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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[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
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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 001-14665
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CLAIMSNET.COM INC.
(Exact name of registrant as specified in its charter)
Delaware 75-2649230
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
12801 N. Central Expressway, Suite 1515
Dallas, Texas 75243
(Address of principal (Zip Code)
executive offices)
Registrant's telephone number, including area code: 972-458-1701
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. Common Stock, $.001 par value,
13,366,514 shares outstanding, Preferred Series D Stock, $.001 par value, 3,304
shares outstanding, and Preferred Series E Stock, $.001 par value, 167 shares
outstanding, in each case as of November 14, 2002.
CLAIMSNET.COM INC. AND SUBSIDIARY
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
Condensed Consolidated Balance Sheets (unaudited) as of September
30, 2002 and December 31, 2001
Condensed Consolidated Statements of Operations
(unaudited) for the Three Months Ended September 30, 2002
and 2001, and for the Nine Months Ended September 30, 2002
and 2001
Condensed Consolidated Statements of Changes in Stockholders'
Equity (unaudited) for the Year Ended December 31, 2001 and the
Nine Months Ended September 30, 2002
Condensed Consolidated Statements of Cash Flows (unaudited) for
the Nine Months Ended September 30, 2002 and 2001
Notes to Condensed Consolidated Financial Statements
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
PART II. OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K
SIGNATURES
2
PART I - FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
CLAIMSNET.COM INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands except share data)
(Unaudited)
September 30, December 31,
2002 2001(1)
--------- ---------
ASSETS
CURRENT ASSETS:
Cash $ 476 $ 531
Accounts receivable, net of allowance for
doubtful accounts of $40 and $35, respectively 173 198
Prepaid expenses and other current assets 82 108
--------- ---------
Total current assets 731 837
EQUIPMENT, FIXTURES AND SOFTWARE
Computer hardware and software 1,831 1,822
Software development costs 2,188 1,922
Furniture and fixtures 160 150
Office equipment 25 25
--------- ---------
4,204 3,919
Accumulated depreciation and amortization (3,669) (3,299)
--------- ---------
Total equipment, fixtures and software 535 620
--------- ---------
TOTAL $ 1,266 $ 1,457
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Accounts payable $ 475 $ 298
Accrued severance 113 90
Accrued acquisition costs 500 500
Accrued payroll and other current liabilities 335 467
Deferred revenue 50 17
Notes payable - related party 63 --
Notes payable - director 50 --
Notes payable 50 --
Pending equity investment from Directors 50 --
--------- ---------
Total current liabilities 1,686 1,372
LONG-TERM LIABILITIES:
Notes payable 35 --
--------- ---------
Total liabilities 1,721 1,372
--------- ---------
STOCKHOLDERS' EQUITY (DEFICIT):
Preferred stock, $.001 par value; 4,000,000
shares authorized, 3,304 and 0 shares issued
and outstanding as of September 30, 2002 and
December 31, 2001 -- --
Common stock, $.001 par value; 40,000,000 shares
authorized; 13,367,000 and 11,141,000 shares
issued as of September 30, 2002 and
December 31, 2001 13 11
Additional capital 40,893 39,571
Accumulated deficit (41,361) (39,497)
--------- ---------
Total stockholders' equity (deficit) (455) 85
--------- ---------
TOTAL $ 1,266 $ 1,457
========= =========
(1) The condensed consolidated balance sheet as of December 31, 2001 has been
derived from the audited financial statements at that date.
See notes to condensed consolidated financial statements.
3
CLAIMSNET.COM INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands except per share data)
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
2002 2001 2002 2001
--------- --------- --------- ---------
REVENUES $ 285 $ 242 $ 938 $ 1,037
COST OF REVENUES 446 624 1,469 2,099
--------- --------- --------- ---------
GROSS PROFIT (LOSS) (161) (382) (531) (1,062)
--------- --------- --------- ---------
OPERATING EXPENSES:
Research and development 54 178 230 539
Selling, general & administrative 441 801 1,728 2,504
--------- --------- --------- ---------
Total operating expenses 495 979 1,958 3,043
--------- --------- --------- ---------
LOSS FROM OPERATIONS (656) (1,361) (2,489) (4,105)
OTHER INCOME (EXPENSE)
Interest expense -- (2) -- (5)
Interest expense - related party (6) -- (15) (7)
Interest income -- 18 -- 50
Gain on sale of assets 640 -- 640 --
--------- --------- --------- ---------
Total Other Income (Expense) 634 16 625 38
--------- --------- --------- ---------
NET LOSS $ (22) $ (1,345) $ (1,864) $ (4,067)
========= ========= ========= =========
BASIC AND DILUTED NET LOSS PER COMMON SHARE $ (0.00) $ (0.13) $ (0.16) $ (0.41)
========= ========= ========= =========
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING - BASIC AND DILUTED 12,707 10,481 11,678 9,809
========= ========= ========= =========
See notes to condensed consolidated financial statements.
