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 June 30, 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
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001-14665
COMMISSION FILE NUMBER
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,
10,481,514 shares outstanding as of August 14, 2001.
1
CLAIMSNET.COM INC. AND SUBSIDIARY
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
Condensed Consolidated Balance Sheets as of June 30, 2001
(unaudited) and December 31, 2000
Condensed Consolidated Statements of Operations (unaudited) for
the Three Months Ended June 30, 2001 and 2000, and for the Six
Months Ended June 30, 2001 and 2000
Condensed Consolidated Statements of Changes in Stockholders'
Equity (unaudited) for the Years Ended December 31, 1999 and 2000
and the Six Months Ended June 30, 2001
Condensed Consolidated Statements of Cash Flows (unaudited) for
the Six Months Ended June 30, 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)
June 30, December 31,
2001 2000(1)
--------- ---------
ASSETS
CURRENT ASSETS:
Cash $ 2,486 $ 1,132
Accounts receivable, net of allowance for
doubtful accounts of $35 and $29, respectively 157 307
Prepaid expenses and other current assets 143 123
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Total current assets 2,786 1,562
EQUIPMENT, FIXTURES AND SOFTWARE
Computer hardware and software 1,814 1,875
Software development costs 1,923 1,923
Furniture and fixtures 138 125
Office equipment 25 25
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3,900 3,948
Accumulated depreciation and amortization (3,017) (2,770)
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Total equipment, fixtures and software 883 1,178
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TOTAL $ 3,669 $ 2,740
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 449 $ 434
Accrued severance 205 363
Accrued acquisition costs 500 500
Accrued payroll and other current liabilities 364 388
Deferred revenue 3 889
--------- ---------
Total current liabilities 1,521 2,574
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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; 11,125,000 and 9,195,000 shares issued
as of June 30, 2001 and December 31, 2000 11 9
Additional capital 40,188 36,820
Deferred sales discount - (1,334)
Accumulated deficit (37,025) (34,303)
Treasury stock, at cost - 644,000 shares as of
June 30, 2001 and December 31, 2000 (1,026) (1,026)
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Total stockholders' equity 2,148 166
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TOTAL $ 3,669 $ 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 Six Months Ended
June 30, June 30,
--------------------- ---------------------
2001 2000(1) 2001 2000(1)
--------- --------- --------- ---------
REVENUES $ 263 $ 330 $ 795 $ 610
Cost of Revenues 565 942 1,159 1,769
--------- --------- --------- ---------
Gross Loss (302) (612) (364) (1,159)
--------- --------- --------- ---------
OPERATING EXPENSES:
Research and Development 178 753 360 984
Purchased Research & Development - 6,154 - 6,154
Amortization of Intangibles - 154 - 154
Selling, General & Administrative 946 1,655 2,020 2,913
--------- --------- --------- ---------
Total operating expenses 1,124 8,716 2,380 10,205
--------- --------- --------- ---------
LOSS FROM OPERATIONS (1,426) (9,328) (2,744) (11,364)
OTHER INCOME (EXPENSE)
Interest expense (3) (3) (4) (3)
Interest expense - affiliate (4) - (7) -
Interest income 27 23 33 124
--------- --------- --------- ---------
Total Other Income (Expense) 20 20 22 121
--------- --------- --------- ---------
NET LOSS $ (1,406) $ (9,308) $ (2,722) $(11,243)
--------- --------- --------- ---------
BASIC AND DILUTED NET LOSS PER COMMON SHARE $ (0.14) $ (1.20) $ (0.29) $ (1.56)
========= ========= ========= =========
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING - BASIC AND DILUTED 10,285 7,746 9,467 7,185
========= ========= ========= =========
(1) The statement of operations presentation for the three months and six
months ended June 30, 2000 has been reclassified to conform with the
2001 presentation format.
See notes to condensed consolidated financial statements.
