the Nasdaq SmallCap Market, then
the average of the mid-points between the closing bid and asked prices reported
for the 10 trading days immediately preceding such date, or (iii) if the Common
Stock is not traded on an exchange, the Nasdaq National Market, or the Nasdaq
SmallCap Market but is traded in the local over-the-counter market, then the
average of the mid-points between the highest bid and lowest asked quotations
for each of the 10 trading days immediately preceding such date.
3. Effective Date of Exercise or Conversion. Each exercise or
conversion of this Warrant shall be deemed effective as of the close of business
on the day on which this Warrant is surrendered to the Company as provided in
Section 1 or Section 2(a) above. At such time, the person or persons in whose
name or names any certificates for Warrant Shares shall be issuable upon such
exercise or conversion shall be deemed to have become the holder or holders of
record of the Warrant Shares represented by such certificates. Within 10 days
after the exercise or conversion of this Warrant in full or in part, the Company
will, at its expense, cause to be issued in the name of and delivered to the
Holder or such other person as the Holder may (upon payment by such Holder of
any applicable transfer taxes) direct: (i) a certificate or certificates for the
number of full Warrant Shares to which such Holder is entitled upon such
exercise or
<PAGE>
conversion, and (ii) unless this Warrant has expired, a new Warrant
or Warrants (dated the date hereof and in form identical hereto) representing
the right to purchase the remaining number of shares of Common Stock, if any,
with respect to which this Warrant has not then been exercised or converted.
4. Adjustments to Exercise Price. The above provisions are subject to
the following:
(a) (i) If the Company shall at anytime after the date of this Warrant
subdivide or combine the outstanding shares of Common Stock or declare a
dividend payable in Common Stock, then the number of shares of Common Stock for
which this Warrant may be exercised as of immediately prior to the subdivision,
combination or record date for such dividend payable in Common Stock shall
forthwith be proportionately decreased, in the case of combination, or
increased, in the case of subdivision or dividend payable in Common Stock.
(ii) If the Company shall at anytime after the date of this
Warrant subdivide or combine the outstanding shares of Common Stock or declare a
dividend payable in Common Stock, the Exercise Price in effect immediately prior
to the subdivision, combination or record date for such dividend payable in
Common Stock shall forthwith be proportionately increased, in the case of
combination, or decreased, in the case of subdivision or dividend payable in
Common Stock.
(b) If any capital reorganization or reclassification of the capital
stock of the Company, or consolidation or merger of the Company with another
corporation, or the sale of all or substantially all of its assets to another
corporation shall be effected in such a way that holders of Common Stock shall
be entitled to receive stock, securities or assets with respect to or in
exchange for Common Stock, then, as a condition of such reorganization,
reclassification, consolidation, merger or sale, lawful and adequate provision
shall be made whereby the Holder shall hereafter have the right to receive upon
the basis and upon the terms and conditions specified in this Warrant and in
lieu of the shares of the Common Stock of the Company into which this Warrant
was immediately theretofore exercisable or convertible, such shares of stock,
securities or assets as may be issued or payable with respect to or in exchange
for a number of outstanding shares of such Common Stock equal to the number of
shares of such stock into which this Warrant was immediately theretofore
exercisable had such reorganization, reclassification, consolidation, merger or
sale not taken place, and in any such case appropriate provisions shall be made
with respect to the rights and interests of Holder to the end that the
provisions hereof (including without limitation provisions for adjustments of
the Exercise Price and of the number of shares purchasable upon exercise or
conversion of this Warrant) shall thereafter be applicable, as nearly as may be,
in relation to any shares of stock, securities or assets thereafter deliverable
upon the conversion hereof. The Company shall not effect any such consolidation,
merger or sale, unless prior to the consummation thereof the successor
corporation (if other than the Company) resulting from such consolidation or
merger or the corporation purchasing such assets shall assume by written
instrument executed and mailed to the Holder at the last address of such Holder
appearing on the books of the Company, the obligation to deliver to such Holder
such shares of stock, securities or assets into which, in accordance with the
foregoing provisions, such Holder may be entitled to convert this Warrant.
