UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For The Quarterly Period Ended March 31, 1997
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the transition period from _________________ to _________________
Commission File Number: 0-25530
LIFERATE SYSTEMS, INC.
(Exact name of Registrant as specified in its charter)
MINNESOTA 41-1682994
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
7210 METRO BOULEVARD
EDINA, MINNESOTA 55439
(Address of principal executive offices, including zip code.)
(612) 844-0599
(Registrant's telephone number)
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 ___
As of May 1, 1997, there were 3,819,708 shares of Common Stock outstanding.
Transitional Small Business Disclosure Format (check one): Yes ____ No_X_
LIFERATE SYSTEMS, INC.
INDEX TO FINANCIAL STATEMENTS
PAGE
----
ITEM 1. FINANCIAL STATEMENTS
Condensed Balance Sheets -
December 31, 1996 and March 31, 1997 3
Condensed Statements of Operations -
Three Months Ended March 31, 1996 and 1997 and Date of Inception to
March 31, 1997. 4
Statements of Cash Flow -
Three Months Ended March 31, 1996 and 1997
and Date of Inception to March 31, 1997. 5
Notes to Condensed Financial Statements 6
ITEM 2. Management's Discussion and Analysis 7
LIFERATE SYSTEMS, INC.
(A DEVELOPMENT STAGE COMPANY)
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, MARCH 31,
1996 1997
ASSETS (NOTE) (UNAUDITED)
------------ ------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 2,072,000 $ 939,600
Accounts receivable, less allowance of $60,400 at
December 31, 1996 and $22,900 at March 31, 1997 142,400 156,200
Prepaid expenses and other current assets 122,700 105,700
------------ ------------
TOTAL CURRENT ASSETS 2,337,100 1,201,500
Furniture and fixtures 177,400 207,600
Computer equipment 837,200 839,300
------------ ------------
1,014,600 1,046,900
Less accumulated depreciation 325,900 401,000
------------ ------------
688,700 645,900
Software development costs, net of amortization of
$100,800 at December 31, 1996 and $126,100 at
March 31, 1997 50,500 25,200
------------ ------------
TOTAL ASSETS $ 3,076,300 $ 1,872,600
============ ============
Liabilities and shareholders' equity
Current liabilities:
Accounts payable and accrued liabilities $ 417,800 $ 536,000
Other current liabilities 73,900 59,700
Current portion of notes payable 10,800 9,900
Current portion of capitalized lease obligations 1,000 17,500
------------ ------------
TOTAL CURRENT LIABILITIES 503,500 623,100
Convertible subordinated note 2,250,000 2,250,000
Notes payable 1,800 -
Capitalized lease obligation - -
Deferred rent 16,800 13,900
Deferred revenue 151,800 144,300
Shareholders' equity:
Preferred stock, no par value:
Authorized shares - 1,000,000
Issued and outstanding shares-none in 1995 and
1996 Common stock, no par value:
Authorized shares - 10,000,000
Issued and outstanding shares - 3,811,639 at
December 31, 1996 and 3,819,708 at March 31,1997
17,260,700 17,283,000
Deficit accumulated during the development stage (17,108,300) (18,441,700)
------------ ------------
Total shareholders' equity 152,400 (1,158,700)
------------ ------------
Toal liabilities and shareholders' equity $ 3,076,300 $ 1,872,600
============ ============
Note: The balance sheet at December 31, 1996 has been derived from the audited
financial statements at that date.
</TABLE>
LIFERATE SYSTEMS, INC.
(A DEVELOPMENT STAGE COMPANY)
CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
July 18, 1990
Three Months (Date of Inception)
Ended March 31, to
March 31,
1996 1997 1997
---- ---- ----
<S> <C> <C> <C>
Net revenues $ 109,200 $ 198,800 $ 1,389,100
Cost of revenues 43,900 42,600 266,000
------------ ------------ ------------
Gross profit 65,300 156,200 1,123,100
Operating expenses:
Sales and marketing 618,900 535,700 6,016,300
Research and development 491,900 419,500 8,431,100
General and administrative 483,400 547,900 5,452,800
------------ ------------ ------------
Loss from operations (1,528,900) (1,346,900) (18,777,100)
Interest income 91,100 13,800 372,700
Interest expense 1,300 300 37,300
------------ ------------ ------------
Net loss $ (1,439,100) $ (1,333,400) $(18,441,700)
============ ============ ============
Net loss per share $ (0.39) $ (0.35)
============ ============
Weighted average number of common
shares outstanding 3,725,111 3,819,708
============ ============
See accompanying notes
</TABLE>
LIFERATE SYSTEMS, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
JULY 18, 1990
(DATE OF
THREE MONTHS ENDED INCEPTION) TO
MARCH 31 MARCH 31
1996 1997 1997
---- ---- ----
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net loss $ (1,439,100) $ (1,333,400) $(18,441,700)
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation and amortization 41,100 100,400 527,700
Writedown of software development costs to net realizable value -- -- 599,600
Stock issued for services -- -- 187,500
Value of stock options granted for services rendered -- -- 974,000
Convertible subordinated note issued for services rendered -- -- 2,250,000
Changes in operating assets and liabilities:
Accounts receivable (257,600) (13,800) (156,200)
Prepaid and other current assets (8,700) 17,000 (105,700)
Other assets (158,200) -- --
Accounts payable and other accrued liabilities (385,000) 104,000 931,500
Deferred revenue 398,500 (7,500) 144,300
