SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the Quarterly Period Ended March 31, 2001
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)OF THE SECURITIES EXCHANGE
ACT OF 1934
For the Transition Period from to
--------------------- ------------------------
COMMISSION FILE NUMBER
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CLAIMSNET.COM INC.
(Exact name of registrant as specified in its charter)
Delaware 75-2649230
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
12801 N. Central Expressway, Suite 1515
Dallas, Texas 75243
(Address of principal (Zip Code)
executive offices)
Registrant's telephone number, including area code: 972-458-1701
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date. Common Stock, $.001 par value,
10,465,514 shares outstanding as of May 15, 2001.
1
CLAIMSNET.COM INC. AND SUBSIDIARY
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
Condensed Consolidated Balance Sheets (unaudited) as of March 31,
2001 and December 31, 2000
Condensed Consolidated Statements of Operations
(unaudited) for the Three Months Ended March 31, 2001 and 2000
Condensed Consolidated Statements of Changes in Stockholders'
Equity (unaudited) for the Years Ended December 31, 1999 and 2000
and the Three Months Ended March 31, 2001
Condensed Consolidated Statements of Cash Flows (unaudited) for
the Three Months Ended March 31, 2001 and 2000
Notes to Condensed Consolidated Financial Statements
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
PART II. OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K
SIGNATURES
2
PART I. FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
CLAIMSNET.COM INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands except share data)
(Unaudited)
March 31, December
2001 31, 2000(1)
--------- ---------
ASSETS
CURRENT ASSETS:
Cash $ 1,030 $ 1,132
Accounts receivable, net of allowance for
doubtful accounts of $29 and $29, respectively 306 307
Prepaid expenses and other current assets 302 123
--------- ---------
Total current assets 1,638 1,562
EQUIPMENT, FIXTURES AND SOFTWARE
Computer hardware and software 1,798 1,875
Software development costs 1,923 1,923
Furniture and fixtures 125 125
Office equipment 25 25
--------- ---------
3,871 3,948
Accumulated depreciation and amortization (2,871) (2,770)
--------- ---------
Total equipment, fixtures and software 1,000 1,178
--------- ---------
TOTAL $ 2,638 $ 2,740
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 57 $ 163
Accrued expenses and other current liabilities 1,342 1,522
Deferred revenue 25 889
Notes payable - affiliate 400 --
--------- ---------
Total current liabilities 1,824 2,574
--------- ---------
STOCKHOLDERS' EQUITY:
Preferred stock, $.001 par value; 4,000,000 shares
authorized, no shares issued and outstanding
Common stock, $.001 par value; 40,000,000 shares
authorized; 9,595,000 and 9,195,000 shares issued
as of March 31, 2001 and December 31, 2000 9 9
Additional capital 37,450 35,486
Accumulated deficit (35,619) (34,303)
Treasury stock, at cost - 644,000 shares as of
March 31, 2001 and December 31, 2000 (1,026) (1,026)
--------- ---------
Total stockholders' equity 814 166
--------- ---------
TOTAL $ 2,638 $ 2,740
========= =========
(1) The condensed consolidated balance sheet as of December 31, 2000 has been
derived from the audited financial statements at that date.
See notes to condensed consolidated financial statements.
3
CLAIMSNET.COM INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands except per share data)
(Unaudited)
Three Months Ended
March 31,
----------------------
2001 2000
-------- --------
REVENUES $ 532 $ 280
COST OF REVENUES 504 590
-------- --------
GROSS PROFIT (LOSS) 28 (310)
-------- --------
OPERATING EXPENSES:
Research and development 202 266
Software amortization 70 201
Selling, general & administrative 1,073 1,258
-------- --------
Total operating expenses 1,345 1,725
-------- --------
LOSS FROM OPERATIONS (1,317) (2,035)
OTHER INCOME (EXPENSE)
Interest expense (2) --
Interest expense - affiliate (2) --
Interest income 5 101
-------- --------
Total Other Income (Expense) 1 101
-------- --------
NET LOSS $(1,316) $(1,934)
-------- --------
BASIC AND DILUTED NET LOSS PER COMMON SHARE $ (0.15) $ (0.29)
======== ========
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING - BASIC AND DILUTED 8,640 6,625
======== ========
See notes to condensed consolidated financial statements.
