<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of Earliest Event Reported): March 31, 2000
--------------
HEALTHAXIS INC.
---------------
(Exact name of registrant as specified in its charter)
Pennsylvania 0-13591 23-2214195
------------ ------- ----------
(State or other jurisdiction (Commission File Number) (I.R.S. Employer
of incorporation) Identification No.)
2500 DeKalb Pike, East Norriton, Pennsylvania 19401
----------------------------------------------------
(Address of principal executive offices/Zip Code)
Former name, former address, and former fiscal year, if changed since last
report: N/A
---
<PAGE>
Item 5. Other Events
The following information is qualified in its entirety by, and should be read in
conjunction with, the more detailed information and financial data, including
the Consolidated Financial Statements of HealthAxis Inc. and its subsidiaries
(the "Company"), and the notes thereto, appearing in the Company's reports filed
with the Securities and Exchange Commission ("SEC"). Except for the historical
information contained herein, this Current Report on Form 8-K, contains certain
forward-looking statements regarding the Company's business and prospects that
are based upon numerous assumptions about future conditions which may ultimately
prove to be inaccurate and actual events and results may materially differ from
anticipated results described in such statements. Such forward-looking
statements involve risks and uncertainties, such as historical and anticipated
losses; uncertainty of future results, competition, need for additional capital,
quality assurance, limited proprietary rights, concentration, risks related to
foreign operations, uncertain acceptance of the Internet as a medium for health
insurance sales, dependence on third party technology, changes in the insurance
industry, government regulation and legal uncertainties, control by UICI,
influence of large shareholders, potential conflicts of interest, intercompany
agreements not subject to arm's-length negotiations, absence of dividends and
anti-takeover measures. Any one or a combination of these factors could have a
material adverse effect on the Company's business, financial condition and
results of operations. These forward-looking statements represent the Company's
judgment as of the date of this report. The Company disclaims, however, any
intent or obligation to update these forward-looking statements.
The Company is filing this Current Report on Form 8-K to file the Consolidated
Financial Statements of Insurdata Incorporated which merged with HealthAxis.com,
Inc., a subsidiary of the Company, on January 7, 2000.
Item 7. Financial Statements and Exhibits
(a) Financial Statements of business acquired.
Not applicable.
(b) Pro-forma Financial Information.
Not applicable.
(c) Exhibits.
The following exhibits are filed herewith:
S-K Item
Number Description
- ------ -----------
23.1 Consent of Ernst & Young LLP
23.2 Consent of BDO Seidman, LLP
99.1 Consolidated Financial Statements of Insurdata Incorporated.
<PAGE>
SIGNATURE
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 hereunto duly authorized.
HEALTHAXIS INC.
Date: March 30, 2000 By: /s/ Michael Ashker
----------------------- -----------------------
Michael Ashker
President and Chief Executive Officer
<PAGE>
EXHIBIT INDEX
S-K Item
Number Description
- ------ -----------
23.1 Consent of Ernst & Young LLP
23.2 Consent of BDO Seidman, LLP
99.1 Consolidated Financial Statements of Insurdata Incorporated.
<PAGE>
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statements of
Healthaxis Inc. (formerly Provident American Corporation) on Form S-8 (SEC File
No. 333-15997, SEC File No. 333-83091 and SEC File No. 333-71223 of our report
dated March 28, 2000, with respect to the consolidated financial statements of
Insurdata Incorporated included in this Form 8-K of HealthAxis Inc.
/s/ Ernst & Young LLP
ERNST & YOUNG LLP
Dallas, TX
March 28, 2000
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
HealthAxis, Inc.
East Norriton, PA
We hereby consent to the incorporation by reference in the Prospectus
constituting a part of the Registration Statements on Form S-8 (SEC File No.
333-15997, SEC File No. 333-71223 and SEC File No. 333-83091) of our report
dated March 16, 2000, relating to the consolidated financial statements of
HealthAxis Inc. appearing in the Company's Annual Report on Form 10-K for the
year ended December 31, 1999.
BDO Seidman, LLP
Philadelphia, PA
March 30, 2000
<PAGE>
Report of Independent Auditors
The Board of Directors and Stockholders
Insurdata Incorporated
We have audited the accompanying consolidated balance sheets of Insurdata
Incorporated and Subsidiaries (the Company) as of December 31, 1998 and 1999,
and the related consolidated statements of income, stockholders' equity and cash
flows for each of the three years in the period ended December 31, 1999. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Insurdata
Incorporated and Subsidiaries at December 31, 1998 and 1999, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1999, in conformity with accounting
principles generally accepted in the United States.
/s/ Ernst & Young LLP
Dallas, Texas
March 28, 2000
<PAGE>
Insurdata Incorporated and Subsidiaries
Consolidated Balance Sheets
(In thousands, except share amounts)
(Note 1)
ASSETS
<TABLE>
<CAPTION>
December 31
1998 1999
----------------- ----------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 4,450 $ 2,126
Trade accounts receivable, net of allowance of $69 and $25,
at December 31, 1998 and 1999, respectively 2,482 2,732
Receivables from affiliates 2,242 3,201
Receivable from affiliate related to income taxes - 388
Notes receivable 308 -
Deferred income taxes 131 140
Other current assets 603 828
----------------- ----------------
Total current assets 10,216 9,415
Property and equipment, net 5,987 6,278
Capitalized software and contract start-up costs, net 2,620 3,452
Intangible assets, net 920 1,144
Long-term notes receivable 292 -
Long-term notes receivable - employees - 631
----------------- ----------------
Total assets $20,035 $ 20,920
================= ================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 235 $ 959
Accrued liabilities 3,175 2,421
Accrued liabilities payable to affiliates 476 575
Payable to affiliate related to income taxes 731 -
Deferred revenues 377 397
Obligations under capital leases 179 148
----------------- ----------------
Total current liabilities 5,173 4,500
Notes payable 36 24
Obligations under capital leases 409 152
Deferred income taxes 18 680
Phantom stock liability 687 344
Commitments
Minority interest 16 -
Stockholders' equity:
Common stock, no par value:
Authorized shares - 50,000,000 issued and outstanding
shares 16,396,667 for both 1998 and 1999 5,531 5,777
Retained earnings 8,165 9,443
----------------- ----------------
Total stockholders' equity 13,696 15,220
----------------- ----------------
Total liabilities and stockholders' equity $ 20,035 $ 20,920
================= ================
</TABLE>
See accompanying notes.