4
CLAIMSNET.COM INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Year Ended December 31, 2001 and the Nine Months Ended September 30, 2002
(In thousands)
(Unaudited)
Number of Number of
Preferred Common
Shares Preferred Shares Common Additional
Outstanding Stock Outstanding Stock Capital
----------- -------- ----------- ----------- -----------
Balances at January 1, 2001 -- $ -- 8,551 $ 9 $ 36,820
Sale of preferred stock
converted into common stock -- -- 660 1 462
Sale of common stock -- -- 1,914 1 3,216
Issuance of common stock
for services -- -- 16 -- 42
Issuance of warrants for
services -- -- -- -- 57
Cancellation of treasury
stock -- -- -- -- (1,026)
Write off unamortized
portion of deferred sales
discount -- -- -- -- --
Net loss -- -- -- -- --
----------- -------- ----------- ----------- -----------
Balances at December 31, 2001 -- -- 11,141 11 39,571
----------- -------- ----------- ----------- -----------
Sale of preferred stock 3 -- -- -- 826
Sale of common stock -- -- 2,225 2 443
Issuance of warrants and
options for severance
agreement -- -- -- -- 53
Net loss -- -- -- -- --
----------- -------- ----------- ----------- -----------
Balances at September 30, 2002 3 $ -- 13,366 $ 13 $ 40,893
=========== ======== =========== =========== ===========
(CONTINUED)
Total
Deferred Stockholders'
Sales Accumulated Treasury Equity
Discount Deficit Stock (Deficit)
----------- ----------- ----------- -----------
Balances at January 1, 2001 $ (1,334) $ (34,303) $ (1,026) $ 166
Sale of preferred stock
converted into common stock -- -- -- 463
Sale of common stock -- -- -- 3,217
Issuance of common stock
for services -- -- -- 42
Issuance of warrants for
services -- -- -- 57
Cancellation of treasury
stock -- -- 1,026 --
Write off unamortized
portion of deferred sales
discount 1,334 -- -- 1,334
Net loss -- (5,194) -- (5,194)
----------- ----------- ----------- -----------
Balances at December 31, 2001 -- (39,497) -- 85
----------- ----------- ----------- -----------
Sale of preferred stock -- -- -- 826
Sale of common stock -- -- -- 445
Issuance of warrants and
options for severance
agreement -- -- -- 53
Net loss -- (1,864) -- (1,864)
----------- ----------- ----------- -----------
Balances at September 30, 2002 $ -- $ (41,361) $ -- $ (455)
=========== =========== =========== ===========
See notes to condensed consolidated financial statements.
5
CLAIMSNET.COM INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(In thousands)
(Unaudited)
Nine Months Ended
September 30,
2002 2001
-------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(1,864) $(4,067)
Adjustments to reconcile net loss to net cash
used by operating activities:
Depreciation and amortization 370 458
Provision for doubtful accounts 13 7
Non-cash compensation for services 53 99
Amortization of deferred sales discount -- 79
Write down of net deferred charges on
McKesson contract -- 356
Loss (gain) on sale of assets (640) 16
Changes in operating assets and liabilities:
Accounts receivable 12 172
Prepaid expenses and other current assets 26 (11)
Current liabilities 151 (385)
-------- --------
Net cash used in operating activities (1,879) (3,276)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (19) (49)
Proceeds from sale of assets 640 11
Capitalized cost of software development (266) --
-------- --------
Net cash provided by(used in) investing activities 355 (38)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in note payable to related party 475 400
Payment of note payable to related party (412) (400)
Increase in note payable to director 50 --
Increase in note payable 85 --
Proceeds from issuance of common stock 445 3,271
Proceeds from issuance of preferred stock 826 --
-------- --------
Net cash provided by financing activities 1,469 3,271
-------- --------
NET INCREASE (DECREASE) IN CASH (55) (43)
CASH, BEGINNING OF PERIOD 531 1,132
-------- --------
CASH, END OF PERIOD $ 476 $ 1,089
======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for interest $ 6 $ 5
======== ========
See notes to condensed consolidated financial statements.
6
CLAIMSNET.COM INC. AND SUBSIDIARY
Notes to Condensed Consolidated Financial Statements
1. BASIS OF PRESENTATION
In the opinion of management, the accompanying unaudited condensed
consolidated financial statements include all necessary adjustments
(consisting of normal recurring accruals) and present fairly the
consolidated financial position of Claimsnet.com inc. (the "Company")
and subsidiary as of September 30, 2002 and the results of its
operations and cash flows for the three months and nine months ended
September 30, 2002 and 2001, in conformity with generally accepted
accounting principles for interim financial information applied on a
consistent basis. The results of operations for the three and nine
months ended September 30, 2002 are not necessarily indicative of the
results to be expected for the full year.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted
accounting principles have been omitted. These financial statements
should be read in conjunction with the audited consolidated financial
statements and notes thereto included in the Company's Annual Report on
Form 10-K for the year ended December 31, 2001, as filed with the
Securities and Exchange Commission on April 15, 2002.
The adoption of Statement of Financial Accounting Standards No. 142,
"Goodwill and Other Intangible Assets" as of January 1, 2002 had no
effect on the financial statements for the nine months ended September
30, 2002.
2. TRANSACTIONS WITH MCKESSON CORPORATION ("McKesson")
On April 12, 2001, the Company entered into an agreement with McKesson
which superseded the Company's October 1999 agreement. Under the 1999
Development and Services Agreement the Company (a) issued a three year
warrant to McKesson to purchase 819,184 shares of common stock at $7.00
per share, (b) received fees for the development of a private label
claims processing and statement processing internet application for
McKesson, (c) received one of three scheduled license fee payments for
use of the McKesson internet application, (d) received monthly support
fees for dedicated private label system hosting, operation and support
services commencing at the date of acceptance of the McKesson internet
application, and (e) received transaction fees for claims and
statements processed by the McKesson internet application. Under the
new agreement, (a) McKesson acquired 1,514,285 shares of common stock
at $1.75 per share for net proceeds of $2,650,000, (b) McKesson paid a
one-time fee of $200,000 (c) the stock purchase warrant originally
issued to McKesson in October 1999 was cancelled, (d) McKesson retained
a license to use the McKesson internet application to process
statements and claims without additional license fee payments, (e)
McKesson agreed to eliminate the need for dedicated private label
system hosting, operation, and support services and the Company agreed
to provide standard system hosting, operation, and support services
without the payment of future monthly support fees, (f) the Company
will receive fees for transactions processed by the McKesson internet
application, (g) the Company and McKesson agreed to use best efforts to
expand the scope of the license agreement to include additional claim
types, and (h) the Company and McKesson agreed to use best efforts to
pursue other unspecified business opportunities. Under a separate
agreement, the Company has contracted for McKesson processing services
to print patient statements and submit claims to payers for certain
customers, for which the Company pays McKesson fees for some
transactions and shares third party revenues for other transactions.
