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| CLAI.OB > SEC Filings for CLAI.OB > Form 10-K on 2-Mar-2009 | All Recent SEC Filings |
2-Mar-2009
Annual Report
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. 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.
On February 20, 2008, the Company acquired substantially all the assets of
Acceptius, Inc. ("Acceptius"). Acceptius was engaged in the business of
providing transaction processing services to the healthcare industry. The
Company anticipates that the acquisition will expand its current revenue
generating opportunities by adding paper conversion and claims repricing, extend
its claims processing capabilities and increase its client base.
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 customer's
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
website which is in the name of and/or has the look and feel of the customer's
other websites) and some customization of the offering and business rules. We
account for our service agreements 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. We currently use an estimated expected business arrangement term of
three years which is currently the term of the typical contracts signed by our
customers. We do not segment these services and use the underlying contractual
terms to recognize revenue because we do not have objective and reliable
evidence of fair value to allocate the arrangement consideration to the
deliverables in the arrangement. 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.
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, and labor-related costs. The
software is amortized over its expected useful life of 3 years or the contract
term, as appropriate.
Management evaluates the recoverability, valuation, and amortization of
capitalized costs of software that we sell, lease or otherwise market, whenever
events or changes in circumstances indicate that the carrying valuation 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.
RECENT ACCOUNTING PRONOUNCEMENTS
In September 2006, the FASB issued Statement of Financial Accounting Standard
("SFAS") No. 157, "Fair Value Measurements" ("SFAS 157"). SFAS 157 defines fair
value, establishes a market-based framework or hierarchy for measuring fair
value, and expands disclosures about fair value measurements. SFAS 157 is
applicable whenever another accounting pronouncement requires or permits assets
and liabilities to be measured at fair value. SFAS 157 does not expand or
require any new fair value measures; however the application of this statement
may change current practice. The requirements of SFAS 157 became effective for
our fiscal year 2008. However, in February 2008 the FASB decided that an entity
need not apply this standard to nonfinancial assets and liabilities that are
recognized or disclosed at fair value in the financial statements on a
nonrecurring basis until the subsequent year. Accordingly, our adoption of this
standard on January 1, 2008 was limited to financial assets and liabilities and
did not have a material effect on our financial condition or results of
operations. We are still in the process of evaluating this standard with respect
to its effect on nonfinancial assets and liabilities and therefore have not yet
determined the impact that it will have on our financial statements upon full
adoption.
RESULTS OF OPERATIONS
COMPARISON OF THE YEARS ENDED DECEMBER 31, 2008 AND 2007
REVENUES
Revenues increased 26% to $2,080,000 in 2008 from to $1,648,000 in 2007. The
increase in revenues was primarily due to the acquisition of substantially all
the assets of Acceptius, Inc., as well as the addition of several customers
combined with increased revenues from our existing customers. Revenues received
from two customers represented a significant portion of our total revenues
during the last two years. Revenues received from one customer represented 36%
and 40% of our revenues for 2008 and 2007, respectively; revenues received from
another customer represented 8% and 11% of our revenues for 2008 and 2007,
respectively.
COST OF REVENUES
Cost of revenues was $1,640,000 in 2008 compared to $1,156,000 for the prior
year, an increase of 42%. The four recurring components of cost of revenues are
data center expenses, third party transaction processing expenses, customer
support operation expenses and amortization of software. Data center expenses
were $43,000 for the year ended December 31, 2008 compared with $28,000 for
2007, an increase of 54%. The increase in data center expenses was primarily
attributable to an expansion of services along with an increase in equipment to
support claim increases. Third party transaction processing expenses were
$602,000 in 2008 compared to $397,000 in 2007, an increase of 52%. The increase
in third party transaction processing expenses was primarily attributable to new
contracts with clearing houses. Customer support operations expense increased by
40% to $933,000 in 2008 from $665,000 in 2007. The increase in customer support
operations expenses was primarily attributable to an increase in support
personnel as part of the acquisition of substantially all the assets of
Acceptius, Inc. Software amortization and development project amortization
expenses decreased to $62,000 in 2008 compared to $66,000 in 2007.
RESEARCH AND DEVELOPMENT
Research and development expenses were $12,000 in 2008, compared with $3,000 in
2007.
IMPAIRMENT
During 2007, $57,000 of previously capitalized software development costs was
impaired. There was no software impairment in 2008.
SELLING, GENERAL AND ADMINISTRATIVE
Selling, general and administrative expenses were $973,000 in 2008, compared
with $780,000 in 2007, an increase of 25%. The $193,000 increase is primarily
related to an increase in personnel and personnel related expenses in the sales
department.
INTEREST EXPENSE
Interest expense was $105,000 for 2008 compared with $109,000 for 2007. Included
in the 2008 expense was $83,000 related to interest on notes payable to related
parties compared with $73,000 for 2007. Interest expense of $11,000 in 2008 and
$21,000 in 2007 related to other notes payable. Interest of $11,000 and $15,000
respectively was paid to vendors in 2008 and 2007 for financing fees.
LIQUIDITY AND CAPITAL RESOURCES
For the year ended December 31, 2008, net cash used in operating activities of
$384,000 was primarily attributable to a net loss of $650,000, adjusted for
depreciation and amortization of $70,000, bad debt of $9,000, interest paid in
shares of common stock of $30,000, and a change in other working capital
accounts of $172,000, offset by a decrease in deferred revenue of $15,000.
Net cash used in investing activities was $120,000 in 2008, related to the cost
of software development capitalized during the period of $98,000 and acquisition
costs recognized as part of the Acceptius acquisition of $22,000.
Net cash provided by financing activities in 2008 was $406,000 as a result of
proceeds of $675,000 from debt financing from related parties offset by $225,000
used to repay debt and principal payments on capital lease obligations of
$44,000.
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 our capital
requirements through December 31, 2009. 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 repay debt obligations as they become due, forced to
significantly reduce operating expenses to a point that 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
cease operations altogether. In the event that any future financing is affected,
to the extent it includes equity securities, the holders of our 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 may be unable to
recoup any of their investment. In addition, compliance with Sarbanes-Oxley
Section 404 has placed and will continue to place additional strain on our
limited managerial, operational, and financial resources which we believe will
be very significant and could have a material adverse effect on our business,
prospects, financial condition and results of operations.
OFF-BALANCE SHEET ARRANGEMENTS
None.
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