4
CLAIMSNET.COM INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Year Ended December 31, 2000 and Three Months Ended March 31, 2001
(In thousands)
(Unaudited)
Total
Number of Stockholders'
Shares Common Additional Accumulated Treasury Equity
Outstanding Stock Capital Deficit Stock (Deficit)
--------- --------- --------- --------- --------- ---------
Balances at December 31, 1998 3,625 $ 4 $ 3,882 $ (7,750) $ -- $ (3,864)
Issuance of common stock with
Series A 12% Subordinated Notes 125 -- 850 -- -- 850
Non-employee stock option grants -- -- 155 -- -- 155
Issuance of common stock warrants -- -- 121 -- -- 121
Sale of common stock in initial
public offering 2,875 3 19,512 -- -- 19,515
Amortization of common stock
warrants issued in connection
with development agreement -- -- 52 -- -- 52
Net loss -- -- -- (8,858) -- (8,858)
--------- --------- --------- --------- --------- ---------
Balances at December 31, 1999 6,625 7 24,572 (16,608) -- 7,971
--------- --------- --------- --------- --------- ---------
Sale of common stock 1,370 1 4,226 -- -- 4,227
Issuance of common stock for
asset purchase 1,200 1 6,375 -- -- 6,376
Return to treasury of stock issued
for asset purchase (888) -- -- -- (1,415) (1,415)
Issuance from treasury of common stock
for settlement of acquired obligation 244 -- -- -- 389 389
Amortization of deferred sales discount -- -- 313 -- -- 313
Net loss -- -- -- (17,695) -- (17,695)
--------- --------- --------- --------- --------- ---------
Balances at December 31, 2000 8,551 9 35,486 (34,303) (1,026) 166
--------- --------- --------- --------- --------- ---------
Sale of common stock 400 -- 630 -- -- 630
Amortization of deferred sales discount -- -- 79 -- -- 79
Write down of unamortized warrant cost -- -- 1,255 -- -- 1,255
Net loss -- -- -- (1,316) -- (1,316)
--------- --------- --------- --------- --------- ---------
Balances at March 31, 2001 8,951 $ 9 $ 37,450 $(35,619) $ (1,026) $ 814
========= ========= ========= ========= ========= =========
See notes to condensed consolidated financial statements.
5
CLAIMSNET.COM INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(In thousands)
(Unaudited)
Three Months Ended
March 31,
2001 2000
-------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(1,316) $(1,934)
Adjustments to reconcile net loss to net cash
used by operating activities:
Depreciation and amortization 150 342
Provision for doubtful accounts -- 22
Amortization of deferred sales discount 79 --
Write down of net deferred charges on
McKesson contract 356 --
Loss on sale of assets 16 --
Changes in operating assets and liabilities:
Accounts receivable 1 (271)
Prepaid expenses and other current assets 21 10
Accounts payable, accrued expenses and
other current liabilities (450) (483)
-------- --------
Net cash used in operating activities (1,143) (2,314)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Sales of marketable securities -- 1,968
Advance payment on acquisition -- (2,000)
Purchases of property and equipment -- (47)
Proceeds from sale of assets 11 --
-------- --------
Net cash provided by(used in) investing activities 11 (79)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in note payable to affiliate 400 --
Proceeds from issuance of common stock 630 --
-------- --------
Net cash provided by financing activities 1,030 --
-------- --------
NET DECREASE IN CASH (102) (2,393)
CASH, BEGINNING OF PERIOD 1,132 3,021
-------- --------
CASH, END OF PERIOD $ 1,030 $ 628
======== ========
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CLAIMSNET.COM INC. AND SUBSIDIARY
Notes to Condensed Consolidated Financial Statements
1. BASIS OF PRESENTATION
In the opinion of management, the accompanying unaudited condensed
consolidated financial statements include all necessary adjustments
(consisting of normal recurring accruals) and present fairly the
consolidated financial position of Claimsnet.com inc. (the "Company")
and subsidiary as of March 31, 2001 and the results of its operations
and cash flows for the three months ended March 31, 2001 and 2000, in
conformity with generally accepted accounting principles for interim
financial information applied on a consistent basis. The results of
operations for the three months ended March 31, 2001 are not
necessarily indicative of the results to be expected for the full year.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted
accounting principles have been omitted. These financial statements
should be read in conjunction with the audited consolidated financial
statements and notes thereto included in the Company's Annual Report on
Form 10-K for the year ended December 31, 2000, as filed with the
Securities and Exchange Commission on April 16, 2001.