<PAGE>
(c) If at anytime after the date of this Warrant the Company
distributes to all holders of Common Stock any assets (excluding ordinary cash
dividends), debt securities, or any rights or warrants to purchase debt
securities, assets or other securities (including Common Stock), the Exercise
Price shall be adjusted in accordance with the formula:
E^1 = E x (O x M) - F
---------------
O x M
where:
E^1 = the adjusted Exercise Price.
E = the current Exercise Price.
M = the average market price of Common Stock
for the 30 consecutive trading days
commencing 45 trading days before the record
date mentioned below.
O = the number of shares of Common Stock
outstanding on the record date mentioned
below.
F = the fair market value on the record date
of the aggregate of all assets, securities,
rights or warrants distributed. The
Company's Board of Directors shall determine
the fair market value in the exercise of its
reasonable judgment.
The adjustment shall be made successively whenever any such
distribution is made and shall become effective immediately after the record
date for the determination of shareholders entitled to receive the distribution.
(d) If at any time after the date of this Warrant the Company issues or
sells any shares of Common Stock (other than dividends payable in shares of
Common Stock) or any options, warrants, convertible securities and other rights
to subscribe to or otherwise acquire Common Stock (such rights referred to as
"Options") for a consideration per share less than the Exercise Price then in
effect, then the Exercise Price in effect immediately prior to such issuance or
sale shall be reduced so as to equal such per share consideration. If the
Exercise Price is adjusted as the result of the issuance of any Options, no
further adjustments of such Exercise Price shall be made at the time of the
exercise or conversion of such Options. The consideration per share for any
issuance of Common Stock or Options shall equal a fraction, the numerator of
which is equal to the sum of (i) the total amount received or receivable by the
Company as consideration for such issuance, plus (ii) the minimum aggregate
amount of additional consideration (as set forth in the instruments relating
thereto, without regard to any provision contained therein for a subsequent
adjustment of such consideration) payable to the Company upon the exercise,
conversion or exchange of any Options included in such issuance, and the
denominator of which is equal to the total number of shares of Common Stock
issued, or issuable upon the exercise, conversion or exchange of Options issued,
in such issuance. If the Company issues or sells any shares of Common Stock or
any Options for consideration other than cash, the amount of the consideration
other than cash received by the Company shall be deemed to be the fair value of
such consideration as determined by the Board of Directors of the Company.
<PAGE>
(e) Notwithstanding Section 4(d) above, no adjustment of the Exercise
Price shall be made pursuant to Section 4(d) above as a result of issuances,
sales or grants of: (i) up to 332,395 shares of Common Stock (subject to
adjustment in the event of any stock splits, stock dividends or other
recapitalization of the Common Stock) issuable upon exercise of Warrants
outstanding on the date hereof; (ii) shares issued upon the conversion of the
Convertible Subordinated Note, dated March 28, 1997, in the principal amount of
$2,250,000, issued by the Company to The Atlanta Cardiology Group, P.C.; (iii)
shares issuable upon the exercise of the Non-Statutory Stock Option Agreement,
dated as of March 4, 1997, between the Company and APF LLC covering 550,000
shares of Common Stock (subject to adjustment in the event of any stock splits,
stock dividends, other recapitalization of the Common Stock, or antidilution
adjustments set forth in such option); (iv) shares issuable pursuant to the
Company's Employee Stock Purchase Plan, as may be amended from time to time by
the Company's Board of Directors; (v) securities issued for the acquisition of
another corporation by the Company by merger, purchase of substantially all the
assets of such corporation or another reorganization resulting in the ownership
by the Company of not less than a majority of the voting power of such
corporation; (vi) options to purchase not more than 750,000 shares of Common
Stock (subject to adjustment in the event of any stock splits, stock dividends
or other recapitalization of the Common Stock) issued to employees of or
consultants to the Company pursuant to the Company's 1993 Stock Option Plan (and
the Common Stock issuable upon exercise thereof); (vii) securities issued as a
result of any stock split, stock dividend or reclassification of Common Stock,
distributable on a pro rata basis to all holders of Common Stock; or (viii)
shares of Common Stock issued in the Next Equity Financing or to Medtronic
pursuant to the Note.
