<PAGE>
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, 1999
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
(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, 6,625,000 shares outstanding as of November 15, 1999.
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CLAIMSNET.COM INC. AND SUBSIDIARY
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
Condensed Consolidated Balance Sheets as of September 30, 1999
(unaudited) and December 31, 1998
Condensed Consolidated Statements of Operations
(unaudited) for the Three Months Ended September 30, 1999
and 1998, and for the Nine Months Ended September 30, 1999
and 1998
Condensed Consolidated Statements of Cash Flows
(unaudited) for the Nine Months Ended September, 1999 and
1998
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
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PART I. FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
CLAIMSNET.COM INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands except per share data)
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998(1)
----------- -----------
(Unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and equivalents $ 9,300 $ 44
Accounts receivable, less allowance for
doubtful accounts of $27 and $44, respectively 94 42
Interest receivable 84 -
Prepaid expenses and other current assets 137 20
---------- ---------
Total current assets 9,615 106
PROPERTY AND EQUIPMENT - Net 1,256 233
INTERNAL SOFTWARE DEVELOPMENT - Net 123 -
INTANGIBLE ASSETS - Net 386 873
DEFERRED COSTS AND OTHER ASSETS 25 442
---------- ---------
TOTAL $ 11,405 $ 1,654
========== =========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Accounts payable $ 231 $ 174
Accrued expenses and other current liabilities 646 671
Current portion of long-term debt 225 350
---------- ---------
Total current liabilities 1,102 1,195
---------- ---------
LONG-TERM DEBT - 4,323
---------- ---------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY (DEFICIT):
Preferred stock, $.001 par value; 4,000 shares
authorized, no shares issued and outstanding
Common stock, $.001 par value; 40,000 shares
authorized; 6,625 shares and 3,625 shares
outstanding as of September 30, 1999 and
December 31, 1998, respectively 7 4
Additional capital 24,515 3,882
Accumulated deficit (14,219) (7,750)
---------- ---------
Total stockholders' equity (deficit) 10,303 (3,864)
---------- ---------
TOTAL $ 11,405 $ 1,654
========== =========
</TABLE>
(1) The condensed consolidated balance sheet as of December 31, 1998 has been
derived from the audited financial statements at that date.
See notes to condensed consolidated financial statements.
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CLAIMSNET.COM INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
----------------------- -----------------------
1999 1998 1999 1998
------- ------- ------- -------
<S> <C> <C> <C> <C>
REVENUES $ 84 $ 32 $ 213 $ 103
COST OF REVENUES 475 173 1,102 489
------- ------- ------- -------
GROSS LOSS (391) (141) (889) (386)
------- ------- ------- -------
OPERATING EXPENSES:
Research and Development 212 96 560 382
Software Amortization 192 168 528 504
Selling, General & Administrative 1,420 685 3,620 1,452
------- ------- ------- -------
Total operating expenses 1,824 949 4,708 2,338
------- ------- ------- -------
LOSS FROM OPERATIONS (2,215) (1,090) (5,597) (2,724)
INTEREST (INCOME) EXPENSE, Net (135) 78 872 220
------- ------- ------- -------
LOSS BEFORE INCOME TAXES (2,080) (1,168) (6,469) (2,944)
INCOME TAXES - - - -
------- ------- ------- -------
NET LOSS AND COMPREHENSIVE LOSS $(2,080) $(1,168) $(6,469) $(2,944)
------- ------- ------- -------
BASIC AND DILUTED NET LOSS PER COMMON SHARE $ (0.31) $ (0.35) $ (1.17) $ (0.91)
======= ======= ======= =======
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING - BASIC AND DILUTED 6,625 3,351 5,536 3,233
======= ======= ======= =======
</TABLE>
See notes to condensed consolidated financial statements.
