will be dedicated for the
Companys exclusive use, will be managed by the Company and based in Jaipur, India. These new Indian operations will supplement the Companys
existing operations in Utah, Texas and Jamaica. The Resourcing Agreement was reviewed and approved by the Companys Audit
Committee.
Preferred
Stock. Previously, the Companys Series A Convertible Preferred Stock (old) had a stated value of $22.1
million and was convertible into 1,424,258 shares of Healthaxis common stock at a conversion price of $15.50 per share. The terms of the preferred
stock provided that cumulative dividends be paid at the rate of 2%, or approximately $442,000 per year, payable semi-annually. In general, the Company
could have paid the dividends either in cash or by issuing shares of common stock, although in some circumstances it was required to pay cash
dividends. The terms of the preferred stock provided that, in some situations, the holders of the preferred stock could have forced Healthaxis to buy
back their shares. The Company believed that the occurrence of the situations where it could be required to buy back shares of preferred stock was
within its control. The preferred stock also contained, among other things, provisions providing the holders a preference in the payment of dividends
and also a liquidation preference equal to at least the stated value of the preferred stock plus all accrued but unpaid dividends. The holders of the
preferred stock did not have general voting rights, although they did have the right to vote separately as a class in connection with some
matters.
Healthaxis entered into a
Preferred Stock Modification Agreement on May 12, 2004. On June 30, 2004, Healthaxis consummated a transaction modifying the terms of its Series A
Convertible preferred stock and providing for the issuance to its preferred shareholders of warrants to purchase shares of the Companys common
stock. Under the terms of the agreements with the preferred shareholders, the then existing shares of the preferred stock were convertible into an
aggregate of 3,850,000 shares of the Companys common stock. The preferred shareholders also received warrants with a term of five years entitling
them to purchase up to 1,000,000 shares of common stock at an exercise price of $5.50 per share (subject to a cashless exercise feature that applies
under some circumstances). The shares of common stock into which the shares of preferred stock have been, or are in the future, convertible and, with
respect to which the warrants are exercisable, represent approximately 54% of our common stock on a fully diluted basis as of December 31, 2004.
Holders of the preferred stock have no liquidation preference, no voting rights except as required by law, the right to receive a nominal dividend of
$0.0001 per share semi-annually (aggregating to less than $1,000 per year in total) and otherwise on a pro-rata basis to the extent that dividends are
paid to holders of common stock, limited anti-dilution rights in the context of stock splits, stock dividends and similar transactions, and no
redemption rights.
The new preferred stock is
convertible into shares of common stock at the option of a preferred shareholder at any time, and in any amount, on or after June 30, 2005, but prior
to that date may only be converted if the preferred shareholder desiring to effect the conversion will not hold, as a result of the conversion, more
than 750,000 shares of common stock, or if the common stock is trading on a national stock market and has had a closing price of $8.00 or more for 20
out of the 30 trading days immediately preceding the conversion date (in which case, any number of shares may be converted). Notwithstanding the
foregoing, in the event of the transfer of shares of preferred stock in accordance with the terms of the agreements with the preferred shareholders,
the preferred stock automatically converts into shares of common stock. Healthaxis may compel conversion of the preferred stock or exercise of the
warrants granted to the preferred shareholders under certain circumstances.
Under the agreements with the
preferred shareholders, Healthaxis agreed that it will not issue any equity securities in a transaction implying a pre-money valuation of Healthaxis of
less than $14.5 million, or at a per share price of less than $2.15 (these restrictions do not apply to the grant of stock options to Healthaxis
employees or directors in most circumstances). Further, until June 30, 2005, the preferred shareholders have a right of first refusal to match the
terms upon which any third party proposes to purchase from Healthaxis any equity securities having an aggregate purchase price of at least $1.0 million
and to match the terms upon which Healthaxis proposes an offering of its common stock (the preferred shareholders have waived this right of first
refusal with respect to the transactions with the Investor contemplated by the Purchase Agreement, provided such transactions close by June 30,
2005).
