UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
(Amendment No. 1)
CURRENT
REPORT
Pursuant to Section 13 or 15(d)
of The Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): July 14, 2014
Health Insurance Innovations, Inc.
(Exact name of registrant as specified in its charter)
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Delaware |
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001-35811 |
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46-1282634 |
(State or other jurisdiction
of incorporation) |
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(Commission
File Number) |
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(IRS Employer
Ident. No.) |
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15438 N. Florida Avenue, Suite 201, Tampa, Florida |
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33613 |
(Address of principal executive offices) |
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(Zip Code) |
(877) 376-5831
Registrants telephone number, including area code
N/A
(Former name or
former address, if changed since last report.)
Check the appropriate box below
if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
¨ |
Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
¨ |
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
¨ |
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
¨ |
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4 (c)) |
Explanatory Note
On July 14, 2014, Health Insurance Innovations, Inc., a Delaware corporation (the Company), entered into an Agreement and
Plan of Merger (the Merger Agreement) with HealthPocket, Inc., a Delaware corporation (HealthPocket), SV Merger Sub, Inc., a Delaware corporation and an indirect subsidiary of the Company (Merger Sub),
Mr. Bruce Telkamp, an individual (Telkamp), Dr. Sheldon Wang, an equity holder of HealthPocket, and Mr. Randy Herman, as the Representative of the HealthPocket equity holders. The closing of the transactions contemplated
by the Merger Agreement (the Closing) occurred on July 14, 2014 simultaneous with the signing of the Merger Agreement. On July 16, 2014, the Company filed a Current Report on Form 8-K stating that it had completed the
acquisition and that the financial statements and pro forma financial information required under Item 9.01 would be filed within 71 days after the date on which the Current Report on Form 8-K was required to be filed. This amended
Current Report on Form 8-K/A contains the required financial statements and pro forma financial information.
Item 9.01 |
Financial Statements and Exhibits. |
(a) |
Financial statements of businesses acquired: |
HealthPockets audited financial statements
for the years ended March 31, 2014 and 2013 and unaudited financial statements for the three months ended June 30, 2014 and 2013 are attached hereto as Exhibit 99.1.
(b) |
Pro forma financial information: |
The unaudited combined pro forma financial information for
the Company, after giving effect to the acquisition of HealthPocket and adjustments described in such pro forma financial information, are attached hereto as Exhibit 99.2.
(c) |
Shell company transactions: |
Not applicable
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2.1 |
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Agreement and Plan of Merger, dated as of July 14, 2014, among Health Insurance Innovations, Inc., SV Merger Sub, Inc., HealthPocket, Inc., Bruce Telkamp, Sheldon Wang, and any Holder executing a Letter of Transmittal, Option
Cancellation Agreement or Parent Option Agreement, and Randy Herman, as the Representative (incorporated by reference to Exhibit 2.1 to the Companys Current Report on Form 8-K (File No. 001-35811) filed on July 16,
2014). |
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4.1 |
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Registration Rights Agreement, dated as of July 14, 2014, between Health Insurance Innovations, Inc. and Randy Herman, as the Representative (incorporated by reference to Exhibit 4.1 to the Companys Current Report on
Form 8-K (File No. 001-35811) filed on July 16, 2014). |
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10.1 |
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Employment Agreement, dated as of July 14, 2014, between Health Insurance Innovations, Inc. and Bruce Telkamp (incorporated by reference to Exhibit 10.1 to the Companys Current Report on Form 8-K (File
No. 001-35811) filed on July 16, 2014). |
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10.2 |
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Employment Agreement, dated as of July 14, 2014, between Health Insurance Innovations, Inc. and Sheldon Wang (incorporated by reference to Exhibit 10.2 to the Companys Current Report on Form 8-K (File
No. 001-35811) filed on July 16, 2014). |
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99.1 |
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HealthPocket, Inc.s audited financial statements for the years ended March 31, 2014 and 2013 and unaudited financial statements for the three months ended June 30, 2014 and 2013. |
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99.2 |
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Unaudited pro forma financial information for Health Insurance Innovations, Inc., after giving effect to the acquisition of HealthPocket, Inc. and adjustments described in such pro forma financial information. |
1
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned hereunto duly authorized.
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HEALTH INSURANCE INNOVATIONS, INC. |
Dated: September 29, 2014 |
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By: |
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/s/ Dirk Montgomery |
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Dirk Montgomery |
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Executive Vice President and Chief Financial Officer |
2
EXHIBIT INDEX
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Exhibit Number |
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Description |
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2.1 |
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Agreement and Plan of Merger, dated as of July 14, 2014, among Health Insurance Innovations, Inc., SV Merger Sub, Inc., HealthPocket, Inc., Bruce Telkamp, Sheldon Wang, and any Holder executing a Letter of Transmittal, Option
Cancellation Agreement or Parent Option Agreement, and Randy Herman, as the Representative (incorporated by reference to Exhibit 2.1 to the Companys Current Report on Form 8-K (File No. 001-35811) filed on July 16,
2014). |
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4.1 |
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Registration Rights Agreement, dated as of July 14, 2014, between Health Insurance Innovations, Inc. and Randy Herman, as the Representative (incorporated by reference to Exhibit 4.1 to the Companys Current Report on
Form 8-K (File No. 001-35811) filed on July 16, 2014). |
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10.1 |
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Employment Agreement, dated as of July 14, 2014, between Health Insurance Innovations, Inc. and Bruce Telkamp (incorporated by reference to Exhibit 10.1 to the Companys Current Report on Form 8-K (File
No. 001-35811) filed on July 16, 2014). |
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10.2 |
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Employment Agreement, dated as of July 14, 2014, between Health Insurance Innovations, Inc. and Sheldon Wang (incorporated by reference to Exhibit 10.2 to the Companys Current Report on Form 8-K (File
No. 001-35811) filed on July 16, 2014). |
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99.1 |
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HealthPocket, Inc.s audited financial statements for the years ended March 31, 2014 and 2013 and unaudited financial statements for the three months ended June 30, 2014 and 2013. |
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99.2 |
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Unaudited pro forma financial information for Health Insurance Innovations, Inc., after giving effect to the acquisition of HealthPocket, Inc. and adjustments described in such pro forma financial information. |
3
Exhibit 99.1
Financial Statements and Report of
Independent Certified Public
Accountants
HealthPocket, Inc.
March 31, 2014
and 2013
Table of contents
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Report of Independent Certified Public Accountants |
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1-2 |
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Financial statements: |
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Balance sheets |
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3 |
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Statements of operations and comprehensive loss |
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4 |
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Statements of changes in stockholders equity |
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5 |
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Statements of cash flows |
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6 |
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Notes to financial statements |
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7-18 |
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REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
HealthPocket, Inc.
We have audited the accompanying financial statements of HealthPocket, Inc. (a Delaware corporation), which comprise the balance sheets as of March 31,
2014 and 2013, and the related statements of operations and comprehensive loss, changes in stockholders equity, and cash flows for the year ended March 31, 2014 and the period from May 14, 2012 (date of incorporation) to
March 31, 2013, and the related notes to the financial statements.
Managements responsibility for the financial statements
Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted
in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud
or error.
Auditors responsibility
Our responsibility
is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free from material misstatement.
An audit involves performing procedures to
obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditors judgment, including the assessment of the risks of material misstatement of the financial statements, whether
due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entitys preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in
the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entitys internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies
used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our
audit opinion.
Opinion
In our opinion, the financial
statements referred to above present fairly, in all material respects, the financial position of HealthPocket, Inc. as of March 31, 2014 and 2013, and the results of its operations and its cash flows for the year ended March 31, 2014 and
the period from May 14, 2012 (date of incorporation) to March 31, 2013 in accordance with accounting principles generally accepted in the United States of America.
/s/ Grant Thornton LLP
San Jose, CA
September 29, 2014
Balance sheets
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March 31, |
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2014 |
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2013 |
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Assets |
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Current assets: |
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Cash and cash equivalents |
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$ |
1,409,055 |
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$ |
1,696,704 |
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Restricted cash |
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50,000 |
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50,000 |
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Accounts receivable |
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124,300 |
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Prepaid expenses and other current assets |
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34,645 |
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40,663 |
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Total current assets |
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1,618,000 |
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1,787,367 |
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Property and equipment, net |
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7,798 |
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11,462 |
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Other assets |
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15,000 |
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Total assets |
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$ |
1,640,798 |
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$ |
1,798,829 |
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Liabilities and Stockholders Equity |
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Current liabilities: |
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Accounts payable |
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$ |
142,845 |
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$ |
33,505 |
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Accrued liabilities and other liabilities |
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16,874 |
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155,495 |
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Current portion of long-term debt |
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589,218 |
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247,007 |
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Deferred revenue |
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101,250 |
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Total current liabilities |
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850,187 |
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436,007 |
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Long-term debt, less current portion: |
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Bank loan, net of discount |
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764,473 |
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453,570 |
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Founder loans and accrued interest |
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53,773 |
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51,668 |
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Total Long-term debt, less current portion |
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818,246 |
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505,238 |
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Total liabilities |
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1,668,433 |
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941,245 |
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Commitments (Note 8) |
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Stockholders equity: |
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Series A Preferred stock, $0.0001 par value; 17,008,000 shares authorized; 9,800,000 and 8,800,000 shares issued and outstanding as of
March 31, 2014 and 2013, respectively |
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580 |
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480 |
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Common stock, $0.0001 par value; 58,000,000 shares authorized; 26,843,289 and 27,000,000 shares issued and outstanding as of
March 31, 2014 and 2013, respectively |
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938 |
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942 |
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Additional paid-in capital |
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2,451,034 |
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2,165,034 |
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Accumulated deficit |
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(2,480,187 |
) |
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(1,308,872 |
) |
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Total stockholders equity |
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(27,635 |
) |
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857,584 |
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Total liabilities and stockholders equity |
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$ |
1,640,798 |
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$ |
1,798,829 |
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The accompanying notes are an integral part of these financial statements.
Statements of operations and comprehensive loss
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Year Ended March 31, 2014 |
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For the Period From May 14, 2012 to March 31, 2013 |
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Revenue |
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$ |
997,969 |
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$ |
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Costs and operating expenses: |
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Referral payments |
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96,465 |
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Marketing and content |
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978,086 |
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463,812 |
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Selling, general and administrative |
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208,154 |
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341,208 |
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Research and development |
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829,998 |
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487,371 |
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Total operating expenses |
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2,112,703 |
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1,292,391 |
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Loss from operations |
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(1,114,734 |
) |
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(1,292,391 |
) |
Other expenses: |
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Interest expense, net |
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(55,781 |
) |
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(16,481 |
) |
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Net loss before income taxes |
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(1,170,515 |
) |
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(1,308,872 |
) |
Income tax expense |
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800 |
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Net Loss |
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(1,171,315 |
) |
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(1,308,872 |
) |
Other comprehensive income (loss) |
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Comprehensive loss |
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$ |
(1,171,315 |
) |
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$ |
(1,308,872 |
) |
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The accompanying notes are an integral part of these financial statements.