2. TRANSACTIONS WITH MCKESSON HBOC, INC.
On April 12, 2001, the Company completed an agreement with
McKesson/HBOC ("McKesson") which restructured the October 1999
Development and Services Agreement. In compliance with the new
agreement, McKesson paid to Claimsnet $2,850,000 for the purchase of
1,514,285 shares of common stock at $1.75 per share, and for a one-time
contract renegotiation fee of $200,000. The stock purchase warrant
originally issued to McKesson in October 1999 was cancelled.
Additionally, the new agreement eliminates certain Claimsnet operating
requirements and future McKesson license and subscription fees. The new
agreement retains provisions for the payment of transaction fees by
McKesson and expands the scope of transactions that may be processed
under the license and the scope of other business opportunities which
Claimsnet and McKesson may jointly pursue.
As of March 31, 2001 the Company had deferred charges related to the
McKesson contract in the net amount of $556,000 recorded as deferred
revenue of $699,000 and a deferred warrant expense of $1,255,000 which
was netted against additional capital. Those net deferred charges were
written down as of March 31, 2001 to the $200,000 recoverable under the
contract renegotiation described above, through a $356,000 charge to
selling, general and administrative expenses in the statement of
operations.
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ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
RESULTS OF OPERATIONS FOR THREE MONTHS ENDED MARCH 31, 2001 COMPARED TO THREE
MONTHS ENDED MARCH 31, 2000
REVENUES
Revenues in the three months ended March 31, 2001 were $532,000 compared to
$280,000 in the three months ended March 31, 2000, representing an increase of
90%. Revenues of $131,000 during 2001 are related to percentage of completion
recognition of the McKesson/HBOC Development and Services Agreement and revenues
of $401,000 are related to the Company's Internet-based clients. Revenues for
the three months ended March 31, 2001 from recurring revenue sources represented
67% of total revenues. Recurring revenues for the three months were comprised of
$147,000 from transaction-based fees and $208,000 from subscription fees.
Revenues from non-recurring sources totaled $177,000 and were related to,
support, and other fees.
The Company processed 1,434,000 transactions during the three months ended March
31, 2001, compared with 1,254,000 transactions in the year-earlier quarter, an
increase of 14%. The increase was attributable to internal growth in the number
of accounts and healthcare providers subscribing to the Company's services.
Additionally, 93% of all transactions were for physician and dental claim
submission services and 7% were for patient statement processing services. The
Company had 416 accounts processing transactions for 3,612 providers at March
31, 2001 compared with 401 accounts and 3,178 providers at March 31, 2000,
representing increases of 4% and 14%, respectively.
Transaction-based revenue averaged $0.10 per transaction for the three months
ended March 31, 2001 as compared with $0.08 per transaction for the three months
ended March 31, 2000. The Company expects the average revenue per transaction to
increase in future quarters for several reasons. Revenue per transaction for the
702,000 commercial electronic claims averaged $0.03 during the period and will
increase due to additional payer rebate contracts with volume-based pricing
structures. Revenue per transaction for the 542,000 Medicare and Medicaid claims
averaged $0.07 during the current quarter compared to 420,000 Medicare and
Medicaid claims which averaged $0.06 in the quarter ended March 31, 2000.
Average revenue per transaction for the 85,000 paper claims was $0.49 during the
quarter ended March 31, 2001 compared to 116,000 paper claims which averaged
$0.45 during the quarter ended March 31, 2000. The Company processed 105,000
patient statements during the current quarter compared to 42,000 in the same
year earlier period.
