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| CLAI.OB > SEC Filings for CLAI.OB > Form 10-Q on 28-Apr-2009 | All Recent SEC Filings |
28-Apr-2009
Quarterly Report
• our ability to successfully implement our revised business strategy;
• 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;
• threats to Internet security; and
• acceptance of the Internet and other online services in the healthcare industry and in general.
This Management's 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, 2009, we had a working capital deficit of $914,000 and a
stockholders' deficit of $1,051,000. We generated revenues of $519,000 for the
three months ended March 31, 2009 and $490,000 for the three months ended
March 31, 2008. We have incurred net losses since inception and had an
accumulated deficit of $45,548,000 at March 31, 2009. We expect to continue to
operate at a loss in the near future.
The majority of the cost of revenue 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, 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 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
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. In addition, under Section 404(a) of the
Sarbanes-Oxley Act, management is required to report on our internal controls
over financial reporting and under Section 404(b) of the Sarbanes-Oxley Act our
registered independent public accountant is required to report on internal
control over financial reporting. We are required to comply with Section 404(b)
effective for the year ending December 31, 2009. We believe this will continue
to be very significant and could have a material adverse effect on our business,
prospects, financial condition and results of operations.
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.
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, 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.
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
web site which is in the name of and/or has the look and feel of the customer's
other web sites) 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, 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, 2009 COMPARED TO THREE
MONTHS ENDED MARCH 31, 2008
REVENUES
Revenues for the three months ended March 31, 2009 (the "2009 first quarter")
were $519,000 compared to $490,000 for the three months ended March 31, 2008
(the "2008 first quarter"), representing an increase of 6%. The increase in
revenues for the three month comparable periods was primarily the result of
increased claim volumes from current customers.
COST OF REVENUES
Cost of revenues for the 2009 first quarter was $413,000, compared with $392,000
for the 2008 first quarter, representing an increase of 5%. 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 $10,000 for the 2009 first quarter compared with $10,000
for the 2008 first quarter. Transaction processing expenses were $156,000 for
the 2009 first quarter compared with $143,000 for the 2008 first quarter. The
increase in third party transaction processing expense was primarily
attributable to increased claim volumes from current customers. Customer support
operation expenses were $234,000 for the 2009 first quarter compared with
$219,000 for the 2008 first quarter, primarily due to the addition of personnel.
Amortization and depreciation expenses for the 2009 first quarter included
$2,000 of software amortization and development project amortization expenses
compared with $6,000 for the 2008 first quarter, and $11,000 for depreciation
associated with our capital lease equipment compared to $11,000 for the 2008
first quarter.
OPERATING EXPENSES
There were no research and development expenses for the 2009 first quarter or
the 2008 first quarter. Research and development expenses are ordinarily
comprised of personnel costs and related expenses. During the first quarter of
2008, we began an upgrade to our main website. We capitalized development costs
of $41,000 in the 2008 first quarter related to an upgrade to our main website.
There were no capitalized development costs during the 2009 first quarter.
Selling, general and administrative expenses for the 2009 first quarter were
$251,000 compared with $201,000 for the 2008 first quarter. The increase was
primarily attributable to an increase in sales personnel and associated
benefits.
OTHER INCOME (EXPENSE)
Interest expense of $12,000 was incurred for the 2009 first quarter on financing
fees and related party debt compared with $29,000 for the 2008 first quarter.
LIQUIDITY AND CAPITAL RESOURCES
Net cash used in operating activities of $84,000 for the 2009 first quarter was
primarily related to net loss of $157,000 offset by changes in working capital
of $59,000 and depreciation and amortization of $14,000. Net cash used in
operating activities of $29,000 for the 2008 first quarter was primarily related
to net loss of $132,000 offset by changes in working capital of $85,000 and
depreciation and amortization of $18,000.
Net cash used in investing activities for the 2009 first quarter was $0. Net
cash used in investing activities for the 2008 first quarter was $62,000 related
to the cost of software development capitalized during the period of $41,000 and
acquisition costs recognized as part of the Acceptius acquisition of $21,000.
Net cash provided by financing activities in the 2009 first quarter was
$138,000, of which $200,000 was related to proceeds from related party debt
offset by $50,000 of debt repayments and $12,000 of capital lease principal
payments. Net cash provided by financing activities in the 2008 first quarter
was $40,000, of which $250,000 was related to proceeds from related party debt
offset by $200,000 of debt repayments and $10,000 of capital lease principal
payments.
On January 6, 2009, the Company issued an unsecured promissory note upon receipt
of $100,000 from National Financial Corporation, a related party ("NFC"). The
note originally bore interest at the rate of 5% per annum. The note was amended
on January 31, 2009 to decrease the interest rate to 3% per annum, effective
January 6, 2009. Payments equal to the principal and accrued and unpaid interest
on the note are due on demand, with thirty days notice.