Pursuant to the October 1999 agreement, through March 31, 2001 the
Company (a) received payments in the aggregate amount of $2,202,000 (of
which approximately $1,200,000 was received in December 2000) related
to development and license fee provisions, which were recorded as
deferred revenue and were being accounted for by amortizing the total
amount, received and to be received, of approximately $4,500,000
7
ratably over the expected contract life of 65 months, (b) expended
$428,000 related to development and implementation costs, which was
recorded as software development costs on the balance sheet, and was
being amortized ratably over the expected contract period of 65 months,
and (c)recorded in equity a capital contribution and an offsetting
deferred sales discount in the amount of $1,700,000 for the imputed
value of the warrant, which was being amortized ratably over the
expected contract period of 65 months. As of March 31, 2001 the Company
had amortized $1,187,000 of the deferred revenue into revenue, $112,000
of the deferred development costs into cost of revenues, and $445,000
of the deferred sales discount as a reduction of revenues, leaving
balances of $1,015,000, $316,000 and $1,255,000, respectively. As of
March 31, 2001, the Company accrued the $200,000 payment received in
April in connection with the contract modification as additional
deferred revenue. As a result of the April 2001 modification of the
1999 contract with McKesson, as of March 31, 2001 the Company offset
the remaining deferred sales discounts against the remaining deferred
revenue. The remaining software development costs of $316,000 were
written off to cost of revenue. Although the new agreement with
McKesson permits McKesson to continue to use the software developed
specifically to process its transactions, there is no requirement for
McKesson to use the system and no ability to project future transaction
revenues.
3. SALE OF PREFERRED STOCK
In March and May 2002, the Company completed the private placements of
1,104 shares and 2,200 shares, respectively, of Series D Preferred
Stock to accredited investors at $250 per share for net proceeds of
$276,000 and $550,000, respectively. A portion of the proceeds of the
sale was used to repay $305,000 of short term loans incurred in
February and March 2002.
In June 2002 the Company accepted non-revocable equity investments in
the aggregate amount of $50,000 from four members of the Board of
Directors on terms to be set by a committee of disinterested directors,
such terms to be no more favorable than those which would have been
negotiated at arms length with unaffiliated third parties. Funds
received were recorded as a current liability until the equity
investment terms were finalized. In October 2002, based upon the
recommendation of a committee of disinterested directors, the Company
completed the private placement of 167 shares of Series E Preferred
Stock to members of the Board of Directors at $300 per share for net
proceeds of $50,000.
4. SALE OF COMMON STOCK
In June, July and August 2002, the Company completed the private
placement of 2,225,000 shares of common stock to accredited investors
at $0.20 per share for net proceeds of $445,000. In connection with the
private placement, the Company also issued warrants to purchase an
aggregate of 2,225,000 shares of common stock as described below in
Note 7.
5. LOANS FROM RELATED PARTY
In February, March, April and June 2002, the Company borrowed an
aggregate of $475,000 pursuant to six separate unsecured short-term
loan agreements with National Financial Corp., a related party. In
February, May and August 2002, the Company fully repaid principal
pursuant to four notes and partially repaid principal on one note in
the aggregate amount of $412,000 plus accrued interest thereon. The
unpaid principal amount of $63,000 plus interest was due on September
30, 2002. National Financial Corp. agreed to forego repayment at
September 30, 2002 and to amend the terms of the notes to be due on
demand. In October 2002, upon the demand of National Financial Corp.,
the Company repaid the remaining principal on one note and partially
repaid the remaining note in the aggregate amount of $36,000 plus
accrued interest thereon. The remaining note in the principal amount of
$27,000 plus interest, at 9.5% per annum on the unpaid principal, is
due on demand.
8
6. NOTES PAYABLE
In June and August 2002, the Company borrowed an aggregate of $100,000
and issued two unsecured promissory notes, each in the amount of
$50,000. One note is payable to a director of the Company and the other
is payable to an accredited investor. The notes were due, along with
interest at the rate of 9.5% per annum, on September 30, 2002. The note
holders agreed to forego repayment at September 30, 2002 and to amend
the terms of the notes to be due on demand.
In August 2002, the Company borrowed $35,000 from two accredited
investors and issued unsecured promissory notes. The notes bear
interest at the rate of 8.0% per annum, with interest payments due on
August 31, 2003 and 2004 and principal and the remaining unpaid
interest due on August 31, 2005.
7. ISSUANCE OF OPTIONS AND WARRANTS
In January 2002, the Company granted employees options under its 1997
Stock Option Plan to purchase an aggregate of 456,000 shares of common
stock. The options contain an exercise price of $0.60 per share, the
market price on the date of grant, expire on the tenth anniversary of
the grant, and vest 100% one year from the date of grant.
In February 2002, the Company granted employees options to purchase
328,872 shares of common stock under its 1997 Stock Option Plan and
warrants to purchase an additional 253,203 shares of common stock in
exchange for voluntary salary reductions. The options and warrants
contain an exercise price of $0.35 per share, the market price on the
date of grant, expire on the tenth anniversary of the grant, and vest
25% immediately on the date of grant and an additional 25% on each
third month anniversary of the date of grant.