7
Prior to conversion, the new
preferred stock will only have the right to vote to the extent it is entitled to do so under applicable law. Under applicable law, the new preferred
stock is entitled to vote separately as a class in certain instances, including in the event of a merger or consolidation that would effect some types
of changes in the Companys articles of incorporation. To the extent that applicable law entitles the new preferred stock to vote on a given
merger or consolidation transaction prior to June 30, 2005, the preferred shareholders have agreed to vote their shares in favor of such a merger or
consolidation if the common shareholders have approved the merger or consolidation and the per share price to be received by the preferred shareholders
in the merger or consolidation is at least $3.50 in cash for each share of preferred stock. If the Company pursues a merger or consolidation on or
after June 30, 2005, the preferred shareholders have agreed to vote their shares in favor of the merger or consolidation if the common shareholders
approve the merger or consolidation and if the per share price to be received by the preferred shareholders in the merger or consolidation for each
share of preferred stock is at least equal to what they would have received in the merger or consolidation if they had converted their shares of
preferred stock into shares of common stock immediately prior to the merger or consolidation.
As required under the preferred
stock modification agreements, Healthaxis has registered for resale the shares of common stock issuable upon conversion of the preferred stock or
exercise of the warrants. These agreements do, however, place certain restrictions on the private sale or transferability of the securities held by the
preferred shareholders, and restrict the number of shares of common stock that may be sold in the public markets below a price of $3.50 per share.
These stock transfer restrictions lapse on June 30, 2005. The Company filed a Form S-3 Registration Statement on September 2, 2004 to register for
resale the shares of common stock issuable upon conversion of the preferred stock or exercise of the warrants. On October 28, 2004 the Securities and
Exchange Commission declared the Registration Statement effective.
Significant Project
Update: As previously disclosed, the Company had a contract for software licensing, development and systems implementation
with the State of Washington Health Care Authority (HCA), which began in mid 2002. The Company was the prime contractor on the HCA project
and utilized the services of an offshore development partner to perform a significant part of the work. Also, as previously disclosed, a dispute arose
under the HCA contract in late 2003, which was resolved by the Company and HCA in the second quarter of 2004. Both parties entered into an agreement to
terminate the HCA contract. The Company also simultaneously entered into a cancellation agreement with its development partner canceling and
terminating its master software services agreement with the development partner and the work order associated with subcontracted portions of the HCA
project.
Under the terms of the agreement
with HCA, the Company paid HCA $300,000 and transferred title to certain project documentation to HCA. The agreement also contains full mutual releases
of all parties including HCA, Healthaxis and the development partner, and an express denial of liability or wrongdoing by all parties.
Under the terms of the agreement
between the Company and its development partner, Healthaxis received $208,000 and any rights the development partner may have in the documentation
being transferred by Healthaxis to HCA, resulting in a net cash payment by Healthaxis to HCA of $92,000. The agreement also contains full mutual
releases between Healthaxis and the development partner, and an express denial of liability or wrongdoing by either party.
The Company entered into these
agreements solely to avoid the potential time and cost of dispute resolution. The execution and funding of these agreements resolved all outstanding
issues related to the HCA project. The net impact of these transactions is included in general and administrative expense.
Repurchase of Securities Held
by UICI. On September 30, 2003, the Company purchased all Healthaxis securities held by UICI for $3.9 million. The UICI
holdings included 2,585,769 shares of Healthaxis common stock, or 48.3% of the Companys outstanding common stock; 1,424 shares of Series A
Convertible Preferred Stock, or 6.1% of the outstanding preferred stock; and warrants to purchase 22,240 shares of common stock.
