<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 JUNE 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 August 16, 1999.
1
<PAGE>
CLAIMSNET.COM INC. AND SUBSIDIARY
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
Condensed Consolidated Balance Sheets as of June 30, 1999
(unaudited) and December 31, 1998
Condensed Consolidated Statements of Operations
(unaudited) for the Three Months Ended June 30, 1999 and
1998, and for the Six Months Ended June 30, 1999 and 1998
Condensed Consolidated Statements of Cash Flows (unaudited)
for the Six Months Ended June, 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
<PAGE>
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>
June 30, December 31,
1999 1998(1)
---------- ---------
(Unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and equivalents $ 11,636 $ 44
Accounts receivable, less allowance for
doubtful accounts of $44 72 42
Prepaid expenses and other current assets 151 20
---------- ---------
Total current assets 11,859 106
PROPERTY AND EQUIPMENT - Net 846 233
INTANGIBLE ASSETS - Net 549 873
DEFERRED COSTS AND OTHER ASSETS 25 442
---------- ---------
TOTAL $ 13,279 $ 1,654
========== =========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Accounts payable $ 373 $ 174
Accrued expenses and other current liabilities 298 671
Current portion of long-term debt 225 350
---------- ---------
Total current liabilities 896 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 June 30, 1999 and December
31, 1998, respectively 7 4
Additional capital 24,515 3,882
Accumulated deficit (12,139) (7,750)
---------- ---------
Total stockholders' equity (deficit) 12,383 (3,864)
---------- ---------
TOTAL $ 13,279 $ 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.
3
<PAGE>
CLAIMSNET.COM INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------------- -------------------------
1999 1998 1999 1998
------- ------- ------- -------
<S> <C> <C> <C> <C>
REVENUES $ 64 $ 27 $ 129 $ 71
COST OF REVENUES 411 177 627 316
------- ------- ------- -------
GROSS LOSS (347) (150) (498) (245)
------- ------- ------- -------
OPERATING EXPENSES:
Research and Development 217 144 348 286
Software Amortization 168 168 336 336
Selling, General & Administrative 1,037 460 2,200 767
------- ------- ------- -------
Total operating expenses 1,422 772 2,884 1,389
------- ------- ------- -------
LOSS FROM OPERATIONS (1,769) (922) (3,382) (1,634)
INTEREST EXPENSE, Net 145 73 1,007 142
------- ------- ------- -------
LOSS BEFORE INCOME TAXES (1,914) (995) (4,389) (1,776)
INCOME TAXES - - - -
------- ------- ------- -------
NET LOSS AND COMPREHENSIVE LOSS $(1,914) $ (995) $(4,389) $(1,776)
------- ------- ------- -------
BASIC AND DILUTED NET LOSS PER COMMON SHARE $ (0.30) $ (0.31) $ (0.88) $ (0.56)
======= ======= ======= =======
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING - BASIC AND DILUTED 6,282 3,234 4,983 3,173
======= ======= ======= =======
</TABLE>
See notes to condensed consolidated financial statements.
4
<PAGE>
CLAIMSNET.COM INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
Six Months Ended June 30, 1999
(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 - - - (4,389)
-------- -------- -------- --------
Balances at June 30, 1999 6,625 $ 7 $ 24,515 $(12,139)
======== ======== ======== ========
</TABLE>
See notes to condensed consolidated financial statements.
