SECURITIES AND EXCHANGE COMMISSION
FORM 10-Q
| [X] |
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended. . . . . . . . . . . . . . . . .September 30, 2002
OR
| [ ] |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from. . . . . . . . . . . to. . . . . . . . . . .
Commission file number. . . . . . . . . . . . . . . . . . . . 0-13591
HEALTHAXIS INC.
| Pennsylvania | 23-2214195 | |
| (State or other jurisdiction of | (I.R.S. Employer | |
| incorporation or organization) | Identification No.) |
5215 N. O’Connor Blvd., 800 Central Tower, Irving, Texas 75039
(Address of principal executive offices)
(Zip Code)
Registrant’s telephone number, including area code: (972) 443-5000
Former name, former address and former fiscal year, if changed since last report: N/A
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 [ ]
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 53,663,750 shares of common stock, par value $.10, outstanding as of October 31, 2002.
Page 1 of 36
Healthaxis Inc.
Table of Contents
| Page | |||||
PART I Financial Information |
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Item 1.
Condensed Consolidated Financial Statements
|
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Condensed Consolidated Balance Sheets
|
3 | ||||
Condensed Consolidated Statements of Operations |
4 | ||||
Condensed Consolidated Statements of Cash Flows |
5 | ||||
Notes to Condensed Consolidated Financial Statements |
6 | ||||
Item 2. Management’s Discussion and Analysis of Financial Condition and
Results of Operations |
16 | ||||
Item 3. Quantitative and Qualitative Disclosures About Market Risk |
30 | ||||
Item 4. Controls and Procedures |
30 | ||||
PART II Other Information |
|||||
Item 1. Legal Proceedings |
31 | ||||
Item 2. Changes in Securities and Use of Proceeds |
31 | ||||
Item 3. Defaults in Senior Securities |
31 | ||||
Item 4. Submission of Matters to a Vote of Security Holders |
31 | ||||
Item 5. Other Information |
31 | ||||
Item 6. Exhibits and Reports on Form 8-K |
32 | ||||
Signature |
33 | ||||
Certifications |
34 | ||||
Exhibit Index |
36 | ||||
Page 2 of 36
PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
Healthaxis Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(In thousands except share and per share data) (Unaudited)
| September 30, | December 31, | ||||||||||
| 2002 | 2001 | ||||||||||
Assets |
|||||||||||
Cash and cash equivalents |
$ | 12,633 | $ | 13,149 | |||||||
Accounts receivable, net of allowance for doubtful accounts of $121 and $50, respectively |
2,963 | 2,594 | |||||||||
Accounts receivable from affiliates |
279 | 1,023 | |||||||||
Prepaid expenses and other current assets |
765 | 412 | |||||||||
Notes receivable |
79 | 119 | |||||||||
Assets related to discontinued operations |
— | 2,263 | |||||||||
Total current assets |
16,719 | 19,560 | |||||||||
Property, equipment and software, less accumulated depreciation and
amortization of $11,567 and $10,311, respectively |
1,903 | 3,451 | |||||||||
Capitalized software and contract start-up costs, less accumulated
amortization of $1,984 and $1,327, respectively |
2,566 | 2,525 | |||||||||
Customer base, less accumulated amortization of $1,860 and $1,099, respectively |
2,354 | 3,115 | |||||||||
Goodwill |
17,150 | 23,824 | |||||||||
Notes receivable from employees |
189 | 311 | |||||||||
Notes receivable |
118 | 308 | |||||||||
Investment in Digital Insurance, Inc. |
— | 227 | |||||||||
Assets related to discontinued operations |
— | 4,070 | |||||||||
Other assets |
142 | 155 | |||||||||
Total assets |
$ | 41,141 | $ | 57,546 | |||||||
Liabilities and Stockholders’ Equity |
|||||||||||
Accounts payable |
$ | 877 | $ | 1,146 | |||||||
Accrued liabilities |
1,191 | 2,920 | |||||||||
Deferred revenues |
1,338 | 1,867 | |||||||||
Obligations under capital leases |
— | 8 | |||||||||
Total current liabilities |
3,406 | 5,941 | |||||||||
Convertible debentures |
— | 27,134 | |||||||||
Post retirement and employment liabilities |
972 | 995 | |||||||||
Other liabilities |
1,085 | 1,087 | |||||||||
Total liabilities |
5,463 | 35,157 | |||||||||
Commitments and contingencies |
|||||||||||
Stockholders’ Equity: |
|||||||||||
Preferred stock, par value $1.00: authorized 100,000,000 shares: |
|||||||||||
Series A cumulative convertible, 23,500 shares issued and outstanding |
6,426 | — | |||||||||
Common stock, par value $.10: authorized 1,900,000,000 shares,
issued and outstanding 53,663,039 and 52,978,613 shares |
5,366 | 5,298 | |||||||||
Additional paid-in capital |
440,786 | 433,386 | |||||||||
Accumulated deficit |
(416,870 | ) | (416,069 | ) | |||||||
Unearned compensation |
(30 | ) | (226 | ) | |||||||
Total stockholders’ equity |
35,678 | 22,389 | |||||||||
Total liabilities and stockholders’ equity |
$ | 41,141 | $ | 57,546 | |||||||
See notes to consolidated financial statements.
