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 September 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
--------------------- ---------------------
001-14665
COMMISSION FILE NUMBER
CLAIMSNET.COM INC.
------------------
(Exact name of registrant as specified in its charter)
Delaware 75-2649230
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
12801 N. Central Expressway, Suite 1515
Dallas, Texas 75243
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(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 November 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 September 30, 2001
(unaudited) and December 31, 2000
Condensed Consolidated Statements of Operations (unaudited)
for the Three Months Ended September 30, 2001 and 2000, and
for the Nine Months Ended September 30, 2001 and 2000
Condensed Consolidated Statements of Changes in Stockholders'
Equity (unaudited) for the Year Ended December 31, 2000 and
the Nine Months Ended September 30, 2001
Condensed Consolidated Statements of Cash Flows (unaudited)
for the Nine Months Ended September 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)
September 30, December 31,
2001 2000(1)
------------ ------------
ASSETS
CURRENT ASSETS:
Cash $ 1,089 $ 1,132
Accounts receivable, net of allowance for
doubtful accounts of $35 and $29, respectively 128 307
Prepaid expenses and other current assets 134 123
------------ ------------
Total current assets 1,351 1,562
EQUIPMENT, FIXTURES AND SOFTWARE
Computer hardware and software 1,823 1,875
Software development costs 1,922 2,351
Furniture and fixtures 150 125
Office equipment 25 25
------------ ------------
3,920 4,376
Accumulated depreciation and amortization (3,160) (2,862)
------------ ------------
Total equipment, fixtures and software 760 1,514
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TOTAL $ 2,111 $ 3,076
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 291 $ 434
Accrued severance 139 363
Accrued acquisition costs 500 500
Accrued payroll and other current liabilities 378 388
Deferred revenue - 1,225
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Total current liabilities 1,308 2,910
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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 September 30, 2001 and December 31, 2000 11 9
Additional capital 40,188 36,820
Deferred sales discount - (1,334)
Accumulated deficit (38,370) (34,303)
Treasury stock, at cost - 644,000 shares (1,026) (1,026)
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Total stockholders' equity 803 166
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TOTAL $ 2,111 $ 3,076
============ ============
(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 Nine Months Ended
September 30, September 30,
--------------------- ---------------------
2001 2000(1) 2001 2000(1)
--------- --------- --------- ---------
REVENUES $ 242 $ 483 $ 1,037 $ 1,093
Cost of Revenues 624 856 2,099 2,625
--------- --------- --------- ---------
Gross Loss (382) (373) (1,062) (1,532)
--------- --------- --------- ---------
OPERATING EXPENSES:
Research and Development 178 487 539 1,471
Purchased Research & Development - 1,540 - 7,694
Amortization of Intangibles - 231 - 385
Selling, General & Administrative 801 1,098 2,504 4,012
--------- --------- --------- ---------
Total operating expenses 979 3,356 3,043 13,562
--------- --------- --------- ---------
LOSS FROM OPERATIONS (1,361) (3,729) (4,105) (15,094)
OTHER INCOME (EXPENSE)
Interest expense (2) (2) (5) (5)
Interest expense - affiliate - - (7) -
Interest income 18 3 50 128
--------- --------- --------- ---------
Total Other Income (Expense) 16 1 38 123
--------- --------- --------- ---------
NET LOSS $ (1,345) $ (3,728) $ (4,067) $(14,971)
========= ========= ========= =========
BASIC AND DILUTED NET LOSS PER COMMON SHARE $ (0.13) $ (0.41) $ (0.41) $ (1.91)
========= ========= ========= =========
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING - BASIC AND DILUTED 10,481 9,107 9,809 7,831
========= ========= ========= =========
(1) The statement of operations presentation for the three months and nine
months ended September 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
Year Ended December 31, 2000, and Nine Months Ended September 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, 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 for services - - 57 - - - 57
Amortization of deferred sales discount - - - 79 - - 79
Write down of unamortized deferred sales discount - - - 1,255 - - 1,255
Net loss - - - - (4,067) - (4,067)
--------- --------- --------- --------- --------- --------- ---------
Balances at September 30, 2001 10,481 $ 11 $ 40,188 $ - $(38,370) $ (1,026) $ 803
========= ========= ========= ========= ========= ========= =========
See notes to condensed consolidated financial statements.