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CLAIMSNET.COM INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
Nine Months Ended September 30, 1999
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Number of Common Additional Accumulated
Shares Stock Capital Deficit
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Balances at December 31, 1998 3,625 $ 4 $ 3,882 $ (7,750)
Issuance of common stock
with Series A 12%
Subordinated Notes 125 - 850 -
Non-employee stock option grants - - 155 -
Issuance of common stock warrants - - 121 -
Issuance of common stock
in initial public offering 2,500 3 16,815 -
Issuance of common stock related to
exercise of underwriters'
overallotment option 375 - 2,692 -
Net loss and comprehensive
loss - - - (6,469)
-------- -------- -------- --------
Balances at September 30, 1999 6,625 $ 7 $ 24,515 $(14,219)
======== ======== ======== ========
</TABLE>
See notes to condensed consolidated financial statements.
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CLAIMSNET.COM INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
1999 1998
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (6,469) $ (2,944)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 602 540
Provision for doubtful accounts 56 -
Amortization of debt discount and
deferred financing costs 958 -
Non-cash compensation for past services 276 -
Changes in operating assets and liabilities:
Accounts receivable (108) (33)
Interest receivable (84) -
Prepaid expenses and other current assets (117) 8
Accounts payable, accrued expenses and
other current liabilities 449 12
-------- --------
Net cash used in operating activities (4,437) (2,417)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Issuance of employee note receivable - (25)
Purchases of property and equipment (1,122) (61)
Capitalized cost of internal software development (139) -
-------- --------
Net cash used in investing activities (1,261) (86)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in line of credit - affiliate 791 1,433
Payments of notes and line of credit - affiliate (5,114) -
Issuance of Series A 12% Subordinated Notes 892 -
Payment of Series A 12% Subordinated Notes (1,000) -
Payment of contingent notes (125) -
Proceeds from issuance of common stock - 1,000
Payments of deferred offering costs - (155)
Net proceeds from issuance of common stock
in initial public offering 19,510 -
-------- --------
Net cash provided by financing activities 14,954 2,278
-------- --------
NET INCREASE (DECREASE) IN CASH AND EQUIVALENTS 9,256 (225)
CASH AND EQUIVALENTS, BEGINNING OF PERIOD 44 395
-------- --------
CASH AND EQUIVALENTS, END OF PERIOD $ 9,300 $ 170
======== ========
</TABLE>
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CLAIMSNET.COM INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
1999 1998
-------- --------
<S> <C> <C>
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Common Stock issued in connection with Series A
12% Subordinated Notes $ 850 $ -
======== ========
Non-employee stock options issued for past services $ 155 -
======== ========
Common stock warrants issued for past services $ 121 -
======== ========
Conversion of portion of line of credit - affiliate
to equity $ - $ 450
======== ========
</TABLE>
See notes to condensed consolidated financial statements.
7
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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 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
September 30, 1999, the results of its operations for the three months
and nine months ended September 30, 1999 and 1998, the condensed
consolidated statement of changes in stockholders' equity for the nine
months ended September 30, 1999, and cash flows for the nine months
ended September 30, 1999 and 1998 in conformity with generally accepted
accounting principles for the interim financial information applied on a
consistent basis. The results of operations for the three and nine
months ended September 30, 1999 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 Registration
Statement on Form S-1 as filed with the Securities and Exchange
Commission on April 6, 1999.
During February 1999 the Board of Directors authorized a 1.115385 for 1
split in the common shares of the Company. All shares and per share
amounts have given retroactive effect to this stock split.
Effective January 1, 1999 the Company adopted Statement of Position
98-1, "Accounting for the Costs of Computer Software Developed or
Obtained for Internal Use." Internal development costs of $139,000
related to software utilized in several of the Company's internal
support systems were capitalized in the nine months ended September 30,
1999 in compliance with this Statement.
2. BRIDGE FINANCING
In February, 1999 the Company issued $1,000,000 of Series A 12%
Subordinated Notes along with 125,000 shares of common stock for net
proceeds of approximately $892,000 (net of closing fees and cash
financing expenses). The notes and all accrued interest were due upon
the earlier of the first day subsequent to the close of the Company's
initial public offering or one year from the date of issuance.
The 125,000 shares of common stock issued with the Notes were valued at
$850,000 ($6.80 per share) and were recorded at that amount with a
corresponding charge to debt discount. The Notes were repaid from the
proceeds of the initial public offering which occurred on April 6, 1999
(see note 4) and the debt discount was amortized over the period from
issuance to repayment, resulting in an $850,000 charge to interest
expense during the nine months ended September 30, 1999. Debt issuance
costs of $108,000 were also capitalized as deferred financing costs and
amortized over the period the Notes were outstanding, resulting in
$108,000 charged to interest expense during the nine months ended
September 30, 1999.