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COST OF REVENUES
Cost of revenues in the three months ended March 31, 2001 was $504,000, compared
with $590,000 in the three months ended March 31, 2000, representing a decrease
of 15%. The three components of cost of revenues are data center expenses,
transaction processing expenses, and customer support operation expenses. Data
center expenses remained constant at $92,000 for the three months ended March
31, 2001 compared with $93,000 for the same period in 2000. Transaction
processing expenses were $113,000 in 2001 compared to $76,000 in the first
quarter of 2000, representing a 49% increase. These two transaction-based
expense categories combined increased 21% primarily due to an increase of 14% in
the total number of transactions processed and an increase of 150% in patient
statement transactions, which carry the highest per transaction cost. Customer
support operations expense decreased by 29% to $299,000 in the first quarter of
2001 from $421,000 in the first quarter of 2000, while the number of accounts
and providers served at the end of each quarter increased 4% and 14%,
respectively. This decrease was attributable to a cost conservation strategy
implemented at the beginning of the year, which significantly reduced operating
expenses in all areas.
OPERATING EXPENSES
Research and development expenses were $202,000 in the three months ended March
31, 2001, compared with $266,000 in the three months ended March 31, 2000,
representing a decrease of 24%. Research and development expenses are comprised
of personnel costs and related expenses. There were no software development
expenses capitalized during either of the periods. Development efforts during
the first quarter were primarily focused on continuous incremental enhancements
to the Company's proprietary software system while the year-earlier efforts were
related to the McKesson project.
Software amortization expenses decreased 65% to $70,000 in the current quarter
from $201,000 in the year-earlier period. This decrease reflects completion of
amortization for internally developed software costs for customer use.
Selling, general and administrative expenses were $1,073,000 in the three months
ended March 31, 2001, compared with $1,258,000 in the same period of 2000, a
decrease of 15%. The $185,000 period-to-period decrease includes a $541,000
decrease in sales and marketing, technology infrastructure and other
administrative expenses due to decreases in personnel costs, office rent,
telephone expenses, and outside professional fees as part of the Company's cost
conservation strategy implemented at the start of the year. A one-time charge of
$356,000 was recorded in the current quarter for net unamortized costs
associated with the McKesson contract, which was renegotiated April 12, 2001.
OTHER INCOME (EXPENSE)
Interest income from investment of excess cash decreased to $5,000 in the
quarter ended March 31, 2001 from $101,000 in the quarter ended March 31, 2000
due to diminished levels of cash available for investment between the periods.
Interest expense of $4,000 was incurred in the current quarter on financing fees
and affiliate debt. No interest expense was incurred in the quarter ended March
31, 2000.
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LIQUIDITY AND CAPITAL RESOURCES
Net cash used in operating activities was $1,143,000 in the three months ended
March 31, 2001, compared with $2,314,000 for the year-earlier period. This
decrease was directly related to the cost conservation strategy implemented at
the first of the year, which reduced salaries, consulting, rent, telephone and
other operating expenses. Net cash provided in the current period by investing
activities was $11,000. Cash was provided in the current quarter from the sale
of assets which had a net book value of $27,000 and generated a loss of $16,000.
Net cash used in investing activities was $79,000 in the three months ended
March 31, 2000.
In March 2001, the Company completed the private placement of 400,000 shares of
common stock at $1.75 per share for net proceeds of $630,000.
In March 2001, the Company entered into a loan agreement with American Medical
Finance, Inc., a related party, in the amount of $400,000. Principal and
interest, at 9.5% per annum on the unpaid principal, are due in March 2002.
In January 2001, the Company granted employees options to purchase an aggregate
of 385,500 shares of common stock under the 1997 Stock Option Plan. The options
were issued at a price of $1.25 per share, the market price on the date of
grant, expire on the tenth anniversary of the grant, and vest on the first
anniversary of the grant.
In August 2000, the Company completed the private placement of 270,000 shares of
common stock at $3.50 per share for net proceeds of $927,000. In connection with
the financing, the Company also issued warrants to purchase 270,000 shares of
common stock at a price of $4.60 for a period of one year and warrants to
purchase 270,000 shares of common stock at a price of $5.60 for a period of two
years.
In June 2000, the Company completed a private placement of 1,000,000 shares of
common stock for net proceeds of $3,000,000.