In June 2002 the Company issued warrants to acquire an aggregate of
50,000 shares of common stock to a non-employee in connection with an
agreement for professional services to be rendered. The warrants
contain an exercise price of $0.30 per share and, as originally issued,
were scheduled to expire in June 2003. The warrants were valued at
$0.07 per share based on the Black-Scholes valuation method (using the
following assumptions: life of one year, risk free rate of 2.12%, no
dividends during the term, and a volatility of .566). The expense was
recognized ratably over the service agreement, June 1, 2002 through
August 31, 2002. In October 2002 the Company entered into a new
professional service agreement for the period October 1, 2002 through
December 31, 2002 and agreed to cancel the original warrant and issue a
replacement warrant under similar terms, except that the expiration
date of the warrants was extended to June 2007. The new warrants were
valued at $0.07 per share based on the Black-Scholes valuation method
(using the following assumptions: life of five years, risk free rate of
2.68%, no dividends during the term, and a volatility of .752). The
expense will be recognized ratably over the service agreement, October
1, 2002 through December 31, 2002.
In June, July and August 2002, in connection with the sale of common
stock described in note 4 above, the Company issued warrants to acquire
an aggregate of 2,225,000 shares of common stock to accredited
investors. The warrants contain an exercise price of $0.20 per share
and expire between June and August 2007.
In October 2002 the Company issued warrants to acquire an aggregate of
500,000 shares of common stock to a non-employee in connection with an
agreement for professional services to be rendered. The warrants
contain an exercise price of $0.20 per share, were fully vested on the
date of grant, expire in September 2007, and will become exercisable
50% in September 2003 and fully in September 2004. The warrants were
valued at $0.08 per share based on the Black-Scholes valuation method
(using the following assumptions: life of five years, risk free rate of
2.68%, no dividends during the term, and a volatility of .752). The
expense will be recognized ratably over the term of the service
agreement, October 1, 2002 through December 31, 2004.
9
In October 2002 the Company hired a new president and chief executive
officer and issued him warrants to acquire an aggregate of 200,000
shares of common stock. The warrants contain an exercise price of $0.20
per share, expire in October 2007, and vest 50% in October 2003 and
fully in October 2004.
8. SALE OF ASSETS
On September 11, 2002 the Company sold certain assets consisting
primarily of customer contracts (the "Assigned Contracts") and related
revenue streams thereunder to ProxyMed, Inc. ("Purchaser") in a
negotiated arms-length transaction for a purchase price consideration
of $700,000. The Company received cash consideration of $690,000, net
of contractual expenses, recognized a gain of $640,000 on the sale, and
recorded $50,000 as deferred revenue.
The Company and Purchaser also entered into an Affiliate and Partner
Services and License Agreement dated September 11, 2002, pursuant to
which (i) the Company and Purchaser have agreed to provide certain
administrative and support services for each other in connection with
each other's customers, including without limitation the customers
under the Assigned Contracts, in each case pursuant to an agreed upon
fee schedule, (ii) the Company has agreed to assist Purchaser in
establishing a "hot-site" which will permit Purchaser to run from its
own hardware platform, the Company's software application to service
Purchaser's customers, and (iii) the Company granted Purchaser a
limited, non-exclusive, 5-year license to use the Company's software
application at its "hot-site". The Company is entitled to receive fees
for its services and use of the Company's software application unless
and until the occurrence of certain bankruptcy and liquidation events
set forth in such agreement in respect of the Company. In addition to
the transaction fees, the Company will also recognize the $50,000 of
deferred revenue ratably over the term of the agreement.
The Company and Purchaser also entered into a Preferred Escrow
Agreement with DSI Technology Escrow Services, Inc., pursuant to which
the Company has deposited into escrow its proprietary claims processing
software and related materials for potential release to Purchaser for
use pursuant to a limited, non-exclusive license upon the occurrence of
certain bankruptcy and liquidation events.
9. NEED FOR ADDITIONAL CAPITAL
Management believes that available cash resources, together with
anticipated revenues from operations and the proceeds of recently
completed financing activities and funding commitments will not be
sufficient to satisfy the Company's capital requirements through
December 31, 2002. Necessary additional capital may not be available on
a timely basis or on acceptable terms, if at all. In any of these
events, the Company may be unable to implement current plans for
expansion or to repay debt obligations as they become due. If
sufficient capital cannot be obtained, the Company may be forced to
significantly reduce operating expenses to a point which would be
detrimental to business operations, curtail research and development
activities, sell certain business assets or discontinue some or all of
its business operations, take other actions which could be detrimental
to business prospects and result in charges which could be material to
its operations and financial position, or cease operations altogether.
In the event that any future financing should take the form of equity
securities, the holders of the common stock and preferred stock may
experience additional dilution. In the event of a cessation of
operations, there may not be sufficient assets to fully satisfy all
creditors, in which case the holders of equity securities will be
unable to recoup any of their investment.
10
ITEM 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
RESULTS OF OPERATIONS FOR THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2002
COMPARED TO THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2001
REVENUES
Revenues in the three months ended September 30, 2002 were $285,000 compared to
$242,000 in the three months ended September 30, 2001, representing an increase
of 18%. On September 11, 2002 the Company sold certain assets consisting
primarily of customer contracts (the "Assigned Contracts") and related revenue
streams thereunder to ProxyMed, Inc. ("Purchaser"). The Company and Purchaser
entered into an Affiliate and Partner Services and License Agreement dated
September 11, 2002. Subsequent to the date of the transaction, the Company will
no longer recognize revenue from the Assigned Contracts, which revenues have
historically represented the majority of the Company's revenues. The Company
will, however, recognize revenue pursuant to the Affiliate and Partner Services
and License Agreement for services rendered to and transactions processed for
the Purchaser related to the Assigned Contracts.