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3. INCOME TAXES
The tax benefits from the Company's losses for the nine months ended
September 30, 1999 and 1998 were offset by increases in the valuation
allowance related to net deferred tax assets.
4. INITIAL PUBLIC OFFERING
On April 6, 1999, the Company consummated an initial public offering
("IPO") of 2,500,000 shares of common stock at a price of $8.00 per
share. The underwriters exercised the right to sell an additional
375,000 shares under the underwriters' overallotment option on May 21,
1999. The net proceeds to the Company (after deducting the underwriting
discount and offering expenses payable by the Company) were
approximately $19.5 million. The net proceeds to the Company were used
to (i) repay approximately $5.1 million of outstanding principal and
accrued interest on its 9.5% note payable and line of credit facility
with American Medical Finance, Inc., a related party, and (ii) repay
approximately $1.0 million of outstanding indebtedness and accrued
interest under its Series A 12% Subordinated Notes.
In connection with the initial public offering, the Company granted
certain employees and non-employees options to purchase 420,000 shares
of common stock under the 1997 Stock Option Plan, 27,000 of which were
granted to non-employees. The options were issued at a price of $8.00
per share, expire on the tenth anniversary of the grant, and the
employee options vest ratably over the first four anniversaries of the
grant. The non-employee options were issued for past services, are fully
vested, and become exercisable ratably over the first four anniversaries
of the grant. The options granted to non-employees require a charge to
earnings equal to the imputed value of the options, which is estimated
at $5.73 per option using the Black-Sholes valuation method. Therefore,
the Company accrued and recognized a one-time expense of $154,710
related to the past services in the three months ended March 31, 1999.
The Company also granted non-employee directors options to purchase
80,000 shares of common stock under the Non-Employee Director's Plan.
The non-employee director options were issued at a price of $8.00 per
share. Under the terms as originally issued, options for 50,000 shares
of common stock were to vest ratably over the first two anniversaries of
the grant, and options for 30,000 shares of common stock were to vest
ratably on each three-month anniversary of the grant. On May 21, 1999
the Board of Directors, at the recommendation of the compensation
committee, voted to modify the vesting period for all outstanding
non-employee director options such that the options became fully vested
on May 21, 1999. All options expire on the tenth anniversary of the
grant.
Also in connection with the initial public offering, the Company issued
warrants to purchase an aggregate of 20,000 shares of common stock at a
price of $8.80 per share, exercisable between the first and fifth
anniversaries of the date of grant. The warrants are fully vested and
issued for past services and, therefore, require a charge to earnings
equal to the imputed value of the warrants, which is estimated at $6.07
per share using the Black-Sholes valuation method. Therefore, the
Company accrued and recognized a one-time expense of $121,400 related to
the issuance of warrants in the three months ended March 31, 1999.
9
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5. TRANSACTIONS WITH MCKESSON HBOC, INC.
Subsequent to September 30, 1999, the Company has entered into a
Development and Services Agreement (the "Agreement") with McKesson HBOC,
Inc. (McKesson), whereby the Company has granted McKesson a multi-year,
non-exclusive, private label license for certain of the Company's
proprietary technology and has agreed to manage McKesson's operation of
the system on a fully outsourced basis. The Company will receive
development fees, license fees, subscription fees, and transaction fees
pursuant to the agreement.
In connection with the Agreement, the Company issued McKesson a warrant
for the purchase of 819,184 shares of common stock at an exercise price
of $7.00 per share. The warrant is immediately exercisable and can be
exercised at any time through October 27, 2002. The imputed value of the
warrant, which is estimated at approximately $1.7 million using the
Black-Sholes valuation method, will be amortized ratably over the life
of the agreement as a sales discount.