Page 3 of 36
Healthaxis Inc. and Subsidiaries
Condensed Consolidated Statements of Operations
(In thousands, except share and per share data) (Unaudited)
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||
| 2002 | 2001 | 2002 | 2001 | |||||||||||||||||
Revenues |
$ | 4,850 | $ | 5,869 | $ | 14,730 | $ | 17,427 | ||||||||||||
Expenses: |
||||||||||||||||||||
Cost of revenues |
4,926 | 5,453 | 16,373 | 19,281 | ||||||||||||||||
Sales and marketing |
617 | 320 | 1,626 | 2,893 | ||||||||||||||||
General and administrative |
1,142 | 1,192 | 2,745 | 11,386 | ||||||||||||||||
Research and development |
78 | 301 | 318 | 1,222 | ||||||||||||||||
Restructuring and impairment charges |
— | — | — | 279,607 | ||||||||||||||||
Loss on building |
— | — | — | 1,665 | ||||||||||||||||
Amortization of intangibles |
323 | 970 | 976 | 11,500 | ||||||||||||||||
Total expenses |
7,086 | 8,236 | 22,038 | 327,554 | ||||||||||||||||
Operating loss |
(2,236 | ) | (2,367 | ) | (7,308 | ) | (310,127 | ) | ||||||||||||
Interest income and other income (expense) |
68 | (1,472 | ) | 25 | (2,039 | ) | ||||||||||||||
Interest expense |
(76 | ) | (182 | ) | (439 | ) | (737 | ) | ||||||||||||
Loss before minority interest |
(2,244 | ) | (4,021 | ) | (7,722 | ) | (312,903 | ) | ||||||||||||
Minority interest in loss of subsidiary |
— | — | — | 3,080 | ||||||||||||||||
Loss from continuing operations |
(2,244 | ) | (4,021 | ) | (7,722 | ) | (309,823 | ) | ||||||||||||
Gain from discontinued operations |
34 | 615 | 850 | 1,389 | ||||||||||||||||
Loss on disposal of discontinued operations |
— | — | (3,564 | ) | — | |||||||||||||||
Income (loss) on discontinued operations |
34 | 615 | (2,714 | ) | 1,389 | |||||||||||||||
Net loss before extraordinary item |
(2,210 | ) | (3,406 | ) | (10,436 | ) | (308,434 | ) | ||||||||||||
Gain on extinguishment of debt |
16,388 | — | 16,388 | 1,681 | ||||||||||||||||
Net loss before cumulative effect of accounting
change |
14,178 | (3,406 | ) | 5,952 | (306,753 | ) | ||||||||||||||
Cumulative effect of accounting change |
— | — | (6,674 | ) | — | |||||||||||||||
Net income (loss) |
14,178 | (3,406 | ) | (722 | ) | (306,753 | ) | |||||||||||||
Cumulative dividends on convertible preferred stock |
(79 | ) | — | (79 | ) | — | ||||||||||||||
Net income (loss) available to common shareholders |
$ | 14,099 | $ | (3,406 | ) | $ | (801 | ) | $ | (306,753 | ) | |||||||||
Loss per share of common stock (basic and diluted)
Continuing operations |
$ | (.04 | ) | $ | (.07 | ) | $ | (.14 | ) | $ | (6.30 | ) | ||||||||
Discontinued operations |
— | .01 | (.05 | ) | .03 | |||||||||||||||
Extraordinary gain |
.30 | — | .30 | .04 | ||||||||||||||||
Cumulative effect of accounting change |
— | — | (.12 | ) | — | |||||||||||||||
Net income (loss) |
$ | .26 | $ | (.06 | ) | $ | (.01 | ) | $ | (6.23 | ) | |||||||||
Weighted average common shares and equivalents
used in computing loss per share |
||||||||||||||||||||
Basic and diluted |
53,658,000 | 52,933,000 | 53,592,000 | 49,200,000 | ||||||||||||||||
See notes to consolidated financial statements.