Revenues in the nine months ended September 30, 2002 were $938,000 compared to
$1,037,000 in the nine months ended September 30, 2001, representing a decrease
of 10%. There were no revenues from the McKesson Development and Services
Agreement recognized in the nine months ended September 30, 2002. During the
year earlier period, revenues of $289,000 were related to recognition of license
fees and support revenues from the McKesson Development and Services Agreement
and revenues of $748,000 were related to our other clients.
The Company processed 1,965,000 transactions during the three months ended
September 30, 2002, compared with 1,529,000 transactions in the year-earlier
quarter, an increase of 29%. The increase was attributable to internal growth in
the number of accounts and healthcare providers subscribing to the Company's
services prior to the sale of assets described above.
The Company processed 5,749,000 transactions during the nine months ended
September 30, 2002, compared with 4,534,000 transactions in the year-earlier
quarter, an increase of 27%. The increase was attributable to internal growth in
the number of accounts and healthcare providers subscribing to the Company's
services prior to the sale of assets described above.
COST OF REVENUES
Cost of revenues in the three months ended September 30, 2002 was $446,000,
compared with $624,000 in the three months ended September 30, 2001,
representing a decrease of 29%. The four ordinary components of cost of revenues
are data center expenses, transaction processing expenses, customer support
operation expenses and software amortization. Data center expenses increased 27%
to $103,000 for the three months ended September 30, 2002 compared with $81,000
for the same period in 2001 due to non-recurring costs incurred in the migration
of our system to a new hosting facility. Transaction processing expenses were
$86,000 in 2002 compared to $148,000 in the third quarter of 2001, representing
a 42% decrease in costs due partially to lower rates and partially to the sale
of assets as described above. Subsequent to the date of the asset sale described
above, the Company will no longer incur costs from sub-processors related to the
Assigned Contracts, which costs have historically represented the majority of
the Company's transaction processing expenses. Customer support operations
expense decreased by 39% to $198,000 in the third quarter of 2002 from $324,000
in the third quarter of 2001 due to improved productivity, staffing reductions,
and the sale of assets. Software amortization and development project
amortization expenses decreased 17% to $59,000 from $71,000 in the year earlier
period.
Cost of revenues in the nine months ended September 30, 2002 was $1,469,000,
compared with $2,099,000 in the nine months ended September 30, 2001,
representing a decrease of 30%. Data center expenses increased 3% to $267,000
11
for the nine months ended September 30, 2002 compared with $259,000 for the same
period in 2001. Transaction processing expenses for the nine month periods were
$359,000 in 2002 compared to $392,000 in 2001, representing a 8% decrease.
Customer support operations expense decreased by 29% to $642,000 in the nine
months ended September 30, 2002 from $901,000 in 2001. Software amortization and
development project amortization expenses decreased 63% to $201,000 in 2002 from
$547,000 in the same period of 2001. A portion of this decrease reflects
completion of amortization for earlier versions of software for customer use.
Additionally, deferred development costs of $316,000 associated with the
McKesson development project were written off to cost of revenues in the nine
months ended September 30, 2001.
OPERATING EXPENSES
Research and development expenses were $54,000 in the three months ended
September 30, 2002, compared with $178,000 in the three months ended September
30, 2001, representing a decrease of 70%, and $230,000 during the nine months
ended September 30, 2002, compared with $539,000 in the prior year, representing
a decrease of 57%. Research and development expenses are comprised of personnel
costs and related expenses. Software development expenses of $95,000 and
$266,000 were capitalized during the three and nine months ended September 30,
2002, respectively. No software development costs were capitalized during the
year-earlier period. Development efforts during 2002 were primarily focused on
enhancements required to comply with provisions of the Health Insurance
Portability and Accountability Act, while the year-earlier efforts were related
to continuous incremental enhancements to the Company's proprietary software
system, none of which were subject to capitalization.
Selling, general and administrative expenses were $441,000 in the three months
ended September 30, 2002, compared with $801,000 in the same period of 2001, a
decrease of 45%, and $1,728,000 during the nine months ended September 30, 2002,
compared with $2,504,000 in the same period of 2001, a decrease of 31%. The
expense reductions are a result of cost containment measures including staff
reductions, salary reductions and other cost containment measures. A one-time
charge of $162,000 was recorded in the nine month period ended September 30,
2002 pursuant to a severance agreement dated April 8, 2002 with Bo W. Lycke,
formerly our chief executive officer, of which $50,000 related to the issuance
of options and warrants. A one-time charge of $40,000 was recorded in the nine
month period ended September 30, 2001 for unamortized deferred sales discount
costs net of deferred revenue associated with the McKesson contract.
OTHER INCOME (EXPENSE)
Interest income from investment of excess cash was less than $1,000 in the
quarter ended September 30, 2002 compared with $18,000 in the quarter ended
September 30, 2001 due to diminished levels of cash available for investment
between the periods. Interest expense of $6,000 was incurred in the quarter
ended September 30, 2002 on financing fees and affiliate debt compared with
$2,000 in the quarter ended September 30, 2001.
Interest income was less than $1,000 in the nine month period ended September
30, 2002 compared with $50,000 in the nine month period ended September 30,
2001. Interest expense of $15,000 was incurred in the nine month period ended
September 30, 2002 on financing fees and affiliate debt compared with $12,000 in
the nine month period ended September 30, 2001.
Gain on sale of assets of $640,000 in the three and nine month periods ended
September 30, 2002 were related to the sale of certain assets on September 11,
2002 as previously described. There was no gain on sale of assets during the
three or nine month periods ended September 30, 2001.