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ITEM 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
RESULTS OF OPERATIONS FOR THE THREE AND NINE MONTH PERIODS ENDED SEPTEMBER 30,
1999 COMPARED TO THE THREE AND NINE MONTH PERIODS ENDED SEPTEMBER 30, 1998.
Revenues
Revenues increased 163% to $84,000 from $32,000 for the three months ended
September 30, 1999 and 1998, respectively. Revenues increased 107% to
$213,000 from $103,000 for the nine month periods ended September 30, 1999
and 1998, respectively. Revenues for the 1998 periods were exclusively
derived from the remaining business of Medica Systems, Inc. (Medica), which
was acquired by the Company in June 1997. The acquisition was made primarily
for the value of Medica's claims processing software technology. A majority
of Medica's revenues related to business that was not transferable to the
Company's Internet-based system. Nearly all of the Medica business was phased
out during 1998, with only $1,000 and $13,000 of revenue for the three months
and nine months ended September 30, 1999, respectively, related to this
business. The remainder of the revenues during 1999 are related to the
Company's Internet-based clients. Although the Company provided
Internet-based services during the year-earlier period, there were no related
revenues recognized because the Company waived fees as an introductory
promotional offer for its initial clients. Revenues for the three months and
nine months ended September 30, 1999 from recurring revenue sources
represented 84% and 76%, respectively, of total revenues. Recurring revenues
for the nine months were comprised of $125,000 from transaction-based fees
and $37,000 from subscription fees. Revenues from non-recurring sources
totaled $51,000 and were related to setup, support, and other fees.
Transactions processed by the Company increased 302% to 676,000 from 168,000
for the three months ended September 30, 1999 and 1998, respectively.
Transactions increased 295% to 1,660,000 from 420,000 for the nine months
ended September 30, 1999 and 1998, respectively. All of the increase was
attributable to internal growth in the number of accounts and healthcare
providers subscribing to the Company's services. Additionally, 99.1% of all
transactions were for physician and dental claim submission services. The
Company intends to process additional transaction types in the future,
including patient statements, eligibility and referral verifications, managed
care encounter reports, and hospital claims. The Company had 334 accounts
processing transactions for 2,655 providers at September 30, 1999 compared
with 144 accounts and 1,046 providers at September 30, 1998, representing
increases of 132% and 154%, respectively.
Transaction-based revenue averaged $.08 per transaction for the three and
nine month periods ended September 30, 1999. The Company expects the average
revenue per transaction to increase in future quarters for several reasons.
Revenue per transaction for the 388,000 commercial electronic claims averaged
$.02 during the three month period and will increase due to payer rebate
contracts with volume-based pricing structures. Revenue per transaction for
the 211,000 Medicare and Medicaid claims averaged $.01 during the three month
period and will increase with the implementation of a new pricing structure
to charge a per transaction fee. The new pricing structure was implemented in
early May 1999 for new client contracts and is expected to be fully
implemented for all clients in early 2000. Average revenue per transaction
for the 71,000 paper claims was $.56 during the quarter.
The company processed approximately 6,000 patient statements during the
quarter ended September 30, 1999, representing less than one percent of total
transactions during the period. The Company expects the number of accounts
using patient statement processing to increase and, therefore, patient
statement transactions should represent a larger percentage of total
transactions in future quarters.
11
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Cost of revenues
Cost of revenues in the three months and nine months ended September 30, 1999
were $475,000 and $1,102,000, compared with $173,000 and $489,000 in the
prior year periods, representing increases of 175% and 125%, respectively.
The three components of cost of revenues are data center expenses,
transaction processing expenses, and customer support operation expenses.
Data center expenses were $102,000 for the three months ended September 30,
1999 compared with $25,000 for 1998, an increase of 308%. Transaction
processing expenses were $54,000 in 1999 compared to $31,000 in the third
quarter of 1998, representing a 74% increase. Customer support operations
expense increased by 173% to $319,000 in the third quarter of 1999 from
$117,000 in the third quarter of 1998, while the number of accounts and
providers served at the end of each quarter increased by 132% and 154%,
respectively. The increases in Customer support operations expense were
primarily attributable to increased staffing.
Operating expenses
Research and development expenses were $212,000 and $560,000 in the three
months and nine months ended September 30, 1999, compared with $96,000 and
$382,000 in the three months and nine months ended September 30, 1998,
representing increases of 121% and 47%, respectively. Research and
development expenses are comprised of personnel costs and related expenses.