In May 2000, the Company completed a private financing in the amount of $300,000
with the sale of 100,000 shares of common stock to American Medical Finance,
Inc., a related party and the owner of record of 381,603 shares of common stock
prior to the transaction. Bo W. Lycke, the Chairman of the Board, President and
Chief Executive Officer of the Company, Robert H. Brown, Jr., a Director of the
Company, and Ward L. Bensen, a Director of the Company, control 71.1%, 17.7%,
and 11.2%, respectively, of the outstanding common stock of American Medical
Finance, Inc.
In April 2000, the Company issued 1,200,000 shares valued at $6,376,000 to
acquire certain assets from VHx Company. In December 2000, pursuant to
provisions of the asset purchase agreement, the Company withdrew from escrow and
returned to its treasury 888,000 shares at a value of $1,415,000, and issued
244,000 shares valued at $389,000 from treasury stock to John Deere Health, a
major creditor, in satisfaction of debt owed by VHx Company.
On May 4, 2001 the Company filed a registration statement on form S-3 to
register 3,076,229 previously unregistered outstanding shares of its common
stock.
10
The Company believes that its available cash resources, together with
anticipated revenues from operations and the proceeds of recently completed
financing activities, will be sufficient to satisfy its capital requirements
through December 31, 2001. This belief is based on the existence of net working
capital of $314,000 at March 31, 2001, excluding a $500,000 disputed accrued
liability which is not expected to require a cash settlement in 2001; plus net
cash proceeds of $2,850,000 received from transactions described above, less
(i)$3,009,000 of net cash operating losses for the nine months from April 1
through December 31, 2001 based upon annualized actual results for January
through March 2001, adjusted for the effect of the restructured agreement with
McKesson, and (ii)$90,000 for capital expenditures. Some of these assumptions
may prove to be incorrect. As a result, financial resources may not be
sufficient to satisfy the Company's capital requirements for this period. The
Company is currently seeking additional funding. Management cannot predict
whether this additional financing will be in the form of equity or debt, or be
in another form. Necessary additional capital may not be available on a timely
basis or on acceptable terms, if at all. In any of these events, the Company may
be unable to implement current plans for expansion or to repay debt obligations
as they become due. If current plans can not be implemented, the Company may be
forced to significantly reduce operating expenses to a point which would be
detrimental to business operations, curtail research and development activities,
sell certain business assets or discontinue some or all of our business
operations, or take other actions which could be detrimental to business
prospects and result in charges which could be material to its operations and
financial position. In the event that any future financing should take the form
of equity securities, the holders of the common stock may experience additional
dilution.
NET TANGIBLE ASSETS
The Company's net tangible assets as of March 31, 2001 were $814,000. The
Company's net tangible assets are $3,464,000 on a proforma basis, after giving
effect to the $2,650,000 stock sale to McKesson which was consummated on April
12, 2001.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Standard No. 133
"Accounting for Derivative Instruments and Hedging Activities". SFAS 133
establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts,
(collectively referred to as derivatives) and for hedging activities. SFAS 133
is effective for all fiscal quarters of all fiscal years beginning after June
15, 2000. Claimsnet's adoption of SFAS 133 effective January 1, 2001 had no
material impact on its financial position or results of operations.
CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS
Information contained or incorporated by reference in this periodic report on
Form 10-Q and in other SEC filings by the Company contains "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. Such forward-looking statements are subject to various risks and
uncertainties that could cause actual results to vary materially from those
projected in such forward-looking statements. These risks and uncertainties are
discussed in more detail in the Company's Form 10-K which was filed with the
Securities and Exchange Commission on April 16, 2001. No assurance can be given
that future results covered by the forward-looking statements will be achieved.
11
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(b) REPORTS:
During the quarter ended March 31, 2001, the Company filed reports on
form 8-K dated January 5, 2001 and March 20, 2001, containing
information under item 7.
Subsequent to the close of the quarter ended March 31, 2001, the
Company filed reports on form 8-K dated April 5, 2001 and April
18,2001, containing information under item 5.
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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, thereunto duly authorized.
CLAIMSNET.COM INC.
(Registrant)
By: /s/ Bo W. Lycke
---------------------------
Bo W. Lycke
President and
Chief Executive Officer, on
behalf of the Registrant
By: /s/ Paul W. Miller
---------------------------
Paul W. Miller
Chief Financial Officer
May 15, 2001
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