SECURITIES AND EXCHANGE COMMISSION
FORM 10-Q
| [X] |
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
OR
| [ ] |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission file number. . . . . . . . . . . . . . . . . . . . 0-13591
HEALTHAXIS INC.
| Pennsylvania (State or other jurisdiction of incorporation or organization) |
23-2214195 (I.R.S. Employer 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 by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).
Yes [ ] No [X]
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 2,767,592 shares of common stock, par value $.10, outstanding as of November 7, 2003.
Page 1
Healthaxis Inc.
Table of Contents
| Page | ||||||||
| PART I Financial Information | ||||||||
| Item 1. | Condensed Consolidated Financial Statements |
3 | ||||||
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 |
14 | ||||||
| Item 3. | Quantitative and Qualitative Disclosures About Market Risk |
24 | ||||||
| Item 4. | Controls and Procedures |
24 | ||||||
| PART II Other Information | ||||||||
| Items | 1-5 |
25 | ||||||
| Item 6. | Exhibits and Reports on Form 8-K |
25 | ||||||
| Signatures | 27 | |||||||
| Exhibit Index | 28 | |||||||
Page 2
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, | ||||||||||
| 2003 | 2002 | ||||||||||
Assets |
|||||||||||
Cash and cash equivalents |
$ | 8,350 | $ | 11,380 | |||||||
Accounts receivable, net of allowance for doubtful accounts of $40 and $195, respectively |
3,349 | 3,346 | |||||||||
Prepaid expenses and other current assets |
762 | 648 | |||||||||
Costs in excess of billings on contracts in progress |
897 | 309 | |||||||||
Notes receivable |
86 | 214 | |||||||||
Total current assets |
13,444 | 15,897 | |||||||||
Property, equipment and software, less accumulated depreciation and
amortization of $11,982 and $11,174, respectively |
1,293 | 1,462 | |||||||||
Contract start-up costs, less accumulated amortization of $1,251 and $834, respectively |
801 | 1,149 | |||||||||
Capitalized software, less accumulated amortization of $1,984 and $1,383, respectively |
1,203 | 1,502 | |||||||||
Customer base, less accumulated amortization of $2,869 and $2,112, respectively |
1,345 | 2,102 | |||||||||
Goodwill |
11,276 | 11,276 | |||||||||
Notes receivable |
72 | 134 | |||||||||
Other assets |
65 | 135 | |||||||||
Total assets |
$ | 29,499 | $ | 33,657 | |||||||
Liabilities and Stockholders’ Equity |
|||||||||||
Accounts payable |
$ | 1,950 | $ | 1,438 | |||||||
Accrued liabilities |
662 | 847 | |||||||||
Note payable, current portion |
523 | — | |||||||||
Deferred revenues |
1,215 | 1,713 | |||||||||
Total current liabilities |
4,350 | 3,998 | |||||||||
Note payable |
2,877 | — | |||||||||
Post retirement and employment liabilities |
945 | 966 | |||||||||
Other liabilities |
1,320 | 1,085 | |||||||||
Total liabilities |
9,492 | 6,049 | |||||||||
Commitments and contingencies |
|||||||||||
Stockholders’ Equity: |
|||||||||||
Preferred stock, par value $1.00: authorized 100,000,000 shares: |
|||||||||||
Series A cumulative convertible, issued and outstanding 22,076 and 23,500 shares,
respectively,
(liquidation preference $22,076 and $23,500, respectively) |
5,899 | 6,280 | |||||||||
Common stock, par value $.10: authorized 1,900,000,000 shares,
issued and outstanding 2,767,592 and 5,364,530 shares, respectively |
277 | 536 | |||||||||
Additional paid-in capital |
441,560 | 445,421 | |||||||||
Accumulated deficit |
(427,729 | ) | (424,629 | ) | |||||||
Total stockholders’ equity |
20,007 | 27,608 | |||||||||
Total liabilities and stockholders’ equity |
$ | 29,499 | $ | 33,657 | |||||||
See notes to consolidated financial statements.
