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, 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 April 30, 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
March 31, 1999 and December 31, 1998 3
Statement of Changes in Net Assets (Liabilities) in Liquidation
for the three months Ended March 31,1999 4
Statement of Operations for the three months ended March 31, 1998
(Going Concern Basis) 5
Statements of Cash Flows for the three months ended March 31,
1999 (Liquidation Basis) and for the three months ended
March 31,1998 (Going Concern Basis) 6
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>
MARCH 31, December 31,
1999 1998
---- ----
(Unaudited)
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 238,400 $ 704,900
Accounts receivable 13,300 40,600
Prepaid expenses and other current assets 43,400 49,000
Computer equipment, net 7,200 11,900
------------ ------------
Total assets 302,300 806,400
------------ ------------
LIABILITIES
Accounts payable and other accrued liabilities 12,700 81,400
Other current liabilities -- 214,500
Reserve for estimated costs during period of liquidation 78,600 209,000
3,137,000
Long-term debt and capital lease obligations -- 315,100
Deferred revenue -- 153,400
------------ ------------
Total liabilities 91,300 3,795,300
------------ ------------
Net assets (liabilities) $ 211,000 $ (2,988,900)
============ ============
</TABLE>
SEE ACCOMPANYING NOTES.
3
<PAGE>
LIFERATE SYSTEMS, INC.
Statements of Changes in Net Assets (Liabilities) in Liquidation
January 1, 1999 through March 31,1999
(Unaudited)
Net liabilities in liquidation as of December 31, 1998 $ (2,988,900)
Change in net liabilities 3,199,900
-------------
Net assets in liquidation as of March 31,1999 $ 211,000
=============
SEE ACCOMPANYING NOTES.
4
<PAGE>
LIFERATE SYSTEMS, INC.
Statements of Operations
(Unaudited)
Three Months
Ended March 31,
1998
----
Net revenues $ 273,900
Cost of revenues 222,400
------------
Gross profit 51,500
Operating Expenses:
Sales and marketing 202,800
Research and development 221,500
General and administrative 300,700
------------
Total operating expenses 725,000
------------
Loss from operations (673,500)
Interest income and other, net 25,000
Interest expense 61,600
------------
Net loss $ (710,100)
============
Net loss per share - basic and diluted $ (0.06)
============
Weighted average number of
Common shares outstanding 11,151,667
============
SEE ACCOMPANYING NOTES.
5
<PAGE>
LIFERATE SYSTEMS, INC.
Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31,
1999 1998
---- ----
(Liquidation (Going Concern
Basis) Basis)
<S> <C> <C>
OPERATING ACTIVITIES
Decrease in net liabilities $ 3,199,900
Net loss $ (658,200)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation 3,600 75,000
Amortization of software development costs -- 5,900
Amortization of discounts on long-term debt -- 8,400
Notes payable converted to common stock (3,075,000) --
Gain on sale of equipment (2,800) --
Changes in operating assets and liabilities:
Accounts receivable 27,300 (200,700)
Prepaid and other current assets 5,600 27,900
Accounts payable and other accrued liabilities (68,700) 43,100
Other current liabilities (214,500) --
Decrease in estimated liquidation expenses (130,400) --
Deferred revenue (153,400) 13,100
Deferred rent -- (2,900)
------------ ------------
Net cash used in operating activities (408,400) (688,400)
INVESTING ACTIVITIES
Software development costs -- (92,200)
Purchase of furniture and equipment -- (2,400)
Proceeds from equipment sales 3,900 900
------------ ------------
Net cash provided by (used in) investing activities 3,900 (93,700)
FINANCING ACTIVITIES
Payments on notes payable and capital lease obligations (62,000) (4,800)
Proceeds from issuance of common stock -- 1,959,400
------------ ------------
Net cash provided by (used in) financing activities (62,000) 1,954,600
------------ ------------
Increase (decrease) in cash and cash equivalents (466,500) 1,172,500
Cash and cash equivalents at beginning of period 704,900 764,200
------------ ------------
Cash and cash equivalents at end of period $ 238,400 $ 1,936,700
============ ============
</TABLE>
SEE ACCOMPANYING NOTES.
6
<PAGE>
LIFERATE SYSTEMS, INC.
Notes to Financial Statements
March 31, 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. The
Company is continuing to service its existing customers. It is not
marketing or selling its products and does not expect to generate any
meaningful revenue. The Company is currently winding down its business,
reducing 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 March 31, 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 is servicing the existing
customers but is not marketing or selling its products and does not expect to
generate any revenue from new customers. The Company's activities during the
first quarter of 1999 were focused on reducing 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 $3,199,900 during the first quarter
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 $1.50 per share. The
$2,250,000 convertible subordinated note held by a physician 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.
Liquidity and Capital Resources
At March 31, 1999, the Company had $238,400 in cash and cash equivalents, a
decrease of $466,500 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 not 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: May 14, 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> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-1999
<CASH> 238
<SECURITIES> 0
<RECEIVABLES> 13
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 295
<PP&E> 100
<DEPRECIATION> 93
<TOTAL-ASSETS> 302
<CURRENT-LIABILITIES> 91
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 211
<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-PRIMARY> 0.00
<EPS-DILUTED> 0.00
</TABLE>