Page 4 of 36
Healthaxis Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Dollars in thousands) (Unaudited)
| Nine Months Ended | ||||||||||||
| September 30, | September 30, | |||||||||||
| 2002 | 2001 | |||||||||||
Cash flows from operating activities |
||||||||||||
Net loss |
$ | (722 | ) | $ | (306,753 | ) | ||||||
Adjustments to reconcile net loss to net cash used in
operating activities: |
||||||||||||
Loss on disposal of discontinued operations |
3,564 | — | ||||||||||
Cumulative effect of accounting change |
6,674 | — | ||||||||||
Depreciation and amortization |
3,677 | 15,638 | ||||||||||
Amortization of unearned compensation |
103 | 936 | ||||||||||
Bad debt reserve |
71 | 33 | ||||||||||
Minority interest in loss of subsidiary |
— | (3,080 | ) | |||||||||
Gain on settlement of severance obligation |
(1,345 | ) | — | |||||||||
Gain on convertible debt restructuring |
— | (1,681 | ) | |||||||||
Gain on extinguishment of debt |
(16,388 | ) | ||||||||||
Stock option compensation |
298 | 5,485 | ||||||||||
Loss on disposition of assets |
15 | 8 | ||||||||||
Interest on convertible debt |
57 | 3 | ||||||||||
Impairment or restructuring charges |
942 | 283,795 | ||||||||||
Payments of interest and severance with common stock |
904 | 352 | ||||||||||
Change in: |
||||||||||||
Accounts receivable |
2,567 | 2,519 | ||||||||||
Prepaid expense and other current assets |
(353 | ) | 206 | |||||||||
Other assets, current and deferred income taxes |
12 | (37 | ) | |||||||||
Accounts payable and accrued liabilities |
(939 | ) | (1,518 | ) | ||||||||
Deferred revenues |
(529 | ) | 1,689 | |||||||||
Other |
(25 | ) | 5 | |||||||||
Net cash used in operating activities |
(1,417 | ) | (2,400 | ) | ||||||||
Cash flows from investing activities |
||||||||||||
Collection on notes receivable, net |
352 | 832 | ||||||||||
Investment in capitalized software and contract start-up |
(1,374 | ) | (2,272 | ) | ||||||||
Payment of acquisition costs |
— | (471 | ) | |||||||||
Purchases of property, equipment and software, net |
(216 | ) | (762 | ) | ||||||||
Other |
— | 397 | ||||||||||
Net cash used in investing activities |
(1,238 | ) | (2,276 | ) | ||||||||
Cash flows from financing activities |
||||||||||||
Payments on capital leases |
(8 | ) | (229 | ) | ||||||||
Payment on convertible debentures |
(4,000 | ) | — | |||||||||
Costs of issuing convertible preferred stock |
(212 | ) | — | |||||||||
Termination of UICI contract |
6,359 | — | ||||||||||
Net cash provided by (used in) financing activities |
2,139 | (229 | ) | |||||||||
Decrease in cash and cash equivalents |
(516 | ) | (4,905 | ) | ||||||||
Cash and cash equivalents, beginning of period |
13,149 | |||||||||||