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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
þ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the Quarterly Period Ended March 31, 2011
OR
o | 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
CLAIMSNET.COM
INC.
(Exact name of registrant as specified in its charter)
Delaware (State or other jurisdiction of incorporation or organization) |
75-2649230 (I.R.S. Employer Identification No.) |
|
14860 Montfort Dr, Suite 250 Dallas, Texas |
75254 | |
(Address of principal executive offices) | (Zip Code) |
972-458-1701
(Registrants telephone number, including area code)
(Registrants telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed since last report)
(Former name, former address and former fiscal year, if changed since last report)
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 þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period
that the registrant was required to submit and post such files). Yes o No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated filer or a smaller reporting company (as defined in Rule 12b-2 of the Securities
Exchange Act of 1934).
Large accelerated filer o | Accelerated filer o | Non-accelerated filer o | Smaller Reporting Company þ |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act). Yes o No þ
State the number of shares outstanding of each of the issuers classes of common stock, as of the
latest practicable date: Common Stock, $.001 par value, 34,874,696 shares outstanding as of April
29, 2011.
CLAIMSNET.COM INC. AND SUBSIDIARIES
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PART I FINANCIAL INFORMATION
ITEM 1: | FINANCIAL STATEMENTS |
CLAIMSNET.COM INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
(In thousands, except share data)
(Unaudited) March 31, |
December 31, | |||||||
2011 | 2010 | |||||||
ASSETS |
||||||||
CURRENT ASSETS |
||||||||
Cash and equivalents |
$ | 25 | $ | 23 | ||||
Accounts receivable, net of allowance for
doubtful accounts of $5 and $6 |
336 | 339 | ||||||
Prepaid expenses and other current assets |
20 | 31 | ||||||
Total current assets |
381 | 393 | ||||||
EQUIPMENT, FIXTURES AND SOFTWARE |
||||||||
Total equipment, fixtures and software, net |
1 | 4 | ||||||
INTANGIBLE AND OTHER ASSETS |
||||||||
Goodwill |
| 138 | ||||||
TOTAL ASSETS |
$ | 382 | $ | 535 | ||||
LIABILITIES AND STOCKHOLDERS DEFICIT |
||||||||
CURRENT LIABILITIES |
||||||||
Accounts payable |
$ | 409 | $ | 375 | ||||
Accrued payroll and other current liabilities |
61 | 102 | ||||||
Accrued interest related parties |
103 | 99 | ||||||
Deferred revenues current portion |
11 | 10 | ||||||
Notes payable to related parties |
1,070 | 1,040 | ||||||
Convertible notes payable to related parties |
10 | 10 | ||||||
Total current liabilities |
1,664 | 1,636 | ||||||
LONG-TERM LIABILITIES |
||||||||
Deferred revenues long-term portion |
9 | 10 | ||||||
Total long-term liabilities |
9 | 10 | ||||||
Total liabilities |
1,673 | 1,646 | ||||||
STOCKHOLDERS DEFICIT |
||||||||
Convertible preferred stock, $.001 par value; 4,000,000 shares authorized; 720
Shares of Series D (liquidation preference of $180) and 50 shares of Series E
(liquidation preference of $15) issued and outstanding, convertible into common
shares at 1,000 common shares per 1 convertible preferred share as of March 31,
2011 and December 31, 2010 |
| | ||||||
Common stock, $.001 par value; 40,000,000 shares authorized; 34,874,696
shares issued and outstanding as of March 31, 2011 and December 31, 2010 |
35 | 35 | ||||||
Additional capital |
44,896 | 44,896 | ||||||
Accumulated deficit |
(46,222 | ) | (46,042 | ) | ||||
Total stockholders deficit |
(1,291 | ) | (1,111 | ) | ||||
TOTAL LIABILITIES AND STOCKHOLDERS DEFICIT |
$ | 382 | $ | 535 | ||||
See notes to consolidated financial statements.