8
The repurchased securities
were retired. The total purchase price of $3.9 million included $500,000 cash at closing, and a $3.4 million promissory note, which is due over three
years and bears interest at 6%. The promissory note will be paid through deductions from the monthly invoices for BPO services provided by the Company
to the Mega Life & Health Insurance Company (Mega), a UICI subsidiary. The amount of the monthly payment will be equal to the greater
of one half of the Mega invoice amount for BPO services or $65,000. A balloon principal payment is due at the maturity of the note if the note has not
been paid through the monthly payments. The balance remaining to be paid as of December 31, 2004, was $2.7 million
November 2002 Cost Reduction
Initiative. On November 12, 2002, a cost reduction initiative was begun which was designed to more closely align expenses
with revenues and to enhance the Companys operating performance. The cost reduction initiative consisted of both a reduction in the
Companys labor force and an across-the-board reduction in salary levels, and planned reductions in certain operating and overhead expenses. The
reduction in labor force was effective in mid-November and the reduction in salary levels was effective January 1, 2003.
Convertible Debenture
Exchange. On July 31, 2002 the Company completed a transaction providing for the cancellation of its $27.5 million 2%
convertible debentures in exchange for issuance to the debenture holders of shares of Series A Convertible Preferred Stock (Preferred
Stock) and the payment of $4.0 million cash. The Preferred Stock was convertible into shares of Healthaxis common stock at a conversion price of
$15.50 (subject to downward adjustment in certain events), and carried a fixed dividend rate of 2% per annum, payable semi-annually in cash or shares
of common stock. As more fully described in Note 10 to Notes to Consolidated Financial Statements, the Preferred Stock contained, among other things,
provisions providing the holders a preference in the payment of dividends and also a liquidation preference equal to at least the stated value of the
Preferred Stock plus all accrued but unpaid dividends, and in the event of our failure to comply with certain contractual provisions, redemption
rights. The holders of the Preferred Stock did not have general voting rights, although they did have the right to vote separately as a class in
connection with some matters. As described in Overview Preferred Stock above, the terms of the Series A Preferred Stock were
significantly modified on June 30, 2004.
Termination of UICI Services
Agreement. UICI and its subsidiaries, in the aggregate, constituted our largest single client during 2002, accounting for
37% of our total revenues (including revenues from discontinued operations). On June 17, 2002 the Company consummated an agreement providing for the
termination of its Services Agreement with UICI. The termination of the Services Agreement substantially reduced Healthaxis business relationship
with UICI. See Note 12 of Notes to Consolidated Financial Statements for a summary of the terms under which the Services Agreement was terminated. As a
result of the termination of the Services Agreement, the Companys consolidated financial statements have been prepared with the related revenue
and expenses presented as discontinued operations. All historical financial statements presented were previously restated to conform to this
presentation.
Segments. The Company has historically presented information regarding two segments based on the Companys
internal organizational structure and financial reporting. During the first quarter of 2004, the Company re-aligned its operations under a single
operating manager and further consolidated its operations. As a result of this change, the Company now produces consolidated information on its
operations (and on sales, general and administrative), which is regularly reviewed by the executive management committee of the Company in assessing
performance and as an aid in making decisions about how resources are allocated. Accordingly, the Company no longer has reportable segments and has
discontinued disclosure of segment information for all periods.
9
Results of Operations
Year ended December 31, 2004 compared to year ended
December 31, 2003
|
|
|
|
(Table in thousands) |
|
|
|
|
|
Year Ended Dec. 31, |
|
|
|
|
|
2004
|
|
2003
|
|
Change
|
Revenues |
|
|
|
$ |
16,162 |
|
|
$ |
20,851 |
|
|
$ |
(4,689 |
) |
Cost of
revenues |
|
|
|
|
15,905 |
|
|
|
19,573 |
|
|
|
(3,668 |
) |
Gross
profit |
|
|
|
$ |
257 |
|
|
$ |
1,278 |
|
|
$ |
(1,021 |
) |
% of
revenue |
|
|
|
|
2 |
% |
|
|
6 |
% |
|
|
|
|
Revenues were down
approximately $4.7 million (22%) in the year ended December 31, 2004 compared to the same period in 2003. Cessation of work on the ACS/State of Georgia
project and the State of Washington project, related to the development of benefit administration platforms, accounted for $1.8 million of the
reduction. Recurring PEPM license fee revenue declined $578,000 primarily as the result of customers in a terminated or in a run-off stage, while other
reductions in the number of covered lives administered by our clients was largely offset by increased revenues from new data mining capabilities
offered to the Companys ASP customers. Transaction fees and other revenue decreased $963,000 as a result of the consolidation of print and
mailings across certain customers, and as a result of the decreased number of covered lives. Bundling of checks to the same provider of medical
services and combining multiple payers into the same envelope for mailing, resulted in this decreased print and mailing revenue. Professional service
fees decreased $723,000 as a result of decreased customers dependence upon our technical staff and a decrease in the number of one-time projects,
as compared to the same period in 2003. Data capture service revenue declined $654,000 as a result of lower claims volume and due to the reduced number
of covered lives in certain customers that use our data capture services.