Statements of changes in stockholders equity
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For the year ended March 31, 2014 and the |
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Series A Preferred Stock |
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Common Stock |
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Additional Paid In |
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Accumulated |
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Stockholders Equity |
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period from May 14, 2012 to March 31, 2013 |
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Shares |
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Amount |
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Shares |
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Amount |
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Capital |
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Deficit |
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(Deficit) |
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Balance as of May 14, 2012 |
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$ |
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$ |
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$ |
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$ |
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$ |
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May 2012 Issuance of common stock |
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9,300,000 |
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930 |
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930 |
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June 2012 Issuance of common stock |
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120,000 |
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12 |
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12 |
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August 8, 2012 forward common stock split 1.4331212 for 1 |
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4,080,000 |
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August 8, 2012 Issuance of preferred stock, net of issuance cost |
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4,000,000 |
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400 |
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1,965,451 |
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1,965,851 |
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October 19, 2012 Issuance of warrant in connection with the SVB bank loan Tranche A |
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9,000 |
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9,000 |
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November 29, 2012 forward stock split 2 for 1 |
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4,000,000 |
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13,500,000 |
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January 28, 2013 issuance of preferred stock, net of issuance costs |
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700,000 |
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70 |
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167,822 |
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167,892 |
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February 7, 2013 issuance of preferred stock, net of issuance costs |
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100,000 |
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10 |
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18,990 |
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19,000 |
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Stock-based compensation under equity compensation plan |
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3,771 |
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|
3,771 |
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Net loss |
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|
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(1,308,872 |
) |
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(1,308,872 |
) |
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Balance as of March 31, 2013 |
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8,800,000 |
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|
480 |
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27,000,000 |
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|
942 |
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2,165,034 |
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(1,308,872 |
) |
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|
857,584 |
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April 2013 issuance of preferred stock, net of issuance costs |
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1,000,000 |
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|
100 |
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247,378 |
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247,478 |
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June 20, 2013 Issuance of common stock, net of issuance cost |
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11,458 |
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1 |
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|
744 |
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|
745 |
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August 28, 2013 Issuance of common stock, net of issuance cost |
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5,000 |
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|
1 |
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|
324 |
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|
325 |
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September 30, 2013 Issuance of warrant in connection with the SVB bank loan Tranche B-1 |
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10,000 |
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10,000 |
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December 31, 2013 Repurchase of unvested common stock |
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(173,169 |
) |
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(6 |
) |
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(6 |
) |
January 31, 2014 Issuance of warrant in connection with the SVB bank loan Tranche B-2 |
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10,000 |
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10,000 |
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Stock-based compensation under equity compensation plan |
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17,554 |
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17,554 |
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Net loss |
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|
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|
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(1,171,315 |
) |
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(1,171,315 |
) |
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Balance as of March 31, 2014 |
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9,800,000 |
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|
$ |
580 |
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|
26,843,289 |
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|
$ |
938 |
|
|
$ |
2,451,034 |
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|
$ |
(2,480,187 |
) |
|
$ |
(27,635 |
) |
|
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|
|
The accompanying notes are an integral part of these financial statements.
Statements of cash flows
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|
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|
|
Year Ended March 31, 2014 |
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|
For the Period From May 14, 2012 to March 31, 2013 |
|
Operating activities: |
|
|
|
|
|
|
|
|
Net loss |
|
$ |
(1,171,315 |
) |
|
$ |
(1,308,872 |
) |
Adjustment to reconcile net loss to net cash used in operating activities: |
|
|
|
|
|
|
|
|
Stock-based compensation expense |
|
|
13,783 |
|
|
|
3,771 |
|
Depreciation expense |
|
|
5,102 |
|
|
|
2,646 |
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
Restricted cash |
|
|
|
|
|
|
(50,000 |
) |
Accounts receivable |
|
|
(124,300 |
) |
|
|
|
|
Prepaid expenses and other assets |
|
|
(8,982 |
) |
|
|
(40,663 |
) |
Accounts payable |
|
|
109,340 |
|
|
|
33,505 |
|
Accrued liabilities and other liabilities |
|
|
(136,516 |
) |
|
|
157,163 |
|
Deferred revenue |
|
|
101,250 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in operating activities |
|
|
(1,211,638 |
) |
|
|
(1,202,450 |
) |
Investing activities: |
|
|
|
|
|
|
|
|
Purchases of property and equipment |
|
|
(1,438 |
) |
|
|
(14,108 |
) |
|
|
|
|
|
|
|
|
|
Net cash used in investing activities |
|
|
(1,438 |
) |
|
|
(14,108 |
) |
Financing activities: |
|
|
|
|
|
|
|
|
Issuance of long-term debt, net of issuance costs, net of discount |
|
|
1,021,078 |
|
|
|
742,244 |
|
Principal payments on long-term debt |
|
|
(367,964 |
) |
|
|
(41,667 |
) |
Issuance of founder loans |
|
|
|
|
|
|
50,000 |
|
Issuance of Class A preferred stock, net of issuance costs |
|
|
271,249 |
|
|
|
2,161,743 |
|
Issuance of Common stock, net of issuance costs |
|
|
1,064 |
|
|
|
942 |
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities |
|
|
925,427 |
|
|
|
2,913,262 |
|
Net increase (decrease) in cash and cash equivalents |
|
|
(287,649 |
) |
|
|
1,696,704 |
|
Cash and cash equivalents at beginning of period |
|
|
1,696,704 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period |
|
$ |
1,409,055 |
|
|
$ |
1,696,704 |
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information: |
|
|
|
|
|
|
|
|
Cash paid for interest |
|
$ |
42,856 |
|
|
$ |
15,226 |
|
Cash paid for income taxes |
|
|
800 |
|
|
|
|
|
The accompanying notes are an integral part of these financial statements.
Notes to financial statements
Note 1 Organization, and Summary of Significant Accounting Policies
Organization and Description of Business
HealthPocket,
Inc. (the Company) was incorporated in Delaware on May 14, 2012. The Companys headquarters are located in California.
The
principal activities of the Company are to provide consumers with information to compare and rank all healthcare plans within a geographical area. The service is intended to be free to access for the consumer through the companys website.
The period ended March 31, 2013 refers to the period from May 14, 2012 (date of incorporation) to March 31, 2013.
Use of Estimates
The preparation of the financial
statements in conformity with accounting principles generally accepted in the United States of America (U.S. GAAP) requires management to make estimates, judgments, and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements. These estimates also affect the reported amounts of revenue and expenses during the reporting periods. Actual results could differ from those estimates.
Cash and Cash Equivalents
The Company accounts for cash
on hand and demand deposits with banks and other financial institutions as cash. Short-term, highly liquid investments with original maturities of three months or less are considered cash equivalents.
Concentrations of Risk
Financial instruments that
potentially subject the Company to significant concentrations of credit risk consist primarily of cash and cash equivalents and accounts receivable. A significant portion of the Companys cash and cash equivalents is held at one large reputable
financial institution. The Company is exposed to credit risk in the event of default by the financial institution to the extent that cash balances with the financial institution is in excess of amounts that are insured by the Federal Deposit
Insurance Corporation. The Company has not experienced any losses in such accounts.
The Company performs ongoing credit evaluations of customers to
assess the probability of accounts receivable collection based on a number of factors, including past transaction experience with the customer, evaluation of their credit history, and review of the invoicing terms of the contract. The Company
generally does not require collateral. The Company maintains reserves for potential credit losses on customer accounts when deemed necessary.
Notes to financial statements - continued
For the period ended March 31, 2013, the Company did not generate any revenues. For the year ended
March 31, 2014, revenue and accounts receivable for customers that accounted for 10% or more of revenue or accounts receivable are summarized below:
|
|
|
|
|
|
|
|
|
|
|
2014 |
|
|
|
|
|
|
Accounts |
|
|
|
Revenue |
|
|
Receivable |
|
Velapoint Insurance, LLC |
|
|
13 |
% |
|
|
66 |
% |
Health Plan Intermediaries Holdings, LLC |
|
|
* |
|
|
|
30 |
% |
TruBridge, Inc. |
|
|
75 |
% |
|
|
* |
|
* |
Amount represents less than 10% |
Fair Value of Financial Instruments
The Company applies guidance under U.S. GAAP, which defines fair value, establishes a framework for measuring fair value, and requires enhanced disclosures
about fair value measurements. The adopted guidance defines fair value as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, and
requires that fair value measurements be classified and disclosed in one of the following three categories:
Level 1 Valuations
based on quoted prices in active markets for identical assets or liabilities.
Level 2 Valuations based on other than quoted prices
in active markets for identical assets and liabilities, quoted prices for identical or similar assets or liabilities in inactive markets, or other inputs that are observable or can be corroborated by observable market data for substantially the full
term of the assets or liabilities.
Level 3 Valuations based on inputs that are generally unobservable and typically reflect
managements estimates of assumptions that market participants would use in pricing the asset or liability.
The carrying amounts of certain of the
Companys financial instruments including cash, cash equivalents, accounts receivable, and accounts payable, approximate fair value due to their short maturities. Long-term debt have variable interest rates, which reset frequently; therefore,
their carrying values do not materially differ from their calculated aggregate fair value. These are considered Level 1 fair value measurements.
The
Company has cash and cash equivalents of $1,409,055 and $1,696,704 as of March 31, 2014 and 2013, respectively.
Property and Equipment
Property and equipment are stated at cost less accumulated depreciation.
Depreciation on property and equipment is calculated on the straight-line method over the estimated useful lives of the respective assets. As of
March 31, 2014 and 2013, all property and equipment was comprised of computer equipment, which has an estimated useful life of 3 years. Maintenance and repairs are charged to expense as incurred. When assets are retired or otherwise disposed
of, the cost and accumulated depreciation are removed from the accounts, and any resulting gain or loss is reflected in the accompanying statements of operations for the period realized.
Impairment or Disposal of Long-lived Assets
Long-lived
assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of
an asset to future net cash flows expected to be generated by the asset or asset group. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized as the amount by which the carrying amount of the
asset exceeds the fair value of the asset. There were no impairment losses on long-lived assets for the year ended March 31, 2014 and the period ended March 31, 2013.
Notes to financial statements - continued
Revenue Recognition
The Companys revenue is principally derived from marketing fees, licensing fees, limited exclusivity fees, and landing page development fees. The Company
recognizes revenue when: (1) persuasive evidence exists of an arrangement with the customer reflecting the terms and conditions under which products or services will be provided; (2) delivery has occurred or services have been provided;
(3) the fee is fixed or determinable; and (4) collection is reasonably assured.
Revenue is considered earned when the performance measures have
been completed. Deposits (whether refundable or non-refundable), early payments and progress payments are not recognized as revenue until the revenue producing event has occurred.
Marketing fee revenue The Company offers marketing services over a specified term. This fee is related to telephone and website
traffic received by HealthPocket.com for the customer and is recognized straight-line basis over the life of the specified term of the marketing services. There are two ways marketing fee revenue is determined: lead fee revenue and conversion fee
revenue. The Company offers lead marketing services in the form of providing leads to customers. Revenue for leads provided is recognized based on the contractually agreed price per lead multiplied by the number of leads provided by the Company
during the period. The Company offers conversion marketing services in the form of providing leads to customers with revenue recognized on a cost per acquisition basis. Revenue is calculated based on the number of qualifying conversions generated by
the Company leads. The customer collects conversion data and provides a contractually agreed periodical report to the Company. Revenue is recognized based on the agreed price per lead conversion multiplied by the number of leads converted during the
period.
Limited exclusivity fee revenue The Company offers to certain customers limited exclusivity for placement of
advertisements on the HealthPocket website for a fee. This fee is recognized straight-line basis over the life of the limited exclusivity term.
Landing page development The Company offers to design, build and support a customers hosting of certain landing pages for
the purpose of capturing e-leads and phone calls. Revenue for this service is recognized straight-line basis over the life of the support period of the landing pages.
Deferred Revenue
Deferred revenue primarily consists of
billings or payments received in advance of revenue recognition from the Companys marketing service and licensing agreements, and is recognized as the revenue recognition criteria are met. The Company generally invoices its customers in
accordance with the agreement terms.
Stock-based Compensation
The Company measures all stock-based awards, including stock options, based on their estimated fair value on the grant date for awards to employees and on the
date services are provided for awards to non-employees. The measurement of stock-based compensation for non-employees is subject to periodic adjustments as the options vest, and the expense is recognized over the period services are rendered.
The Company uses the Black-Scholes option-pricing model to determine the fair values of the stock options and amortizes the fair values of stock-based awards
on a straight-line basis, over the requisite service period (generally the vesting period), for the portion of the stock-based award that is ultimately expected to vest.