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CLAIMSNET.COM INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands)
(Unaudited)
(In thousands)
(Unaudited)
Three Months Ended | ||||||||
March 31, | ||||||||
2011 | 2010 | |||||||
REVENUES |
$ | 573 | $ | 578 | ||||
COST OF REVENUES |
434 | 414 | ||||||
GROSS PROFIT |
139 | 164 | ||||||
OPERATING EXPENSES |
||||||||
Selling, general and administrative |
176 | 173 | ||||||
Impairment of Goodwill |
138 | | ||||||
Total operating expenses |
314 | 173 | ||||||
LOSS FROM OPERATIONS |
(175 | ) | (9 | ) | ||||
OTHER INCOME (EXPENSE) |
||||||||
Interest expense related parties |
(5 | ) | (7 | ) | ||||
NET LOSS |
$ | (180 | ) | $ | (16 | ) | ||
NET LOSS PER COMMON SHARE (BASIC AND DILUTED) |
$ | (0.01 | ) | $ | (0.00 | ) | ||
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING (BASIC AND DILUTED) |
34,875 | 34,875 | ||||||
See notes to consolidated financial statements.
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CLAIMSNET.COM INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS DEFICIT
Year Ended December 31, 2010 and the Three Months Ended March 31, 2011 (unaudited)
(In thousands)
Year Ended December 31, 2010 and the Three Months Ended March 31, 2011 (unaudited)
(In thousands)
Number of | Number of | |||||||||||||||||||||||||||
Preferred | Common | Total | ||||||||||||||||||||||||||
Shares | Preferred | Shares | Common | Additional | Accumulated | Stockholders | ||||||||||||||||||||||
Outstanding | Stock | Outstanding | Stock | Capital | Deficit | Deficit | ||||||||||||||||||||||
Balances at
December 31, 2009 |
1 | $ | | 34,875 | $ | 35 | $ | 44,896 | $ | (45,755 | ) | $ | (824 | ) | ||||||||||||||
Net loss |
| | | | | (287 | ) | (287 | ) | |||||||||||||||||||
Balances at
December 31, 2010 |
1 | | 34,875 | 35 | 44,896 | (46,042 | ) | (1,111 | ) | |||||||||||||||||||
Net loss |
| | | | | (180 | ) | (180 | ) | |||||||||||||||||||
Balances at March
31, 2011 |
1 | $ | | 34,875 | $ | 35 | $ | 44,896 | $ | (46,222 | ) | $ | (1,291 | ) | ||||||||||||||
See notes to consolidated financial statements.
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CLAIMSNET.COM INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
(In thousands)
(Unaudited)
Three Months Ended | ||||||||
March 31, | ||||||||
2011 | 2010 | |||||||
CASH FLOWS FROM OPERATING ACTIVITIES: |
||||||||
Net loss |
$ | (180 | ) | $ | (16 | ) | ||
Adjustments to reconcile net loss to net cash
used in operating activities: |
||||||||
Depreciation and amortization |
3 | 3 | ||||||
Impairment of goodwill |
138 | | ||||||
Bad debt expense |
1 | | ||||||
Changes in operating assets and liabilities: |
||||||||
Accounts receivable |
2 | 1 | ||||||
Prepaid expenses and other current assets |
24 | 4 | ||||||
Current liabilities and deferred revenue |
(16 | ) | (28 | ) | ||||
Net cash used in operating activities |
(28 | ) | (36 | ) | ||||
CASH FLOWS FROM FINANCING ACTIVITIES: |
||||||||
Proceeds from notes payable to related parties |
30 | 115 | ||||||
Net cash provided by financing activities |
30 | 115 | ||||||
NET INCREASE IN CASH AND EQUIVALENTS |
2 | 79 | ||||||
CASH AND EQUIVALENTS, BEGINNING OF PERIOD |
23 | 18 | ||||||
CASH AND EQUIVALENTS, END OF PERIOD |
$ | 25 | $ | 97 | ||||
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: |
||||||||
Cash paid for interest |
$ | | $ | | ||||
Cash paid for taxes |
$ | | $ | | ||||
See notes to consolidated financial statements.