4
CLAIMSNET.COM INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Years Ended December 31, 1999 and 2000, and Six Months Ended June 30, 2001
(In thousands)
(Unaudited)
Total
Number Deferred Stockholders'
of Shares Common Additional Sales Accumulated Treasury Equity
Outstanding Stock Capital Discount 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
Issuance of warrants in connection with
development agreement - - 1,700 (1,700) - - -
Amortization of deferred sales discount - - - 52 - - 52
Net loss - - - - (8,858) - (8,858)
--------- --------- --------- --------- --------- --------- ---------
Balances at December 31, 1999 6,625 7 26,220 (1,648) (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 6,374 - - - 6,375
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 - - - 314 - - 314
Net loss - - - - (17,695) - (17,695)
--------- --------- --------- --------- --------- --------- ---------
Balances at December 31, 2000 8,551 9 36,820 (1,334) (34,303) (1,026) 166
--------- --------- --------- --------- --------- --------- ---------
Sale of common stock 1,914 2 3,269 - - - 3,271
Issuance of common stock for services 16 - 42 - - - 42
Issuance of common stock warrants - - 57 - - - 57
Amortization of deferred sales discount - - - 79 - - 79
Write down of unamortized deferred sales discount - - - 1,255 - - 1,255
Net loss - - - - (2,722) - (2,722)
--------- --------- --------- --------- --------- --------- ---------
Balances at June 30, 2001 10,481 $ 11 $ 40,188 $ - $(37,025) $ (1,026) $ 2,148
========= ========= ========= ========= ========= ========= =========
See notes to condensed consolidated financial statements.
5
CLAIMSNET.COM INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(In thousands)
(Unaudited)
Six Months Ended
June 30,
2001 2000
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (2,722) $(11,243)
Adjustments to reconcile net loss to net cash
used by operating activities:
Depreciation and amortization 297 628
Provision for doubtful accounts 6 23
Amortization of deferred sales discounts 78 157
Write down of net deferred charges on
McKesson contract 356 -
Loss on sale of assets 16 -
Purchased Research and Development
in exchange for common stock - 6,154
Non-cash compensation for services 67 -
Changes in operating assets and liabilities:
Accounts receivable 144 (49)
Prepaid expenses and other current assets 11 (312)
Accounts payable, accrued expenses and
other current liabilities (152) 1,651
--------- ---------
Net cash used in operating activities (1,899) (2,991)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Sales of marketable securities - 3,582
Purchases of property and equipment (29) (276)
Proceeds from sale of property and equipment 11 -
Acquisition cost - HealthExchange assets - (3,478)
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Net cash used in investing activities (18) (172)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in note payable to affiliate 400 -
Payment of note payable to affiliate (400) -
Proceeds from issuance of common stock 3,271 3,300
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Net cash provided by financing activities 3,271 3,300
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NET INCREASE (DECREASE) IN CASH AND EQUIVALENTS 1,354 137
CASH AND EQUIVALENTS, BEGINNING OF PERIOD 1,132 3,021
--------- ---------
CASH AND EQUIVALENTS, END OF PERIOD $ 2,486 $ 3,158
========= =========
6
CLAIMSNET.COM INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(In thousands)
(Unaudited)
Six Months Ended
June 30,
2001 2000
--------- ---------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Common stock issued for services $ 42 -
========= =========
Common stock warrants issued for services $ 57 -
========= =========
Issuance of common stock for investment in Health-
Exchange assets $ - $ 6,375
========= =========
See notes to condensed consolidated financial statements.
7
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 subsidiaries as of June 30, 2001 and the results of its operations
and cash flows for the three months and six months ended June 30, 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 and six months ended June 30, 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 14, 2001.
2. TRANSACTIONS WITH MCKESSON CORPORATION
On April 12, 2001, the Company entered into an agreement with McKesson
Corporation (McKesson) which superseded the October 1999 agreement.