Cost of revenues includes
all expenses directly associated with the production of revenue, and consists primarily of salaries and related benefits, rent, amortization and
depreciation, system expenses such as maintenance and repair, as well as other related consumables. Cost of revenues declined $3.7 million (19%) in the
year ended December 31, 2004 compared to the same period in 2003. Cost of revenues was 98% of revenues in the 2004 period compared to 94% in the 2003
period. Approximately $1.7 million of the cost decline was related to termination of contract labor and internal costs associated with the ACS/State of
Georgia and the State of Washington projects, which were underway in 2003. An additional $524,000 of the decline was due to reduced amortization and
depreciation expenses resulting from a decline in capital spending for property, plant and equipment over the last three years. The remaining reduction
was largely the result of lower costs for salary, benefits, travel, facilities and other expenses associated with personnel.
|
|
|
|
(Table in thousands) |
|
|
|
|
|
Year Ended Dec. 31, |
|
|
|
|
|
2004
|
|
2003
|
|
Change
|
Sales and
marketing expense |
|
|
|
$ |
1,475 |
|
|
$ |
948 |
|
|
$ |
527 |
|
General and
administrative expense |
|
|
|
|
3,489 |
|
|
|
3,298 |
|
|
|
191 |
|
Research and
development expense |
|
|
|
|
|
|
|
|
30 |
|
|
|
(30 |
) |
Amortization
of intangibles |
|
|
|
|
1,032 |
|
|
|
1,296 |
|
|
|
(264 |
) |
Interest and
other income, net |
|
|
|
|
25 |
|
|
|
139 |
|
|
|
(114 |
) |
Interest
expense |
|
|
|
|
(244 |
) |
|
|
(109 |
) |
|
|
135 |
|
10
Sales and marketing
expenses consist primarily of employee salaries and related benefits, as well as promotional costs such as direct mailing campaigns, trade shows,
media advertising and website development costs. These expenses increased $527,000 (56%) in the year ended December 31, 2004 compared to the same
period of 2003. The increase is primarily due to additional personnel and recruiting expenses related to sales and marketing management and staff
additions in early 2004, as well as commissions on new 2004 sales.
General and administrative
expenses include executive management, accounting, legal and human resources compensation and related benefits, as well as expenditures for
applicable overhead costs. These expenses increased $191,000 (6%) in the year ended December 30, 2004 compared to the same period of 2003. The increase
was primarily due to the $92,000 settlement on of the State of Washington project and $468,000 of legal, accounting and other professional fees
associated with the preferred stock transaction completed in June 2004. These cost increases were partially offset by lower costs for facilities,
personnel and insurance totaling $299,000 plus other smaller cost reductions.
Research and development
expenses were reduced to zero in the year ended December 31, 2004 compared to $30,000 in the same period of 2003, as the Company has placed a
greater emphasis on completing existing development projects and the maintenance of existing customer accounts.
Amortization of
intangibles includes the amortization of developed software and customer base acquired in the January 2001 Healthaxis merger. These expenses were
reduced $264,000 (20%) in the year ended December 31, 2004 compared to the same period of 2003, as certain acquired developed software was fully
amortized in January 2004.