Deferred rent (3,000) (2,900) 13,900
------------ ------------ -------------
Net cash used in operating activities (1,812,000) (1,136,200) (13,075,100)
INVESTING ACTIVITIES
Software development costs -- -- (750,900)
Purchase of furniture and equipment (373,300) (32,300) (1,004,700)
------------ ------------ -------------
Net cash used in investing activities (373,300) (32,300) (1,755,600)
FINANCING ACTIVITIES
Payments on notes payable and capital lease obligations (10,700) (3,700) (165,100)
Stock subscription received -- -- 5,000
Proceeds from issuance of notes payable and capital lease obligations -- 17,500 307,700
Proceeds from issuance of common stock 1,683,300 22,300 15,622,700
------------ ------------ -------------
Net cash provided by financing activities 1,672,600 36,100 15,770,300
------------ ------------ -------------
Increase in cash and cash equivalents (512,700) (1,132,400) 939,600
Cash and cash equivalents at beginning of period 7,750,500 2,072,000 -
------------ ------------ -------------
Cash and cash equivalents at end of period $ 7,237,800 $ 939,600 $ 939,600
============ ============ ============
See accompanying notes
</TABLE>
LIFERATE SYSTEMS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONDENSED FINANCIAL STATEMENTS
MARCH 31, 1997
1. Organization and Description of Business
LifeRate Systems, Inc. is a development stage enterprise engaged in
marketing proprietary clinical software systems to health care
providers and payors to produce information to measure and quantify the
quality and cost of health care.
2. Basis of Presentation
The financial information presented as of March 31, 1996 and 1997 has
been prepared from the books and records without audit. Financial
information as of December 31, 1996 is based on audited financial
statements of LifeRate Systems, Inc. but does not include all
disclosures required by generally accepted accounting principles. In
the opinion of management, all adjustments, consisting only of normal
recurring adjustments necessary for a fair presentation of the
financial information for the periods indicated have been included. For
further information regarding the Company's accounting policies, refer
to the financial statements and attached notes included in the
Company's Form 10-KSB for the fiscal year ended December 31, 1996 as
filed with the Securities and Exchange Commission.
3. Net Loss Per Share
Net loss per share is computed using the weighted average number of
common shares outstanding during the period. Common equivalent shares
from stock options and warrants are excluded from the computation as
their effect is antidilutive. In February 1997, the Financial
Accounting Standards Board (FASB) issued FASB Statement No. 128,
"EARNINGS PER SHARE." This Statement replaces the presentation of
primary earnings per share (EPS) with basic EPS and also requires dual
presentation of basic and diluted EPS for entities with complex capital
structures. This Statement is effective for the fiscal year ended
December 31, 1997. For the quarter ended March 31, 1997, there is no
difference between basic earnings per share under Statement No. 128 and
primary net loss per share as reported.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
Introduction
The Company's primary focus during the first quarter of 1997 was the completion
of a new release of the LifeRate Clinical Information System. This upgrade will
provide the LifeRate System the ability to capture more detailed information on
a patient's past surgical procedures. The System's outpatient visit note, a
summary of the patient's visit with the physician, was also enhanced to allow
customization by the physician. The Company believes these features will allow
the physician to better monitor outcomes. The release is scheduled for May 1997.
In January 1997, the Company entered into an agreement with National Jewish
Medical and Research Center develop a computerized patient record to expand
their disease management programs in respiratory medicine and immunology. Sales
and marketing efforts also continue on LifeRate's Clinical Information System.
To date, the Company has entered into agreement for the sale and installation of
the LifeRate System at seven cardiovascular practice groups and three asthma and
allergy practices.
Results of Operations
The Company generated revenues of $198,800 for the three months ended March 31,
1997. Development fees related to the National Jewish contract contributed
$150,000, or 75.5% of total revenues. Recurring license fees were $48,000 for
the three months ended March 31, 1997. This compares to $109,200 in revenues for
the three months ended March 31, 1996, of which $98,750 or 90.4%, related to
development fees under contractual agreement and $10,000, or 9.2%, related to
system installations.
Costs of revenues were $42,600 and $43,900 for the three months ended March 31,
1997 and 1996, respectively. Amortization of capitalized software costs
contributed $25,200 in expense to both periods. For the three months ended March
31, 1997, cost of revenues included $14,900 of royalty expense. No royalty
expense was recorded for the three months ended March 31, 1996. For the first
quarter of 1996, cost of revenues include $18,700 of development expense
recorded against the development contract generating the majority of revenue in
that period.