5
CLAIMSNET.COM INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(In thousands)
(Unaudited)
Nine Months Ended
September 30,
2001 2000
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (4,067) $(14,971)
Adjustments to reconcile net loss to net cash
used by operating activities:
Depreciation and amortization 458 1,124
Provision for doubtful accounts 7 32
Amortization of deferred sales discounts 79 235
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 - 7,694
Non-cash compensation for services 99 -
Changes in operating assets and liabilities:
Accounts receivable 172 (98)
Prepaid expenses and other current assets (11) 31
Accounts payable, accrued expenses and
other current liabilities (385) (292)
--------- ---------
Net cash used in operating activities (3,276) (6,245)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Sales of marketable securities - 3,832
Purchases of property and equipment (49) (506)
Proceeds from sale of property and equipment 11 -
Acquisition cost - HealthExchange assets - (2,978)
--------- ---------
Net cash provided by (used in) investing activities (38) 348
--------- ---------
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 4,245
--------- ---------
Net cash provided by financing activities 3,271 4,245
--------- ---------
NET DECREASE IN CASH AND EQUIVALENTS (43) (1,652)
CASH AND EQUIVALENTS, BEGINNING OF PERIOD 1,132 3,021
--------- ---------
CASH, END OF PERIOD $ 1,089 $ 1,369
========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Issuance of common stock for investment in Health-
Exchange assets $ - $ 5,001
========= =========
See notes to condensed consolidated financial statements.
6
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 September 30, 2001 and the results of its operations and
cash flows for the three months and nine months ended September 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 nine months ended September 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 and as amended on Form 10-K/A filed with the
Securities and Exchange Commission on October 3, 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 (of which
approximately $1,200,000 was received in December 2000) related to
development and license fee provisions, which were recorded as deferred
revenue and were being accounted for by amortizing the total amount,
received and to be received, of approximately $4,500,000 ratably over the
expected contract life of 65 months, (b) expended $428,000 related to
development and implementation costs, which was recorded as software
development costs on the balance sheet, and was being amortized ratably over
the expected contract period of 65 months, and (c)recorded in equity a
capital contribution and an offsetting deferred sales discount in the amount
of $1,700,000 for the imputed value of the warrant, which was being
amortized ratably over the expected contract period of 65 months. As of
March 31, 2001 the Company had amortized $1,187,000 of the deferred revenue
into revenue, $112,000 of the deferred development costs into cost of
revenues, and $445,000 of the deferred sales discount as a reduction of
revenues, leaving balances of $1,015,000, $316,000 and $1,255,000,
respectively. As of March 31, 2001, the Company accrued the $200,000 payment
received in April in connection with the contract modification as additional
deferred revenue. As a result of the April 2001 modification of the 1999
contract with McKesson, as of March 31, 2001 the Company offset the
remaining deferred sales discounts against the remaining deferred revenue.
The remaining software development costs of $316,000 were written off to
cost of revenue. Although the new agreement with McKesson permits them to
continue to use the software developed specifically to process their
transactions, there was no requirement for them to use the system and no
ability to project future transaction revenues.
7
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
RESULTS OF OPERATIONS FOR THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2001
COMPARED TO THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2000.
REVENUES
Revenues in the three months ended September 30, 2001 were $242,000 compared to
$483,000 in the three months ended September 30, 2000, representing a decrease
of 50%. Total revenues in the third 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 decreased 31% to $242,000 from $352,000 in
the three months ended September 30, 2001 compared to 2000, primarily due to a
$58,000 reduction in revenues from patient statement services that proved to be
unprofitable and were ceased during the fourth quarter of 2000. Revenues from
other sources for the three months ended September 30, 2001 were comprised of
$173,000 from transaction-based fees, $58,000 from subscription fees, and
$11,000 from implementation and other fees. Revenues from other sources for the
three months ended September 30, 2000 were comprised of $284,000 from
transaction-based fees, $51,000 from subscription fees, and $17,000 from
implementation and other fees.
Revenues in the nine months ended September 30, 2001 were $1,037,000 compared to
$1,093,000 in the prior year period, representing a 5% decrease. License fees,
and support fees related to the original agreement with McKesson, were $289,000
and $393,000 for the nine months ended September 30, 2001 and 2000,
respectively. Revenue from all sources other than the McKesson license and
support fees increased 7% to $748,000 in the nine months ended September 30,
2001 from $700,000 in the year earlier period. Revenues from other sources for
the nine months ended September 30, 2001 were comprised of $490,000 from
transaction-based fees, $165,000 from subscription fees, and $93,000 from
implementation and other fees. Revenues from other sources for the nine months
ended September 30, 2000 were comprised of $523,000 from transaction-based fees,
$121,000 from subscription fees and $56,000 from implementation and other fees.
The Company processed 1,529,000 transactions during the three months ended
September 30, 2001, compared with 1,489,000 transactions in the year-earlier
quarter, an increase of 3%. Additionally, 91% of all transactions were for
physician and dental claim submission services and 9% were for patient statement
processing services. The Company had 462 accounts processing transactions for
4,069 providers at September 30, 2001 compared with 383 accounts and 3,147
providers at September 30, 2000, representing increases of 21% and 29%,
respectively.