The Company estimates forfeitures based on historical experience, at the time of grant and revises these estimates, if necessary, in subsequent periods if
actual forfeitures differ from those estimates.
Notes to financial statements - continued
Income Taxes
Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases, and operating loss and tax credit carry forwards. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in
the period that includes the enactment date. The Company recognizes the effect of income tax positions only if those positions are more likely than not of being sustained. The carrying value of the net deferred tax assets is based on the belief that
it is more likely than not that the Company will be unable to realize these deferred tax assets. Changes in recognition or measurement are reflected in the period in which the change in judgment occurs.
Research and Development Expenses
The Company incurs
research and development expenses consisting of employee compensation, information technology, consulting, and facilities-related expenses. The Company incurs research and development expenses primarily for improvements and enhancements to the
services, development of new products, and infrastructure costs such as facility and other overhead costs. Costs related to research, design and development of the Companys products are expensed as incurred and included in selling, general and
administrative expense on the accompanying financial statements.
Note 2 Property and Equipment
Property and equipment as of March 31 consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
2014 |
|
|
2013 |
|
Computer equipment |
|
$ |
15,546 |
|
|
$ |
14,108 |
|
Accumulated depreciation |
|
|
(7,748 |
) |
|
|
(2,646 |
) |
|
|
|
|
|
|
|
|
|
Property and equipment, net |
|
$ |
7,798 |
|
|
$ |
11,462 |
|
|
|
|
|
|
|
|
|
|
Depreciation expense for the year ended March 31, 2014 and the period ended March 31, 2013 was $5,102 and $2,646,
respectively.
Note 3 Accrued Liabilities
Accrued liabilities as of March 31 consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
2014 |
|
|
2013 |
|
Accrued professional fees |
|
$ |
5,000 |
|
|
$ |
5,000 |
|
Accrued legal fees |
|
|
11,874 |
|
|
|
147,228 |
|
Deferred rent |
|
|
|
|
|
|
3,267 |
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
16,874 |
|
|
$ |
155,495 |
|
|
|
|
|
|
|
|
|
|
Notes to financial statements - continued
Note 4 Loans
The Company has a long-term loan from the Silicon Valley Bank (SVB) and short-term loans from two of the Companys founders, who are also officers of the
Company (the founder loans). The loans were used to fund the day-to-day operations of the Company before the commencement of revenue activities.
Bank Loan
The bank debt agreement with SVB, executed on
September 7, 2012, allowed for a maximum of $2,000,000 in financing, available in two tranches. The first tranche of $750,000 was drawn on October 19, 2012 with a maturity date of July 1, 2016. The second tranche was drawn in two
parts; on September 30, 2013 for $500,000 with a maturity date of November 1, 2016 and on January 31, 2014 for $500,000 with a maturity date of January 1, 2017. Repayments begin on the 1st day of the 1st month following the funding period and are interest-only payment for a period of three months, then 36 equal payments of
principal, plus accrued unpaid interest. The interest rate is the WSJ Prime Rate plus 2.25%.
SVB requires the submission of monthly financial statements
within 30 days after the end of each month. SVB also holds as collateral all of the Companys right, title and interest in the Companys personal property as such terms are defined under the California Uniform Commercial Code; excluding
any intellectual property so long as the Company agrees not to encumber any of its intellectual property.
The balance of the SVB loan, net of discount,
for the year ended March 31, 2014 and the period ended March 31, 2013 are $1,353,691 and $700,577, respectively. Interest expense incurred on the loan for the periods ended March 31, 2014 and 2013 was $47,907 and $15,226,
respectively. Financing costs of $7,716 associated with the issuance of the SVB loans were capitalized and amortized over the term of the bank loan.
As
of March 31, 2014, scheduled maturities of the Companys long-term bank loans are as follows:
|
|
|
|
|
|
|
Years Ending |
|
|
|
March 31, |
|
2015 |
|
$ |
589,218 |
|
2016 |
|
|
533,225 |
|
2017 |
|
|
231,248 |
|
|
|
|
|
|
Total |
|
$ |
1,353,691 |
|
|
|
|
|
|
The loan with SVB was paid in full on July 14, 2014 (Note 9).
Founder Loans
The two founder loans are for $25,000 each
and accrue interest at the rate of 4.0% annually. The two loans were payable on demand by the lenders. Interest expense accrued on the two loans for the year ended March 31, 2014 and the period ended March 31, 2013 was $3,773 and $1,668,
respectively.
The two founders loans were paid in full on July 14, 2014 (Note 9).
Note 5 Stockholders Equity
At
incorporation, the Company was authorized to issue 10,000,000 shares of common stock with a par value of $0.0001 per share.
On August 8, 2012, the
number of authorized shares increased to 44,100,000; 32,000,000 shares of common stock , par value $0.0001 and 12,100,000 of Series A preferred stock, par value $0.0001 per shares. Also, a common stock forward stock split of 1.4331212 for 1
occurred.
Notes to financial statements - continued
On September 5, 2012, the number of authorized shares increased to 44,104,000 shares; 32,000,000 shares
of common stock, par value $0.0001 and 12,104,000 shares of Series A preferred stock, par value $0.0001.
On November 29, 2012, the number of
authorized shares increased to 88,208,000; 64,000,000 shares of common stock, par value $0.0001 and 24,208,000 shares of Series A preferred stock, par value $0.0001. Also, a forward stock split of 2 for 1 occurred.
On January 22, 2013, the number of authorized shares increased to 89,008,000 shares; 64,000,000 shares of common stock, par value $0.0001 and 25,008,000
shares of Series A preferred stock, par value $0.0001.
On April 2, 2013, the number of authorized shares decreased to 75,008,000 shares; 58,000,000
shares of common stock, par value $0.0001 and 17,008,000 shares of Series A preferred stock, par value $0.0001.
As of March 31, 2014, the
Companys authorized capital stock consists of 58,000,000 shares of common stock, par value of $0.0001 and 17,008,000 shares of Series A preferred stock, par value of $0.0001.
Series A Convertible Preferred Stock
In August 2012, the
Company issued 4,000,000 shares of Series A Convertible Preferred Stock at an issuance price of $0.50 per share for gross proceeds of $2,000,000 and incurred issuance costs of $34,149.
On November 29, 2012, a forward stock split of 2 for 1 occurred.
In January 2013, the Company issued 700,000 shares of Series A Convertible Preferred Stock at an issuance price of $0.25 per share for gross proceeds of
$175,000 and incurred issuance costs of $7,108.
In February, 2013, the Company issued 100,000 shares of Series A Convertible Preferred Stock at an
issuance price of $0.25 per share for gross proceeds of $25,000, and incurred issuance costs of $6,000.
In April 2013, the Company issued 1,000,000
shares of Series A Convertible Preferred Stock at an issuance price of $0.25 per share for gross proceeds of $250,000, incurred issuance costs of $2,522.
Dividends
Holders of shares of Preferred Stock shall be
entitled to receive non-cumulative dividends as and if declared by the board of directors. Dividends are payable in preference to any dividends of Common Stock declared by the board of directors. No dividends were declared for the year ended
March 31, 2014 and the period ended March 31, 2013.
Liquidation Rights
In the event of liquidation, dissolution or winding up of the Company, the holders of shares of Series A Preferred Stock then outstanding are entitled to be
paid out of the assets of the Company available for distribution to its stockholders before any payment is to be made to the holders of Common Stock, an amount per share equal to the sum of the applicable Original Issue Price of $0.25 per share for
such series of Preferred Stock, plus any dividends declared but unpaid on such share.
If upon any such liquidation, dissolution or winding up of the
Company the assets of the Company available for distribution to its stockholders is insufficient to pay the holders of shares of Series A Preferred Stock the full amount to which they are entitled, the holders of such shares are to share ratably in
any distribution of the assets available for distribution in proportion to the respective amounts which would otherwise be payable in respect of the shares held by them upon such distribution if all amounts payable on or with respect to such shares
were paid in full.
After the payment or setting aside for payment to the holders of Series A Preferred Stock of the full amounts, the entire remaining
assets of the Company legally available for distribution shall be distributed pro rata to holders of the Common Stock of the Company in proportion to the number of shares of Common Stock held by them.
Notes to financial statements - continued
Redemption
The Preferred Stock is not redeemable at the option of the holder thereof.
Conversion
Each share of Preferred Stock is convertible,
at the option of the holder, at any time after the date of issuance of such share, at the office of the Company or the transfer agent into such number of fully paid and non-assessable shares of Common Stock as is determined by dividing the
applicable original issue price by the conversion price in effect on the date the certificate is surrendered for conversion. The applicable original issue price was $0.25 as of March 31, 2014. The conversion price was $0.25 per share as of
March 31, 2014.
Each share of Preferred Stock shall automatically be converted into shares of Common Stock at the then effective conversion rate for
Series A preferred stock immediately upon the earlier of (i) the closing of this corporations sale of its Common stock in a firm commitment underwritten public offering pursuant to a registration statement on Form S-1 under the Securities
Act of 1933, as amended, the public offering price of which was greater than $30,000,000 in the aggregate or (ii) the date, or the occurrence of an event, specified by vote or written consent or agreement of the Requisite Preferred Majority.
Series A Voting Rights
The holders of Preferred
Stock and the holders of Common Stock shall vote together and not as separate classes. Each holder of Preferred Stock shall be entitled to the number of votes equal to the number of shares of Common Stock into which the shares of Preferred Stock
held by such holder could be converted as of the record date. The holders of shares of Preferred Stock shall be entitled to vote on all matters on which the Common Stock shall be entitled to vote.
Common Stock
As of March 31, 2014 and 2013, the
Company was authorized to issue 58,000,000 shares of Common Stock, of which 26,843,289 and 27,000,000 were issued and outstanding, respectively. On December 16, 2013, 173,169 shares of unvested stock were repurchased from an employee upon
termination. As of March 31, 2014 and 2013, 10,203,820 shares of Common Stock were reserved for options available to grant under the Companys stock option plan.
Warrants to Purchase Series A Preferred Stock
On
September 7, 2012, the Company entered into a bank loan agreement with SVB. As part of this agreement SVB was to be granted warrants to purchase shares of Series A Preferred Stock at an exercise price of $0.25 per share in exchange for the
issuance of loan by SVB. The warrants were to be granted when a drawdown of the loan occurred. On October 19, 2012, 88,000 warrants were granted with the tranche A drawdown. On September 30, 2013, 60,000 warrants were granted with the
tranche B-1 drawdown. On January 31, 2014, 60,000 warrants were granted with the tranche B-2 drawdown. As of March 31, 2014 and 2013, warrants to purchase 208,000 and 88,000 shares of Series A Preferred Stock were outstanding,
respectively. These warrants are exercisable at a price of $0.25 per share at any time during their six-year term, which expires on September 7, 2019. These warrants have a fair value of $29,000 which amount has been credited to additional paid
in capital on the statement of changes in stockholders equity. The assumptions used in estimating the value of the warrants were: volatility - 40%, expected term - 6 years, interest rate - 1.21%, and a dividend rate of 0%.
Notes to financial statements - continued
Note 6 Stock-Based Compensation
In 2012, the Company adopted a stock-based reward plan, the HealthPocket, Inc. 2012 Stock Option and Grant Plan (the Plan), pursuant to which the
Companys board of directors may grant stock options or unvested shares to employees, consultants and advisors of the Company to encourage and enable the officers, employees, directors, Consultants and other key persons of the Company, upon
whose judgment, initiative and efforts the Company largely depends for the successful conduct of its business, to acquire a proprietary interest in the Company. The Plan authorizes grants to purchase up to 10,203,820 shares of authorized but
unissued Common Stock as of May 2012. Under the terms of the Plan, the Company has the ability to grant incentive stock options (ISO) and non-statutory stock options (NSO), and restricted stock awards (RSAs). ISOs
may only be granted to Company employees. Non-statutory stock options and RSAs may be granted to Company employees, directors, and consultants. Options are to be exercisable at prices, as determined by the board of directors, generally equal to the
fair value of the Companys common stock at the date of grant and have a term of 10 years. Options granted to employees generally vest over a four-year period, with an initial vesting period of 12 months for 25% of the grant and the remaining
75% of the shares vesting monthly on a ratable basis over the remaining 36 months. Options are exercisable for a maximum period of 10 years after the grant date. Options are exercisable upon vesting and vested options generally expire 90 days after
termination of the optionees employment or relationship as a consultant or director, unless otherwise extended by the terms of the stock option agreement. Any unvested options or vested but unexercised options are returned to the Company.