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CLAIMSNET.COM INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
1. | BASIS OF PRESENTATION |
In the opinion of management, the accompanying unaudited consolidated financial statements
include all necessary adjustments (consisting of normal recurring adjustments) and present
fairly the consolidated financial position of Claimsnet.com inc. and subsidiaries (the
Company) as of March 31, 2011 and the results of their operations and cash flows for the
three months ended March 31, 2011 and 2010, in conformity with generally accepted accounting
principles for interim financial information applied on a consistent basis. The results of
operations for the three months ended March 31, 2011 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 Companys Annual Report on Form 10-K
for the year ended December 31, 2010, as filed with the Securities and Exchange Commission
on February 24, 2011. |
2. | NEED FOR ADDITIONAL CAPITAL AND LIQUIDITY |
Management believes that available cash resources, together with anticipated revenues from
operations and the proceeds of recently completed financing activities and funding
commitments may not be sufficient to satisfy the Companys capital requirements past
September 30, 2011. 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, sell
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 the sale 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. |
3. | RECENT ACCOUNTING PRONOUNCEMENTS |
In October 2009, the FASB issued guidance that provides principles for allocation of
consideration among a revenue arrangements multiple-elements, allowing more flexibility in
identifying and accounting for separate deliverables under an arrangement. The guidance
introduces an estimated selling price method for valuing the elements of a bundled
arrangement if vendor-specific objective evidence or third-party evidence of selling price
is not available, and significantly expands related disclosure requirements. It is effective
on a prospective basis for revenue arrangements entered into or materially modified in
fiscal years beginning on or after June 15, 2010. Alternatively, adoption may be on a
retrospective basis, and early application is permitted. The adoption did not have a
material impact on our consolidated financial statements or footnote disclosures. |
In December 2010, FASB issued ASU No. 2010-28 When to Perform Step 2 of the Goodwill
Impairment Test for Reporting Units with Zero or Negative Carrying Amounts, which modifies
goodwill impairment testing for reporting units with a zero or negative carrying amount.
Under the new guidance, an entity must consider whether it is more likely than not that
goodwill impairment exists for each reporting unit with a zero or negative carrying amount.
If it is more likely than not that goodwill impairment exists, the second step of the
goodwill impairment test in FASB Accounting Standards Codification TM (ASC) 350-20-35,
Intangibles Goodwill and Other: Goodwill, must be performed to measure the amount of
goodwill impairment loss, if any. Under the new guidance, if the carrying amount of a
reporting unit is zero or negative, an entity must assess whether it is more likely than not
that goodwill impairment exists. To make that determination, an entity should consider
whether there are adverse qualitative factors that could impact the amount of goodwill,
including those listed in ASC 350-20-35-30. Those factors include, for example, an adverse
business climate, unexpected competition, a loss of key personnel, or a more-likely-than-not
expectation that part, or all, of the reporting unit will be disposed of. As a result of
the new guidance, an entity can
no longer assert that a reporting unit is not required to perform the second step of the
goodwill impairment test because the carrying amount of the reporting unit is zero or
negative, despite the existence of qualitative factors that indicate goodwill is more likely
than not impaired. The amended guidance in ASU 2010-28 was effective for public entities for
fiscal years, and for interim periods within those years, beginning after December 15, 2010,
with early adoption prohibited. The Companys adoption of this new pronouncement has
resulted in the impairment of $138,000 of goodwill. The goodwill was carried on the
Companys books as a result of the acquisition of Acceptius in fiscal year 2008.
|
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4. | EQUIPMENT, FIXTURES AND SOFTWARE |
Equipment, fixtures and software consists of the following at March 31, 2011 (in thousands): |
Computer hardware and software |
$ | 524 | ||
Software development costs |
1,999 | |||
Furniture and fixtures |
31 | |||
Office equipment |
28 | |||
Leasehold improvements |
35 | |||
2,617 | ||||
Less accumulated depreciation and amortization |
(2,616 | ) | ||
$ | 1 | |||
5. | LOANS FROM RELATED PARTIES |
On March 2, 2011, the Company issued an unsecured promissory note upon receipt of $15,000
from Mr. Thomas Michel, a director (Michel). The note bears interest at the rate of
1.75% per annum. Payments equal to the principal and accrued and unpaid interest on the
note are due on demand, with thirty days notice. |
On March 2, 2011, the Company issued an unsecured promissory note upon receipt of $15,000
from Mr. J. R. Schellenberg, a related party (Schellenberg). The note bears interest at
the rate of 1.75% per annum. Payments equal to the principal and accrued and unpaid
interest on the note are due on demand. |
6. | FAIR VALUE OF FINANCIAL INSTRUMENTS |
FASB Accounting Standards Codification Topic 825 requires disclosure about the fair value of
all financial assets and liabilities for which it is practicable to estimate. Cash, accounts
receivable, accounts payable, notes payable and other liabilities are carried at amounts
that reasonably approximate their fair values. |
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ITEM 2. | Managements Discussion and Analysis of Financial Condition and Results of Operations |
FORWARD-LOOKING STATEMENTS
This report contains forward-looking statements that are based on our current expectations,
assumptions, beliefs, estimates and projections about our company, our industry and other related
industries. The forward-looking statements are subject to various risks and uncertainties that
could cause actual results to differ materially from those described in the forward-looking
statements. Generally, these forward-looking statements can be identified by the use of
forward-looking terminology such as anticipate, believe, estimate, expect, intend,
plan, project, should and variations of such words or similar expressions.