Transactions increased 15% to 4,534,000 from 3,937,000 for the nine months ended
September 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, offset by the reduction in unprofitable patient
statement transactions. While patient statement transactions decreased from
484,000 to 387,000, claims and all other transactions increased 20% from
3,453,000 to 4,147,000.
Transaction-based revenue averaged $0.11 per transaction for the nine months
ended September 30, 2001 as compared with $0.13 per transaction for the nine
months ended September 30, 2000. Prior year rebates from a clearinghouse were
renegotiated during 2000 to marginally decrease revenues and significantly lower
associated processing costs. Implementation of new pricing agreements with other
vendors is expected to improve rebate revenues in future quarters. Revenue per
transaction during the current nine month period averaged $0.03 per transaction
for the 2,232,000 commercial electronic claims, $0.08 per transaction for the
1,650,000 Medicare and Medicaid claims, $0.48 for the 265,000 paper claims and
$0.40 per transaction for the 387,000 patient statement and eligibility
transactions.
Revenue per transaction during the nine month period ended September 30, 2000
averaged $0.07 per transaction for the 1,928,000 commercial electronic claims,
$0.09 per transaction for the 1,276,000 Medicare and Medicaid claims, $0.46 for
the 249,000 paper claims and $0.32 per transaction for the 484,000 patient
statement and eligibility transactions.
8
COST OF REVENUES
Cost of revenues in the three months ended September 30, 2001 were $624,000
compared with $856,000 in the prior year period, representing a decrease of 27%.
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 $81,000 for the three months ended
September 30, 2001 compared with $93,000 for the same period in 2000,
representing a 13% decrease. Transaction processing expenses decreased by 38% to
$148,000 in 2001 compared to $240,000 in the third quarter of 2000. These two
transaction-based expense categories combined decreased 31% with a 3% increase
in total transactions processed, primarily due to improved management of
transaction processing contracts and data center usage along with the reduction
in high-cost patient statement transactions. Customer support operations expense
decreased by 22% to $324,000 in the third quarter of 2001 from $413,000 in the
third quarter of 2000, while the number of accounts and providers served at the
end of each quarter increased 20% and 29%, 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 35% to $71,000 in the current quarter from
$110,000 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.
Cost of revenues in the nine months ended September 30, 2001 decreased 20% to
$2,099,000 from $2,625,000 in the prior year period. Data center expenses were
$259,000 for the nine months ended September 30, 2001 compared with $285,000 for
the same period in 2000, representing a 9% decrease. Transaction processing
expenses decreased 14% to $392,000 for the nine months ended September 30, 2001
from $455,000 in the year earlier period. This decrease resulted from pricing
decreases from clearinghouses, which became effective toward the end of the
second quarter in 2000. Customer support operations expense decreased 34% to
$901,000 in 2001 from $1,367,000 in 2000 due to cost containment initiatives
implemented at the beginning of the year. Software and deferred development
costs decreased 55% to $231,000 in the current nine months from $518,000 in the
year-earlier period. Prior year costs include amortization for earlier versions
of customer use software which became fully depreciated by the end of 2000. The
current nine months also included $316,000 for the first quarter write-off of
McKesson development project costs.
OPERATING EXPENSES
Research and development expenses were $178,000 in the three months ended
September 30, 2001, compared with $487,000 in the three months ended September
30, 2000, representing a 63% decrease. 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.
Research and development expenses also decreased 63% to $539,000 in the nine
months ended September 30, 2001 compared with $1,471,000 in the nine months
ended September 30, 2000 primarily for curtailment of HealthExchange product
development efforts.
Purchased research and development in the three and nine months ended September
30, 2000 reflected the charge to operations associated with the acquisition of
HealthExchange assets of $1,540,000 and $7,694,000, respectively.
Amortization of intangibles of $231,000 and $385,000 recorded in the three and
nine months ended September 30, 2000, respectively was related to HealthExchange
assets, which were fully impaired or written off by year-end.
Selling, general and administrative expenses were $801,000 in the three months
ended September 30, 2001, compared with $1,098,000 in the same period of 2000, a
decrease of 27%. The $297,000 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 September 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.
9
Selling, general and administrative expenses decreased 38% to $2,504,000 from
$4,012,000 for the nine months ended September 30, 2001 and 2000, respectively.
Expenses in the nine months ended September 30, 2001 included a one-time charge
of $40,000 for the first quarter write-off of unamortized deferred sales
discount costs net of deferred revenue associated with the McKesson contract.
Prior year expenses included administrative costs for the HealthExchange
operations and higher personnel levels.
OTHER INCOME
Interest income of $18,000 and $50,000 was provided in the three and nine months
ended September 30, 2001 from investment of excess cash in money market
instruments. Interest income of $3,000 and $128,000 in the three and nine months
ended September 30, 2000 was provided by investment of excess cash in money
market instruments and marketable securities.