The ISO and NSO grants of stock options were awarded with an exercise price of $0.065 for grants issued from November 2012 through July 2013; and $0.07 for
grants issued from January 2014 through February 2014. The ISO grants were subject to a vesting period of four years with a one year cliff. The NSO and RSA grants were subject to a vesting period of four years.
Stock-based compensation expense is recognized based upon the estimated grant date fair value and is amortized over the requisite service period of the
awards. For grants of stock options, the Company applies the Black-Scholes option-pricing model in determining the fair value of stock-based awards to employees. The resulting compensation expense is recognized over the requisite service period. The
requisite service period is the period during which an employee is required to provide service in exchange for an award, which often is the vesting period.
The determination of the fair value of the stock-based award is affected by highly subjective assumptions, including the deemed fair value of the underlying
stock price on the grant date, the risk-free interest rate, the estimated volatility of the Companys stock price over the term of the award, the estimated period of time that the Company expects employees to hold their stock options and the
expected dividend rate. These assumptions are estimated as follows:
|
|
|
Fair value of common stock. Estimated by the board of directors based on a number of factors, primarily third-party valuations of the Companys common stock. |
|
|
|
Risk-free interest rate. Based on the implied yield available on U.S. Treasury zero-coupon issues with an equivalent remaining term of the options. |
|
|
|
Volatility. Based upon the price behavior of a group guideline public companies, typically over several years, in order to calculate a volatility to serve as a proxy for the Companys volatility.
|
|
|
|
Expected term. Estimated by taking the average of the vesting term and the contractual term of the option. |
|
|
|
Dividend yield. The Company has not paid and does not expect to pay any dividends. |
Notes to financial statements - continued
The following tables summarize the assumptions relating to the Companys stock options as follows:
|
|
|
|
|
Grants issued between May 14, 2012 and March 31, 2013: |
|
|
|
|
Expected volatility |
|
|
40 |
% |
Expected life (years) |
|
|
5.0 |
|
Expected dividend yield |
|
|
0 |
% |
Risk-free interest rate |
|
|
0.62 |
% |
Grants issued in the year ended March 31, 2014: |
|
|
|
|
Expected volatility |
|
|
55 |
% |
Expected life (years) |
|
|
5.0 |
|
Expected dividend yield |
|
|
0 |
% |
Risk-free interest rate |
|
|
1.75 |
% |
The stock-based compensation expense included within Selling, general and administrative expense on the accompanying condensed
statements of operations and comprehensive loss for the year ended March 31, 2014 and the period ended March 31, 2013 was $13,783 and $3,771, respectively.
At March 31, 2014, of the 3,562,500 options granted in 2013 and 2014 for the purchase of common stock under the Plan, 16,458 options were exercised;
913,542 options were canceled or forfeited; and 2,632,500 options are outstanding. As of March 31, 2014, there were 6,641,320 additional shares available for the Company to grant under the Plan.
Stock option activities during the year ended March 31, 2014 and the period ended March 31, 2013 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted- |
|
|
|
|
|
|
|
|
|
|
|
|
Average |
|
|
|
|
|
|
|
|
|
Weighted- |
|
|
Remaining |
|
|
|
|
|
|
|
|
|
Average |
|
|
Contractual |
|
|
Aggregate |
|
|
|
Number of |
|
|
Exercise |
|
|
Life |
|
|
Intrinsic |
|
|
|
Shares |
|
|
Price |
|
|
(Years) |
|
|
Value |
|
Balance as of May 14, 2012 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted |
|
|
2,190,000 |
|
|
|
0.065 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of March 31, 2013 |
|
|
2,190,000 |
|
|
|
0.065 |
|
|
|
3.38 |
|
|
|
183,946 |
|
Granted |
|
|
1,372,500 |
|
|
|
0.068 |
|
|
|
|
|
|
|
95,288 |
|
Exercised |
|
|
(16,458 |
) |
|
|
0.065 |
|
|
|
|
|
|
|
|
|
Canceled and forfeited |
|
|
(913,542 |
) |
|
|
0.065 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of March 31, 2014 |
|
|
2,632,500 |
|
|
|
0.066 |
|
|
|
3.02 |
|
|
$ |
218,316 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested and exercisable as of March 31, 2014 |
|
|
791,587 |
|
|
|
0.065 |
|
|
|
2.69 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The weighted-average grant date fair value of options granted during the year ended March 31, 2014 and the period ended
March 31, 2013 was $.06824 and $0.065, respectively.
Notes to financial statements - continued
The following table summarizes information about stock options outstanding as of March 31, 2014:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted- |
|
|
|
|
|
|
|
|
|
Average |
|
|
|
|
|
|
|
|
|
Remaining |
|
|
|
|
|
|
|
|
|
Contractual |
|
|
Vested |
|
|
|
Number of |
|
|
Life |
|
|
and |
|
Exercise Price Per Share |
|
Outstanding |
|
|
(Years) |
|
|
Exercisable |
|
$0.0650 |
|
|
2,052,500 |
|
|
|
2.71 |
|
|
|
791,587 |
|
$0.0700 |
|
|
580,000 |
|
|
|
3.70 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,632,500 |
|
|
|
3.02 |
|
|
|
791,587 |
|
As of March 31, 2014, there was $48,914 of total unrecognized compensation cost related to unvested stock options granted
under the Plan. That cost is expected to be recognized over a weighted-average period of 2.9 years. The total fair value of shares vested during the year ended March 31, 2014 and the period ended March 31, 2013 was $65,646 and $32,070,
respectively.
Total stock-based compensation by department was as follows for the year ended March 31, 2014 and the period ended March 31,
2013, respectively.
|
|
|
|
|
|
|
|
|
|
|
Year Ended |
|
|
Period Ended |
|
|
|
March 31, |
|
|
March 31, |
|
|
|
2014 |
|
|
2013 |
|
Research and development |
|
$ |
7,138 |
|
|
$ |
1,779 |
|
Marketing and content |
|
|
6,645 |
|
|
|
1,992 |
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
13,783 |
|
|
$ |
3,771 |
|
|
|
|
|
|
|
|
|
|
Total stock-based compensation, was as follows for the year ended March 31, 2014 and the period ended March 31,
2013, respectively.
|
|
|
|
|
|
|
|
|
|
|
Year Ended |
|
|
Period Ended |
|
|
|
March 31, |
|
|
March 31, |
|
|
|
2014 |
|
|
2013 |
|
NSO |
|
$ |
3,720 |
|
|
$ |
1,050 |
|
ISO |
|
|
10,063 |
|
|
|
2,721 |
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
13,783 |
|
|
$ |
3,771 |
|
|
|
|
|
|
|
|
|
|
Note 7 Income Taxes
The Company is subject to income taxes in the U.S. federal and state of California jurisdictions. Tax regulations within each jurisdiction are subject to
interpretation of the related tax laws and regulations and require the application of significant judgment.
Notes to financial statements - continued
The provision for income taxes consists of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Period |
|
|
|
|
|
|
From May 14, |
|
|
|
Year Ended |
|
|
2012 to |
|
|
|
March 31, |
|
|
March 31, |
|
|
|
2014 |
|
|
2013 |
|
State |
|
$ |
800 |
|
|
$ |
|
|
Federal |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total tax expense |
|
$ |
800 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
The components of deferred tax assets for the year and period ended:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Period |
|
|
|
|
|
|
From May 14, |
|
|
|
Year Ended |
|
|
2012 to |
|
|
|
March 31, |
|
|
March 31, |
|
|
|
2014 |
|
|
2013 |
|
Deferred tax assets: |
|
|
|
|
|
|
|
|
Federal, state, and foreign net operation losses |
|
$ |
974,000 |
|
|
$ |
518,000 |
|
Research and other credits |
|
|
|
|
|
|
|
|
Other |
|
|
22,000 |
|
|
|
8,000 |
|
|
|
|
|
|
|
|
|
|
Deferred tax asset |
|
|
996,000 |
|
|
|
526,000 |
|
Less: Valuation allowance |
|
|
(996,000 |
) |
|
|
(526,000 |
) |
|
|
|
|
|
|
|
|
|
Net deferred tax assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation of the statutory federal income tax to the Companys effective tax: |
|
|
|
|
|
|
|
|
Tax at federal statutory rate |
|
|
(415,100 |
) |
|
|
(454,296 |
) |
State tax, net of federal benefit |
|
|
800 |
|
|
|
|
|
Meals and entertainment |
|
|
1,711 |
|
|
|
2,319 |
|
Stock option expense ISO |
|
|
11,883 |
|
|
|
3,222 |
|
Change in valuation allowance |
|
|
401,506 |
|
|
|
448,755 |
|
|
|
|
|
|
|
|
|
|
Provision for taxes |
|
$ |
800 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
Based upon available objective evidence, management believes it is more likely than not that the net deferred tax assets will
not be realized. Accordingly, management has established a valuation allowance for all deferred tax assets.
As of March 31, 2013, the Company had
federal net operating loss carry forwards of approximately $1.30 million, which begin to expire 2033 and state net operating loss carry forwards of approximately $1.30 million, which begin to expire in 2033.
As of March 31, 2014, the Company had federal net operating loss carry forwards of approximately $2.45 million, which begin to expire 2033 and state
net operating loss carry forwards of approximately $2.45 million, which begin to expire in 2033.
Federal and state tax laws impose substantial
restrictions on the utilization of the net operating loss, for tax purposes, of net operating loss and credit carry forwards in the event of an ownership change as defined in Section 382 of the Internal Revenue Code. Accordingly, the
Companys ability to utilize these carry forwards may be limited as a result of such ownership changes. Such a limitation could result in the expiration of carry forwards before they are utilized.
The Company files income tax returns in the U.S. federal jurisdiction and various state jurisdictions. In the normal course of business, the Company is
subject to examination by taxing authorities. The Company is not currently under audit by the Internal Revenue Service or other similar state and local authorities. All tax years remain open to examination by major taxing jurisdictions to which the
Company is subject to.
Notes to financial statements - continued
Note 8 Related Party Transactions
Founder Loans
During the year ended March 31, 2014
and the period ended March 31, 2013, the Company obtained loans from two of the Companys founders. These two loans were for $25,000 each, plus any unpaid accrued interest. The loan balances, including unpaid accrued interest as of
March 31, 2014 and 2013 were $53,773 and $51,668, respectively.
Leases
The Company leased its office space from a related party of one of its shareholders. Expenses paid through this lease were $85,133 and $29,067 for the year
ended March 31, 2014 and the period ended March 31, 2013, respectively. At the end of the initial term, the Company converted the lease to a month-to-month arrangement for $7,500 per month. Effective August 11, 2014, the lease was
amended for the relocation and expanded office space and the increase of monthly rent to $9,000.
Note 9 Subsequent Event
On July 14, 2014, the Company entered into an agreement and plan of merger with Health Insurance Innovations, Inc. (HII), a Delaware
corporation, a developer and administrator of affordable individual health insurance and discount benefit plans. The closing of the transaction contemplated by the merger agreement occurred on July 14, 2014.
The Company will continue as a surviving entity and indirect subsidiary of HII. Pursuant to the merger agreement, at the closing, HII paid consideration
consisting of approximately $21.9 million in cash and 900,900 shares of HIIs class A common stock, $0.0001 par value per share having an agreed upon aggregate value of $10.0 million or $11.10 per share.