We caution you that reliance on any forward-looking statement involves risks and uncertainties, and
that although we believe that the assumptions on which our forward-looking statements are based are
reasonable, any of those assumptions could prove to be inaccurate, and, as a result, the
forward-looking statements based on those assumptions could be incorrect. In light of these and
other uncertainties, you should not conclude that we will necessarily achieve any plans and
objectives or projected financial results referred to in any of the forward-looking statements. We
do not undertake to release the results of any revisions of these forward-looking statements to
reflect future events or circumstances. Some of the factors that may cause actual results,
developments and business decisions to differ materially from those contemplated by such
forward-looking statements include the risk factors discussed under the heading Risk Factors in
our annual report on Form 10-K for the year ended December 31, 2010 and the following:
| our ability to raise additional capital and secure additional financing; |
||
| our ability to market our services; |
||
| our ability to develop and maintain strategic partnerships or alliances; |
||
| our ability to maintain and increase our customer base; |
||
| our ability to protect our intellectual property rights; |
||
| our ability to further develop our technology and transaction processing
system; |
||
| our ability to respond to competitive developments; |
||
| our ability to attract and retain key employees; |
||
| our ability to comply with government regulations; |
||
| the effects of natural disasters, computer viruses and similar disruptions
to our computer systems; |
||
| the ability of our clients to pay their debts when they become due; |
||
| threats to Internet security; and |
||
| acceptance of the Internet and other online services in the healthcare
industry and in general. |
This Managements Discussion and Analysis of Financial Condition and Results of Operations
should be read in conjunction with our consolidated financial statements and the related notes
included elsewhere in this report.
IN GENERAL
As of March 31, 2011, we had a working capital deficit of $1,283,000 and a stockholders deficit of
$1,291,000. We generated revenues of $573,000 for the three months ended March 31, 2011 and
$578,000 for the three months ended March 31, 2010. We have incurred net losses since inception and
had an accumulated deficit of $46,222,000 at March 31, 2011. We expect to continue to operate at a
loss approaching breakeven in the near future.
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The majority of the cost of revenues and operating expenses reflected in our consolidated financial
statements are associated with the cost of personnel and other expenditures which are fixed or
semi-fixed in nature, and not directly related to the number of clients we serve or transactions we
process to generate revenues. In the event we are successful in implementing our growth strategy,
we believe our current infrastructure is sufficient to allow our operations to expand without
significant expense.
We believe that our available cash resources, together with anticipated revenues from operations
and the proceeds of recently completed financing activities and funding commitments may not be
sufficient to satisfy our capital requirements past September 30, 2011. 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, 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 cease operations altogether. In the event that any
future financing should take the form of a sale 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.
Our business strategy is as follows:
| to utilize our state of the art technology to help large healthcare organizations achieve
more efficient and less costly administrative operations; |
| to market our services directly to the payer community and its trading partners; |
| to aggressively pursue and support strategic relationships with companies that will in turn
aggressively market our services to large volume healthcare organizations, including insurers,
HMOs, third party administrators, provider networks, re-pricing organizations, clinics,
hospitals, laboratories, physicians and dentists; |
| to provide total claim management services to payer organizations, including internet claim
submission, paper claim conversion to electronic transactions, and receipt of EDI
transmissions; |
| to continue to expand our product offerings to include additional transaction processing
solutions, such as HMO encounter forms, eligibility and referral verifications, claim status
inquiries, electronic remittance advices, claim attachments, and other healthcare
administrative services, in order to diversify sources of revenue; |
| to license our technology for other applications, including stand-alone purposes, internet
systems and private label use, and for original equipment manufacturers; and |
| to seek merger and acquisition opportunities that enhance our growth and profitability
objectives. |
Our primary source of revenues are fees paid by healthcare payers and vendors for private-label or
co-branded licenses and services. We expect most of our revenues to be recurring in nature. One
client accounted for 41.6% of our revenue for the quarter ended March 31, 2011.