LIQUIDITY AND CAPITAL RESOURCES
Net cash used in operating activities of $3,276,000 in the nine months ended
September 30, 2001 was primarily related to net operating losses of $4,067,000
plus changes in working capital of $224,000, less: depreciation of $458,000,
non-cash write downs and amortization of $435,000 associated with the McKesson
contract renegotiation, non-cash compensation for services of $99,000, loss on
sale of assets of $16,000, and provision for doubtful accounts of $7,000.
Net cash used in operating activities of $6,245,000 for the nine months ended
September 30, 2000 was primarily related to net operating losses of $14,971,000
plus changes in working capital of $359,000, less; purchased research and
development of $7,694,000 associated with the HealthExchange acquisition,
depreciation of $1,124,000, provision for doubtful accounts of $32,000 and
amortization of deferred sales discounts of $235,000 related to the McKesson
Development and Services contract.
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 $38,000. 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 $49,000 was used
in investing activities to purchase equipment and software.
Net cash used in investing activities in the period ended September 30, 2000 was
$348,000. Cash was provided by sales of marketable securities of $3,832,000. Net
cash of $2,978,000 was used for the purchase of HealthExchange assets, and
$506,000 for other software and equipment.
In June 2001, the Company issued 16,000 shares of common stock valued at $42,000
to New York Capital AG in connection with an agreement for professional services
to be rendered in 2001. The Company recognized expense of $32,000 in the current
period and $10,000 in the prior quarter for services rendered.
In April 2001, the Company entered into an agreement with McKesson by which
McKesson acquired 1,514,285 shares of common stock at $1.75 per share for net
proceeds of $2,650,000 and the stock purchase warrant originally issued to
McKesson in 1999 was cancelled. No registration rights were granted to McKesson
for the shares acquired.
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.
10
In March 2001, the Company completed the private placement of 400,000 shares of
common stock to an accredited investor at $1.75 per share for net proceeds of
$630,000. In April 2001, the Company issued warrants to purchase 40,000 shares
of common stock to financial advisors that assisted the Company with the
negotiation and structuring of such investment. The warrants are immediately
exercisable at a price of $1.75 per share and expire on the second anniversary
of 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 two
years, risk free rate of 5.10 percent, no dividends during the term, and a
volatility of 1.459).
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 to various
accredited investors. 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.
In June 2000, the Company completed a private placement of 1,000,000 shares of
common stock to an accredited investor at $3.00 per share for net proceeds of
$2,982,000.
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.
Except as otherwise indicated, in each of the security issuances referenced
above, we provided certain rights to register resale of the shares at our
expense under the Securities Act of 1933. Except as indicated, no sales of
securities involved the use of an underwriter and no commissions were paid in
connection with the sale of any securities. Except as otherwise indicated, the
proceeds from each of the private placements referenced above was used for
general corporate purposes. The certificates evidencing the common stock issued
in each of the transactions referenced above were appropriately legended.
The offer and sale of the securities in each of the private placements
referenced above was exempt by virtue of Section 4(2) of the Securities Act of
1933 and the rules promulgated thereunder. Each of the offerees and investors in
such private placements provided representations to us that they were each
"accredited investors," as defined in Rule 501 under the Securities Act of 1933,
as well as highly sophisticated investors, and (ii) some of the investors in the
2000 private placements were existing stockholders of us at the time of such
transaction. Each investor in such private placements, whether a new investor or
existing investor, was afforded the right to conduct a complete due diligence
review of us if they so desired, and was offered the opportunity to ask
questions of, and receive answers from Claimsnet.com.
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 Form S-3 which increased the
number of shares being registered to 3,092,229. The Securities and Exchange
Commission accepted the amended Form S-3 on October 30, 2001.
In November 2001, the Company received and accepted a commitment from Swiss
professional investors for the private placement of equity securities
representing a minimum equity investment of $3,070,000 and the potential for a
maximum of $3,465,000. The investment includes the issuance of both common stock
and preferred stock that, upon approval by the Company's shareholders, will
automatically convert to common stock. The minimum commitment of $3,070,000 will
require the issuance of 1,461,905 shares of common stock and the issuance of
preferred stock that will be convertible into an additional 2,923,810 shares of
common stock. The Company will receive $1,470,000 of the funding by December 31,
2001 and the remainder by March 31, 2002.
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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 $1,089,000 at September 30, 2001, less $1,074,000 of
estimated cash expenditures for the three months from October 1, 2001 through
December 31, 2001. The estimated cash expenditures for the three months from
October 1, 2001 through December 31, 2001 are based upon average actual results
for January through September 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. If these assumptions
prove to be incorrect and funding from the above mentioned commitment for
private placement does not occur, 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 other 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:
Subsequent to the close of the quarter ended September 30, 2001, the
Company filed a report on form 8-K dated November 7, 2001, containing
information under item 9.
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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
November 14, 2001
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