A portion of the merger consideration consisting of $3,200,000 in cash was deposited with an escrow agent to fund payment obligations of the Companys
former equity holders, and fees and expenses of the representatives of the Companys former equity holders.
As part of the merger agreement, the
outstanding loan balances with SVB and the founders were paid in full.
The Company evaluated subsequent events through September 29, 2014, the date
these financial statements were issued, and has appropriately accounted for and disclosed all relevant subsequent events through this date.
Condensed Financial Statements and Accountants Compilation Report
HealthPocket, Inc.
June 30, 2014 and 2013
Table of contents
|
|
|
|
|
Accountants Compilation Report |
|
|
1 |
|
|
|
Condensed financial statements: |
|
|
|
|
|
|
Condensed balance sheets (Unaudited) |
|
|
2 |
|
|
|
Condensed statements of operations and comprehensive loss (Unaudited) |
|
|
3 |
|
|
|
Condensed statements of cash flows (Unaudited) |
|
|
4 |
|
|
|
Notes to condensed financial statements (Unaudited) |
|
|
5-13 |
|
ACCOUNTANTS COMPILATION REPORT
To the Board of Directors of
HealthPocket, Inc.
We have compiled the accompanying balance sheet of HealthPocket, Inc. as of June 30, 2014, and March 31, 2014, and the related statements of
operations and comprehensive loss, and cash flows for the three months ended June 30, 2014 and 2013. We have not audited or reviewed the accompanying financial statements, and accordingly, do not express an opinion or provided any assurance
about whether the financial statements are in accordance with accounting principles generally accepted in the United States of America.
Management is
responsible for the preparation and fair presentation of the financial statements in accordance with accounting principles generally accepted in the United States of America and for designing, implementing, and maintaining internal control relevant
to the preparation and fair presentation of the financial statements.
Our responsibility is to conduct the compilation in accordance with the Statements
on Standards for Accounting and Review Services issued by the American Institute of Certified Public Accountants. The objective of a compilation is to assist management in presenting financial information in the form of financial statements without
undertaking to obtain or provide any assurance that there are no material modifications that should be made to the financial statements.
/s/ Moss Adams
LLP
Campbell, California
September 29, 2014
Condensed balance sheets
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
|
March 31, |
|
|
|
2014 |
|
|
2014 |
|
|
|
(Unaudited) |
|
|
|
|
Assets |
|
|
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
|
1,315,708 |
|
|
|
1,409,055 |
|
Restricted Cash |
|
|
50,000 |
|
|
|
50,000 |
|
Accounts receivable |
|
|
7,532 |
|
|
|
124,300 |
|
Prepaid expenses and other current assets |
|
|
31,322 |
|
|
|
34,645 |
|
|
|
|
|
|
|
|
|
|
Total current assets |
|
|
1,404,562 |
|
|
|
1,618,000 |
|
Property and equipment, net |
|
|
6,503 |
|
|
|
7,798 |
|
Other assets |
|
|
15,000 |
|
|
|
15,000 |
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
1,426,065 |
|
|
$ |
1,640,798 |
|
|
|
|
|
|
|
|
|
|
Liabilities and stockholders equity |
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
Accounts payable |
|
$ |
12,300 |
|
|
$ |
142,845 |
|
Accrued liabilities and other liabilities |
|
|
321,357 |
|
|
|
16,874 |
|
Current portion of long-term debt |
|
|
588,081 |
|
|
|
589,218 |
|
Deferred revenue |
|
|
88,980 |
|
|
|
101,250 |
|
|
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
1,010,718 |
|
|
|
850,187 |
|
Long-term debt, less current portion: |
|
|
|
|
|
|
|
|
Bank loan, net of discount |
|
|
621,204 |
|
|
|
764,473 |
|
Founder loans and accrued interest |
|
|
54,311 |
|
|
|
53,773 |
|
|
|
|
|
|
|
|
|
|
Total Long-term debt, less current portion |
|
|
675,515 |
|
|
|
818,246 |
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
|
1,686,233 |
|
|
|
1,668,433 |
|
Stockholders equity: |
|
|
|
|
|
|
|
|
Series A Preferred stock, $0.0001 par value; 17,008,000 shares authorized; 9,800,000 and 9,800,000 shares issued and outstanding as of
June 30, 2014 and March 31, 2014, respectively. |
|
|
580 |
|
|
|
580 |
|
Common stock, $0.0001 par value; 58,000,000 shares authorized; 26,843,289 and 26,843,289 shares issued and outstanding as of
June 30, 2014 and March 31, 2014, respectively. |
|
|
938 |
|
|
|
938 |
|
Additional paid-in capital |
|
|
2,455,775 |
|
|
|
2,451,034 |
|
Accumulated deficit |
|
|
(2,717,461 |
) |
|
|
(2,480,187 |
) |
|
|
|
|
|
|
|
|
|
Total stockholders equity |
|
|
(260,168 |
) |
|
|
(27,635 |
) |
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity |
|
$ |
1,426,065 |
|
|
$ |
1,640,798 |
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these condensed financial statements.
Condensed statements of operations and comprehensive loss
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, |
|
|
|
2014 |
|
|
2013 |
|
Revenue |
|
$ |
349,065 |
|
|
$ |
|
|
Operating expenses: |
|
|
|
|
|
|
|
|
Referral payments |
|
|
31,410 |
|
|
|
|
|
Marketing and content |
|
|
220,510 |
|
|
|
184,215 |
|
Selling, general and administrative |
|
|
73,939 |
|
|
|
82,025 |
|
Research and development |
|
|
239,278 |
|
|
|
192,966 |
|
|
|
|
|
|
|
|
|
|
Total operating expenses |
|
|
565,137 |
|
|
|
459,206 |
|
|
|
|
|
|
|
|
|
|
Loss from operations |
|
|
(216,072 |
) |
|
|
(459,206 |
) |
Other expenses: |
|
|
|
|
|
|
|
|
Interest expense, net |
|
|
(20,401 |
) |
|
|
(10,134 |
) |
|
|
|
|
|
|
|
|
|
Net loss before income taxes |
|
|
(236,473 |
) |
|
|
(469,340 |
) |
Income tax expense |
|
|
800 |
|
|
|
|
|
Net loss |
|
|
(237,273 |
) |
|
|
(469,340 |
) |
Other comprehensive income (loss) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
$ |
(237,273 |
) |
|
$ |
(469,340 |
) |
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these condensed financial statements.
Condensed statements of cash flows
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, |
|
|
|
2014 |
|
|
2013 |
|
Operating activities: |
|
|
|
|
|
|
|
|
Net loss |
|
$ |
(237,273 |
) |
|
$ |
(469,340 |
) |
Adjustment to reconcile net loss to net cash used in operating activities: |
|
|
|
|
|
|
|
|
Stock-based compensation expense |
|
|
4,741 |
|
|
|
14,253 |
|
Depreciation expense |
|
|
1,295 |
|
|
|
1,216 |
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
Accounts receivable |
|
|
116,768 |
|
|
|
|
|
Prepaid expenses and other assets |
|
|
3,323 |
|
|
|
3,796 |
|
Accounts payable |
|
|
(126,063 |
) |
|
|
4,726 |
|
Accrued liabilities and other liabilities |
|
|
300,538 |
|
|
|
6,729 |
|
Deferred revenue |
|
|
(12,270 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities |
|
|
51,059 |
|
|
|
(438,620 |
) |
Investing activities: |
|
|
|
|
|
|
|
|
Purchases of property and equipment |
|
|
|
|
|
|
(1,438 |
) |
|
|
|
|
|
|
|
|
|
Net cash used in investing activities |
|
|
|
|
|
|
(1,438 |
) |
Financing activities: |
|
|
|
|
|
|
|
|
Discount on long-term debt |
|
|
2,405 |
|
|
|
747 |
|
Principal payments on long-term debt |
|
|
(146,811 |
) |
|
|
(62,500 |
) |
Issuance of Series A preferred stock, net of issuance costs |
|
|
|
|
|
|
250,000 |
|
Issuance of common stock, net of issuance costs |
|
|
|
|
|
|
745 |
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by financing activities |
|
|
(144,406 |
) |
|
|
188,992 |
|
|
|
|
|
|
|
|
|
|
Net decrease in cash and cash equivalents |
|
|
(93,347 |
) |
|
|
(251,066 |
) |
Cash and cash equivalents at beginning of period |
|
|
1,409,055 |
|
|
|
1,696,704 |
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period |
|
$ |
1,315,708 |
|
|
$ |
1,445,638 |
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these condensed financial statements.
Notes to condensed financial statements
(Unaudited)
Note 1 Organization, and Summary
of Significant Accounting Policies
Organization and Description of Business
HealthPocket, Inc. (the Company) was incorporated in Delaware on May 14, 2012. The Companys headquarters are located in California.
The principal activities of the Company are to provide consumers with information to compare and rank all healthcare plans within a geographical area. The
service is intended to be free to access for the consumer through the companys webpage.
Certain information and disclosures normally included in
financial statements prepared in accordance with generally accepted in the United States of America (U.S. GAAP) have been omitted in accordance with the rules and regulations of the SEC. These condensed financial statements should be
read in conjunction with the Companys audited financial statements and accompanying notes as of and for the year ended March 31, 2014.
Use
of Estimates
The preparation of the financial statements in conformity with accounting principles generally accepted in the United States of America
(U.S. GAAP) requires management to make estimates, judgments, and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements. These estimates also affect the reported amounts of revenue
and expenses during the reporting periods. Actual results could differ from those estimates.
Cash and Cash Equivalents
The Company accounts for cash on hand and demand deposits with banks and other financial institutions as cash. Short-term, highly liquid investments with
original maturities of three months or less are considered cash equivalents.
Concentrations of Risk
Financial instruments that potentially subject the Company to significant concentrations of credit risk consist primarily of cash and cash equivalents, and
accounts receivable. A significant portion of the Companys cash and cash equivalents is held at one large reputable financial institution. The Company is exposed to credit risk in the event of default by the financial institution to the extent
that cash balances with the financial institution is in excess of amounts that are insured by the Federal Deposit Insurance Corporation. The Company has not experienced any losses in such accounts.
The Company performs ongoing credit evaluations of customers to assess the probability of accounts receivable collection based on a number of factors,
including past transaction experience with the customer, evaluation of their credit history, and review of the invoicing terms of the contract. The Company generally does not require collateral. The Company maintains reserves for potential credit
losses on customer accounts when deemed necessary.
Notes to condensed financial statements - continued
For the period three months ended June 30, 2014, revenue from customers that accounted for 10% or more
are summarized below. For the period ended June 30, 2013, the Company did not generate any revenue.
|
|
|
|
|
|
|
June 30, 2014 |
|
Velapoint |
|
|
10 |
% |
TruBridge |
|
|
74 |
% |
For the period ended June 30, 2014 and March 31, 2014, accounts receivable from customers that accounted for 10% or
more are summarized below:
|
|
|
|
|
|
|
|
|
|
|
Accounts Receivable |
|
|
|
June 30, |
|
|
March 31, |
|
|
|
2014 |
|
|
2014 |
|
Velapoint |
|
|
60 |
% |
|
|
66 |
% |
eHealthInsurance Services, Inc. |
|
|
31 |
% |
|
|
|
|
Health plan intermediaries holdings |
|
|
|
|
|
|
30 |
% |
Fair Value of Financial Instruments
The Company applies guidance under U.S. GAAP, which defines fair value, establishes a framework for measuring fair value, and requires enhanced disclosures
about fair value measurements. The adopted guidance defines fair value as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, and
requires that fair value measurements be classified and disclosed in one of the following three categories:
Level 1 Quoted
prices in active markets for identical assets or liabilities.
Level 2 Quoted prices in active markets for similar assets or
liabilities, quoted prices for identical or similar assets or liabilities in markets that are not active, or inputs other than quoted prices that are observable for the asset or liability.
Level 3 Unobservable inputs for the asset or liability.