(f) Upon any adjustment of the Exercise Price, then and in each such
case, the Company shall give written notice thereof, by first class mail,
postage prepaid, addressed to the Holder of this Warrant at the address of such
Holder as shown on the books of the Company, which notice shall state the
Exercise Price resulting from such adjustment and the increase or decrease, if
any, in the number of shares for which this Warrant may be exercised, setting
forth in reasonable detail the method of calculation and the facts upon which
such calculation is based.
5. Common Stock. As used herein, the term "Common Stock" shall mean and
include the Company's presently authorized shares of common stock and shall also
include any capital stock of any class of the Company hereafter authorized that
shall not be limited to a fixed sum or percentage in respect of the rights of
the holders thereof to participate in dividends or in the distribution,
dissolution or winding up of the Company.
6. No Voting Rights. This Warrant shall not entitle the Holder to any
voting rights or other rights as a shareholder of the Company unless and until
exercised or converted pursuant to the provisions hereof.
7. Exercise or Transfer of Warrant or Resale of Common Stock. The
Holder, by acceptance hereof, agrees to give written notice to the Company
before transferring this Warrant, in whole or in part, or transferring any
shares of Common Stock issued upon the exercise or conversion hereof, of such
Holder's intention to do so, describing briefly the manner of any proposed
transfer. Such notice shall include an opinion of counsel reasonably
satisfactory to the
<PAGE>
Company that (i) the proposed exercise or transfer may be effected without
registration or qualification under the Securities Act of 1933, as amended (the
"Act") and any applicable state securities or blue sky laws, or (ii) the
proposed exercise or transfer has been registered under such laws. Upon
delivering such notice, such Holder shall be entitled to transfer this Warrant
or such Warrant Shares, all in accordance with the terms of the notice delivered
by such Holder to the Company, provided that an appropriate legend may be
endorsed on the certificates for such shares respecting restrictions upon
transfer thereof necessary or advisable in the opinion of counsel to the Company
to prevent further transfer that would be in violation of Section 5 of the Act
and applicable state securities or blue sky laws.
If in the opinion of counsel to the Company or other counsel reasonably
acceptable to the Company the proposed transfer or disposition of this Warrant
or the Warrant Shares described in the written notice given pursuant to this
Section 7 may not be effected without registration of this Warrant or the
Warrant Shares, the Company shall promptly give written notice thereof to the
Holder within 10 days after the Company receives such notice, and such holder
will limit its activities in respect to such as, in the opinion of such counsel,
is permitted by law.
8. Covenants of the Company. The Company covenants and agrees that all
shares that may be issued upon conversion of this Warrant will, upon issuance,
be duly authorized and issued, fully paid, nonassessable and free from all
taxes, liens and charges with respect to the issue thereof. The Company further
covenants and agrees that the Company will at all times have authorized, and
reserved for the purpose of issue upon exercise hereof, a sufficient number of
shares of its Common Stock to provide for the exercise of this Warrant.
9. Certain Notices. The Holder shall be entitled to receive from the
Company immediately upon declaration thereof and at least 30 days prior to the
record date for determination of shareholders entitled thereto or to vote
thereon (or if no record date is set, prior to the event), written notice of any
event that could require an adjustment pursuant to Section 4 hereof or of the
dissolution or liquidation of the Company. All notices hereunder shall be in
writing and shall be delivered personally or by telecopy (receipt confirmed) to
such party (or, in the case of an entity, to an executive officer of such party)
or shall be sent by a reputable express delivery service or by certified mail,
postage prepaid with return receipt requested, addressed as follows:
if to Holder to:
Medtronic, Inc.
Corporate Center
7000 Central Avenue N.E.
Minneapolis, MN 55432
Attention: General Counsel
FAX (612) 572-5459
with a copy to:
<PAGE>
Medtronic, Inc.