Our principal costs to operate are technical and customer support, transaction-based vendor
services, sales and marketing, research and development, acquisition of capital equipment, and
general and administrative expenses. Going forward, as funds become available, we intend to
continue to develop and upgrade our technology and transaction-processing systems and continually
update and improve our website to incorporate new technologies, protocols, and industry standards.
Selling, general and administrative expenses include all corporate and administrative functions
that serve to support our current and future operations and provide an infrastructure to support
future growth. Major items in this category include management and staff salaries and benefits,
travel, professional fees, network administration, business insurance, and rent.
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CRITICAL ACCOUNTING POLICIES
REVENUE RECOGNITION
We generally enter into services agreements with our customers to provide access to our hosted
software platform for processing of customer transactions. We operate the software application for
all customers and the customers are not entitled to ownership of our software at any time during or
at the end of the agreements. The end users of our software application access our hosted software
platform or privately hosted versions of our software application via the internet with no
additional software required to be located on the customers systems. Customers pay implementation
fees, transaction fees and time and materials charges for additional services. Revenues primarily
include fees for implementation and transaction fees, which may be subject to monthly minimum
provisions. Customer agreements may also provide for development fees related to private labeling
of our software platform (i.e. access to our servers through a web site which is in the name of
and/or has the look and feel of the customers other web sites) and some customization of the
offering and business rules. We account for our service agreements,
entered into prior to January 1, 2011, by combining the contractual
revenues from development, implementation, license, support and certain additional service fees and
recognizing the revenue ratably over the expected period of
performance. For these agreements we used an
estimated expected business arrangement term of three years which is currently the term of the
typical contracts signed by our customers. To
the extent that implementation fees are received in advance of recognizing the revenue, we defer
these fees and record deferred revenue. We recognize service fees for transactions and some
additional services as the services are performed. We expense the costs associated with our
customer service agreements as those costs are incurred. As a result
of the new revenue recognition guidance, relating to arrangements
with multiple deliverables, we evaluate all new contract agreements
individually to determine the fair value of the different
deliverables and if they can be treated as separate units of
accounting. The new guidance had no impact on our revenue recognition
policy for any new contract agreements entered into during the first
quarter.
SOFTWARE FOR SALE OR LICENSE
We begin capitalizing costs incurred in developing a software product once technological
feasibility of the product has been determined. Capitalized computer software costs include direct
labor, labor-related costs and interest. The software is amortized over its expected useful life
of three years or the contract term, as appropriate.
Management periodically evaluates the recoverability, valuation, and amortization of capitalized
software costs to be sold, leased, or otherwise marketed whenever events or changes in
circumstances indicate that the carrying amount on the software may not be recoverable. As part of
this review, management considers the expected undiscounted future net cash flows. If they are less
than the stated value, capitalized software costs will be written down to fair value.
RESULTS OF OPERATIONS FOR THREE MONTHS ENDED MARCH 31, 2011 COMPARED TO THREE MONTHS ENDED MARCH
31, 2010
REVENUES
Revenues for the three months ended March 31, 2011 (the 2011 first quarter) were $573,000
compared to $578,000 for the three months ended March 31, 2010 (the 2010 first quarter),
representing a decrease of 1%. Although sales were down 1% in the quarter, this was attributed to a decline with one customer that had a short-term high volume requirement in
the 1st quarter of last year. If we take out that customer for comparative purposes, our
volumes were up 7.3% and revenue was up 9% over the same quarter last
year.
COST OF REVENUES
Cost of revenues for the 2011 first quarter was $434,000, compared with $414,000 for the 2010 first
quarter. The four components of cost of revenues are data center expenses, transaction processing
expenses, customer support operation expenses and amortization and depreciation. Data center
expenses were $11,000 for the 2011 first quarter compared with $10,000 for the 2010 first quarter.