LIQUIDITY AND CAPITAL RESOURCES
Net cash used in operating activities of $1,879,000 in the nine months ended
September 30, 2002 was primarily related to net operating losses of $1,864,000
net of the $640,000 gain from sale of assets, less: depreciation of $370,000,
provision of $13,000 for doubtful accounts, non-cash expense of $53,000 from
12
issuance of options and warrants related to a severance agreement, and net
changes in working capital of $189,000. Net cash used in operating activities of
$3,276,000 for the nine months ended September 30, 2001 was primarily related to
net operating losses of $4,067,000 and net changes in working capital of
$224,000, less: depreciation of $458,000, provision of $7,000 for doubtful
accounts, non-cash expense of $99,000 from issuance of options and warrants for
services rendered, and non-cash write offs and amortization of $451,000
associated with the McKesson contract renegotiation.
Net cash provided in the current period by investing activities was $355,000,
comprised of $640,000 net proceeds from the sale of assets, less $19,000 used
for the purchase of property and equipment and $266,000 for the capitalized cost
of software development during the period. Net cash used in the nine months
ended September 30, 2001 was $38,000, with $11,000 provided by the sale of
assets that had a net book value of $27,000 and generated a loss of $16,000,
less $49,000 used for the purchase of property and equipment.
Net cash provided by financing activities was $1,469,000 for the nine months
ended September 30, 2002 as compared with $3,271,000 for the same period in
2001.
In September 2002 we sold certain assets consisting primarily of customer
contracts (the "Assigned Contracts") and related revenue streams thereunder to
ProxyMed, Inc. ("Purchaser") in a negotiated arms-length transaction for a
purchase price consideration of $700,000. We received net proceeds of $690,000
on the sale, recognized a gain of $640,000 and recorded $50,000 as deferred
revenue. The Company and Purchaser also entered into an Affiliate and Partner
Services and License Agreement dated September 11, 2002, pursuant to which (i)
we and Purchaser have agreed to provide certain administrative and support
services for each other in connection with each other's customers, including
without limitation the customers under the Assigned Contracts, in each case
pursuant to an agreed upon fee schedule, (ii) we agreed to assist Purchaser in
establishing a "hot-site" which will permit Purchaser to run from its own
hardware platform, our software application to service Purchaser's customers,
and (iii) we granted Purchaser a limited, non-exclusive, 5-year license to use
our software application at its "hot-site". We are entitled to receive fees for
our services and use of our software application unless and until the occurrence
of certain bankruptcy and liquidation events set forth in such agreement in
respect of us. We also entered into a Preferred Escrow Agreement with Purchaser
and DSI Technology Escrow Services, Inc., pursuant to which we have agreed to
deposit into escrow our proprietary claims processing software and related
materials for potential release to Purchaser for use pursuant to a limited,
non-exclusive license upon the occurrence of certain bankruptcy and liquidation
events.
In August 2002 we borrowed $35,000 from two accredited investors and issued
unsecured promissory notes. The notes bear interest at the rate of 8.0% per
annum, with interest payments due on August 31, 2003 and 2004 and principal and
the remaining unpaid interest due on August 31, 2005.
In June, July and August 2002, we completed the private placement of 2,225,000
shares of common stock to accredited investors at $0.20 per share for net
proceeds of $445,000. In connection with the private placement, we also issued
warrants to purchase an aggregate of 2,225,000 shares of common stock. The
warrants contain an exercise price of $0.20 per share and expire between June
and August 2007.
In June and August 2002, we borrowed an aggregate of $100,000 and issued two
unsecured promissory notes, each in the amount of $50,000. One note is payable
to one of our directors and the other is payable to an accredited investor. The
notes were due, along with interest at the rate of 9.5% per annum, on September
30, 2002. The note holders agreed to forego repayment at September 30, 2002 and
to amend the terms of the notes to be due on demand.
In June 2002 we accepted non-revocable equity investments in the aggregate
amount of $50,000 from four members of our Board of Directors on terms to be set
by a committee of disinterested directors, such terms to be no more favorable
than those which would have been negotiated at arms length with unaffiliated
13
third parties. Funds received were recorded as a current liability until the
equity investment terms were finalized in October 2002.
In June 2002 we issued warrants to acquire an aggregate of 50,000 shares of
common stock to a non-employee in connection with an agreement for professional
services to be rendered. The warrants contain an exercise price of $0.30 per
share and, as originally issued, were scheduled to expire in June 2003. The
warrants were valued at $0.07 per share based on the Black-Scholes valuation
method (using the following assumptions: life of one year, risk free rate of
2.12%, no dividends during the term, and a volatility of .566). The expense was
recognized ratably over the service agreement, June 1, 2002 through August 31,
2002. In October 2002 we entered into a new professional service agreement for
the period October 1, 2002 through December 31, 2002 and agreed to cancel the
original warrant and issue a replacement warrant under similar terms, except
that the expiration date of the warrants was extended to June 2007. The new
warrants were valued at $0.07 per share based on the Black-Scholes valuation
method (using the following assumptions: life of five years, risk free rate of
2.68%, no dividends during the term, and a volatility of .752). The expense will
be recognized ratably over the service agreement, October 1, 2002 through
December 31, 2002.
In May 2002, we completed the private placement of 2,200 shares of Series D
Preferred Stock to accredited investors at $250 per share for net proceeds of
$550,000. A portion of the proceeds of the sale was used to repay $200,000 of
short term loans incurred in February and March 2002.
In March 2002, we completed the private placement of 1,104 shares of Series D
Preferred Stock to accredited investors at $250 per share for net proceeds of
$276,000. A portion of the proceeds of the sale was used to repay $105,000 of
short term loans incurred in February 2002.