The carrying amounts of certain of the Companys financial instruments including cash, cash equivalents, accounts receivable, and accounts payable,
approximate fair value due to their short maturities. Long-term debt have variable interest rates, which reset frequently; therefore, their carrying values do not materially differ from their calculated aggregate fair value. These are considered
Level 1 fair value measurements.
Property and Equipment
Property and equipment are stated at cost less accumulated depreciation.
Depreciation on property and equipment is calculated on the straight-line method over the estimated useful lives of the respective assets. As of June 30,
2014 and March 31, 2014, all property and equipment was comprised of computer equipment, which has an estimated useful life of 3 years. Maintenance and repairs are charged to expense as incurred. When assets are retired or otherwise disposed
of, the cost and accumulated depreciation are removed from the accounts, and any resulting gain or loss is reflected in the accompanying statements of operations for the period realized.
Notes to condensed financial statements - continued
Impairment or Disposal of Long-lived Assets
Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying
amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future net cash flows expected to be generated by the asset or asset group. If the carrying
amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized as the amount by which the carrying amount of the asset exceeds the fair value of the asset. There were no impairment losses on long-lived assets for the three months ended June 30, 2014 and June 30, 2013.
Revenue Recognition
The Companys revenue is principally derived from marketing fees, licensing fees, limited exclusivity fees, and landing page development fees. The Company
recognizes revenue when: (1) persuasive evidence exists of an arrangement with the customer reflecting the terms and conditions under which products or services will be provided; (2) delivery has occurred or services have been provided;
(3) the fee is fixed or determinable; and (4) collection is reasonably assured.
Revenue is considered earned when the performance measures have
been completed. Deposits (whether refundable or non-refundable), early payments and progress payments are not recognized as revenue until the revenue producing event has occurred.
Marketing fee revenue The Company offers marketing services over a specified term. This fee is related to telephone and website
traffic received by HealthPocket.com for the customer and is recognized straight-line basis over the life of the specified term of the marketing services. There are two ways marketing fee revenue is determined: lead fee revenue and conversion fee
revenue. The Company offers lead marketing services in the form of providing leads to customers. Revenue for leads provided is recognized based on the contractually agreed price per lead multiplied by the number of leads provided by the Company
during the period. The Company offers conversion marketing services in the form of providing leads to customers with revenue recognized on a cost per acquisition basis. Revenue is calculated based on the number of qualifying conversions generated by
the Company leads. The customer collects conversion data and provides a contractually agreed periodical report to the Company. Revenue is recognized based on the agreed price per lead conversion multiplied by the number of leads converted during the
period.
Proprietary application programming interface technology and software license The Company offers a term license for
its software and technology. This can include a one-time implementation fee. The implementation fee is recognized when the implementation in completed. The license fee is recognized straight-line basis over the life of the contractual license term.
Limited exclusivity fee revenue The Company offers to certain customers limited exclusivity for placement of advertisements
on the HealthPocket website for a fee. This fee is recognized straight-line basis over the life of the limited exclusivity term.
Landing page development The Company offers to design, build and support a customers hosting of certain landing pages for
the purpose of capturing e-leads and phone calls. Revenue for this service is recognized straight-line basis over the life of the support period of the landing pages.
Deferred Revenue
Deferred revenue primarily consists of
billings or payments received in advance of revenue recognition from the Companys marketing service and licensing agreements, and is recognized as the revenue recognition criteria are met. The Company generally invoices its customers in
accordance with the agreement terms.
Notes to condensed financial statements - continued
Stock-based Compensation
The Company measures all stock-based awards, including stock options, based on their estimated fair value on the grant date for awards to employees and on the
date services are provided for awards to non-employees. The measurement of stock-based compensation for non-employees is subject to periodic adjustments as the options vest, and the expense is recognized over the period services are rendered.
The Company uses the Black-Scholes option-pricing model to determine the fair values of the stock options and amortizes the fair values of stock-based awards
on a straight-line basis, over the requisite service period (generally the vesting period), for the portion of the stock-based award that is ultimately expected to vest.
The Company estimates forfeitures based on historical experience, at the time of grant and revises these estimates, if necessary, in subsequent periods if
actual forfeitures differ from those estimates.
Income Taxes
Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases, and operating loss and tax credit carry forwards. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in
the period that includes the enactment date. The Company recognizes the effect of income tax positions only if those positions are more likely than not of being sustained. The carrying value of the net deferred tax assets is based on the belief that
it is more likely than not that the Company will be unable to realize these deferred tax assets. Changes in recognition or measurement are reflected in the period in which the change in judgment occurs.
Research and Development Expenses
The Company incurs
research and development expenses consisting of employee compensation, information technology, consulting, and facilities-related expenses. The Company incurs research and development expenses primarily for improvements and enhancements to the
services, development of new products, and infrastructure costs such as facility and other overhead costs. Costs related to research, design and development of the Companys products are expensed as incurred.
Note 2 Property and Equipment
Property and
equipment as of June 30, 2014 and March 31, 2014 consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
|
March 31, |
|
|
|
2014 |
|
|
2014 |
|
Computer equipment |
|
$ |
15,546 |
|
|
$ |
15,546 |
|
Accumulated depreciation |
|
|
(9,043 |
) |
|
|
(7,748 |
) |
|
|
|
|
|
|
|
|
|
Total property and equipment, net |
|
$ |
6,503 |
|
|
$ |
7,798 |
|
|
|
|
|
|
|
|
|
|
Depreciation expense for the three months ended June 30, 2014 and 2013 was $1,295 and $1,216, respectively.
Notes to condensed financial statements - continued
Note 3 Accrued Liabilities
Accrued liabilities as of June 30, 2014 and March 31, 2014 consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
|
March 31, |
|
|
|
2014 |
|
|
2014 |
|
Accrued merger consideration |
|
$ |
300,000 |
|
|
$ |
|
|
Accrued legal fees |
|
|
|
|
|
|
5,000 |
|
Accrued professional fees |
|
|
21,357 |
|
|
|
11,874 |
|
|
|
|
|
|
|
|
|
|
Total accrued liabilities |
|
$ |
321,357 |
|
|
$ |
16,874 |
|
|
|
|
|
|
|
|
|
|
Note 4 Loans
The
Company has a long-term loan from the Silicon Valley Bank (SVB) and short-term loans from two of the Companys founders, who are also officers of the Company (the founder loans). The loans were used to fund the day-to-day operations
of the Company before the commencement of revenue activities.
Bank Loan
The bank debt agreement with SVB, executed on September 7, 2012, allowed for a maximum of $2,000,000 in financing, available in two tranches. The first
tranche of $750,000 was drawn on October 19, 2012 with a maturity date of July 1, 2016. The second tranche was drawn in two parts; on September 30, 2013 for $500,000 with a maturity date of November 1, 2016 and on
January 31, 2014 for $500,000 with a maturity date of January 1, 2017. Repayments begin on the 1st day of the 1st month following the funding period and are interest-only payment for a period of three months, then 36 equal payments of
principal, plus accrued unpaid interest. The interest rate is the WSJ Prime Rate plus 2.25%.
SVB requires the submission of monthly financial statements
within 30 days after the end of each month. SVB also holds as collateral all of the Companys right, title and interest in the Companys personal property as such terms are defined under the California Uniform Commercial Code; excluding
any intellectual property so long as the Company agrees not to encumber any of its intellectual property.
The balance of the SVB loan, net of discount,
for the periods ended June 30, 2014 and March 31, 2014 are $1,204,234 and $1,353,691, respectively. Interest expense incurred on the loan for the three months ended June 30, 2014 and 2013 was $17,714 and $9,787, respectively.
Financing costs of $7,716 associated with the issuance of the SVB loans were capitalized and amortized over the term of the bank loan.
As of
June 30, 2014, scheduled maturities of the Companys long-term bank loans are as follows:
|
|
|
|
|
|
|
As of |
|
|
|
June 30, 2014 |
|
Remainder of 2014 |
|
$ |
286,845 |
|
2015 |
|
|
574,149 |
|
2016 |
|
|
334,684 |
|
2017 |
|
|
13,607 |
|
|
|
|
|
|
Total |
|
$ |
1,209,285 |
|
|
|
|
|
|
The loan with SVB was paid in full on July 15, 2014 (Note 10).
Founder Loans
The two founder loans are for $25,000 each
and accrue interest at the rate of 4.0% annually. The two loans were payable on demand by the lenders. Interest expense accrued on the two loans for the three months ended June 30, 2014 and 2013 was $538 and $527, respectively.
The two founders loans were paid in full on July 15, 2014 (Note 10).
Notes to condensed financial statements - continued
Note 5 Stockholders Equity
At incorporation, the Company was authorized to issue 10,000,000 shares of common stock with a par value of $0.0001 per share.
On August 8, 2012, the number of authorized shares increased to 44,100,000; 32,000,000 shares of common stock, par value $0.0001 and 12,100,000 of Series
A preferred stock, par value $0.0001 per shares. Also, a common stock forward stock split of 1.4331212 for 1 occurred.
On September 5, 2012, the
number of authorized shares increased to 44,104,000 shares; 32,000,000 shares of common stock, par value $0.0001 and 12,104,000 shares of Series A preferred stock, par value $0.0001.
On November 29, 2012, the number of authorized shares increased to 88,208,000; 64,000,000 shares of common stock, par value $0.0001 and 24,208,000 shares
of Series A preferred stock, par value $0.0001. Also, a forward stock split of 2 for 1 occurred.
On January 22, 2013, the number of authorized
shares increased to 89,008,000 shares; 64,000,000 shares of common stock, par value $0.0001 and 25,008,000 shares of Series A preferred stock, par value $0.0001.
On April 2, 2013, the number of authorized shares decreased to 75,008,000 shares; 58,000,000 shares of common stock, par value $0.0001 and 17,008,000
shares of Series A preferred stock, par value $0.0001.
As of June 30, 2014, the Companys authorized capital stock consists of 58,000,000
shares of common stock, par value of $0.0001 and 17,008,000 shares of Series A preferred stock, par value of $0.0001.
Series A Convertible Preferred
Stock
In August 2012, the Company issued 4,000,000 shares of Series A Convertible Preferred Stock at an issuance price of $0.50 per share for gross
proceeds of $2,000,000 and incurred issuance costs of $34,148.
On November 29, 2012, a forward stock split of 2 for 1 occurred.
In January 2013, the Company issued 700,000 shares of Series A Convertible Preferred Stock at an issuance price of $0.25 per share for gross proceeds of
$175,000 and incurred issuance costs of $7,108.
On February 7, 2013, the Company issued 100,000 shares of Series A Convertible Preferred Stock at an
issuance price of $0.25 per share for gross proceeds of $25,000, and incurred issuance costs of $6,000.
In April 2013, the Company issued 1,000,000
shares of Series A Convertible Preferred Stock at an issuance price of $0.25 per share for gross proceeds of $250,000.
Dividends
Holders of shares of Preferred Stock shall be entitled to receive non-cumulative dividends as and if declared by the board of directors. Dividends are payable
in preference to any dividends of Common Stock declared by the board of directors. No dividends were declared during the three months ended June 30, 2014 and 2013.
Liquidation Rights
In the event of liquidation,
dissolution or winding up of the Company, the holders of shares of Series A Preferred Stock then outstanding are entitled to be paid out of the assets of the Company available for distribution to its stockholders before any payment is to be made to
the holders of Common Stock, an amount per share equal to the sum of the applicable Original Issue Price of $0.25 per share for such series of Preferred Stock, plus any dividends declared but unpaid on such share.
Notes to condensed financial statements - continued
If upon any such liquidation, dissolution or winding up of the Company the assets of the Company available
for distribution to its stockholders is insufficient to pay the holders of shares of Series A Preferred Stock the full amount to which they are entitled, the holders of such shares are to share ratably in any distribution of the assets available for
distribution in proportion to the respective amounts which would otherwise be payable in respect of the shares held by them upon such distribution if all amounts payable on or with respect to such shares were paid in full.