Transaction processing expenses were $239,000 for the 2011 first quarter compared with $223,000 for
the 2010 first quarter. The increase in third party transaction processing expense was primarily
attributable to increased claim volumes from current customers as well as new agreements to
outsource some processing to third parties. Customer support operation expenses were $182,000 for
the 2011 first quarter compared with $179,000 for the 2010 first quarter. Amortization and
depreciation expenses for the 2011 first quarter included $2,000 of software amortization and
development project amortization expenses compared with $2,000 for the 2010 first quarter.
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OPERATING EXPENSES
There were no research and development expenses for the 2011 first quarter or the 2010 first
quarter. Research and development expenses are ordinarily comprised of personnel costs and related
expenses. There were no capitalized development costs during the 2011 or 2010 first quarter.
Selling, general and administrative expenses for the 2011 first quarter were $314,000 compared with
$173,000 for the 2010 first quarter. The increase in general and administrative expenses was
primarily attributable to a $138,000 write off of goodwill required by recent accounting
pronouncements.
OTHER INCOME (EXPENSE)
Interest expense of $5,000 was incurred for the 2011 first quarter on financing fees and related
party debt compared with $7,000 for the 2010 first quarter.
NET LOSS
The net loss for the first quarter of 2011 was $180,000, or $0.01 per share, compared to $16,000,
or $0.00 per share, in the first quarter of 2010. The increase was primarily attributable to the
impairment of goodwill.
LIQUIDITY AND CAPITAL RESOURCES
Net cash used in operating activities of $28,000 for the 2011 first quarter was primarily related
to net loss of $180,000 offset by changes in working capital of $10,000, bad debt of $1,000,
impairment of goodwill of $138,000 and depreciation and amortization of $3,000. Net cash used in
operating activities of $36,000 for the 2010 first quarter was primarily related to net loss of
$16,000 and changes in working capital of $23,000 offset by depreciation and amortization of
$3,000.
Net cash provided by financing activities in the 2011 first quarter was $30,000 related to proceeds
from related party debt.
Net cash provided by financing activities in the 2010 first quarter was $115,000 related to
proceeds from related party debt.
On March 2, 2011, the Company issued an unsecured promissory note upon receipt of $15,000 from
Mr. Thomas Michel, a director (Michel). The note bears interest at the rate of 1.75% per annum.
Payments equal to the principal and accrued and unpaid interest on the note are due on demand,
with thirty days notice.
On March 2, 2011, the Company issued an unsecured promissory note upon receipt of $15,000 from
Mr. J. R. Schellenberg, a related party (Schellenberg). The note bears interest at the rate of
1.75% per annum. Payments equal to the principal and accrued and unpaid interest on the note are
due on demand.
OFF-BALANCE SHEET ARRANGEMENTS
There are no off-balance sheet arrangements that have or are reasonably likely to have a current or
future effect on our financial condition, changes in financial condition, revenues or expenses,
results of operations, liquidity, capital expenditures or capital resources that are material to
investors.
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ITEM 4. | Controls and Procedures |
We maintain disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under
the Securities Exchange Act of 1934, as amended (the Exchange Act), that are designed to ensure
that information required to be disclosed by us in reports we file or submit under the Exchange Act
is recorded, processed, summarized and reported within the time periods specified in the SECs
rules and forms, and that such information is accumulated and communicated to our management,
including our principal executive officer and principal financial officer, as appropriate, to allow
timely decisions regarding required disclosure. In designing and evaluating our disclosure controls
and procedures, management recognized that disclosure controls and procedures, no matter how well
conceived and operated, can provide only reasonable assurance of achieving the desired control
objectives, and we necessarily are required to apply our judgment in evaluating the cost-benefit
relationship of possible disclosure controls and procedures.
Our management, including our principal executive officer and principal financial officer,
evaluated the effectiveness of the design and operation of our disclosure controls and procedures
as of March 31, 2011 and concluded that the disclosure controls and procedures were not effective,
because certain deficiencies involving internal controls constituted a material weakness as
discussed in our Annual Report on Form 10-K for the year ended December 31, 2010, as filed with the
Securities and Exchange Commission on February 24, 2011. The material weakness identified did not
result in the restatement of any previously reported consolidated financial statements or any other
related financial disclosure, nor does management believe that it had any effect on the accuracy of
the Companys financial statements for the current reporting period.