<PAGE>
Insurdata Incorporated and Subsidiaries
Consolidated Statements of Income
(In thousands, except per share amounts)
(Note 1)
<TABLE>
<CAPTION>
Year ended December 31
1997 1998 1999
--------------- -------------- ---------------
<S> <C> <C> <C>
Revenue $16,804 $19,325 $ 18,351
Revenue from affiliates 12,591 24,908 28,112
--------------- -------------- ---------------
Total revenue 29,395 44,233 46,463
Operating expenses:
Cost of revenues 21,371 33,935 37,104
Selling, general and administrative 4,526 5,534 5,759
Research and development 440 533 22
Amortization of capitalized software development
and contract start-up costs 645 834 1,344
Amortization of intangible assets and goodwill 74 88 111
Costs of preparing for public offering - 726 -
--------------- -------------- ---------------
Total operating expenses 27,056 41,650 44,340
--------------- -------------- ---------------
Operating income 2,339 2,583 2,123
Interest and other income, net 541 256 80
--------------- -------------- ---------------
Income before income taxes and minority interest 2,880 2,839 2,203
Provision for income taxes 1,195 880 832
--------------- -------------- ---------------
Income before minority interest 1,685 1,959 1,371
Minority interest in (income) loss of subsidiary 176 (34) (93)
--------------- -------------- ---------------
Net income $ 1,861 $ 1,925 $ 1,278
=============== ============== ===============
</TABLE>
See accompanying notes.
<PAGE>
Insurdata Incorporated and Subsidiaries
Consolidated Statements of Stockholders' Equity
(In thousands)
(Note 1)
<TABLE>
<CAPTION>
Common Stock
----------------------
Number of Retained Deferred
Shares Amount Earnings Compensation Total
----------- ---------- ----------- ---------------- ---------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1996 16,397 $ 8,408 $ 4,459 $ (233) $12,634
Contribution of Insurdata Administrators from UICI
(Note 1) - 273 - - 273
Contribution from UICI (Note 8) - 132 - - 132
Distributions to UICI and minority interests - (2,791) (80) - (2,871)
Amortization of deferred compensation - - - 147 147
Net income and comprehensive income - - 1,861 - 1,861
----------- ---------- ----------- ---------------- ---------
Balance at December 31, 1997 16,397 6,022 6,240 (86) 12,176
Contribution from UICI (Note 8) - 216 - - 216
Distributions to UICI (Note 1) - (707) - - (707)
Amortization of deferred compensation - - - 86 86
Net income and comprehensive income - - 1,925 - 1,925
----------- ---------- ----------- ---------------- ---------
Balance at December 31, 1998 16,397 5,531 8,165 - 13,696
Tax benefits of stock option deduction - 246 - - 246
Net income and comprehensive income - - 1,278 - 1,278
----------- ---------- ----------- ---------------- ---------
Balance at December 31, 1999 16,397 $ 5,777 $ 9,443 $ - $15,220
=========== ========== =========== ================ =========
</TABLE>
See accompanying notes.
<PAGE>
Insurdata Incorporated and Subsidiaries
Consolidated Statements of Cash Flows
(In thousands)
(Note 1)
<TABLE>
<CAPTION>
Year ended December 31
1997 1998 1999
-------------- ------------- -------------
<S> <C> <C> <C>
Operating Activities
Net income $ 1,861 $ 1,925 $ 1,278
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation expense 1,193 1,959 2,644
Amortization of intangibles and goodwill 74 88 111
Amortization of capitalized software development and
contract start-up costs 645 834 1,344
Income tax benefits of stock option deduction - - 246
Minority interest (176) 34 93
Compensation from stock grants 147 86 -
Provision for doubtful accounts 155 115 26
Loss on disposal of fixed assets 89 52 35
Purchased in-process research and development - 189 -
Deferred income taxes 125 206 571
Changes in operating assets and liabilities, net of
dispositions
Trade accounts receivable (802) (273) (620)
Receivables from affiliates (3,694) (8) (959)
Other current assets (138) 146 (310)
Accounts payable and accrued liabilities 1,869 883 538
Accrued liabilities payable to affiliates and phantom
stock liability (227) (1,120) (245)
Receivable/payable from affiliate for income taxes 926 (250) (693)
Deferred revenues 132 (127) 20
Other 161 - -
-------------- ------------- -------------
Net cash provided by operating activities 2,340 4,739 4,081
Investing Activities
Capital expenditures (2,578) (3,410) (3,333)
Collection (issuance) of note receivable - (100) 146
Issuance of notes receivable to employees - - (631)
Sale of Insurdata Administrators and Insurdata Marketing
Services to affiliate, net - - 260
Software development and contract start-up costs capitalized (701) (1,513) (1,979)
Payments from (advances to) affiliates (4,371) 4,500 -
Sale of accounts receivable to affiliate 401 - -
Payment of Insurdata Imaging Services contingent purchase price - - (79)
Purchase of minority interest - (1,650) (500)
-------------- ------------- -------------
Net cash used in investing activities (7,249) (2,173) (6,116)
Financing Activities
Contribution from (distribution to) parent, net 64 (491) -
Distribution to minority interests (12) (75) (112)
Payments on capital lease obligations - (28) (168)
Payments on long-term debt - (11) (11)
Payments on long-term debt with affiliates (362) - -
-------------- ------------- -------------
Net cash used in financing activities (310) (605) (291)
-------------- ------------- -------------
</TABLE>
<PAGE>
Insurdata Incorporated and Subsidiaries
Consolidated Statements of Cash Flows (continued)
(In thousands)
(Note 1)
<TABLE>
<CAPTION>
Year ended December 31
1997 1998 1999
------------ ----------- -----------
<S> <C> <C> <C>
Net increase (decrease) in cash and cash equivalents $ (5,219) $ 1,961 $ (2,324)
Cash and cash equivalents at beginning of year 7,708 2,489 4,450
------------ ----------- -----------
Cash and cash equivalents at end of year $ 2,489 $ 4,450 $ 2,126
============ =========== ===========
Supplemental Cash Flow Information
Cash paid for interest $ 263 $ 170 $ 80
============ =========== ===========
Cash paid for income taxes $ 145 $ 846 1,029
============ =========== ===========
Supplemental Schedule of Non-Cash Investing Activities
Acquisition of equipment under capital leases $ - $ 617 $ -
============ =========== ===========
</TABLE>
See accompanying notes.
