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 September 30, 1999
[ ] 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)
P.O. BOX 390353
MINNEAPOLIS, MINNESOTA 55439-0353
(Address of principal executive offices, including zip code.)
(612) 837-2975
(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 October 31, 1999, there were 14,575,043 shares of Common Stock
outstanding.
Transitional Small Business Disclosure Format (check one): Yes_____ No__X__
<PAGE>
LIFERATE SYSTEMS, INC.
INDEX
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PART I
PAGE
----
ITEM 1. FINANCIAL STATEMENTS
Statements of Net Assets (Liabilities) in Liquidation as of 3
September 30, 1999 and December 31, 1998
Statement of Changes in Net Assets (Liabilities) in Liquidation 4
for the three months and nine months Ended September 30, 1999
Statement of Operations for the three months and nine months 5
ended September 30, 1998 (Going Concern Basis)
Statements of Cash Flows for the nine months ended September 30, 6
1999 (Liquidation Basis) and for the nine months ended September
30,1998 (Going Concern Basis)
Notes to Financial Statements 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS 8
PART II
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 9
2
<PAGE>
LIFERATE SYSTEMS, INC.
Statements of Net Assets (Liabilities) in Liquidation
<TABLE>
<CAPTION>
SEPTEMBER 30, December 31,
1999 1998
---- ----
(Unaudited)
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 108,400 $ 704,900
Accounts receivable -- 40,600
Prepaid expenses and other current assets 1,500 49,000
Computer equipment, net 5,100 11,900
------------- -------------
Total assets 115,000 806,400
------------- -------------
LIABILITIES
Accounts payable and other accrued liabilities 6,900 81,400
Other current liabilities -- 214,500
Reserve for estimated costs during period of liquidation 60,000 209,000
Long-term debt and capital lease obligations -- 3,137,000
Deferred revenue -- 153,400
------------- -------------
Total liabilities 66,900 3,795,300
------------- -------------
Net assets (liabilities) $ 48,100 $ (2,988,900)
============= =============
</TABLE>
SEE ACCOMPANYING NOTES.
3
<PAGE>
LIFERATE SYSTEMS, INC.
Statements of Changes in Net Assets (Liabilities) in Liquidation
(Unaudited)
<TABLE>
<CAPTION>
Three Months Nine Months
Ended Ended
September 30, September 30,
1999 1999
---- ----
<S> <C> <C>
Net liabilities in liquidation as of December 31, 1998 $ (2,988,900)
Net assets in liquidation as of June 30, 1999 $ 91,700
Change in net liabilities (43,600) 3,037,000
------------- -------------
Net assets in liquidation as of September 30,1999 $ 48,100 $ 48,100
============= =============
</TABLE>
SEE ACCOMPANYING NOTES.
4
<PAGE>
LIFERATE SYSTEMS, INC.
Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
Three Months Nine Months
Ended Ended
September 30, September 30,
1998 1998
------------- -------------
<S> <C> <C>
Net revenues $ (11,200) $ 384,300
Cost of revenues 85,000 457,000
------------- -------------
Gross profit (96,200) (72,700)
Operating Expenses:
Sales and marketing 93,600 422,200
Research and development 70,100 530,300
General and administrative 397,300 1,348,100
------------- -------------
Total operating expenses 561,000 2,300,600
------------- -------------
Loss from operations (657,200) (2,373,300)
Interest income 11,300 52,600
Interest expense 11,600 31,200
------------- -------------
Net loss $ (657,500) $ (2,351,900)
============= =============
Net loss per share - basic and diluted $ (0.05) $ (0.19)
============= =============
Weighted average number of
Common shares outstanding 12,559,222 12,065,296
============= =============
</TABLE>
SEE ACCOMPANYING NOTES.
5
<PAGE>
LIFERATE SYSTEMS, INC.
Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
NINE MONTHS
ENDED SEPTEMBER 30,
1999 1998
---- ----
(Liquidation (Going
Basis) Concern Basis)
<S> <C> <C>
OPERATING ACTIVITIES
Decrease in net liabilities $ 3,037,000
Net loss $ (2,351,900)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation 5,700 202,600
Amortization of software development costs -- 30,400
Amortization of discounts on long-term debt -- 25,100
Notes payable converted to common stock (3,075,000) --
Stock issued for lawsuit settlement -- 21,100
Gain on sale of equipment (2,800) --
Changes in operating assets and liabilities:
Accounts receivable 40,600 173,400
Prepaid and other current assets 47,500 (22,000)
Accounts payable and other accrued liabilities (74,500) 2,200
Other current liabilities (214,500) --
Decrease in estimated liquidation expenses (149,000) --
Deferred revenue (153,400) (15,200)
Deferred rent -- (4,900)
------------- -------------
Net cash used in operating activities (538,400) (1,939,200)
INVESTING ACTIVITIES
Software development costs -- (84,600)
Purchase of furniture and equipment -- (23,800)
Proceeds from equipment sales 3,900 900
------------- -------------
Net cash provided by (used in) investing activities 3,900 (107,500)
FINANCING ACTIVITIES
Payments on notes payable and capital lease obligations (62,000) (10,300)
Proceeds from issuance of common stock -- 1,955,900
------------- -------------
Net cash (used in) provided by financing activities (62,000) 1,945,600
------------- -------------
Decrease in cash and cash equivalents (596,500) (101,100)
Cash and cash equivalents at beginning of period 704,900 764,200
------------- -------------
Cash and cash equivalents at end of period $ 108,400 $ 663,100
============= =============
</TABLE>
SEE ACCOMPANYING NOTES.