5
<PAGE>
CLAIMSNET.COM INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
1999 1998
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (4,389) $ (1,776)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 372 350
Provision for doubtful accounts 58 -
Amortization of debt discount and
deferred financing costs 958 -
Non-cash compensation for past services 276 -
Changes in operating assets and liabilities:
Accounts receivable (88) (54)
Prepaid expenses and other current assets (132) 7
Accounts payable, accrued expenses and
other current liabilities 243 (15)
-------- --------
Net cash used in operating activities (2,702) (1,488)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (660) (37)
-------- --------
Net cash used in investing activities (660) (37)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in line of credit - affiliate 791 764
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 - 550
Payments of deferred offering costs - (110)
Net proceeds from issuance of common stock
in initial public offering 19,510 -
-------- --------
Net cash provided by financing activities 14,954 1,204
-------- --------
NET INCREASE (DECREASE) IN CASH AND EQUIVALENTS 11,592 (321)
CASH AND EQUIVALENTS, BEGINNING OF PERIOD 44 395
-------- --------
CASH AND EQUIVALENTS, END OF PERIOD $ 11,636 $ 74
======== ========
</TABLE>
6
<PAGE>
CLAIMSNET.COM INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 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 -
==== =====
</TABLE>
See notes to condensed consolidated financial statements.
7
<PAGE>
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 June
30, 1999, the results of its operations for the three months and six months
ended June 30, 1999 and 1998, the condensed consolidated statement of
changes in stockholders' equity for the six months ended June 30, 1999, and
cash flows for the six months ended June 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 six months ended June 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 $63,000 related to software
utilized in several of the Company's product offerings were capitalized in
the current period in compliance with this Statement.
2. BRIDGE FINANCING
During the six months ended June 30, 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 a $680,000 charge to interest expense
during the three months ended March 31, 1999 and a $170,000 charge to
interest expense during the three months ended June 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 $86,000
and $22,000 charges to interest expense during the three months ended March
31, 1999 and June 30, 1999, respectively.
8
<PAGE>
3. INCOME TAXES
The tax benefit from the Company's losses for the six months ended June 30,
1999 and 1998 were offset by increases in the valuation allowance related
to 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
<PAGE>
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
RESULTS OF OPERATIONS FOR THE THREE AND SIX MONTH PERIODS ENDED JUNE 30, 1999
COMPARED TO THE THREE AND SIX MONTH PERIODS ENDED JUNE 30, 1998
Revenues
Revenues increased 137% to $64,000 from $27,000 for the three months ended
June 30, 1999 and 1998, respectively. Revenues increased 82% to $129,000 from
$71,000 for the six month periods ended June 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 $6,000 and $12,000 of revenue for the three months and six months ended
June 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 six months ended June 30, 1999 from recurring
revenue sources represented 65% and 71%, respectively, of total revenues.
Recurring revenues for the six months were comprised of $70,000 from
transaction-based fees and $22,000 from subscription fees. Revenues from
non-recurring sources totaled $37,000 and were related to setup, support, and
other fees.
Transactions processed by the Company increased 241% to 532,000 from 156,000
for the three months ended June 30, 1999 and 1998, respectively. Transactions
increased 290% to 983,000 from 252,000 for the six months ended June 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, 99.4% 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 237 accounts processing
transactions for 2,402 providers at June 30, 1999 compared with 109 accounts
and 596 providers at June 30, 1998, representing increases of 117% and 303%,
respectively.
Transaction-based revenue averaged $.07 per transaction for the three and six
month periods ended June 30, 1999. The Company expects the average revenue
per transaction to increase in future quarters for several reasons. Revenue
per transaction for the 326,000 commercial electronic claims averaged $.03
during the three month period and will increase due to payer rebate contracts
with volume-based pricing structures. Revenue per transaction for the 156,000
Medicare and Medicaid claims averaged $.02 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 clients and is expected to be fully implemented for all clients
by the end of 1999. Average revenue per transaction for the 45,000 paper
claims was $.55 during the quarter.
The average revenue per patient statement processed during the quarter ended
June 30, 1999 was $.46, but the 3,000 transactions represented less than one
percent of total transactions during the period. Since patient statement
processing only became available recently, 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.