<PAGE>
Insurdata Incorporated and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 1999
1. Description of Business and Basis of Presentation
General
Insurdata Incorporated (the Company) provides comprehensive technology solutions
and related outsourcing services to the claims and administration segment of the
health care industry within the United States. The Company's services include
proprietary workflow and internet-enabled business applications that address
transaction processing and the flow of information among constituent users. In
addition, the Company offers systems integration, technology management and
business process outsourcing. The Company's services enable its clients to
reduce administrative costs and improve customer service in all aspects of
health care administration, from eligibility and enrollment to claim capture,
processing, adjudication, payment and customer service. The Company's clients
include insurance carriers, third-party administrators (TPAs), Blue Cross/Blue
Shield organizations, self-administered employers and preferred provider
organizations.
The Company is a majority owned subsidiary of UICI, a diversified financial
services company. The accompanying consolidated financial statements include the
accounts of the Company and all its subsidiaries. All intercompany accounts and
transactions have been eliminated in consolidation.
In September 1997, the Company acquired a 51% member interest in Insurdata
Imaging Services, LLC (IIS) (formerly Satellite Image Systems, LLC), a provider
of imaging and data capture outsourcing services, from UICI for a purchase price
of $2.8 million. Consequently, the purchase price paid to UICI in 1997 is
presented as a distribution to UICI in stockholders' equity due to the "as if
pooling of interests" accounting described below. The purchase price
approximated UICI's net book value for IIS, and was paid by the Company by
exchanging accounts and notes receivable due from UICI Administrators. UICI
acquired 51% controlling interest of IIS on August 1, 1996, for a cash
investment into IIS of $3 million. In May 1998, the Company acquired the
remaining 49% interest in IIS for $1.65 million and annual earn-out payments
through the year 2000 the majority of which were subject to a cumulative ceiling
of approximately $1 million.
Effective January 1998, the Company acquired certain assets used in providing
benefits administration services, subsequently renamed Insurdata Administrators
(IA), from a subsidiary of UICI for a purchase price of approximately $465,000.
The price approximated UICI's net book value and was paid by the Company through
a reduction in the principal amount of a note payable by UICI to the Company. As
a result of IA's acquisition by the Company during 1998 and prior common control
by UICI, the accounts of IA are presented on a combined basis with those of the
Company and its subsidiaries prior to the Company's acquisition date.
Consequently, the purchase price paid to UICI in 1998 is presented as a
distribution to UICI in stockholders' equity due to the
"as if pooling of interests" accounting described below.
<PAGE>
Insurdata Incorporated and Subsidiaries
Notes to Consolidated Financial Statements (continued)
1. Description of Business and Basis of Presentation (continued)
Effective June 30, 1998, the Company acquired an 85% interest in Insurdata
Marketing Services, LLC (IMS) (formerly Self Funded Strategies, LLC), from UICI
for a cash purchase price of approximately $57,000 presented as a distribution
to UICI in stockholders' equity. The purchase price for UICI's interest in IMS
approximated UICI's net book value for its interest in this entity. UICI
acquired its 85% controlling interest in IMS on October 1, 1995. The Company
distributed earnings of Self Funded Strategies of $185,000 for the six months
ended June 30, 1998 to UICI. As a result of IMS's acquisition by the Company
during 1998 and prior common control by UICI, the accounts of IMS are presented
on a combined basis with those of the Company and its subsidiaries prior to the
Company's acquisition date.
Effective January 1, 1999, the Company exchanged 5% of its member interest in
IMS for a reduction of future contractual commissions payable by IA and IIS to
IMS. Effective September 15, 1999, the Company acquired the 20% minority
membership interest, which included the 5% exchanged earlier in the period, for
a purchase price of $500,000 cash paid at closing. The consideration paid by the
Company exceeded the book value of the interest acquired by approximately
$503,000. The excess was allocated to prepaid commissions and is being amortized
over a five-year period.
Consistent with the requirements of Emerging Issues Task Force (EITF) Issue No.
90-5, "Exchange of Ownership Interests Between Entities Under Common Control"
(EITF 90-5), and Interpretation 39 of Accounting Principles Board Opinion No. 16
(APB 16), the financial statements of IIS, IA and IMS have been combined with
the Company's financial statements on an "as if pooling of interests" basis from
the date control by UICI was established.
Therefore, the IIS, IA and IMS financial statements have been combined with the
Company's financial statements beginning August 1, 1996, January 1, 1997, and
October 1, 1995, respectively. The assets and liabilities of IIS, IA and IMS
included in the consolidated financial statements are stated at UICI's
historical carrying basis. The carrying value of the IIS, IA and IMS net assets
combined on the dates UICI established control has been reflected as a
contribution received from UICI in the Consolidated Statements of Stockholders'
Equity. Consideration paid by the Company to acquire UICI's interest in IIS, IA
and IMS has been reflected as a distribution to UICI in the Consolidated
Statements of Stockholders' Equity. The Company's assets are presented on its
historical basis and do not reflect UICI's price paid to acquire Insurdata,
which exceeded the carrying value of the Company's net assets at the dates of
acquisition of the Company's shares by UICI by approximately $21 million in the
aggregate.
2. Summary of Significant Accounting Policies
Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with an original
maturity of three months or less from the date of purchase to be cash
equivalents.
<PAGE>
2. Summary of Significant Accounting Policies (continued)
Property and Equipment
Property and equipment are stated at cost. Depreciation and amortization of
property and equipment are provided on the straight-line basis over the
estimated useful lives of the respective assets or the lease term, if shorter.
Amortization of assets recorded under capital leases is included in depreciation
expense.
Purchased Intangible Assets
Purchased intangible assets, which consist of developed technologies, customer
bases and goodwill, are being amortized on the straight-line basis over three to
twenty years. The carrying value of goodwill is reviewed quarterly and decreased
if facts and circumstances suggest permanent impairment. Developed technologies
and customer base intangibles are reduced to their recoverable value if the
carrying value exceeds expected undiscounted cash flows from the intangible
asset.
Financial Instruments
Financial instruments include cash and cash equivalents, accounts receivable,
accounts payable, obligations under capital leases, notes payable and the
phantom stock liability. The Company believes that the carrying amounts of these
financial instruments approximate their fair value.