6
<PAGE>
LIFERATE SYSTEMS, INC.
Notes to Financial Statements
September 30, 1999
1. Organization and Description of Business
LifeRate Systems, Inc. was engaged in marketing a proprietary software
operating system to healthcare providers and payors throughout the
United States to produce information to measure and quantify the
quality and cost of health care. In August 1998, the Company closed its
business operations due to continuing losses from operations.
Accordingly, the Company does not expect to generate any revenue from
new customers in the future. During the first nine months of 1999 the
Company completed the process of eliminating expenses, collecting
receivables, and negotiating the termination or satisfaction of all its
remaining obligations. The Company has retained an investment banker to
seek a buyer for its technology and possible merger candidates.
2. Liquidation Basis of Accounting
The Company has adopted the liquidation basis of accounting as of
October 1, 1998. This basis of accounting is considered appropriate
when the liquidation of a company appears imminent and the net
realizable value of its assets are reasonably determinable. Under this
basis of accounting, assets and liabilities are stated at their net
realizable value and estimated costs through the liquidation date are
provided to the extent reasonably determinable. The financial
information presented as of September 30, 1999 and 1998 has been
prepared from the books and records without audit. Financial
information as of December 31, 1998 is based on audited financial
statements of LifeRate Systems, Inc. but does not include all
disclosures required by generally accepted accounting principles. 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, 1998 as
filed with the Securities and Exchange Commission.
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
The Company ceased its ongoing business operations in August of 1998 due to
continuing losses from operations. The Company has terminated its relationships
with all but one customer and is not marketing or selling its products.
Accordingly, the Company does not expect to generate any revenue from new
customers in the future. During the first nine months of 1999 the Company
completed the process of eliminating expenses, collecting receivables, and
negotiating the termination or satisfaction of all its remaining obligations.
The Company has adopted the liquidation basis of accounting as of October 1,
1998. This basis of accounting is considered appropriate when the liquidation of
a company appears imminent and the net realizable value of its assets are
reasonably determinable. Under this basis of accounting, assets and liabilities
are stated at their net realizable value and estimated costs through the
liquidation date are provided to the extent reasonably determinable.
The Company's net liabilities decreased by $3,037,000 during the first nine
months of 1999 primarily due to the agreement of its convertible note holders to
convert the debt into common stock. The Company paid $62,000 to Medtronic, Inc.
against their $1,000,000 convertible promissory note and the balance of $938,000
was converted into 625,333 shares of common stock at a conversion price of $1.50
per share. The $2,250,000 convertible subordinated note held by The Atlanta
Cardiology Group was converted into 677,710 shares of common stock at $3.32 per
share.
In August 1999, the Company and Manchester Financial Group, Inc. mutually agreed
to terminate the Engagment Agreement under which Manchester was exploring
strategic options for the Company and seeking buyers for the Company's
technology or a merger candidate. In addition, the Company and Manchester
Business Services, Inc. mutually agreed to reduce the management fee paid to
Manchester from $10,000 per month to $5,000 per month. Finally, Daniel A. Pelak,
Mark D. Dixon and Ronald N. Riner all resigned from the Board of Directors. The
Company's sole remaining director is Mark W. Sheffert.
Liquidity and Capital Resources
At September 30, 1999, the Company had $108,400 in cash and cash equivalents, a
decrease of $596,500 from December 31, 1998. The decrease was due to payments of
the Company's liabilities and operating expenses.
The Company estimates that its current cash balances will be sufficient to fund
the limited operations of the Company through the end of 1999. The Company is
presently seeking a buyer for the Company and/or its software technology. There
can be no assurance that the Company will be able to find a buyer for the
Company or its technology on satisfactory terms.
Year 2000 Issues
Computer programs have historically been written to abbreviate dates by using
two digits instead of four digits to identify a particular year. The so called
"Year 2000" problem or "millennium bug' is the inability of computer software or
hardware to recognize or properly process dates ending in "00." As the year 2000
approaches, significant attention is being focused on updating or replacing such
software and hardware in order to avoid system failures, miscalculations or
business interruptions that might otherwise result. The Company has ceased its
business operations and does not believe the Year 2000 problem will materially
impact its business, financial condition or result of operations.
8
<PAGE>
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 on Form 8-K
None.
9
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the Registrant has
caused this Amendment to be signed on its behalf by the undersigned, thereunder
duly authorized.
Dated: November 12, 1999
LIFERATE SYSTEMS, INC.
By: /s/Bruce Senske
-------------------------------------
Bruce Senske
Acting Chief Executive Officer
(Principal Executive Officer)
By: /s/Kenneth G. Tarr
-------------------------------------
Kenneth G. Tarr
Acting Chief Financial Officer
(Principal Financial and Accounting
Officer)
10
<PAGE>
LIFERATE SYSTEMS, INC.
EXHIBIT INDEX TO QUARTERLY
REPORT ON FORM 10-QSB
for the Quarterly Period ended March 31, 1999
ITEM NUMBER ITEM METHOD OF FILING
27.1 Financial Data Schedule Filed herewith
11
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<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> SEP-30-1999
<CASH> 108
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 110
<PP&E> 76
<DEPRECIATION> 71
<TOTAL-ASSETS> 115
<CURRENT-LIABILITIES> 67
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 115
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 0
<EPS-BASIC> 0.00
<EPS-DILUTED> 0.00
</TABLE>