Interest and other income,
net decreased $114,000 in the year ended December 31, 2004 compared to the same period of 2003, due primarily to lower balances on notes receivable
resulting from the normal course of collections and a write-off of certain retired fixed assets no longer used in the business.
Interest expense increased
$135,000 (124%) in the year ended December 31, 2004 compared to the same period of 2003 due to interest payments under the $3.4 million note payable to
UICI dated September 30, 2003, related to the Companys purchase of UICIs Healthaxis stock and warrants.
Year ended December 31, 2003 compared to year ended
December 31, 2002
Technology & Operations
|
|
|
|
Year Ended December 31, |
|
|
|
|
|
2003
|
|
2002
|
|
Change
|
|
|
|
|
(In thousands) |
|
Revenues |
|
|
|
$ |
16,097 |
|
|
$ |
15,671 |
|
|
$ |
426 |
|
Cost of
revenues |
|
|
|
|
15,059 |
|
|
|
16,058 |
|
|
|
(999 |
) |
Gross
profit |
|
|
|
$ |
1,038 |
|
|
$ |
(387 |
) |
|
$ |
1,425 |
|
% of
revenue |
|
|
|
|
6 |
% |
|
|
(2 |
)% |
|
|
|
|
Revenue from Technology
& Operations for the year was up $426,000 (3%) from 2002. Changes with the following customers explain the primary reasons for the net
increase.
11
In 2003, we recognized a total of
$894,000 revenue on the ACS / State of Georgia contract. As this contract was accounted for under the completed-contract method, there was no revenue
recognized in 2002. The project was halted prior to completion and a termination agreement was entered into in late 2003, which included a mutual
release of liability. Healthaxis was paid the money it was owed. In 2003, we added print and distribution services for two existing customers. The
increase in revenue of $1.1 million for these two customers is largely the result of providing these new services. Also contributing to the increase in
2003 was a $742,000 increase from a new customer in the fourth quarter 2002.
The 2003 revenue increases
described above were partially offset by the following factors. Two contract terminations in 2002 accounted for revenue decreases in 2003 of $1.4
million. Revenue from a third customer declined $452,000 as it reduced its dependence upon our staff to support its retail website. Additionally, our
revenue in 2002 included $420,000 in non-recurring fees from a software license agreement with UICI, which was not a part of the UICI discontinued
operations.
Other 2003 revenue increases,
particularly related to expanding our WebAxis product line, were offset by a decline in 2003 of one-time HIPAA related projects performed in 2002 and
by a reduction in 2003 revenue from a customer due to revised pricing and their declining headcount.
Cost of revenues includes
all expenses directly associated with the production of revenue, and consists primarily of salaries and related benefits, rent, amortization and
depreciation, system expenses such as maintenance and repair, and other related consumables. Cost of revenues from Technology & Operations was
reduced $999,000 (6%) from 2002 to 2003. Cost of revenues in 2003 as a percent of revenue was 94% compared to 102% in 2002. The reasons for the net
improvement are summarized and described below.
The most significant portion of
the net improvement resulted from a reduction in personnel costs, offset by less capitalization for new software development or contract start-up and
increased costs attributable to print and distribution revenue. In November 2002, we reduced costs through personnel reductions. In addition,
company-wide salary reductions went into effect on January 1, 2003. Personnel expenses decreased $3.5 million in 2003 as a result of this cost
containment initiative. The effect of this cost reduction in operations was partially offset by the fact that some employees were re-assigned to
expensable projects from capitalizable development projects. The effect of this action was to decrease the expense savings by $961,000 compared to
2002. Also, as noted in the revenue section above, in 2003 we began print and distribution services for two existing customers and added a new customer
in the fourth quarter 2002, which also included print and distribution services. The increase in cost of revenues related to these new services was
approximately $1.6 million.