Under the 1999 Development and Services Agreement the Company (a)
issued a three year warrant to McKesson to purchase 819,184 shares of
common stock at $7.00 per share, (b) received fees for the development
of a private label claims processing and statement processing internet
application for McKesson, (c) received one of three scheduled license
fee payments for use of the McKesson internet application, (d) received
monthly support fees for dedicated private label system hosting,
operation and support services commencing at the date of acceptance of
the McKesson internet application, and (e) received transaction fees
for claims and statements processed by the McKesson internet
application. Under the new agreement, (a) McKesson acquired 1,514,285
shares of common stock at $1.75 per share for net proceeds of
$2,650,000, (b) McKesson paid a one-time fee of $200,000
(c) the stock purchase warrant originally issued to McKesson
in October 1999 was cancelled, (d) McKesson retained a license to use
the McKesson internet application to process statements and claims
without additional license fee payments, (e) McKesson agreed to
eliminate the need for dedicated private label system hosting,
operation, and support services and the Company agreed to provide
standard system hosting, operation, and support services without the
payment of future monthly support fees, (f) the Company will receive
fees for transactions processed by the McKesson internet application,
(g) the Company and McKesson agreed to use best efforts to expand the
scope of the license agreement to include additional claim types, and
(h) the Company and McKesson agreed to use best efforts to pursue other
unspecified business opportunities. Under a separate agreement, the
Company has contracted for McKesson processing services to print
patient statements and submit claims to payers for certain customers,
for which the Company pays McKesson fees for some transactions and
shares third party revenues for other transactions.
Pursuant to the October 1999 agreement, through March 31, 2001 the
Company (a) received payments in the aggregate amount of $2,202,000
related to development and license fee provisions, which was recorded as
deferred revenue, (b) expended $428,000 related to development and
implementation costs, which was recorded as deferred development costs,
and (c)recorded a capital contribution and an offsetting deferred sales
discount in the amount of $1,700,000 for the imputed value of the
warrant. As of March 31, 2001 the Company had amortized $1,187,000 of
the deferred revenue, $112,000 of the deferred development costs, and
$445,000 of the deferred sales discount, leaving balances of $1,015,000,
$316,000 and $1,255,000, respectively. The capitalized amounts were
being amortized ratably over the expected contract life of 65 months.
Pursuant to the April 12, 2001 restructured agreement, the balance of
the capitalized amounts was written down as of March 31, 2001 to the
$200,000 recoverable under the payment described above, through a
$356,000 charge to selling, general and administrative expenses in
the statement of operations.
8
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
RESULTS OF OPERATIONS FOR THREE AND SIX MONTHS ENDED JUNE 30, 2001 COMPARED TO
THREE AND SIX MONTHS ENDED JUNE 30, 2000.
REVENUES
Revenues in the three months ended June 30, 2001 were $263,000 compared to
$330,000 in the three months ended June 30, 2000, representing a decrease of
20%. Total revenues in the second quarter 2000 included $131,000 in license
fees related to the original agreement with McKesson Corporation for which
there was no corresponding revenue in the current quarter. Revenue from all
sources other than the McKesson license fees increased 32% to $263,000
from $199,000 in the three months ended June 30, 2001 compared to 2000.
Revenues from other sources for the three months ended June 30, 2001 were
comprised of $171,000 from transaction-based fees, $57,000 from
subscription fees, and $35,000 from implementation and other fees.
Revenues from other sources for the three months ended June 30, 2000 were
comprised of $134,000 from transaction-based fees, $27,000 from subscription
fees, and $38,000 from implementation and other fees.
Revenues in the six months ended June 30, 2001 were $795,000 compared to
$610,000 in the prior year period, representing a 30% increase. License fees,
and support fees related to the original agreement with McKesson, were
$289,000 and $262,000 for the six months ended June 30, 2001 and 2000,
respectively. Revenue from all sources other than the McKesson license and
support fees increased 45% to $506,000 in the six months ended June 30, 2001
from $348,000 in the year earlier period. Revenues from other sources for the
six months ended June 30, 2001 were comprised of $317,000 from transaction-based
fees, $107,000 from subscription fees, and $82,000 from implementation and
other fees. Revenues from other sources for the six months ended
June 30, 2000 were comprised of $239,000 from transaction-based fees,
$56,000 from subscription fees and $53,000 from implementation and other fees.
The Company processed 1,572,000 transactions during the three months ended June
30, 2001, compared with 1,194,000 transactions in the year-earlier quarter, an
increase of 32%. Transactions increased 23% to 3,006,000 from 2,448,000 for the
six months ended June 30, 2001 and 2000, respectively. The increase was
attributable to internal growth in the number of accounts and healthcare
providers subscribing to the Company's services. Additionally, 91% of all
transactions were for physician and dental claim submission services and 9% were
for patient statement processing services. The Company had 440 accounts
processing transactions for 3,700 providers at June 30, 2001 compared with 378
accounts and 3,005 providers at June 30, 2000, representing increases of 16% and
23%, respectively.