Research and Development Costs
The Company incurs research and development costs that relate primarily to the
development of new products and major enhancements to existing services and
products.
Research and development costs are comprised primarily of salaries and related
benefits. The Company expenses or capitalizes, as appropriate, these research
and development costs in accordance with Statement of Financial Accounting
Standards No. 86, Accounting for the Costs of Computer Software to be Sold,
Leased or Otherwise Marketed. All research and development costs related to
software development projects incurred prior to the time a project has reached
technological feasibility are expensed. Software development costs incurred
subsequent to reaching technological feasibility are capitalized. If the process
of developing a new product or major enhancement does not include a detailed
program design, technological feasibility is determined only after completion of
a working model. All software development costs capitalized are amortized using
an amount determined as the greater of (i) the gross revenue method or (ii) the
straight-line method over the remaining economic life of the product (generally
five years). The Company recorded amortization relating to capitalized software
development costs of $645,000, $697,000 and $893,000 in the years ended December
31, 1997, 1998 and 1999, respectively.
<PAGE>
2. Summary of Significant Accounting Policies (continued)
Contract Start-up Costs
The Company capitalizes costs directly attributable to contract start-up
activities in accordance with SOP 81-1, Accounting for Performance of
Construction-Type and Certain Production-Type Contracts. Costs capitalized
include direct labor and fringe benefits. Such costs are amortized over the life
of the respective contract. All other start-up costs not directly related to
contracts are expensed in accordance with SOP 98-5, Reporting on the Costs of
Start-up Activities. Total contract start-up costs capitalized during the years
ended December 31, 1998 and 1999 were approximately $407,000 and $664,000,
respectively. The Company recorded amortization relating to contract start-up
costs of $136,000 and $451,000 in the years ended December 31, 1998 and 1999,
respectively.
Internal-Use Software Development Costs
In March 1998, the AICPA issued Statement of Position (SOP) 98-1, Accounting for
the Costs of Computer Software Developed for or Obtained for Internal-Use. The
SOP, which has been adopted as of January 1, 1999, requires the capitalization
of certain costs in connection with developing or obtaining internal-use
software. Costs capitalized include direct labor and fringe benefits.
Amortization of capitalized software is recognized on a project-by-project
basis, using the straight-line method over periods not exceeding five years,
commencing the month after the date of the project completion. The Company did
not have internal-use software development projects in prior periods and
consequently the adoption of the SOP did not have a significant affect on the
results of operations as compared to prior periods.
Revenue Recognition
The Company's revenues consist primarily of transaction revenues and fees from
professional services.
Transaction revenues are earned on a fee-per-unit basis. Depending on the
product or service provided, the fee may be a charge per covered life or member,
per transaction processed, per document or electronic transmission, or per unit
serviced (such as per PC for LAN support). Transaction revenue is derived from
the Company's workflow and business applications, data capture outsourcing
services and technology management services. Transaction revenue is recorded in
the month the services are rendered.
<PAGE>
2. Summary of Significant Accounting Policies (continued)
Professional services revenue consists of time and materials projects and fixed
price projects. Time and materials projects are billed on a fee per hour or per
day, or based upon a multiple of monthly salary, dependent upon the nature of
the project. Such revenue is recorded as the services are performed.
Professional services revenue on fixed price projects is recognized using the
percentage-of-completion method in proportion to the hours expended compared to
the total hours projected for the project. Changes in estimates of
percentage-of-completion are recognized in the period in which they are
determined. Provisions for estimated losses, if any, are made in the period in
which the loss first becomes apparent. Professional services revenue is derived
from the Company's system integration, consulting and programming services, as
well as customization and implementation performed in conjunction with workflow
and business application software.
Deferred Revenues
Certain contracts allow the Company to bill in advance of contract performance.
Amounts billed in advance of contract performance are deferred until such
amounts are recognized as revenue, in accordance with the Company's revenue
recognition policy.
Concentration of Credit Risk
Revenues and the resulting accounts receivable balances potentially subject the
Company to concentrations of credit risk within the claims and administrative
segment of the health care industry and significant customer relationships. For
the years ended December 31, 1997, 1998 and 1999, the Company's three largest
customers, including UICI and its subsidiaries and affiliates (see Note 4),
accounted for approximately 69%, 74% and 70%, respectively, of the Company's
total revenue. For the years ended December 31, 1997, 1998 and 1999, UICI and
its subsidiaries and affiliates accounted for approximately 43%, 56% and 60%,
respectively, of the Company's total revenue. As of December 31, 1998 and 1999,
the three largest customers accounted for 63% and 60%, respectively, of the
Company's total accounts receivable. As of December 31, 1998 and 1999, UICI and
its subsidiaries and affiliates accounted for approximately 47% and 54%,
respectively, of the Company's total accounts receivable (see Note 4).
The Company performs periodic credit evaluations of its customers' financial
condition and generally does not require collateral; however, deposits for
future services or products are sometimes required. Credit losses have been
within management's expectations.
The Company has entered into processing agreements with its customers that have
specified performance commitments. If the Company does not achieve levels of
performance specified in its contracts the Company may be subject to reduced
revenues, penalties, and/or cash payments to its customers. The Company recorded
approximately $538,000 at December 31, 1999 related to performance commitments.
<PAGE>
2. Summary of Significant Accounting Policies (continued)
Stock-Based Compensation
The Company has elected to account for stock-based compensation to employees
using the intrinsic value method prescribed in Accounting Principles Board
Opinion No. 25, Accounting for Stock Issued to Employees (APB 25) and related
Interpretations. Accordingly, compensation cost for stock options is measured as
the excess, if any, of the fair market value of the Company's stock at the date
of the grant over the amount an employee must pay to acquire the stock. See Note
7 regarding the pro forma net income as required by the alternative fair value
accounting provided for under Financial Accounting Standards Board Statement No.
123, Accounting for Stock-Based Compensation (Statement 123).
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and the disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Comprehensive Income
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, Reporting Comprehensive Income, which
establishes guidance for the reporting and display of comprehensive income and
its components. The Company adopted this Statement as of January 1, 1998;
however, this standard does not currently impact disclosures as the Company has
no elements of other comprehensive income.
New Pronouncements
In June 1998, the Financial Accounting Standards Board issued Statement No. 133,
Accounting for Derivative Instruments and Hedging Activities, which is required
to be adopted in years beginning after June 15, 2000. Because of the Company's
minimal use of derivatives, management does not anticipate that the adoption of
the new Statement will have a significant effect on earnings or the financial
position of the Company.