10
<PAGE>
Cost of revenues
Cost of revenues in the three months and six months ended June 30, 1999 were
$411,000 and $627,000, compared with $177,000 and $316,000 in the prior year
periods, representing increases of 132% and 98%, respectively. The three
components of cost of revenues are data center expenses, transaction
processing expenses, and customer support operation expenses. Data center
expenses were $98,000 for the three months ended June 30, 1999 compared with
$31,000 for 1998, an increase of 216%. Transaction processing expenses were
$46,000 in 1999 compared to $29,000 in the first quarter of 1998,
representing a 59% increase. Customer support operations expense increased by
127% to $268,000 in the second quarter of 1999 from $118,000 in the second
quarter of 1998, while the number of accounts and providers served at the end
of each quarter increased by 117% and 303%, respectively. The increases in
Customer support operations expense were primarily attributable to a 105%
increase in number of employees.
Operating expenses
Research and development expenses were $217,000 and $348,000 in the three
months and six months ended June 30, 1999, compared with $144,000 and
$286,000 in the three months and six months ended June 30, 1998, representing
increases of 51% and 22%, respectively. Research and development expenses are
comprised of personnel costs and related expenses. Internal software
development costs of $63,000 were capitalized during the three months ended
June 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 June 30,
1999 were related to several internal infrastructure system projects
initiated during the quarter.
Software amortization expense was $168,000 in each of the three month periods
ended June 30, 1999 and 1998.
Selling, general and administrative expenses were $1,037,000 in the three
months ended June 30, 1999, compared with $460,000 in the same period of
1998, an increase of 125%. Selling, General and Administrative expenses
increased 187% to $2,200,000 from $767,000 for the six months ended June 30,
1999 and 1998, respectively. The $1,433,000 six month period-to-period
increase includes a $553,000 increase in sales and marketing expenses and a
$267,000 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
$336,000, primarily due to increases in office rent, telephone expenses,
employee recruiting expenses, employment agreement contractual increases, and
outside professional fees.
Interest expense
Net interest expense was $145,000 for the three months ended June 30, 1999
compared with $73,000 in 1998. Net interest expense was $1,007,000 for the
six months ended June 30, 1999 compared with $142,000 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 $2,702,000 in the six months ended
June 30, 1999, compared with $1,488,000 for the year-earlier period,
primarily due to increased selling, general and administrative expenses, as
discussed above. Net cash used in investing activities was $660,000 and
$37,000 in the six months ended June 30, 1999 and 1998, respectively. 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 $63,000 of development costs
during the period. Net cash provided by financing activities for the six
11
<PAGE>
months ended June 30, 1999 was $14,954,000, compared with $1,204,000 in the
comparable period of 1998. Borrowings under the line of credit - affiliate
were $791,000 in 1999 and $764,000 in 1998. Payments for deferred costs of
the Company's initial public offering were $110,000 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 June 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.
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
12
<PAGE>
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.
13
<PAGE>
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
Exhibit 27 Financial Data Schedule
(b) REPORTS:
Incorporated by reference form 8-K filed on August 16, 1999
14
<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
August 16, 1999
15
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM SIX MONTHS
ENDED JUNE 30, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 11,636
<SECURITIES> 0
<RECEIVABLES> 116
<ALLOWANCES> (44)
<INVENTORY> 0
<CURRENT-ASSETS> 11,859
<PP&E> 969
<DEPRECIATION> (123)
<TOTAL-ASSETS> 13,279
<CURRENT-LIABILITIES> 896
<BONDS> 0
0
0
<COMMON> 7
<OTHER-SE> 12,376
<TOTAL-LIABILITY-AND-EQUITY> 13,279
<SALES> 0
<TOTAL-REVENUES> 129
<CGS> 0
<TOTAL-COSTS> 627
<OTHER-EXPENSES> 2,826
<LOSS-PROVISION> 58
<INTEREST-EXPENSE> 1,007
<INCOME-PRETAX> (4,389)
<INCOME-TAX> 0
<INCOME-CONTINUING> (4,389)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,389)
<EPS-BASIC> (0.88)
<EPS-DILUTED> (0.88)
</TABLE>