Internal software development costs of $76,000 and $139,000 were capitalized
during the three and nine months ended September 30, 1999 while no costs were
capitalized during the year-earlier period. Development efforts during both
periods relating to the Company's proprietary software system represented
continuous incremental enhancements, which are individually and
simultaneously implemented for all clients on the Company's centralized
operating system. No costs were capitalized for these development efforts.
Development costs capitalized during the three months ended September 30,
1999 were related to several internal infrastructure system projects.
Software amortization expenses increased 14% to $192,000 from $168,000 in the
three month periods ended September 30, 1999 and 1998, respectively. Software
amortization expenses increased 5% to $528,000 from $504,000 in the nine
month periods ended September 30, 1999 and 1998, respectively. These
increases reflect additional amortization for internal use software costs
capitalized in the nine months ended September 30, 1999.
Selling, general and administrative expenses were $1,420,000 in the three
months ended September 30, 1999, compared with $685,000 in the same period of
1998, an increase of 107%. Selling, General and Administrative expenses
increased 149% to $3,620,000 from $1,452,000 for the nine months ended
September 30, 1999 and 1998, respectively. The $2,168,000 nine month
period-to-period increase includes a $1,088,000 increase in sales and marketing
expenses and a $399,000 increase in technology infrastructure and support
expenses, both of which are primarily related to personnel costs and related
expenses. A one-time charge of $276,000 for the cost of past services related
to the grant of stock options and warrants to non-employees is also included
in the increase. The increase for other general administrative expenses was
$405,000, primarily due to increases in office rent, telephone expenses,
employee recruiting expenses, employment agreement contractual increases, and
outside professional fees.
Interest expense
Net interest (income)/expense was ($135,000) for the three months ended
September 30, 1999 compared with $78,000 in 1998. Net interest expense was
$872,000 for the nine months ended September 30, 1999 compared with $220,000
in 1998. Included in the 1999 expense was $850,000 related to amortization of
debt discount and $108,000 related to amortization of deferred financing
costs.
LIQUIDITY AND CAPITAL RESOURCES
Net cash used in operating activities was $4,437,000 in the nine months ended
September 30, 1999, compared with $2,417,000 for the year-earlier period,
primarily due to increased selling, general and administrative expenses, as
discussed above. Net cash used in investing activities was $1,261,000 and
$86,000 in the nine months ended September 30, 1999 and 1998, respectively.
12
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The Company purchased operating licenses and began implementation for several
internal support systems during the 1999 period. In connection with the
implementation of such systems, and as required by generally accepted
accounting principles, the Company capitalized $139,000 of development costs
during the period. Net cash provided by financing activities for the nine
months ended September 30, 1999 was $14,954,000, compared with $2,278,000
in the comparable period of 1998. Borrowings under the line of
credit - affiliate were $791,000 in 1999 and $1,433,000 in 1998. Payments for
deferred costs of the Company's initial public offering were $155,000 in 1998.
The $512,000 accumulated balance of deferred offering costs was recorded as an
offset against the proceeds of the initial public offering, in accordance
with generally accepted accounting principles.
On April 6, 1999, the Company consummated an initial public offering ("IPO")
of 2,500,000 shares of common stock at a price of $8.00 per share. The
underwriters exercised the right to sell an additional 375,000 shares under
the underwriters' overallotment option on May 21, 1999. The net proceeds to
the Company (after deducting the underwriting discount and offering expenses
payable by the Company and deferred offering costs) were approximately $19.5
million. The net proceeds to the Company were used to (i) repay approximately
$5.1 million of outstanding principal and accrued interest on its 9.5% note
payable and line of credit facility with American Medical Finance, Inc., a
related party, and (ii) repay approximately $1.0 million of outstanding
indebtedness and accrued interest under its Series A 12% Subordinated Notes.
During the six months ended June 30, 1999, the Company issued an aggregate of
$1,000,000 of Series A 12% Subordinated Notes, for which the Company received
$892,000, net of cash financing expenses, which were capitalized as deferred
financing costs to be amortized over the term of the Notes, which were repaid
upon completion of the offering. The amount of deferred financing costs
charged to interest expense during the six months ended June 30, 1999 was
$108,000.