The material weakness in our internal control over financial reporting that we identified in our
Annual Report on Form 10-K for the year ended December 31, 2010 relates to the monitoring and
review of work performed by our Chief Financial Officer in the preparation of financial statements,
footnotes and financial data provided to the Companys registered public accounting firm in
connection with the annual audit. All of our financial reporting is carried out by our Chief
Financial Officer, and we do not have an audit committee. This lack of accounting staff results in
a lack of segregation of duties and accounting technical expertise necessary for an effective
system of internal control.
In order to mitigate this material weakness to the fullest extent possible, all financial reports
are reviewed by the Chief Operating Officer, the Chief Executive Officer as well as the Board of
Directors for reasonableness. All unexpected results are investigated. At any time, if it appears
that any control can be implemented to continue to mitigate such weaknesses, it will be immediately
implemented. As soon as our finances allow, we will hire sufficient accounting staff and implement
appropriate procedures for monitoring and review of work performed by our Chief Financial Officer.
There were no changes in our internal control over financial reporting that occurred during the
quarter ended March 31, 2011 that have materially affected, or are reasonably likely to materially
affect, our internal control over financial reporting.
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PART II OTHER INFORMATION
ITEM 6. | Exhibits |
The following exhibits are filed herewith:
3.1 | (1) | Certificate of Incorporation. |
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3.1 | (a) (1) | Certificate of Amendment to Certificate of Incorporation. |
||
3.1 | (b) (3) | Certificate of Designation of Series A Preferred Stock. |
||
3.1 | (c) (3) | Certificate of Designation of Series B Preferred Stock. |
||
3.1 | (d) (3) | Certificate of Designation of Series C Preferred Stock. |
||
3.1 | (e) (3) | Certificate of Designation of Series D Preferred Stock. |
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3.1 | (f) (2) | Certificate of Designation of Series E Preferred Stock. |
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3.2 | (1) | Bylaws, as amended. |
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4.1 | (1) | Form of Common Stock Certificate. |
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4.2 | (3) | Form of Warrant issued to Bo W. Lycke dated February 21, 2002. |
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4.3 | (4) | Form of Warrant issued to Don Crosbie dated June 3, 2003. |
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4.4 | (4) | Form of Warrant issued to certain employees dated June 3, 2003. |
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4.5 | (4) | Form of Warrant issued to Thomas Michel dated June 3, 2003. |
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4.6 | (4) | Form of Warrant issued to Alfred Dubach dated June 3, 2003. |
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4.7 | (5) | Form of Warrant issued to Gary J. Austin dated September 21, 2004. |
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4.8 | (5) | Form of Warrant issued to Laura M. Bray dated September 21, 2004. |
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4.9 | (5) | Form of Warrant issued to Don Crosbie dated September 21, 2004. |
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10.1 | (6) | Unsecured Convertible Promissory Note between Claimsnet.com and
Thomas Michel dated March 2, 2011. | ||
10.2 | (6) | Unsecured Promissory Note between Claimsnet.com and J. R.
Schellenberg dated March 2, 2011. |
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31.1 | Certification of Don Crosbie. |
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31.2 | Certification of Laura M. Bray. |
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32.1 | Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, of Don Crosbie. |
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32.2 | Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, of Laura M. Bray. |
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(1) | Incorporated by reference to the Registrants registration statement on Form S-1
(Registration No. 333-36209). |
|
(2) | Incorporated by reference to the Registrants Annual Report on Form 10-K, for the
Year Ended December 31, 2002 filed on April 1, 2003. |
|
(3) | Incorporated by reference to the Registrants Annual Report on Form 10-K for the
year ended December 31, 2001 filed on April 15, 2002. |
|
(4) | Incorporated by reference to the Registrants Current Report on Form 10-KSB dated
March 29, 2004. |
|
(5) | Incorporated by reference to the Registrants Current Report on Form 10-KSB dated
March 16, 2005. |
|
(6) | Incorporated by reference to the Registrants Current Report on Form 8-K dated March
2, 2011 filed on March 8, 2011. |
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Table of Contents
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) |
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April
|
29, 2011 | |||
By:
|
/s/ Don Crosbie | |||
Don Crosbie | ||||
Chief Executive Officer | ||||
April 29, 2011 | ||||
By:
|
/s/ Laura M. Bray | |||
Laura M. Bray | ||||
Chief Financial Officer |
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