On December 3, 1999, the Securities and Exchange Commission staff issued Staff
Accounting Bulletin (SAB) No. 101, Revenue Recognition in Financial Statements,
the provisions of which must be applied to the Company's financial statements no
later than the first quarter of 2000. While the SAB does not change existing
rules on revenue recognition, it provides additional guidance for transactions
not specifically addressed by existing rules. The Company's management believes,
based upon a review of the effects of the provisions of the SAB, that the SAB
will not have a significant effect on the Company's revenue recognition
accounting.
<PAGE>
2. Summary of Significant Accounting Policies (continued)
Reclassifications
Certain prior year amounts have been reclassified to conform to current year
presentation.
3. Costs of Preparing for Public Offering
During 1998 the Company began the process of preparing for an initial public
offering. Due to market conditions the Company placed the public offering of its
securities on hold in September 1998. As a result, the Company expensed $726,000
of offering-related costs in the third quarter of 1998.
4. Related Party Transactions
The Company conducts a significant amount of business with its parent, UICI. The
Company currently provides services to a number of UICI subsidiaries and
affiliates pursuant to written agreements ranging from one to three years, with
annual renewable options thereafter. These services include the use of certain
of its proprietary workflow and business applications, as well as systems
integration and technology management. UICI and its subsidiaries and affiliates
constitute, in the aggregate, the Company's largest customer. For the years
ended December 31, 1997, 1998 and 1999, UICI and its subsidiaries and
affiliates, including the subsidiaries and affiliates discussed below, accounted
for an aggregate of $12.6 million (43%), $24.9 million (56%) and $28.1 million
(60%), respectively, of the Company's total revenues for such periods. As of
December 31, 1998 and 1999, the Company had trade receivables from UICI and its
subsidiaries and affiliates of $2.2 million (47%) and $3.2 million (54%),
respectively. In addition to trade receivables, the Company also held various
notes receivable from UICI and its subsidiaries and affiliates, amounting to
$4.5 million at December 31, 1997. These notes bore interest at rates ranging
from 8.25% to 10.5%. Total interest income from these notes for the years ended
December 31, 1997 and 1998, was approximately $514,000 and $125,000,
respectively. These notes were paid off in 1998.
UICI provides human resource administrative services to the Company, including
payroll services and employee benefit management. In addition to reimbursement
on a dollar-for-dollar basis for wage and benefit costs, UICI charges the
Company an administrative fee of $10 per employee per pay period pursuant to a
written agreement, which fee is intended to reimburse UICI for the overhead it
incurs in providing these services. For the years ended December 31, 1997, 1998
and 1999, the Company paid UICI an aggregate of approximately $54,000, $73,000
and $75,000, respectively, in administrative fees under this arrangement. The
Company expects UICI to continue to provide these services for the foreseeable
future. The Company has also engaged other UICI subsidiaries to provide services
such as printing and newsletter publication. For the years ended December 31,
1998 and 1999, the Company paid these subsidiaries an aggregate of approximately
$18,000 and $20,000, respectively, for such services.
<PAGE>
4. Related Party Transactions (continued)
The Company leases two facilities from certain subsidiaries of UICI. The Company
leases office space located in Hurst, Texas. The Company leases additional
office space in Dallas, Texas, on a month-to-month basis under a verbal
agreement. The Company paid an aggregate of approximately $112,000, $255,000 and
$369,000 under these leasing arrangements for the years ended December 31, 1997,
1998 and 1999, respectively.
During 1998, the Company purchased certain furniture and equipment for $141,000
from a subsidiary of UICI for purchase prices equal to the subsidiary's net book
value for such items. Also during 1998, the Company purchased certain furniture
and equipment for $195,000 from BTSI, a UICI affiliate, for a purchase price
equal to BTSI's net book value for such items.
The Company currently provides certain workflow and business applications to
UICI Administrators, Inc. (UICI Administrators), a TPA owned by UICI, pursuant
to a written service agreement. UICI Administrators in turn operates through an
agreement with Healthcare Management Administrators, Inc. (HMA), an entity owned
by Ronald L. Jensen, a director of the Company and Chairman of UICI. The
Company's agreement with UICI Administrators is for a five-year term expiring in
December 2001, with automatic annual renewal provisions thereafter, subject to
prior notice of nonrenewal.
The Company provided accounting and management services to UICI Administrators.
In exchange for these services, UICI Administrators paid the Company a fee based
upon the salary, benefits and time commitment of the Company's employees who
actually performed the services. The fee was intended to reimburse the Company
for the costs of providing these services and therefore such fees were offset
against the related expenses. Fees received from UICI Administrators amounted to
$2,000, $134,000 and $143,000 for the years ended December 31, 1997, 1998 and
1999, respectively. In addition to the accounting services provided by the
Company, the Company's President and Chief Executive Officer provided certain
management oversight of UICI Administrators. Neither the President nor the
Company received any compensation in exchange for the President's services. The
accounting and management services ceased at December 31, 1999.
During 1999, the Company entered into a contract with UICI Administrators and an
unrelated third party for both programming services and ongoing processing of
medical insurance claims and Medicare claims. The contract provides for the
Company to receive an approximate $1.1 million fixed fee for programming
services payable initially in cash up to $640,000 as programming services are
performed and then by a $460,000 non-interest bearing note with an estimated
fair value of approximately $370,000 using an estimated implied interest rate of
8.75%. The note will be paid in equal monthly installments of $7,666 over the
five-year life of the contract. The note is collateralized by the proceeds of
the cancellation provisions within UICI Administrators' contract with the
unrelated third party. The Company recorded approximately $812,000 in
programming revenues under this contract during the year ended December 31,
1999. The Company's arrangement with UICI Administrators provides for the
Company to receive its customary transaction and processing fees over the term
of the contract.
<PAGE>
4. Related Party Transactions (continued)
HMA, an entity owned by Ronald L. Jensen, provides a significant number of
services to UICI Administrators, which is a customer of the Company. HMA was
formed by Mr. Jensen in July 1997. Along with UICI Administrators, HMA
experienced significant operating losses in 1998. The Company had advanced
approximately $1.1 million to HMA under a written promissory note dated April
30, 1998, that bore interest at prime plus 2% and was payable on demand upon 30
days prior notice. The entire balance of the note was repaid during August 1998.