Page 3
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, | |||||||||||||||||||
| 2003 | 2002 | 2003 | 2002 | |||||||||||||||||
Revenues |
$ | 5,352 | $ | 4,850 | $ | 16,066 | $ | 14,730 | ||||||||||||
Expenses: |
||||||||||||||||||||
Costs of revenue |
4,797 | 4,926 | 14,869 | 16,373 | ||||||||||||||||
Sales and marketing |
224 | 617 | 762 | 1,626 | ||||||||||||||||
General and administrative |
804 | 1,142 | 2,550 | 2,745 | ||||||||||||||||
Research and development |
— | 78 | 30 | 318 | ||||||||||||||||
Amortization of intangibles |
324 | 323 | 972 | 976 | ||||||||||||||||
Total expenses |
6,149 | 7,086 | 19,183 | 22,038 | ||||||||||||||||
Loss from operations |
(797 | ) | (2,236 | ) | (3,117 | ) | (7,308 | ) | ||||||||||||
Gain on extinguishment of debt |
— | 16,388 | — | 16,388 | ||||||||||||||||
Interest income and other income (expense) |
22 | 68 | 74 | 25 | ||||||||||||||||
Interest expense |
(19 | ) | (76 | ) | (57 | ) | (439 | ) | ||||||||||||
Income (loss) from continuing operations |
(794 | ) | 14,144 | (3,100 | ) | 8,666 | ||||||||||||||
Gain from discontinued operations |
— | 34 | — | 850 | ||||||||||||||||
Loss on disposal of discontinued operations |
— | — | — | (3,564 | ) | |||||||||||||||
Gain (loss) on discontinued operations |
— | 34 | — | (2,714 | ) | |||||||||||||||
Net income (loss) before cumulative effect of
accounting change |
(794 | ) | 14,178 | (3,100 | ) | 5,952 | ||||||||||||||
Cumulative effect of accounting change |
— | — | — | (6,674 | ) | |||||||||||||||
Net income (loss) |
(794 | ) | 14,178 | (3,100 | ) | (722 | ) | |||||||||||||
Dividends on convertible preferred stock |
(354 | ) | (79 | ) | (586 | ) | (79 | ) | ||||||||||||
Net income (loss) available to common shareholders |
$ | (1,148 | ) | $ | 14,099 | $ | (3,686 | ) | $ | (801 | ) | |||||||||
Income (loss) per share of common stock – Basic |
||||||||||||||||||||
Continuing operations |
$ | (0.22 | ) | $ | 2.62 | $ | (0.69 | ) | $ | 1.60 | ||||||||||
Discontinued operations |
— | 0.01 | — | (0.51 | ) | |||||||||||||||
Cumulative effect of accounting change |
— | — | — | (1.24 | ) | |||||||||||||||
Net income (loss) |
$ | (0.22 | ) | $ | 2.63 | $ | (0.69 | ) | $ | (0.15 | ) | |||||||||
Income (loss) per share of common stock - Diluted |
||||||||||||||||||||
Continuing operations |
$ | (0.22 | ) | $ | 2.34 | $ | (0.69 | ) | $ | 1.55 | ||||||||||
Discontinued operations |
— | 0.01 | — | (0.47 | ) | |||||||||||||||
Cumulative effect of accounting change |
— | — | — | (1.15 | ) | |||||||||||||||
Net income (loss) |
$ | (0.22 | ) | $ | 2.35 | $ | (0.69 | ) | $ | (0.07 | ) | |||||||||
Weighted average common shares and equivalents
used in computing loss per share |
||||||||||||||||||||
Basic |
5,325,794 | 5,365,812 | 5,350,373 | 5,359,230 | ||||||||||||||||
Diluted |
5,325,794 | 6,062,381 | 5,350,373 | 5,796,674 | ||||||||||||||||
See notes to consolidated financial statements.
Page 4
Healthaxis Inc. and Subsidiaries
(Dollars in thousands) (Unaudited)
| Nine Months Ended | |||||||||||
| September 30, | September 30, | ||||||||||
| 2003 | 2002 | ||||||||||
Cash flows from operating activities |
|||||||||||
Net loss |
$ | (3,100 | ) | $ | (722 | ) | |||||
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 |
2,626 | 3,677 | |||||||||
Amortization of unearned compensation |
— | 103 | |||||||||
Bad debt reserve |
51 | 71 | |||||||||
Loss on disposal of fixed assets |
8 | 15 | |||||||||
Gain on settlement of severance obligation |
— | (1,345 | ) | ||||||||
Gain on extinguishment of debt |
— | (16,388 | ) | ||||||||
Stock option compensation |
26 | 298 | |||||||||
Impairment charges |
— | 942 | |||||||||
Stock issued in lieu of severance |
— | 355 | |||||||||
Payment of interest with common stock |
— | 549 | |||||||||
Interest on convertible debt |
— | 57 | |||||||||
Change in: |
|||||||||||
Accounts receivable |
(54 | ) | 2,567 | ||||||||
Prepaid expenses and other current assets |
(189 | ) | (353 | ) | |||||||
Costs in excess of billings |
(588 | ) | — | ||||||||
Other assets |
70 | 12 | |||||||||
Accounts payable and accrued liabilities |
446 | (939 | ) | ||||||||
Deferred revenues |
(498 | ) | (529 | ) | |||||||
Other liabilities |
214 | (25 | ) | ||||||||
Net cash used in operating activities |
(988 | ) | (1,417 | ) | |||||||
Cash flows from investing activities |
|||||||||||
Collection of notes receivable |
149 | 352 | |||||||||
Capitalized software and contract start-up costs |
(371 | ) | (1,374 | ) | |||||||
Purchases of property, equipment and software |
(623 | ) | (216 | ) | |||||||
Other |
8 | — | |||||||||
Net cash used in investing activities |
(837 | ) | (1,238 | ) | |||||||
Cash flows from financing activities |
|||||||||||
Costs of issuing convertible preferred stock |
— | (212 | ) | ||||||||
Payments on convertible debentures |
— | (4,000 | ) | ||||||||
Payment to UICI for stock and warrants |
(500 | ) | — | ||||||||
Payment of preferred stock dividends |
(705 | ) | — | ||||||||
Termination of UICI contract |
— | 6,359 | |||||||||
Payments on capital leases |
— | (8 | ) | ||||||||
Net cash (used in) provided by financing activities |
(1,205 | ) | 2,139 | ||||||||
Decrease in cash and cash equivalents |
(3,030 | ) | (516 | ) | |||||||
Cash and cash equivalents, beginning of period |
11,380 | 13,149 | |||||||||
Cash and cash equivalents, end of period |
$ | 8,350 | $ | 12,633 | |||||||
See notes to consolidated financial statements.
