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 June 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 July 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
PART I
PAGE
----
ITEM 1. FINANCIAL STATEMENTS
Statements of Net Assets (Liabilities) in Liquidation as of 3
June 30, 1999 and December 31, 1998
Statement of Changes in Net Assets (Liabilities) in Liquidation 4
for the three months and six months Ended June 30, 1999
Statement of Operations for the three months and six months ended 5
June 30, 1998 (Going Concern Basis)
Statements of Cash Flows for the six months ended June 30, 6
1999 (Liquidation Basis) and for the six months ended June 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>
JUNE 30, December 31,
1999 1998
----------- -----------
ASSETS (Unaudited)
<S> <C> <C>
Cash and cash equivalents $ 165,500 $ 704,900
Accounts receivable -- 40,600
Prepaid expenses and other current assets 43,800 49,000
Computer equipment, net 6,100 11,900
----------- -----------
Total assets 215,400 806,400
----------- -----------
LIABILITIES
Accounts payable and other accrued liabilities 20,300 81,400
Other current liabilities -- 214,500
Reserve for estimated costs during period of liquidation 103,400 209,000
Long-term debt and capital lease obligations -- 3,137,000
Deferred revenue -- 153,400
----------- -----------
Total liabilities 123,700 3,795,300
----------- -----------
Net assets (liabilities) $ 91,700 $(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 Six Months
Ended June 30, Ended June 30,
1999 1999
----------- -----------
<S> <C> <C>
Net liabilities in liquidation as of December 31, 1998 -- $(2,988,900)
Net assets in liquidation as of March 31, 1999 $ 211,000
Change in net liabilities (119,300) 3,080,600
----------- -----------
Net assets in liquidation as of June 30,1999 $ 91,700 $ 91,700
=========== ===========
</TABLE>
SEE ACCOMPANYING NOTES.
4
<PAGE>
LIFERATE SYSTEMS, INC.
Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30, Ended June 30,
1998 1998
------------ ------------
<S> <C> <C>
Net revenues $ 121,600 $ 395,500
Cost of revenues 222,400 444,700
------------ ------------
Gross profit (100,800) (49,200)
Operating Expenses:
Sales and marketing 151,700 354,500
Research and development 332,300 553,800
General and administrative 462,500 763,300
------------ ------------
Total operating expenses 946,500 1,671,600
------------ ------------
Loss from operations (1,047,300) (1,720,800)
Interest income and other, net 21,000 46,000
Interest expense 9,900 19,600
------------ ------------
Net loss $ (1,036,200) $ (1,694,400)
============ ============
Net loss per share - basic and diluted $ (0.08) $ (0.14)
============ ============
Weighted average number of
Common shares outstanding 12,485,000 11,818,313
============ ============
</TABLE>
SEE ACCOMPANYING NOTES.
5
<PAGE>
LIFERATE SYSTEMS, INC.
Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30,
1999 1998
----------- -----------
(Liquidation (Going
Basis) Concern Basis)
OPERATING ACTIVITIES
<S> <C> <C>
Decrease in net liabilities $ 3,080,600
Net loss $(1,694,400)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation 4,700 141,400
Amortization of software development costs -- 16,200
Amortization of discounts on long-term debt -- 13,800
Notes payable converted to common stock (3,075,000) --
Gain on sale of equipment (2,800) --
Changes in operating assets and liabilities:
Accounts receivable 40,600 114,600
Prepaid and other current assets 5,200 1,700
Accounts payable and other accrued liabilities (61,100) 96,800
Other current liabilities (367,900) --
Decrease in estimated liquidation expenses (105,600) --
Deferred revenue -- (42,000)
Deferred rent -- (4,900)
----------- -----------
Net cash used in operating activities (481,300) (1,356,800)
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) (4,400)
Proceeds from issuance of common stock -- 1,955,900
----------- -----------
Net cash provided by (used in) financing activities (62,000) 1,951,500
----------- -----------
Increase (decrease) in cash and cash equivalents (539,400) 487,200
Cash and cash equivalents at beginning of period 704,900 764,200
----------- -----------
Cash and cash equivalents at end of period $ 165,500 $1,251,400
=========== ===========
</TABLE>
SEE ACCOMPANYING NOTES.
6
<PAGE>
LIFERATE SYSTEMS, INC.
Notes to Financial Statements
June 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 six 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 June 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 six 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 $3,080,600 during the first six
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.
Effective May 10,1999 F.G. Hamilton resigned as Acting Chief Executive Officer
to pursue other interests and he has been replaced by Bruce Senske.
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 June 30, 1999, the Company had $165,500 in cash and cash equivalents, a
decrease of $539,400 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 ompany 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: August 13, 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
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 166
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 209
<PP&E> 76
<DEPRECIATION> 70
<TOTAL-ASSETS> 215
<CURRENT-LIABILITIES> 124
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 215
<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>