In February, March, April and June 2002, we borrowed an aggregate of $475,000
pursuant to six separate unsecured short-term loan agreements with National
Financial Corp., a related party. In February, May and August 2002, we fully
repaid principal pursuant to four notes and partially repaid principal on one
note in the aggregate amount of $412,000 plus accrued interest thereon. The
unpaid principal amount of $63,000 plus interest was due on September 30, 2002.
National Financial Corp. agreed to forego repayment at September 30, 2002 and to
amend the terms of the notes to be due on demand.
In February 2002, we granted employees the remaining options to purchase 328,842
shares of common stock under our 1997 Stock Option Plan and warrants to purchase
an additional 253,203 shares of common stock in exchange for voluntary salary
reductions. The options and warrants contained an exercise price of $0.35 per
share, the market price on the date of grant, expire on the tenth anniversary of
the grant, and vest 25% immediately on the date of grant and an additional 25%
on each third month anniversary of the date of grant.
In January 2002, we granted employees options under our 1997 Stock Option Plan
to purchase an aggregate of 456,000 shares of common stock. The options contain
an exercise price of $0.60 per share, the market price on the date of grant,
expire on the tenth anniversary of the grant, and vest 100% one year from the
date of grant.
In December 2001, upon completion of our annual meeting, ten year options
exercisable for an aggregate of 25,000 shares of common stock were granted under
the Non-Employee Directors' Plan. The option exercise price of $0.50 was the
fair market value of a share of the outstanding common stock on the date the
options were granted. The options vest to the extent of 50% one year from the
date of grant and will vest fully on the second anniversary of the date of
grant.
In December 2001, we issued to accredited investors for a net consideration of
$462,000, at the rate of $0.70 per common share, 660,000 shares of common stock,
including 440,000 shares resulting from the conversion of 440 shares of Series C
Preferred Stock with an aggregate stated value of $308,000.
14
In June 2001, we issued 16,000 shares of common stock with a fair market value
of $41,600 to New York Capital AG in connection with an agreement for
professional services to be rendered in 2001.
In April 2001, McKesson acquired 1,514,285 shares of common stock at $1.75 per
share for net proceeds of $2,650,000 and the cancellation of the stock purchase
warrant originally issued to McKesson in 1999 to purchase 819,184 shares of
common stock. No registration rights were granted to McKesson for the shares
acquired.
In April 2001, ten year options exercisable for an aggregate of 25,000 shares of
common stock were granted to employees under the 1997 Stock Option Plan. The
option exercise price of $1.75 was the fair market value of a share of the
outstanding common stock on the date the options were granted. The options
become vested to the extent of 50% one year from the date of grant and fully on
the second anniversary of the date of grant.
In March 2001, we sold 400,000 shares of common stock to an accredited investor
for $1.75 per share for net proceeds of $596,000, and in connection therewith,
in April 2001, we issued immediately exercisable two year warrants at a price of
$1.75 per share to purchase 40,000 shares of common stock to financial advisors
who assisted us in the negotiation and structuring of the sale.
In March 2001, we entered into a loan agreement with American Medical Finance,
Inc., a related party, in the amount of $400,000. Principal and interest, at
9.5% per annum on the unpaid principal, was due in March 2002. In April 2001, we
repaid the full amount of the note along with accrued interest thereon.
In January 2001, we granted employees options to purchase an aggregate of
385,500 shares of common stock under the 1997 Stock Option Plan. The options
were issued at a price of $1.25 per share, the market price on the date of
grant, expire on the tenth anniversary of the grant, and vest on the first
anniversary of the grant.
Except as otherwise indicated, in each of the security issuances referenced
above, we either registered or provided certain rights to register resale of the
shares at our expense under the Securities Act of 1933 (the "Act"); no sales of
securities involved the use of an underwriter and no commissions were paid in
connection with the sale of any securities and the proceeds were used for
general corporate purposes. The certificates evidencing the common stock issued
in each of the transactions referenced above were appropriately legended.
The offer and sale of the securities in each of the foregoing transactions were
exempt from registration under the Act by virtue of Section 4(2) thereof and the
rules promulgated thereunder (except for the grants of options under the 1997
Stock Option Plan, which grants were registered) under the Act. Except for
issuance of options and warrants to employees who are not directors or executive
officers of he Company, each of the offerees and investors in such private
placements provided representations to us that they were each "accredited
investors," as defined in Rule 501 under the Act, and some were existing
stockholders at the time of such transaction. Each investor was afforded the
right to conduct a complete due diligence review of us and the opportunity to
ask questions of, and receive answers from, our management.
We believe that our available cash resources, together with anticipated revenues
from operations and the proceeds of recently completed financing activities and
funding commitments will not be sufficient to satisfy our capital requirements
through December 31, 2002. Necessary additional capital may not be available on
a timely basis or on acceptable terms, if at all. In any of these events, we may
be unable to implement current plans for expansion or to repay debt obligations
as they become due. If sufficient capital cannot be obtained, we may be forced
to significantly reduce operating expenses to a point which would be detrimental
to business operations, curtail research and development activities, sell
certain business assets or discontinue some or all of our business operations,
take other actions which could be detrimental to business prospects and result
in charges which could be material to our operations and financial position, or
15
cease operations altogether. In the event that any future financing should take
the form of equity securities, the holders of the common stock and preferred
stock may experience additional dilution. In the event of a cessation of
operations, there may not be sufficient assets to fully satisfy all creditors,
in which case the holders of equity securities will be unable to recoup any of
their investment.
In October 2002, based upon the recommendation of a committee of disinterested
directors, we completed the private placement of 167 shares of Series E
Preferred Stock to members of our Board of Directors at $300 per share for net
proceeds of $50,000, which funds were received in June 2002 and recorded as a
current liability until the transaction was finalized.