Corporate Center
7000 Central Avenue N.E.
Minneapolis, MN 55432
Attention: Vice President Corporate Development and
Associate General Counsel
FAX (612) 572-5404
if to the Company to:
LifeRate Systems, Inc.
7210 Metro Boulevard
Edina, Minnesota 55439
Attention: Chief Executive Officer
FAX (612) 844-0797
Any party may change the above-specified recipient and/or mailing
address by notice to all other parties given in the manner herein prescribed.
All notices shall be deemed given on the day when actually delivered as provided
above (if delivered personally or by telecopy) or on the day shown on the return
receipt (if delivered by mail or delivery service).
10. Registration Rights. The Holders of this Warrant and the Warrant
Shares are entitled to the benefits of all of the terms, provisions and
conditions of Article 8 of that certain Investment Agreement dated December 26,
1995, which is hereby amended if and to the extent necessary to include this
Warrant and the Warrant Shares within the definition of "Registrable Securities"
thereunder.
11. Miscellaneous.
(a) No amendment, modification or waiver of any provision of this
Warrant shall be effective unless the same shall be in writing and signed by the
holder hereof.
(b) This Warrant shall be governed by and construed in accordance with
the laws of the State of Minnesota.
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by
its authorized officers and dated as of the date stated above.
LIFERATE SYSTEMS, INC.
By /s/ William W. Chorske
---------------------------------
Its Chairman
-----------------------------
ATTEST: /s/ John R. Goodrich
----------------------------------
<PAGE>
Exhibit A
NOTICE OF EXERCISE OF WARRANT -- To Be Executed by the Registered Holder in
Order to Exercise the Warrant
The undersigned hereby irrevocably elects to exercise the attached
Warrant to purchase, for cash pursuant to Section 1 thereof, ________________
shares of Common Stock issuable upon the exercise of such Warrant. The
undersigned requests that certificates for such shares be issued in the name of
__________________________________. If this Warrant is not fully exercised, the
undersigned requests that a new Warrant to purchase the balance of shares
remaining purchasable hereunder be issued in the name of
__________________________________.
Date: _________________, ______ _____________________________________
[name of registered Holder]
_____________________________________
[signature]
_____________________________________
[street address]
_____________________________________
[city, state, zip]
_____________________________________
[tax identification number]
<PAGE>
Exhibit B
NOTICE OF CONVERSION OF WARRANT -- To Be Executed by the Registered Holder in
Order to Convert the Warrant on a
Cashless Basis
The undersigned hereby irrevocably elects to convert, on a cashless
basis, a total of ______________ shares of Common Stock otherwise purchasable
upon exercise of the attached Warrant into such lesser number of shares of
Common Stock as determined by Section 2 of the Warrant. The undersigned requests
that certificates for such shares be issued in the name of
__________________________________. If this Warrant is not fully converted, the
undersigned requests that a new Warrant to purchase the balance of shares
remaining purchasable hereunder be issued in the name of
________________________________.
Date: _________________, ______ _____________________________________
[name of registered Holder]
_____________________________________
[signature]
_____________________________________
[street address]
_____________________________________
[city, state, zip]
_____________________________________
[tax identification number]
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
STATEMENT OF EARNINGS AND THE BALANCE SHEET, AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 343
<SECURITIES> 0
<RECEIVABLES> 287
<ALLOWANCES> 23
<INVENTORY> 0
<CURRENT-ASSETS> 689
<PP&E> 1,045
<DEPRECIATION> 474
<TOTAL-ASSETS> 1,260
<CURRENT-LIABILITIES> 1,537
<BONDS> 0
0
0
<COMMON> 17,300
<OTHER-SE> (20,083)
<TOTAL-LIABILITY-AND-EQUITY> 1,260
<SALES> 49
<TOTAL-REVENUES> 49
<CGS> 25
<TOTAL-COSTS> 1,598
<OTHER-EXPENSES> (8)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 71
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,642)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,642)
<EPS-PRIMARY> (.43)
<EPS-DILUTED> (.43)
</TABLE>