After the payment or setting aside for payment to the holders of Series A Preferred Stock of the full amounts, the entire remaining assets of the Company
legally available for distribution shall be distributed pro rata to holders of the Common Stock of the Company in proportion to the number of shares of Common Stock held by them.
Redemption
The Preferred Stock is not redeemable at the
option of the holder thereof.
Conversion
Each share
of Preferred Stock is convertible, at the option of the holder, at any time after the date of issuance of such share, at the office of the Company or the transfer agent into such number of fully paid and non-assessable shares of Common Stock as is
determined by dividing the applicable original issue price by the conversion price in effect on the date the certificate is surrendered for conversion. The applicable original issue price was $0.25 as of June 30, 2014. The conversion price was
$0.25 per share as of June 30, 2014.
Each share of Preferred Stock shall automatically be converted into shares of Common Stock at the then
effective conversion rate for Series A preferred stock immediately upon the earlier of (i) the closing of this corporations sale of its Common stock in a firm commitment underwritten public offering pursuant to a registration statement on
Form S-1 under the Securities Act of 1933, as amended, the public offering price of which was greater than $30,000,000 in the aggregate or (ii) the date, or the occurrence of an event, specified by vote or written consent or agreement of the
Requisite Preferred Majority.
Series A Voting Rights
The holders of Preferred Stock and the holders of Common Stock shall vote together and not as separate classes. Each holder of Preferred Stock shall be
entitled to the number of votes equal to the number of shares of Common Stock into which the shares of Preferred Stock held by such holder could be converted as of the record date. The holders of shares of Preferred Stock shall be entitled to vote
on all matters on which the Common Stock shall be entitled to vote.
Common Stock
As of June 30, 2014 and March 31, 2014, the Company was authorized to issue 58,000,000 shares of Common Stock, of which 26,843,289 and 26,843,289
were issued and outstanding, respectively. As of June 30, 2014 and March 31, 2014, 10,203,820 shares of Common Stock were reserved for options available to grant under the Companys stock option plan.
Warrants to Purchase Series A Preferred Stock
On
September 7, 2012, the Company entered into a bank loan agreement with SVB. As part of this agreement SVB was to be granted warrants to purchase shares of Series A Preferred Stock at an exercise price of $0.25 per share in exchange for the
issuance of loan by SVB. The warrants were to be granted when a drawdown of the loan occurred. On October 19, 2012, 88,000 warrants were granted. On September 30, 2013, 60,000 warrants were granted. On January 31, 2014, 60,000
warrants were granted. As of June 30, 2014 and March 31, 2014, warrants to purchase 208,000 shares of Series A Preferred Stock were outstanding. These warrants are exercisable at an exercise price of $0.25 per share at any time during
their six-year term, which expires on September 7, 2019. These warrants have been estimated at $29,000 which amount has been credited to additional paid in capital on the statement of changes in stockholders equity. The assumptions used
in estimating the value of the warrants were: volatility 40%, expected term 6 years, interest rate 1.21%, and a dividend rate of 0.
Notes to condensed financial statements - continued
Note 6 Income taxes
The Company is subject to income taxes in the U.S. federal and state of California jurisdictions. Tax regulations within each jurisdiction are subject to
interpretation of the related tax laws and regulations and require the application of significant judgment. The provision for income taxes for the three months ended June 30, 2014 was $800. There was no provision for income taxes for the three
months ended June 30, 2013.
As of June 30, 2014, the Company had federal net operating loss carry forwards of approximately $2.45 million,
which begin to expire 2033 and state net operating loss carry forwards of approximately $2.45 million, which begin to expire in 2033.
Based upon
available objective evidence, management believes it is more likely than not that the net deferred tax assets will not be realized. Accordingly, management has established a valuation allowance for all deferred tax assets.
Federal and state tax laws impose substantial restrictions on the utilization of the net operating loss, for tax purposes, of net operating loss and credit
carry forwards in the event of an ownership change as defined in Section 382 of the Internal Revenue Code. Accordingly, the Companys ability to utilize these carry forwards may be limited as a result of such ownership changes. Such a
limitation could result in the expiration of carry forwards before they are utilized.
The Company files income tax returns in the U.S. federal
jurisdiction and various state jurisdictions. In the normal course of business, the Company is subject to examination by taxing authorities. The Company is not currently under audit by the Internal Revenue Service or other similar state and local
authorities. All tax years remain open to examination by major taxing jurisdictions to which the Company is subject to.
Note 7 Related Party
Transactions
Founder Loans
The Company obtained
loans from two of the Companys founders in 2013. These two loans were for $25,000 each, plus any unpaid accrued interest. The loan balances, including unpaid accrued interest as of June 30, 2014 and March 31, 2014 were $54,311 and
$53,773, respectively.
Leases
The Company leased
its office space from a related party of one of its shareholders. Expenses paid through this lease were $22,500 and $18,850 for the three months ended June 30, 2014 and 2013, respectively. At the end of the initial term, the Company converted
the lease to a month-to-month arrangement for $7,500 per month. Effective August 11, 2014, the lease was amended for the relocation and expanded office space and the increase of monthly rent to $9,000.
Note 8 Subsequent Event
On July 14, 2014,
the Company entered into an agreement and plan of merger with Health Insurance Innovations, Inc. (HII), a Delaware corporation, that is a developer and administrator of affordable individual health insurance and discount benefit plans.
The closing of the transaction contemplated by the merger agreement occurred on July 14, 2014.
The Company will continue as a surviving entity and
indirect subsidiary of HII. Pursuant to the merger agreement, at the closing, HII paid consideration consisting of approximately $21.9 million in cash and 900,900 shares of HII s class A common stock, $0.0001 par value per share having an
agreed upon aggregate value of $10.0 million or $11.10 per share.
Notes to condensed financial statements - continued
A portion of the merger consideration consisting of $3,200,000 in cash was deposited with an escrow agent to
fund payment obligations of the Companys former equity holders, and fees and expenses of the representatives of the Companys former equity holders.
As part of the merger agreement, the outstanding loan balances with SVB and the founders were paid in full.
The Company evaluated subsequent events through September 29, 2014, the date these financial statements were issued, and has appropriately accounted for
and disclosed all relevant subsequent events through this date.
Exhibit 99.2
Introduction to Unaudited Pro Forma Combined Financial Statements
On July 14, 2014, Health Insurance Innovations, Inc. a Delaware corporation (the Company or HII), entered into an
Agreement and Plan of Merger (the Merger Agreement) with HealthPocket, Inc., a Delaware corporation (HealthPocket), SV Merger Sub, Inc., a Delaware corporation and an indirect subsidiary of the Company (Merger
Sub), Mr. Bruce Telkamp, an individual (Telkamp), Dr. Sheldon Wang (Wang), an equity holder of HealthPocket, and Mr. Randy Herman, as the Representative of the HealthPocket equity holders. The closing of
the transactions contemplated by the Merger Agreement (the Closing) occurred on July 14, 2014 simultaneous with the signing of the Merger Agreement. Telkamp and Wang also entered into employment agreements with the Company in
connection with the transactions.
References to we, our, or the Company refer to HII and its
consolidated subsidiaries.
Description of Unaudited Pro Forma Combined Financial Statements
The following unaudited pro forma combined balance sheet as of June 30, 2014 combines our historical balance sheet as of June 30,
2014, as filed with the Securities and Exchange Commission (SEC) in our Quarterly Report on Form 10-Q, with HealthPockets unaudited historical consolidated balance sheet of as of June 30, 2014, giving effect to the acquisition
as if it had occurred on June 30, 2014, using the purchase method of accounting and applying the assumptions and adjustments described in the accompanying notes to the unaudited pro forma combined financial statements.
The unaudited pro forma combined statements of operations for the six months ended June 30, 2014 and the year ended December 31,
2013 combine our historical consolidated statements of operations for the six months ended June 30, 2014 and the year ended December 31, 2013, as filed with the SEC in our Quarterly Report on Form 10-Q and our Annual Report on From 10-K,
respectively, with HealthPockets unaudited historical information for the same periods, giving effect to the acquisition as though it had occurred at the beginning of the period presented, using the purchase method of accounting and applying
the assumptions and adjustments described in the accompanying notes to the unaudited pro forma combined financial statements. The pro forma calculations do not consider $86,000 of costs incurred by us related to the acquisition during the six months
ended June 30, 2014.
The unaudited pro forma financial statements do not include the realization of any cost savings from operating
efficiencies, synergies or other restructuring activities which might result from the transaction. The unaudited pro forma financial statements should be read in conjunction with the historical financial statements and accompanying notes of
HealthPocket and HII.
The unaudited pro forma financial statements should not be taken as representative of the future consolidated
results of operations or financial condition of HII.