As more fully disclosed in
Overview Significant Projects above, a charge was taken in the fourth quarter 2003 related to the State of Washington
project. The charge consisted of a $314,000 write-off of all assets and liabilities related to the project, plus an accrual of $106,000 for costs
incurred on the project in early 2004 prior to the time that work was stopped. Other factors affecting costs of revenues for Technology &
Operations included non-recurring impairment charges related to software and equipment totaling $715,000 in 2002 and reduced amortization and
depreciation charges of $560,000 in 2003 as more assets became fully depreciated, reflecting a slower acquisition trend over the last three years.
These reductions were partially offset in 2003 by an increase in subcontractor fees of $401,000 related to outsourced work for our two government
contracts.
12
BPO Services (formerly known as Imaging Services
Group)
|
|
|
|
Year Ended December 31, |
|
|
|
|
|
2003
|
|
2002
|
|
Change
|
|
|
|
|
(In thousands) |
|
Revenue |
|
|
|
$ |
4,754 |
|
|
$ |
4,145 |
|
|
$ |
609 |
|
Cost of
revenue |
|
|
|
|
4,514 |
|
|
|
5,297 |
|
|
|
(783 |
) |
Gross
profit |
|
|
|
$ |
240 |
|
|
$ |
(1,152 |
) |
|
$ |
1,392 |
|
% of
revenue |
|
|
|
|
5 |
% |
|
|
(28 |
%) |
|
|
|
|
Revenue from BPO Services
for 2003 was up $609,000 (15%) from 2002. In early 2003, we began pre-adjudication processing for an existing imaging and data capture customer. This
allowed us to increase transaction counts significantly, which resulted in an additional $532,000 in revenue over 2002. Two new accounts were also
added during 2003, which increased revenue by $262,000. We also received increased volumes from UICI during the first three quarters of 2003, which
accounted for an additional $320,000 in revenue from this client over 2002.
One customer terminated our
services, which resulted in a reduction in revenue of $187,000 in 2003. Additionally, revenue decreased $183,000 for another customer as a result of a
price reduction effective in August 2003 and due to reduced volume throughout the year.
Cost of revenue in BPO
Services was reduced $783,000 (15%) in 2003 from 2002. Cost of revenues in 2003 as a percent of revenue was 95% compared to 128% in 2002. The positive
change resulted from lower depreciation and amortization expense, lower personnel costs in the BPO technical services group, and better productivity in
our production centers in Utah and Jamaica. A reduction in capital expenditures during the last three years caused a decrease in depreciation and
amortization expense totaling $367,000. The reduction in imaging technical support personnel from twelve to eight was part of the November 2002 staff
reduction. Across-the-board salary reductions also went into effect in January 2003. Personnel costs reductions from this group accounted for most of
the personnel related cost decrease of $196,000 from 2002. Although revenue increased, variable labor costs did not increase proportionately due to
increased operating efficiencies obtained at our production centers. Additionally, capitalization of $153,000 took place in 2003, which had the effect
of offsetting costs related to personnel. The capitalized amounts consisted of software development related to Optical Character Recognition (OCR) and
start-up costs related to a new customer. The developed software was for internal use and was therefore included in property, equipment and
software.