Winterbrook VSO (VSO), an entity owned by Ronald L. Jensen, provides certain
sales and marketing services for the Company's imaging and electronic data
capture services pursuant to a verbal brokerage agreement that expired June 30,
1997. Under the agreement, VSO receives a commission computed on the amount of
recurring fees under client contracts that VSO brokered on behalf of the
Company. During 1997, the Company advanced funds to VSO against future
commissions to be earned by VSO under the brokerage agreement. The advances were
not made pursuant to a written promissory note and did not bear interest. The
Company paid VSO, or offset against the outstanding balance of any advances, as
applicable, fees aggregating approximately $132,000, $191,000 and $258,000 for
the years ended December 31, 1997, 1998 and 1999, respectively. At December 31,
1998 and 1999, the balance of commissions owed to VSO was approximately $42,000
and $58,000, respectively. Mr. Jensen purchased VSO from UICI in July 1997.
Netlojix Communications (Netlojix) (formerly known as Matrix Telecom, Inc.), a
telephone company in which Ronald L. Jensen and his five adult children own a
controlling interest, provides telephone services to the Company pursuant to a
written agreement. This agreement was for a one-year term expiring June 13, 1998
with automatic monthly renewal provisions thereafter, subject to 30 days notice
of nonrenewal. Management intends to allow this agreement to renew automatically
for the foreseeable future. For the years ended December 31, 1997, 1998 and
1999, the Company paid Netlojix approximately $46,000, $132,000 and $243,000,
respectively under the agreement.
Effective October 1, 1999, the Company sold its business in providing benefit
administration services, namely its IA division, and its 100% member interest in
IMS, to a subsidiary of UICI for a sales price in cash of approximately $459,000
and $399,000, respectively. The price approximated the Company's net book value
of IA and IMS at the time of the sale.
The book value of the assets and liabilities of the IA and IMS divisions at
September 30, 1999 were as follows:
Cash and cash equivalents $ 598,000
Other current assets 415,000
Non-current assets 960,000
Liabilities (1,115,000)
Shareholders equity and -----------
member interest (net book value) $ (858,000)
===========
<PAGE>
5. Property and Equipment
Property and equipment, at cost, consist of the following (in thousands):
<TABLE>
<CAPTION>
Useful Lives December 31
(Years) 1998 1999
---------------- ----------------- ----------------
<S> <C> <C> <C>
Computer equipment 3 - 5 $ 12,100 $ 13,538
Office furniture and equipment 5 - 7 1,748 1,842
Computer software 3 - 5 1,978 2,421
Leasehold improvements 3 - 5 1,041 1,371
Accumulated depreciation (10,880) (12,894)
----------------- ----------------
$ 5,987 $ 6,278
================= ================
</TABLE>
6. Intangible Assets
The Company's intangible assets at December 31, 1996, resulted from the
application of purchase accounting to the acquisition price paid by UICI for IIS
on August 1, 1996. The excess consideration paid by UICI over the fair value of
the net tangible assets of IIS less minority interests determined at the date of
acquisition of approximately $1.6 million was allocated initially to
identifiable intangible assets with the remainder allocated to goodwill.
On May 1, 1998, the Company purchased the remaining 49% member interest in IIS
for $1.65 million. The consideration paid by the Company exceeded the book value
of the interest acquired by approximately $453,000. The excess purchase price
over the fair value of tangible assets was allocated to intangible assets based
on appraised values including $189,000 allocated to in-process research and
development. The in-process research and development was expensed at the date of
the acquisition. In addition to the consideration described above, the purchase
of the remaining interest in IIS included annual earn-out payments through the
year 2000 the majority of which was subject to a cumulative ceiling of
approximately $1 million. On August 31, 1999, the Company exchanged a note
receivable from the former shareholders of approximately $454,000 to settle a
majority of the earn-out provision rights. The balance of the earn-out
provisions was settled by the Company for approximately $79,000 in cash during
the fourth quarter of 1999. The Company recorded the carrying value of the note
receivable and cash payments as additional purchase price on the applicable
settlement dates, which amounts are being amortized over the remaining useful
lives of the assets acquired.
<PAGE>
6. Intangible Assets (continued)
Intangible assets consist of the following (in thousands):
<TABLE>
<CAPTION>
Useful Lives December 31
(Years) 1998 1999
---------------- ------------ ------------
<S> <C> <C> <C>
Goodwill 20 $ 621 621
Customer base 10 377 604
Work force 5 115 223
Accumulated amortization (193) (304)
------------ ------------
$ 920 $1,144
============ ============
</TABLE>
7. Stock Option Plans
UICI sponsors the Founders Stock Option Plan (Founders Plan) pursuant to which
UICI and the Company have granted stock options to certain key employees of the
Company to purchase shares of the Company's Common Stock from UICI. Under the
Founders Plan, UICI has made available for purchase an aggregate of 2,459,500
shares of Common Stock, representing 15% of the total number of shares of Common
Stock held by UICI, at an exercise price of $1.80 per share. Options awarded
under the plan vest ratably over a five-year period and expire 90 days after the
last vesting date. The Founders Plan is administered by the Company's Board of
Directors, which has the authority to determine who will receive stock options,
the number of shares of Common Stock subject to such stock options and the
terms, conditions, restrictions and limitations relating to an award of stock
options, including the time and conditions of vesting and exercise.
On June 1, 1999, the Company's Board of Directors approved the Insurdata
Incorporated 1999 Stock Option Plan (the 1999 Plan). The 1999 Plan authorized
management of the Company to grant to employees up to 2,500,000 options to
purchase the Company's common stock. As of December 31, 1999, 366,000 options
have been granted under the 1999 Plan. No compensation expense was recognized as
all options under the 1999 Plan have been granted with an exercise price not
less than the fair value of the common stock on the date of grant. The Company
has reserved 2,500,000 shares of the Company's common stock for issuances under
the 1999 Plan.