Page 5
Healthaxis Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
September 30, 2003
Note A – Description of business and basis of presentation
Unaudited Financial Information
The unaudited condensed consolidated financial statements have been prepared by Healthaxis Inc. and its subsidiaries (“Healthaxis” or the “Company”), pursuant to the rules and regulations of the Securities and Exchange Commission and reflect all adjustments consisting of normal recurring entries, which, in the opinion of the Company, are necessary to present fairly the results for the interim periods. The interim financial statements do not include all disclosures provided in fiscal year end financial statements prepared in accordance with accounting principles generally accepted in the United States, although the Company believes that the accompanying disclosures are adequate to make the information presented not misleading. Results of operations for the nine-month period ended September 30, 2003, are not necessarily indicative of the results that may be expected for the year ending December 31, 2003.
These financial statements should be read in conjunction with the financial statements and notes thereto contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2002.
General
Healthaxis is a technology and business process services firm committed to providing innovative and configurable applications solutions and web-based connectivity for health benefit distribution and administration. These solutions, which are comprised of software products and related services, are designed to assist health insurance payers, government agencies, third party administrators and health and welfare plans in providing enhanced services to members, employees, employers and providers through the application of Healthaxis’ flexible technology to legacy systems, either on a fully integrated or on an Application Service Provider (“ASP”) basis. These technology solutions are complimented by Healthaxis’ Business Process Outsourcing (“BPO”) services, including mailroom, scan, data capture, and claims adjudication services. These services are offered to its technology clients and on a stand-alone basis.
Healthaxis is a Pennsylvania corporation organized in 1982. Healthaxis’ common stock trades on the Nasdaq SmallCap Market under the symbol “HAXS.” The operations of Healthaxis during 2001 were conducted primarily through its subsidiary, Healthaxis.com, Inc. In the fourth quarter of 2001 the Company reorganized and formed a new subsidiary, Healthaxis, Ltd., through which all operations are now conducted. Unless otherwise indicated, or the context otherwise requires, all references in this document to the “Company” or “Healthaxis” include Healthaxis Inc. and all of its subsidiaries.
Reclassifications of prior period amounts
Certain prior period amounts have been reclassified to conform with the 2003 presentation or in accordance with applicable accounting requirements.
Earnings Per Share
Basic loss per share is computed only on the weighted average number of common shares outstanding during the respective periods. Diluted loss per share is computed to show the dilutive effect, if any, of convertible debentures, convertible preferred stock, stock options and warrants. The dilutive effect of stock options and warrants is calculated using the treasury stock method based on the average market price of the stock during the
Page 6
respective periods. The effect of including the stock options, warrants and shares issuable upon conversion of the Company’s convertible preferred stock in the computation of diluted earnings per share would be anti-dilutive for the three and nine months ended September 30, 2003. Accordingly, these items have not been included in the computation for those periods. The following is a reconciliation of the numerator and denominator of the basic and diluted earnings per share computations for income from continuing operations for the three and the nine months ended September 30, 2002:
| For the Three Months Ended | ||||||||||||
| September 30, 2002 | ||||||||||||
| Income | Shares | Per-Share | ||||||||||
| (Numerator) | (Denominator) | Amount | ||||||||||
| (In thousands except for per share data) | ||||||||||||
Basic EPS |
||||||||||||