Unaudited Pro Forma Combined Balance Sheet
As of June 30, 2014
($ in 000s, except share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Health Insurance Innovations, Inc. Historical |
|
|
HealthPocket, Inc. Historical |
|
|
Pro Forma Adjustments |
|
|
Pro Forma Combined |
|
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
32,935 |
|
|
$ |
1,316 |
|
|
$ |
(21,449 |
)(a) |
|
$ |
12,802 |
|
Cash held on behalf of others |
|
|
6,915 |
|
|
|
50 |
|
|
|
|
|
|
|
6,965 |
|
Short-term investments |
|
|
2,535 |
|
|
|
|
|
|
|
|
|
|
|
2,535 |
|
Accounts receivable, prepaid expenses and other current assets |
|
|
3,102 |
|
|
|
39 |
|
|
|
(50 |
)(b) |
|
|
3,091 |
|
Advanced commissions |
|
|
4,730 |
|
|
|
|
|
|
|
|
|
|
|
4,730 |
|
Income taxes receivable |
|
|
273 |
|
|
|
|
|
|
|
|
|
|
|
273 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets |
|
|
50,490 |
|
|
|
1,405 |
|
|
|
(21,499 |
) |
|
|
30,396 |
|
Property and equipment, net |
|
|
502 |
|
|
|
6 |
|
|
|
|
|
|
|
508 |
|
Goodwill |
|
|
18,014 |
|
|
|
|
|
|
|
18,044 |
(c) |
|
|
36,058 |
|
Intangible assets, net |
|
|
4,531 |
|
|
|
|
|
|
|
9,837 |
(d) |
|
|
14,368 |
|
Other assets |
|
|
81 |
|
|
|
15 |
|
|
|
|
|
|
|
96 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
73,618 |
|
|
$ |
1,426 |
|
|
$ |
6,382 |
|
|
$ |
81,426 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and stockholders equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses |
|
$ |
9,509 |
|
|
$ |
334 |
|
|
$ |
|
|
|
$ |
9,843 |
|
Contingent acquisition consideration |
|
|
2,274 |
|
|
|
|
|
|
|
|
|
|
|
2,274 |
|
Deferred revenue |
|
|
148 |
|
|
|
89 |
|
|
|
(50 |
)(b) |
|
|
187 |
|
Current portion of long-term debt |
|
|
|
|
|
|
588 |
|
|
|
(588 |
)(e) |
|
|
|
|
Other current liabilities |
|
|
183 |
|
|
|
|
|
|
|
|
|
|
|
183 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
12,114 |
|
|
|
1,011 |
|
|
|
(638 |
) |
|
|
12,487 |
|
Contingent acquisition consideration |
|
|
1,511 |
|
|
|
|
|
|
|
|
|
|
|
1,511 |
|
Long-term debt, less current portion |
|
|
|
|
|
|
675 |
|
|
|
(675 |
)(e) |
|
|
|
|
Due to member pursuant to tax receivable agreement |
|
|
423 |
|
|
|
|
|
|
|
|
|
|
|
423 |
|
Other liabilities |
|
|
426 |
|
|
|
|
|
|
|
|
|
|
|
426 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
|
14,474 |
|
|
|
1,686 |
|
|
|
(1,313 |
) |
|
|
14,847 |
|
Commitments and contingencies |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders equity: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class A common stock |
|
|
5 |
|
|
|
1 |
|
|
|
|
|
|
|
6 |
|
Class B common stock |
|
|
9 |
|
|
|
|
|
|
|
|
|
|
|
9 |
|
Preferred stock |
|
|
|
|
|
|
1 |
|
|
|
(1 |
)(g) |
|
|
|
|
Additional paid-in capital |
|
|
29,552 |
|
|
|
2,456 |
|
|
|
7,434 |
(f) |
|
|
36,986 |
|
|
|
|
|
|
|
|
|
|
|
|
(2,456 |
)(g) |
|
|
|
|
Treasury stock, at cost |
|
|
(1,688 |
) |
|
|
|
|
|
|
|
|
|
|
(1,688 |
) |
Accumulated deficit |
|
|
(3,156 |
) |
|
|
(2,718 |
) |
|
|
2,718 |
(g) |
|
|
(3,156 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Health Insurance Innovations, Inc. stockholders equity |
|
|
24,722 |
|
|
|
(260 |
) |
|
|
7,695 |
|
|
|
32,157 |
|
Noncontrolling interests |
|
|
34,422 |
|
|
|
|
|
|
|
|
|
|
|
34,422 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity |
|
|
59,144 |
|
|
|
(260 |
) |
|
|
7,695 |
|
|
|
66,578 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity |
|
$ |
73,618 |
|
|
$ |
1,426 |
|
|
$ |
6,382 |
|
|
$ |
81,426 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unaudited Pro Forma Combined Statement of Operations
For the Six Months Ended June 30, 2014
($ in 000s, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Health Insurance Innovations, Inc. Historical |
|
|
HealthPocket, Inc. Historical |
|
|
Pro Forma Adjustments |
|
|
Pro Forma Combined |
|
Revenues (premium equivalents of $68,135 for the six months ended June 30, 2014) |
|
$ |
38,864 |
|
|
$ |
817 |
|
|
$ |
(92 |
)(h) |
|
$ |
39,589 |
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Third-party commissions |
|
|
19,200 |
|
|
|
|
|
|
|
|
|
|
|
19,200 |
|
Credit cards and ACH fees |
|
|
833 |
|
|
|
|
|
|
|
|
|
|
|
833 |
|
Selling, general and administrative |
|
|
16,488 |
|
|
|
1,184 |
|
|
|
(92 |
)(h) |
|
|
17,672 |
|
|
|
|
|
|
|
|
|
|
|
|
(86 |
)(i) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
178 |
(j) |
|
|
|
|
Depreciation and amortization |
|
|
816 |
|
|
|
3 |
|
|
|
925 |
(k) |
|
|
1,744 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses |
|
|
37,337 |
|
|
|
1,187 |
|
|
|
925 |
|
|
|
39,449 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations |
|
|
1,527 |
|
|
|
(370 |
) |
|
|
(1,017 |
) |
|
|
140 |
|
Other expense (income): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest (income) expense |
|
|
(17 |
) |
|
|
41 |
|
|
|
|
|
|
|
24 |
|
Other expense |
|
|
682 |
|
|
|
|
|
|
|
|
|
|
|
682 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) before income taxes |
|
|
862 |
|
|
|
(411 |
) |
|
|
(1,017 |
) |
|
|
(566 |
) |
Provision (benefit) for income taxes |
|
|
127 |
|
|
|
1 |
|
|
|
(233 |
)(l) |
|
|
(105 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
|
735 |
|
|
|
(412 |
) |
|
|
(784 |
) |
|
|
(461 |
) |
Net income (loss) attributable to noncontrolling interests |
|
|
536 |
|
|
|
|
|
|
|
(297 |
)(m) |
|
|
239 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to Health Insurance Innovations, Inc. |
|
$ |
199 |
|
|
$ |
(412 |
) |
|
$ |
(487 |
) |
|
$ |
(700 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per share data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share attributable to Health Insurance Innovations, Inc. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
0.04 |
|
|
|
|
|
|
|
|
|
|
$ |
(0.12 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted |
|
$ |
0.04 |
|
|
|
|
|
|
|
|
|
|
$ |
(0.12 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average Class A shares outstanding |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
5,040,883 |
|
|
|
|
|
|
|
|
|
|
|
5,849,313 |
|
Diluted |
|
|
5,088,390 |
|
|
|
|
|
|
|
|
|
|
|
5,849,313 |
|
Unaudited Pro Forma Combined Statement of Operations
For the Year Ended December 31, 2013
($ in 000s)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Health Insurance Innovations, Inc. Historical |
|
|
HealthPocket, Inc. Historical |
|
|
Pro Forma Adjustments |
|
|
Pro Forma Combined |
|
Revenues (premium equivalents of 100,002 for the year ended December 31, 2013) |
|
$ |
56,639 |
|
|
$ |
530 |
|
|
$ |
|
|
|
$ |
57,169 |
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Third-party commissions |
|
|
32,244 |
|
|
|
|
|
|
|
|
|
|
|
32,244 |
|
Credit cards and ACH fees |
|
|
1,173 |
|
|
|
|
|
|
|
|
|
|
|
1,173 |
|
Contract termination |
|
|
5,500 |
|
|
|
|
|
|
|
|
|
|
|
5,500 |
|
Selling, general and administrative |
|
|
23,959 |
|
|
|
2,058 |
|
|
|
539 |
(j) |
|
|
26,556 |
|
Depreciation and amortization |
|
|
1,313 |
|
|
|
5 |
|
|
|
1,850 |
(k) |
|
|
3,168 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses |
|
|
64,189 |
|
|
|
2,063 |
|
|
|
2,389 |
|
|
|
68,641 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations |
|
|
(7,550 |
) |
|
|
(1,533 |
) |
|
|
(2,389 |
) |
|
|
(11,472 |
) |
Other expense: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
|
1 |
|
|
|
46 |
|
|
|
|
|
|
|
47 |
|
Other expense |
|
|
850 |
|
|
|
|
|
|
|
|
|
|
|
850 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss before income taxes |
|
|
(8,401 |
) |
|
|
(1,579 |
) |
|
|
(2,389 |
) |
|
|
(12,369 |
) |
Provision for income taxes |
|
|
18 |
|
|
|
1 |
|
|
|
|
|
|
|
19 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
|
(8,419 |
) |
|
|
(1,580 |
) |
|
|
(2,389 |
) |
|
|
(12,388 |
) |
Net loss attributable to noncontrolling interests |
|
|
(5,064 |
) |
|
|
|
|
|
|
271 |
(l) |
|
|
(4,793 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to Health Insurance Innovations, Inc. |
|
$ |
(3,355 |
) |
|
$ |
(1,580 |
) |
|
$ |
(2,660 |
) |
|
$ |
(7,595 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per share data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share attributable to Health Insurance Innovations, Inc. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
(0.70 |
) |
|
|
|
|
|
|
|
|
|
$ |
(1.35 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted |
|
$ |
(0.70 |
) |
|
|
|
|
|
|
|
|
|
$ |
(1.35 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average Class A shares outstanding |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
4,813,222 |
|
|
|
|
|
|
|
|
|
|
|
5,629,217 |
|
Diluted |
|
|
4,813,222 |
|
|
|
|
|
|
|
|
|
|
|
5,629,217 |
|
Notes to the Adjustments to the Pro Forma Combined Balance Sheet:
(a) |
To record cash consideration paid at closing of the acquisition. |
(b) |
To eliminate HIIs balance of prepaid expense paid to HealthPocket and HealthPockets deferred revenues related to HII. |
(c) |
To record the estimated value of acquired goodwill. (See Note 1). |
(d) |
To record the estimated fair value of acquired identifiable intangible assets. (See Note 2). |
(e) |
To record the payment of outstanding loans payable at closing of the acquisition. The payment of the outstanding loans payable was assumed by HII and is a component of the acquisition consideration (see Note 1).
|
(f) |
To account for the issuance of HII Class A common stock issued at closing of the acquisition as a component of the acquisition consideration, at fair value (see Note 1). |
(g) |
To eliminate the equity accounts of HealthPocket. |
Notes to the Adjustments to the Pro Forma Combined
Statements of Operations:
(h) |
To eliminate revenues and costs incurred in transactions between HII and HealthPocket. |
(i) |
To remove costs recorded in the historical financial statements specifically related to the acquisition. |
(j) |
To account for compensation expense that would have been paid to Telkamp and Wang pursuant to employment agreements entered into with HII. |
(k) |
To record amortization expense on acquired intangible assets. |
(l) |
To adjust for the effects of the pro forma adjustments described herein on the allocation of net loss to noncontrolling interests. |
(m) |
To record the income tax effect on the pro forma earnings before income taxes (which includes other pro forma adjustments described herein). The pro forma adjustment for income tax reflects an effective tax rate of
14.7% for the six months ended June 30, 2014; there is no pro forma income tax adjustment for the year ended December 31, 2013, as the historical effective tax rate is 0.2% reflects state income tax expense directly related to one of
HIIs consolidated subsidiaries. HII, Inc. had no income tax expense for the year ended December 31, 2013. |
Note 1. The estimated preliminary purchase price allocation as of June 30, 2014 resulting from the
acquisition is accounted for under the acquisition method of accounting. The total purchase price is allocated to assets acquired and liabilities assumed based on the estimated fair value of HealthPockets tangible and intangible assets and
liabilities as of June 30, 2014. The excess of the purchase price over the net tangible and intangible assets is recorded as goodwill. We have made a preliminary estimated allocation of the purchase price based on the unaudited historical
balance sheet of HealthPocket as of June 30, 2014 as follows ($ in 000s):
|
|
|
|
|
Consideration: |
|
|
|
|
Cash (including paydown on outstanding loan payable of $1,263) |
|
$ |
21,449 |
|
Class A Common Stock, at fair value |
|
|
7,435 |
|
|
|
|
|
|
Total consideration |
|
$ |
28,884 |
|
|
|
|
|
|
Fair value of net assets acquired: |
|
|
|
|
Cash, restricted cash and cash equivalents |
|
$ |
1,366 |
|
Accounts receivable and other current assets |
|
|
39 |
|
Property and equipment, net |
|
|
6 |
|
Brand |
|
|
1,280 |
|
Noncompete agreements |
|
|
27 |
|
Technology |
|
|
8,100 |
|
Customer relationships |
|
|
430 |
|
Other assets |
|
|
15 |
|
Accounts payable and accrued expenses |
|
|
(334 |
) |
Deferred revenue |
|
|
(89 |
) |
|
|
|
|
|
Net assets acquired |
|
|
10,840 |
|
|
|
|
|
|
Preliminary allocation to goodwill |
|
$ |
18,044 |
|
|
|
|
|
|
Note 2. The preliminary estimated fair value and useful lives of identified intangible assets as reflected in the pro forma
financial statements is as follows ($ in 000s):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated Fair Value |
|
|
Estimated Useful Life (years) |
|
|
Annual Amortization Expense |
|
Brand |
|
$ |
1,280 |
|
|
|
2 |
|
|
$ |
640 |
|
Noncompete agreements |
|
|
27 |
|
|
|
3 |
|
|
|
9 |
|
Technology |
|
|
8,100 |
|
|
|
7 |
|
|
|
1,158 |
|
Customer relationships |
|
|
430 |
|
|
|
10 |
|
|
|
43 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
9,837 |
|
|
|
|
|
|
$ |
1,850 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The estimated amortization expense for the next five years, on a pro forma basis, is as follows ($ in 000s):
|
|
|
|
|
Remainder of 2014 |
|
$ |
925 |
|
2015 |
|
|
1,850 |
|
2016 |
|
|
1,529 |
|
2017 |
|
|
1,205 |
|
2018 |
|
|
1,200 |
|
Thereafter |
|
|
3,128 |
|
|
|
|
|
|
|
|
$ |
9,837 |
|
|
|
|
|
|
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