<PAGE>
7. Stock Option Plans (continued)
A summary of the Company's stock option activity is as follows:
<TABLE>
<CAPTION>
Founders Plan 1999 Plan
-------------------------------- ------------------------------
Weighted Weighted
Average Average
Options Exercise Price Options Exercise Price
-------------------------------- ------------------------------
<S> <C> <C> <C> <C>
Outstanding at December 31, 1996
- $ - - $ -
Granted 2,066,000 1.80 -
-
Forfeited -
- - -
------------- ------------
Outstanding at December 31, 1997 2,066,000 1.80
- -
Granted 393,500 1.80
- -
Forfeited (198,000) 1.80
- -
------------- ------------
Outstanding at December 31, 1998 2,261,500 1.80
- -
Granted - 366,000 4.16
-
Forfeited (108,200) 1.80 -
Exercised (316,800) 1.80 -
-
------------- ------------
Outstanding at December 31, 1999 1,836,500 1.80 366,000 4.16
============= ============
</TABLE>
<TABLE>
<CAPTION>
Founders Plan 1999 Plan
-------------------------------- ------------------------------
<S> <C> <C>
Options exercisable at December 31,
1998 443,200
-
1999 594,300 18,750
Weighted average remaining
contractual life (years) at December 31,
1998 3.65
-
1999 2.62 3.54
</TABLE>
The 1999 Plan granted 316,000 options at an exercise price of $3.00 per share
and 50,000 options with a weighted average exercise price of $11.50 per share.
The exercise price of exercisable options in the 1999 Plan is $3.00.
Under APB 25, because the exercise price of the Company's employee stock options
equals or exceeds the market value of the underlying stock on the date of grant,
no compensation expense has been recognized. The Company recorded during 1999
an increase to stockholders' equity of $70,000 related to the tax benefit
resulting from the exercise of 316,800 Founders Plan options.
<PAGE>
7. Stock Option Plans (continued)
Effective August 15, 1998, the Company's employees became participants in a UICI
stock option plan (UICI Plan) pursuant to which UICI has granted stock options
to purchase shares of UICI common stock to certain employees of the Company.
There were 418,458 options granted to Insurdata employees, of which 35,772 have
been exercised as of December 31, 1999 and related tax benefit of $176,000 was
recorded as an increase in stockholders' equity. There were 43,192 and 33,480
options forfeited during 1998 and 1999, respectively. Each option has an
exercise price of $15. Under the original terms of the grant, the options vested
20% each year beginning on August 15, 1999 and thereafter through 2001 and 40%
on August 15, 2002. Effective December 14, 1999, in connection with the signing
of a merger agreement with HealthAxis Inc., the vesting schedule was accelerated
to provide an additional 20% vesting to all participating Company employees who
were employed as of that date. Under the plan, participants are deemed to have
terminated employment at any such time that their employer becomes a less than
50% owned subsidiary of UICI. Pursuant to this provision, employees of the
Company are deemed to have been terminated from employment for plan purposes on
January 7, 2000. As such, no additional amounts of options will vest beyond 1999
and all outstanding options under the plan will expire on March 31, 2000. These
options are UICI obligations and have not been included in the Company's stock
option information on the previous page. The exercise price of these options
equals the market price of UICI common stock on the date of grant. As such, no
compensation expense has been recognized under APB 25. All option prices when
exercised are remitted to UICI.
Pro forma information regarding net income required by Statement 123 has been
determined as if the Company had accounted for its employee stock options under
the fair value method of that Statement. The weighted-average fair value per
share of options granted in the Founders Plan during 1997 and 1998 was $.41 and
$.35, respectively. The weighted-average fair value per share of options granted
in the UICI Plan during 1998 was $3.06. The weighted-average fair value per
share of options granted in the 1999 Plan during 1999 was $1.54. The fair value
of the options was estimated using a Black-Scholes option pricing model with the
following weighted-average assumptions for 1997, 1998 and 1999, respectively:
risk-free interest rate of 6.70%, 5.71% and 5.81%; a volatility factor of 0.38,
0.38 and 0.67; no dividend yield and an expected life of four years.
<PAGE>
7. Stock Option Plans (continued)
The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options which have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions including, for publicly held companies, expected stock
price volatility. Because the Company's employee stock options have
characteristics significantly different from those of traded options, and
because changes in the subjective input assumptions can materially affect the
fair value estimate, in management's opinion, the existing models do not
necessarily provide a reliable single measure of the fair value of its employee
stock options.
For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to expense over the options' vesting period. The Company's pro
forma information follows (in thousands):
Year ended December 31
1997 1998 1999
--------------- ----------------- ---------------
Pro forma net income $ 1,759 $ 1,587 $ 797
8. Income Taxes
Commencing with the tax year ended December 31, 1997, the Company is included in
the consolidated income tax returns of UICI.
The Company has a verbal tax sharing agreement with UICI. Under this agreement,
except as described below, the Company remits payments to UICI or receives
payments from UICI for tax expense or benefit computed as if the Company filed a
separate income tax return. Based on this agreement, taxes receivable of
$318,000 at December 31, 1999, are primarily receivable from UICI, not from the
taxing authorities. The Company's tax provision and related tax accounts have
been prepared on a separate return basis.
Certain taxable income and losses related to IMS and IIS were included in UICI's
consolidated tax return prior to the Company acquiring those entities.
Subsequent to acquisition of those entities by the Company, such entities were
subject to the Company's verbal tax sharing agreement with UICI. Consequently,
prior to acquisition of such entities settlement of the related tax expense and
benefits through the Company's tax sharing agreement did not occur. The
resulting taxes payable or receivable are reflected in stockholders' equity as a
contribution from UICI of $132,000 and $216,000 for the years ended December 31,
1997 and 1998, respectively.
IMS and IIS are limited liability corporations (LLCs) which are treated as
partnerships for federal income tax purposes. Accordingly, minority interests in
the LLCs are determined before income tax expense or benefit associated with the
income or loss of the LLC.