In October 2002, upon the demand of National Financial Corp., a related party,
we repaid the remaining principal on one unsecured demand note and partially
repaid the last outstanding note in the aggregate amount of $36,000 plus accrued
interest thereon. The unpaid balance of the remaining note in the principal
amount of $27,000 plus interest, at 9.5% per annum on the unpaid principal, is
due on demand.
In October 2002 we hired a new president and chief executive officer and issued
him warrants to acquire an aggregate of 200,000 shares of common stock. The
warrants contain an exercise price of $0.20 per share, expire in October 2007,
and vest 50% in October 2003 and fully in October 2004.
In October 2002 we issued warrants to acquire an aggregate of 500,000 shares of
common stock to a non-employee in connection with an agreement for professional
services to be rendered. The warrants contain an exercise price of $0.20 per
share, were fully vested on the date of grant, expire in September 2007, and
become exercisable 50% in September 2003 and fully in September 2004. The
warrants were valued at $0.08 per share based on the Black-Scholes valuation
method (using the following assumptions: life of five years, risk free rate of
2.68%, no dividends during the term, and a volatility of .752). The expense will
be recognized ratably over the term of the service agreement, October 1, 2002
through December 31, 2004.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 2001, the FASB issued Statement of Financial Accounting Standard No. 141
("SFAS 141") "Business Combinations" and Statement of Financial Accounting
Standard No. 142 ("SFAS 142") "Goodwill and Other Intangible Assets". SFAS 141
eliminates the pooling-of-interests method of accounting for business
combinations and SFAS 142 stipulates that goodwill and intangible assets deemed
to have indefinite lives will no longer be amortized, but must be reviewed at
least annually for impairment. Since full impairment of the Company's intangible
assets was recorded in 2000, the adoption of SFAS 142 as of January 1, 2002 had
no impact on the Company's financial position or results of operations.
In August 2001, the FASB issued Statement of Financial Accounting Standard No.
144 ("SFAS 144") "Accounting for the Impairment or Disposal of Long-Lived
Assets," which addresses financial accounting and reporting for the impairment
or disposal of long-lived assets and supersedes SFAS 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of,"
and the accounting and reporting provision of APB Opinion No. 30, "Reporting the
Result of Operations for a Disposal of a Segment of a Business." The Company has
adopted SFAS 144 as of January 1, 2002 and does not expect that the adoption
will have a significant impact on the Company's financial position or results of
operations.
16
CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS
Information contained or incorporated by reference in this periodic report on
Form 10-Q and in other SEC filings by the Company contains "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. Such forward-looking statements are subject to various risks and
uncertainties that could cause actual results to vary materially from those
projected in such forward-looking statements. These risks and uncertainties are
discussed in more detail in the Company's Form 10-K which was filed with the
Securities and Exchange Commission on April 15, 2002. No assurance can be given
that future results covered by the forward-looking statements will be achieved.
ITEM 4. CONTROLS AND PROCEDURES
(a) EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
Within the 90 days prior to the date of this report, the Company
carried out an evaluation, under the supervision and with the
participation of the Company's management, including the Company's
Chief Executive Officer and Chief Financial Officer, of the
effectiveness of the design and operation of the Company's disclosure
controls and procedures pursuant to Exchange Act Rule 13a-14. Based
upon that evaluation, the Chief Executive Officer and Chief Financial
Officer concluded that the Company's disclosure controls and procedures
are effective in gathering, analyzing and disclosing information needed
to satisfy the Company's disclosure obligations under the Exchange Act.
(b) CHANGES IN INTERNAL CONTROLS
There were no significant changes in the Company's internal controls or
in other factors that could significantly affect those controls since
the most recent evaluation of such controls.
17
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(b) REPORTS:
During the quarter ended September 30, 2002, the Company filed (i) a
report on Form 8-K dated September 4, 2002, containing information
under item 5, (ii) a report on Form 8-K dated September 17, 2002,
containing information under item 2, item 5, and item 7, (iii) a report
on Form 8-K dated October 23, 2002, containing information under item
5, and (iv) a report on Form 8-K also dated October 23, 2002,
containing information under item 5.
The following exhibit is filed herewith:
99.1 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT
TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
99.2 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT
TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
18
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
CLAIMSNET.COM INC.
(Registrant)
By: /s/ Don Crosbie
-----------------------------
Don Crosbie
President and
Chief Executive Officer, on
behalf of the Registrant
By: /s/ Paul W. Miller
-----------------------------
Paul W. Miller
Chief Operating Officer and
Chief Financial Officer, on
behalf of the Registrant
November 14, 2002
19
CERTIFICATION
I, Don Crosbie, certify that:
(1) I have reviewed this quarterly report on Form 10-Q of CLAIMSNET.COM
INC.;
(2) Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
(3) Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;
(4) The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
we have:
(a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by other within
those entities, particularly during the period in which this
quarterly report is being prepared;
(b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the "Evaluation Date"); and
(c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
(5) The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent function):
(a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data
and have identified for the registrant's auditors any material
weakness in internal controls; and
(b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
(6) The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
/s/ Don Crosbie
Don Crosbie
President and Chief Executive Officer
November 14, 2002
20
CERTIFICATION
I, Paul W. Miller, certify that:
(1) I have reviewed this quarterly report on Form 10-Q of CLAIMSNET.COM
INC.;
(2) Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
(3) Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;
(4) The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
we have:
(a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by other within
those entities, particularly during the period in which this
quarterly report is being prepared;
(b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the "Evaluation Date"); and
(c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
(5) The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent function):
(a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data
and have identified for the registrant's auditors any material
weakness in internal controls; and
(b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
(6) The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
/s/ Paul W. Miller
Paul W. Miller
Chief Operating Officer and Chief Financial Officer
November 14, 2002
21