Royalty expense of $14,900 for the first quarter of 1997 was recorded at rate of
7.5% on all product related sales under an agreement with Anthony Furnary, M.D.
Under a modified agreement effective March 1997, royalties will be paid to Dr.
Furnary at 3.0% of sales beginning in 1999 (or sooner if the Company reaches
$20,000,000 of cumulative revenues ) up to $100,000,000 and, thereafter, at 3.6%
on all gross revenues.
Sales and marketing expenses were $535,700 for the three months ended March 31,
1997. This is a decrease of $83,200, or 13.4%, from the three months ended March
31, 1996. During 1995, Clinical Sales & Service ("CSSI") provided substantially
all of the Company's sales, marketing and clinical support functions. During the
first quarter of 1996, the employees of CSSI became employees of the Company.
Expenses for the three months ended March 31, 1996 are higher than those in the
comparable period of 1997 due to relocation and other one time costs associated
with this integration.
Research and development expenses for the three months ended March 31, 1997 were
$419,500, a decrease of $72,400, or 14.7%, from the three months ended March 31,
1996. This decrease reflects a number of one time expenses incurred in the first
quarter of 1996 related to the recruitment and relocation of key staff members.
The Company plans to continue to invest the resources needed to develop the
product capabilities being demanded by its customer base.
General and administrative expenses increased $64,500, or 13.3%, from $483,400
for the three months ended March 31, 1996 to $547,900 for the three months ended
March 31, 1997. This increase is due to $93,900 in legal and professional fees
related to the renegotiation of the agreement with Dr. Furnary previously
discussed and the cancellation of a royalty agreement with Atlanta Cardiology
Group P.C. ("ACG"), $53,900 in recruiting fees for a new Chief Executive Officer
and $ 59,100 in increased depreciation expense related to equipment purchased
late in the first quarter and remainder of 1996. These increases were offset by
lower payroll and travel related expenses resulting from the change in
management that occurred in the second quarter of 1996.
Interest income decreased from $91,100 in the three months ended March 31, 1996
to $13,800 for the three months ended March 31, 1997. This decrease reflects the
lower overall cash position in the first quarter of 1997 compared to that in
1996 when proceeds from a private placement of stock had been received in
December 1996 and January 1997.
Interest expenses have not been a significant expense to the Company. Beginning
April 1997, interest will accrue on a $2,250,000 convertible subordinated note
payable. This note was issued in connection with the cancellation of a royalty
agreement with ACG. The note bears interest at 10%. Of the interest incurred,
50% will be paid annually, with the remainder due upon maturity of the note in
2002.
Liquidity and Capital Resources
The Company has financed its operations since inception primarily through
private and public placement of Common Stock.
In March 1997, the Company issued a convertible subordinated note to ACG in the
principal amount of $2,250,000. The note matures April 1, 2002 and bears
interest at 10% per year. Of the interest incurred, 50% will be payable each
year, with the remainder due upon maturity of the note. Up to $2,000,000 of the
principal amount of the note is convertible by ACG into Common Stock of the
Company at the rate of $3.60 per share, subject to adjustment in certain cases
to protect ACG from certain dilutive events. The note was issued for services
previously rendered.
At March 31, 1997, the Company's cash and cash equivalents were $939,600, a
decrease of $1,132,400 from December 31, 1996. The main use of this cash was to
fund operations. The Company does not have significant capital equipment
purchase commitments but does plan to continue to fund software development
efforts.
The current cash balance is not sufficient to fund the Company's operations
through the second quarter of 1997. The Company has secured a bridge loan of
$1,500,000 to fund its operations while it explores its options to raise
additional capital to fund operations. There can be no assurance that the
Company will be able to obtain additional financing on satisfactory terms. If
the Company is unable to obtain additional financing it will be forced to cease
operations.
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
ITEM NUMBER ITEM METHOD OF FILING
27.1 Financial Data Schedule Filed herewith
(b) Reports of Form 8-K
On May 5, 1997, the Company filed a report on Form 8K to report
various changes in its executive officers and directors.
SIGNATURES
In accordance with the requirements of the Exchange Act, the Registrant has
caused this report to be signed on its behalf by the undersigned, thereunder
duly authorized.
Dated: May 14, 1997
LifeRate Systems, Inc.
By:/S/ William W. Chorske
------------------------
William W. Chorske
Chairman of the Board
By:/S/John Goodrich
------------------------
John Goodrich
Principle Executive, Financial and
Accounting Officer
LIFERATE SYSTEMS, INC.
EXHIBIT INDEX TO QUARTERLY
REPORT ON FORM 10-QSB
for the quarterly Period ended March 31, 1997
Item No. Item Method of Filing
----------- ---- ----------------
27.1 Financial Data Schedule ........ Filed herewith.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
STATEMENT OF EARNINGS AND THE BALANCE SHEET, AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
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<RECEIVABLES> 179
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<CURRENT-ASSETS> 1,202
<PP&E> 1,047
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<TOTAL-ASSETS> 1,873
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0
0
<COMMON> 17,283
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</TABLE>