<PAGE>
8. Income Taxes (continued)
The components of the provision for income taxes are as follows (in thousands):
Year ended December 31
1997 1998 1999
-------------- --------------- -------------
Current:
Federal $ 916 $ 535 $ 135
State 154 139 44
-------------- --------------- -------------
Total current 1,070 674 179
Deferred:
Federal 104 172 550
State 21 34 103
-------------- --------------- -------------
Total deferred 125 206 653
-------------- --------------- -------------
Total provision for
income taxes $ 1,195 $ 880 $ 832
============== =============== =============
The effective income tax rate on income before income taxes differed from the
federal income tax statutory rate for the following reasons (in thousands):
<TABLE>
<CAPTION>
Year ended December 31
1997 1998 1999
-------------- --------------- -------------
<S> <C> <C> <C>
Income tax provision:
Based upon the federal statutory rate $ 979 $ 965 $ 749
State income tax, net of federal benefit 115 114 104
Benefit associated with minority interest
in loss of subsidiary 73 6 (32)
Research and development credit - (124) -
Other 28 (81) 11
-------------- --------------- -------------
$1,195 $ 880 $ 832
============== =============== =============
</TABLE>
<PAGE>
8. Income Taxes (continued)
The Company's deferred tax assets and liabilities consist of the following (in
thousands):
December 31
1998 1999
------------- -------------
Deferred tax assets:
Excess of book over tax depreciation $ 57 $ 57
Basis in limited liability companies 81 -
Phantom stock compensation 392 261
Intangibles 145 150
Other - 9
------------- -------------
Total deferred tax assets 675 477
Deferred tax liabilities:
Software development and contract
start-up costs 562 1,017
------------- -------------
Total deferred tax liabilities 562 1,017
------------- -------------
Net deferred tax assets (liabilities) $ 113 $ (540)
============= =============
9. Lease Commitments
The Company leases equipment under capital leases and leases its headquarters
and certain other facilities under operating leases. Minimum noncancelable lease
payments required under operating and capital leases for the years subsequent to
December 31, 1999, are as follows (in thousands):
Operating Capital
Leases Leases
----------------- ----------------
2000 $ 1,263 $ 172
2001 1,137 158
2002 834 2
2003 575 -
----------------
-----------------
Total $ 3,809 332
=================
Less amount representing interest (32)
----------------
Present value of minimum lease payments 300
Less current portion (148)
----------------
$ 152
================
Rent expense totaled approximately $884,000, $1,367,000 and $1,824,000 for the
years ended December 31, 1997, 1998 and 1999, respectively.
<PAGE>
10. Employee Benefit Plans
The Company adopted the Insurdata Incorporated 401(k) and Profit Sharing Plan
(the Insurdata Plan) on July 1, 1988, for the benefit of employees meeting
certain age and service requirements. The Insurdata Plan provided for a Company
match of up to 25% of the employee contributions up to a maximum of 2% of
eligible employee compensation. The Plan was discontinued effective April 1,
1997. Employer matching contributions to the Insurdata Plan amounted to $3,000
for the year ended December 31, 1997.
Effective April 1, 1997, eligible employees of the Company became participants
in the UICI Employee Stock Ownership Plan (the Plan). On January 1, 1998, the
Plan was converted to the UICI Employee Stock Ownership and Savings Plan, which
is a combination ESOP/401(k) plan. Under the Plan, the Company contributed 3% of
qualified salary up front and matched 50% of employee contributions up to 6% of
eligible employee compensation. Employer contributions vest 10% and 20% per year
for the first four years and the next three years, respectively. All Company
contributions are invested in UICI common stock. Employer contributions to the
ESOP were $353,000, $600,000 and $801,000 for the years ended December 31, 1997,
1998 and 1999, respectively.
Effective January 1, 1997, the Company began participating in the UICI Special
Total Ownership Plan (the STOP Plan). Under the STOP Plan, UICI makes periodic
discretionary contributions to a trust on behalf of employees of UICI and its
subsidiaries, including the Company. The plan invests 100% of these
contributions in UICI common stock. The Company recorded compensation expense of
$126,000 and $44,000 related to the STOP Plan for the years ended December 31,
1997 and 1998, respectively.
In 1992, the Company adopted the Insurdata Incorporated Key Person Award Program
(the KPA Plan), which provided for profit sharing and phantom stock awards for
certain key employees of the Company. The Company awarded a total of 1,050,000
shares of phantom stock under the KPA Plan. Except for ongoing payments
associated with awards of phantom stock, the KPA Plan terminated on December 31,
1996.
Under the KPA Plan, shares of phantom stock could be redeemed for cash under
certain circumstances, including termination of employment, with payment
occurring in one lump sum without interest or, at the election of the Company,
in a maximum of five equal annual installments, with interest at the lower of
the prime rate or 10%. All shares of phantom stock awarded under the plan were
redeemed by the holders thereof at a market price of $1.80 per share effective
December 31, 1996. Payment of the cash value is being made by the Company in
five equal annual installments, including interest. The long-term phantom stock
liability is approximately $.7 million and $.3 million at December 31, 1998 and
1999, respectively. The current phantom stock liability is approximately $.3
million at December 31, 1997, 1998 and 1999.
<PAGE>
10. Employee Benefit Plans (continued)
Upon the acquisition of IIS by UICI in August 1996, the management of IIS was
granted a 5% interest in IIS to be earned over a two-year period. The Company
has recorded the related unearned compensation as a reduction of stockholders'
equity. Compensation expense recorded for this agreement was $147,000 and
$86,000 for the years ended December 31, 1997 and 1998, respectively.
11. Year 2000 Issue (Unaudited)
Many currently installed computer systems and software products are unable to
distinguish between twentieth century dates and twenty-first century dates. If
not corrected, such computer applications could fail or create erroneous
results. The problems associated with this issue could appear in hardware,
operating systems and other software programs. The Company took steps to prevent
these issues from adversely affecting its future operating results. The
Company's management believes its proprietary software used to deliver services
to its customers is Year 2000 compliant. Costs related to addressing the Year
2000 issue has been insignificant prior to 1999 and approximately $125,000
during 1999.
12. Subsequent Events
On December 6, 1999, the Company signed a Merger Agreement with HealthAxis.com,
Inc. (HealthAxis), whereby the Company's shareholders agreed to exchange their
100% ownership of the Company for an ownership interest in the combined entity.
Closing of the transaction occurred on January 7, 2000. At closing, each issued
and outstanding share of Insurdata Common Stock was surrendered and converted
into 1.33 shares of HealthAxis Common Stock. The Insurdata Common Stock was
simultaneously cancelled and retired and HealthAxis is the surviving entity of
the merger. It is anticipated that the merger will be treated as a Tax-Free
Reorganization within the meaning of Section 368 (a) of the Internal Revenue
Service Code. HealthAxis is a Web-based retailer of health insurance products
and related consumer services.
On January 26, 2000, HealthAxis entered into a merger agreement and plan of
reorganization with HealthAxis, Inc. (HAI, formerly Provident American
Corporation). The merger is structured so that HAI will be the surviving
publicly traded company and HealthAxis will be merged with and into HealthAxis
Acquisition Corp., a wholly owned subsidiary of HAI.