The note holders received 125,000 shares of common stock valued at $850,000,
which was treated as debt discount and amortized over the term of the notes.
The notes were due on the earlier of one day after the closing of the
Company's initial public offering or one year from issuance. As a result of
the Company's initial public offering on April 6, 1999, the notes became due
and were repaid. The amount of debt discount charged to interest expense
during the six months ended, June 30, 1999 was $850,000.
During the six months ended June 30, 1999, the Company paid $125,000 of notes
payable related to the acquisition of Medica System, Inc. in June 1997, which
were contingent upon the Company's initial public offering.
As of September 30, 1999 the only outstanding notes payable are $225,000
related to the Medica acquisition, due in December 1999.
The Company believes that current cash reserves are sufficient to fund
operations and capital improvements needed for a period of at least eighteen
months.
YEAR 2000
Many currently installed computer systems and software products are unable to
distinguish between twentieth century dates and twenty-first century dates.
As a result, many companies' software and computer systems may need to be
upgraded or replaced to comply with each "Year 2000" requirements. The
Company's business is dependent on the operation of numerous systems that
could potentially be impacted by Year 2000 related problems. Those systems
include, among others; hardware and software systems used by the Company to
deliver services to its customers (including the Company's proprietary
software systems as well as hardware and software supplied by third parties;
communications networks, such as the Internet and private intranets, which
the Company depends on to provide electronic transactions to its customers,
the internal systems of the Company's customers and suppliers, the hardware
and software systems used internally by the Company in the management of its
business; and non-information technology systems and services used by the
Company in its business, such as telephone systems and building systems.
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The Company has internally reviewed the proprietary software systems it uses
to deliver services to its customers. Although the Company believes that its
internally developed applications and systems are designed to be Year 2000
compliant, the Company utilizes third-party equipment and software that may
not be Year 2000 compliant. Failure of such third-party or currently owned
equipment or software to operate properly with regard to the Year 2000 and
thereafter could require the Company to incur unanticipated expenses to
remedy any problems, which could have a material adverse effect on its
business, prospects, financial condition, and results of operations. The
Company does not believe that its expenditures to upgrade its internal
systems and applications will be material to its business, prospects,
financial condition, and results of operations.
Furthermore, the success of the Company's efforts may depend on the success
of other healthcare participants in dealing with their Year 2000 issues. Many
of these organizations are not Year 2000 compliant and the impact of
widespread customer failure on the Company's systems is difficult to
determine. Customer difficulties due to Year 2000 issues could interfere with
healthcare transactions or information, which might expose the Company to
significant potential liability. If client failures result in the failure of
the Company's systems, its business, prospects, financial condition, and
results of operations would be materially adversely affected. Furthermore,
the purchasing patterns of these customers or potential customers may be
affected by Year 2000 issues as companies expend significant resources to
become Year 2000 compliant. The costs of becoming Year 2000 compliant for
current or potential customers may result in reduced funds being available to
purchase and implement the Company's applications and services.
The Company is conducting a formal assessment of its Year 2000 exposure in
order to determine what steps beyond those identified by its internal review
may be advisable. The Company does not presently have a contingency plan for
handling Year 2000 problems that are not detected and corrected prior to
their occurrence. Any failure of the Company to address any unforeseen Year
2000 issue could adversely affect its business, prospects, financial
condition, and results of operations.
RECENT ACCOUNTING PRONOUNCEMENTS
Recent pronouncements of the Financial Accounting Standards Board, which are
not required to be adopted at this date, include SFAS No. 133 "Accounting for
Derivative Instruments and Hedging Activities". This pronouncement is not
expected to have a material impact on the Company's financial statements.
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 Registration Statement on Form
S-1 which was filed with the Securities and Exchange Commission in connection
with the IPO. No assurance can be given that future results covered by the
forward-looking statements will be achieved.
14
<PAGE>
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(b) REPORTS:
Incorporated by reference form 8-K filed on November 15, 1999.
15
<PAGE>
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 15, 1999
16
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<PAGE>
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<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM NINE
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TO SUCH FINANCIAL STATEMENTS.
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