Transaction-based revenue averaged $0.11 per transaction for the six months
ended June 30, 2001 as compared with $0.10 per transaction for the six months
ended June 30, 2000. Revenue per transaction for the 1,491,000 commercial
electronic claims averaged $0.03 during the current six-month period compared to
1,316,000 commercial claims at $0.04 for the prior year period. Revenue per
transaction averaged $0.08 per transaction for the 1,097,000 and 854,000
Medicare and Medicaid claims processed during the six months ended June 30, 2001
and 2000, respectively. Average revenue per transaction for the 175,000 paper
claims was $0.48 during the six months ended June 30, 2001 compared to 176,000
paper claims which averaged $0.46 during the quarter ended June 30, 2000. The
Company processed 242,000 patient statements during the current six months
compared to 102,000 in the same year-earlier period.
9
COST OF REVENUES
Cost of revenues in the three months and six months ended June 30, 2001 were
$565,000 and $1,159,000, compared with $942,000 and $1,769,000 in the prior year
periods, representing decreases of 40% and 34%, respectively. The four
components of cost of revenues are data center expenses, transaction processing
expenses, customer support operation expenses and software amortization. Data
center expenses were $86,000 for the three months ended June 30, 2001 compared
with $99,000 for the same period in 2000, representing a 13% decrease.
Transaction processing expenses decreased by 6% to $131,000 in 2001 compared to
$139,000 in the second quarter of 2000. These two transaction-based expense
categories combined decreased 9% despite a 32% increase in total transactions
processed, primarily due to improved management of transaction processing
contracts and data center usage. Customer support operations expense decreased
by 48% to $277,000 in the first quarter of 2001 from $534,000 in the second
quarter of 2000, while the number of accounts and providers served at the end of
each quarter increased 16% and 23%, respectively. This decrease was attributable
to cost containment initiatives implemented at the beginning of the year, which
significantly reduced operating expenses in all areas. Software and deferred
development cost decreased 58% to $71,000 in the current quarter from $170,000
in the year-earlier period. This decrease reflects completion of amortization
for earlier versions of software for customer use and first quarter write down
of unamortized deferred development costs.
OPERATING EXPENSES
Research and development expenses were $178,000 and $360,000 in the three months
and six months ended June 30, 2001, compared with $753,000 and $984,000 in the
three months and six months ended June 30, 2000, representing decreases of 76%
and 63%, respectively. Research and development expenses are comprised of
personnel costs and related expenses. Current expense levels reflect cut backs
in personnel and other cost containment efforts. Prior period expenses included
development efforts for the HealthExchange products which were curtailed at
year-end. There were no software development expenses capitalized during the
current quarter, and minimal development costs associated with the McKesson
development project were capitalized in the prior year period. Development
efforts during the current quarter were primarily focused on continuous
incremental enhancements to the Company's proprietary software system.
Purchased research and development in the period ended June 30, 2000 reflected
the charge to operations associated with the acquisition of HealthExchange
assets during that quarter.
Amortization of intangibles recorded in the quarter ended June 30, 2000 was
related to HealthExchange assets, which were fully impaired or written off by
year-end.
Selling, general and administrative expenses were $946,000 in the three months
ended June 30, 2001, compared with $1,655,000 in the same period of 2000, a
decrease of 43%. Selling, general and administrative expenses decreased 31% to
$2,020,000 from $2,913,000 for the six months ended June 30, 2001 and 2000,
respectively. The $709,000 quarter-to-quarter decrease includes decreases in
sales and marketing, technology infrastructure and other administrative expenses
due to cuts in personnel costs, office rent, telephone expenses, and outside
professional fees as part of the Company's cost containment strategy implemented
at the start of the year. The quarter ended June 30, 2000 reflected a higher
number of people in sales, marketing and general administration as well as
administrative costs for the HealthExchange asset acquisition and subsequent
operations.