On January 8, 2009, upon the demand of Mr. Thomas Michel, a member of the
Company's board of directors ("Michel"), the Company repaid principal on an
outstanding convertible note dated September 29, 2006 in the aggregate amount of
$50,000 plus accrued interest of $8,558.
On January 31, 2009, the Company exercised its option to convert into the
Company's common stock, par value $0.001 ("Common Stock"), a debt evidenced by
an unsecured promissory note with Elmira United Corporation, a greater than 5%
shareholder of the Company ("Elmira"). The Company issued the note on March 20,
2008 with a maturity date of March 31, 2011, and bore interest at the rate of 4%
per annum. The outstanding principal of $250,000 was converted into 1,187,500
shares of Common Stock at a conversion price of 47,500 shares per $10,000 of
principal. In addition, $8,712 of accrued and unpaid interest was converted into
41,383 shares of Common Stock at a conversion price of 47,500 shares per $10,000
of interest.
On January 31, 2009, the Company exercised its option to convert into Common
Stock a debt evidenced by an unsecured promissory note with Elmira. The Company
issued the note on May 13, 2008 with a maturity date of March 31, 2011, and bore
interest at the rate of 4% per annum. The outstanding principal of $200,000 was
converted into 950,000 shares of Common Stock at a conversion price of 47,500
shares per $10,000 of principal. In addition, $5,786 of accrued and unpaid
interest was converted into 27,485 shares of Common Stock at a conversion price
of 47,500 shares per $10,000 of interest.
On January 31, 2009, the Company issued amendments to two unsecured promissory
notes with Michel. The notes originally bore interest at the rate of 5% per
annum. The Company issued the first note on September 16, 2008 in the amount of
$30,000. The Company issued the second note on September 29, 2008 in the amount
of $20,000. The notes were amended to decrease the interest rate to 3% per
annum, effective January 1, 2009.
On January 31, 2009, the Company issued an amendment to an unsecured promissory
note with NFC. The Company issued the note on November 16, 2006 in the amount of
$100,000, and originally bore interest at the rate of 8% per annum. The note was
amended to decrease the interest rate to 3% per annum, effective January 1,
2009.
On January 31, 2009, the Company issued an amendment to an unsecured promissory
note with NFC. The Company issued the note on December 13, 2007 in the amount of
$100,000, and originally bore interest at the rate of 7% per annum. The note was
amended to decrease the interest rate to 3% per annum, effective January 1,
2009.
On January 31, 2009, the Company issued amendments to three unsecured promissory
notes with NFC. The Company issued the first note on August 20, 2008 in the
amount of $50,000. The Company issued the second note on October 28, 2008 in the
amount of $50,000. The Company issued the third note on November 26, 2008 in the
amount of $50,000. The notes originally bore interest at the rate of 5% per
annum. The notes were amended to decrease the interest rate to 3% per annum,
effective January 1, 2009.
On January 31, 2009, the Company issued an amendment to an unsecured promissory
note with NFC. The Company issued the note on January 6, 2009 in the amount of
$100,000, and originally bore interest at the rate of 5% per annum. The note was
amended to decrease the interest rate to 3% per annum, effective January 1,
2009.
On January 31, 2009, the Company issued an amendment to an unsecured promissory
note with Mr. J.R. Schellenberg, a related party ("Schellenberg"). The Company
issued the note on June 6, 2002 in the amount of $35,000, and originally bore
interest at the rate of 9.5% per annum. The note was amended to decrease the
interest rate to 3% per annum, effective January 1, 2009.
On January 31, 2009, the Company issued an amendment to an unsecured promissory
note with Schellenberg. The Company issued the note on August 1, 2002 in the
amount of $10,000, and originally bore interest at the rate of 8% per annum. The
note was amended to decrease the interest rate to 3% per annum, effective
January 1, 2009.
On January 31, 2009, the Company issued an amendment to an unsecured convertible
promissory note with Michel. The Company issued the note on January 23, 2007 in
the amount of $10,000, and originally bore interest at the rate of 5% per annum.
The note was amended to decrease the interest rate to 3% per annum, effective
January 1, 2009.
On January 31, 2009, the Company issued an amendment to an unsecured convertible
promissory note with Elmira. The Company issued the note on November 29, 2006 in
the amount of $300,000, and originally bore interest at the rate of 5% per
annum. The note was amended to decrease the interest rate to 3% per annum,
effective January 1, 2009.
On February 4, 2009, the Company issued an unsecured promissory note upon
receipt of $100,000 from NFC. The note bears interest at the rate of 3% 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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