OTHER INCOME
Interest income of $27,000 and $33,000 was provided in the three and six months
ended June 30, 2001 from investment of excess cash in money market instruments.
Interest income of $23,000 and $124,000 in the three and six months ended June
30, 2000 was provided by investment of excess cash in money market instruments
and marketable securities.
10
LIQUIDITY AND CAPITAL RESOURCES
Net cash used in operating activities of $1,899,000 in the six months ended June
30, 2001 was primarily related to net operating losses of $2,722,000 and changes
in working capital of $197,000, less: depreciation of $297,000, non-cash write
offs and amortization of $634,000 associated with the McKesson contract
renegotiation, non-cash compensation for services of $67,000, loss on sale of
assets of $16,000 and provision for doubtful accounts of $6,000.
Net cash used in operating activities of $2,991,000 for the six months ended
June 30, 2000 was primarily related to net operating losses of $11,243,000,
less; purchased research and development of $6,154,000 associated with the
HealthExchange acquisition, depreciation of $628,000, provision for doubtful
accounts of $23,000, amortization of deferred sales discounts of $157,000
related to the McKesson Development and Services contract, and changes in
working capital of $1,290,000.
The decrease in net cash used in operating activities between the periods was
primarily related to prior year expenditures to acquire and further develop the
HealthExchange assets, and the cost containment strategy implemented at the
beginning of the current year, which reduced salaries, consulting, rent,
telephone and other operating expenses.
Net cash used in the current period by investing activities was $18,000. Cash
was provided in the current period from the sale of assets which had a net book
value of $27,000 and generated a loss of $16,000. Net cash of $29,000 was used
in investing activities to purchase equipment and software.
Net cash used in investing activities in the period ended June 30, 2000 was
$172,000. Cash was provided by sales of marketable securities of $3,582,000. Net
cash of $3,478,000 was used for the purchase of HealthExchange assets, and
$276,000 for other software and equipment.
In June 2001, the Company issued 16,000 shares of common stock valued at $42,000
for financial advisory services. The Company recognized expense of $10,000 in
the current period for services rendered and will recognize the remaining
expense in the next quarter.
In April 2001, the Company issued 1,514,285 shares of common stock to McKesson
at $1.75 per share for net proceeds of $2,650,000. The Company also cancelled
the warrants originally issued to McKesson in 1999 to purchase 819,184 shares of
common stock at $7.00 per share.
In April 2001, the Company issued warrants to purchase 40,000 shares of common
stock at a price of $1.75 per share, exercisable for two years from the date of
grant. The stock price on the date of grant was $1.74 per share. The warrants
are fully vested and issued for services rendered in the current period. The
Company recognized a charge to earnings of $57,000, which was equal to the
imputed value of the warrants, estimated at $1.41 per share using the
Black-Scholes valuation method (using the following assumptions: life of three
years, risk free rate of 5.10 percent, no dividends during the term, and a
volatility of 1.459).
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, of $407,000 were repaid in
May 2001.
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 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 which expire in May 2002 and warrants to
purchase 270,000 shares of common stock at a price of $5.60 which expire in July
2002.
11
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. On July 2, 2001 the Company filed an amended S-3 by which it increased
the number of shares being registered to 3,092,229.
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. The Company believes that its available
cash resources, together with anticipated revenues from operations, will be
sufficient to satisfy its capital requirements through December 31, 2001. This
belief is based on the existence of cash and equivalents of $2,077,000 at
July 31, 2001, less $2,002,000 of estimated cash expenditures for the five
months from August 1, 2001 through December 31, 2001. The estimated cash
expenditures for the five months from August 1, 2001 through December 31, 2001
are based upon average actual results for January through July 2001, adjusted
for the effect of the restructured agreement with McKesson, and excluding a
$500,000 disputed accrued liability which is not expected to require a cash
settlement in 2001. 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. In any of these events, the Company may
be unable to maintain its current level of operations, implement current plans
for expansion or to repay debt obligations as they become due. If current
plans can not be successfully 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.
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.
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PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(b) REPORTS:
During the quarter ended June 30, 2001, the Company filed reports on
form 8-K dated April 5, 2001, April 18,2001 and May 16, 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
August 14, 2001
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