Other Corporate-wide Items:
|
|
|
|
(Table in thousands) |
|
|
|
|
|
Year Ended December 31, |
|
|
|
|
|
2003
|
|
2002
|
|
Change
|
Sales and
marketing expense |
|
|
|
$ |
948 |
|
|
$ |
1,951 |
|
|
$ |
(1,003 |
) |
General and
administrative expense |
|
|
|
|
3,298 |
|
|
|
3,745 |
|
|
|
(447 |
) |
Research and
development expense |
|
|
|
|
30 |
|
|
|
366 |
|
|
|
(336 |
) |
Restructuring
and impairment charges |
|
|
|
|
|
|
|
|
6,232 |
|
|
|
(6,232 |
) |
Amortization
of intangibles |
|
|
|
|
1,296 |
|
|
|
1,300 |
|
|
|
(4 |
) |
Gain on
extinguishments of debt |
|
|
|
|
|
|
|
|
16,388 |
|
|
|
(16,388 |
) |
Interest and
other income, net |
|
|
|
|
139 |
|
|
|
32 |
|
|
|
107 |
|
Interest
expense |
|
|
|
|
(109 |
) |
|
|
(459 |
) |
|
|
(350 |
) |
Loss from sale
of discontinued operations |
|
|
|
|
|
|
|
|
(3,564 |
) |
|
|
(3,564 |
) |
Gain from
discontinued operations |
|
|
|
|
|
|
|
|
850 |
|
|
|
(850 |
) |
Cumulative
effect of accounting change |
|
|
|
|
|
|
|
|
(6,674 |
) |
|
|
(6,674 |
) |
13
Sales and marketing
expenses decreased $1.0 million (51%) from 2002. The sales and marketing staff was reduced from seven in September 2002 to three as result of the
November 2002 staff reduction. These changes, combined with the 2003 salary reductions, account for approximately $693,000 of the decrease from 2002.
Travel expenses dropped $122,000 and cost associated with trade shows and other marketing efforts decreased by $88,000 commensurate with the staff
reduction. Stock based compensation also decreased $81,000 from 2002 to 2003.
General and administrative
expenses decreased $447,000 (12%) from 2002 despite a gain in 2002 related to the settlement of Al Clemens severance liability in the amount
of $1.3 million, which decreased general and administrative expenses. See Note 12 to Notes to Consolidated Financial Statements. Excluding this
one-time benefit, general and administrative expenses for the 2003 decreased $1.8 million from 2002. The November 2002 staff reductions, combined with
the January 2003 salary reductions, accounted for $758,000 of the cost decrease. Professional fees decreased $408,000 compared with 2002. Non-cash
stock based compensation expense decreased $271,000 due to the gradual decrease of expense resulting from the remeasurement of stock options at the
time of the 2001 Healthaxis merger. Additionally, insurance and other expenses were reduced by $355,000. The Company continues to look for ways to trim
administrative expenses.
Research and development
expenses decreased $336,000 (92%) from 2002. We have significantly reduced our research and development activities in 2003 compared to 2002 due to
a greater emphasis on completing existing development products, and the maintenance of existing customer accounts.
Restructuring and impairment
charges were $6.2 million in 2002. Approximately $5.9 million was attributable to the further impairment of goodwill and the remaining $358,000 was
due to severance expenses related to terminated employees as a result of the November 2002 cost reduction initiative described previously. There were
no similar charges in 2003.
Amortization of
intangibles includes the amortization of developed software and client base. This amount was essentially unchanged in 2003 compared to
2002.
Gain on extinguishment of
debt in the 2002 period of $16.4 million relates to the July 2002 transaction whereby Healthaxis issued 23,500 shares of Series A Convertible
Preferred Stock and paid $4.0 million in exchange for its existing convertible debentures having a face value of $27.5 million.
Interest and other income,
net in 2002 includes a non-recurring write down of our investment in Digital Insurance in the amount of $227,000, offset by lower interest income
in 2003 as a result of lower notes receivable balances.
Interest expense decreased
$350,000 in 2003 from 2002, primarily as a result of the elimination of the $27.5 million of convertible debentures in July 2002. Interest expense in
2002 related to the convertible debentures was $376,000. This reduction was offset slightly by additional interest expense for the $3.4 million note
payable to UICI dated September 30, 2003 related to the Companys purchase of UICIs Healthaxis stock and warrants.
Loss on disposal from sale of
discontinued operations of $3.6 million in 2002 includes the impairment of goodwill and customer base attributable to the disposal of the
Outsourcing segment as a result of the termination of the Services Agreement with UICI. There were no similar charges in 2003.
14
Gain from discontinued
operations relates to the gain from the disposal of the UICI Outsourcing business unit. These operations were discontinued in connection with the
June 2002 termination of the UICI Services Agreement.
Cumulative effect of
accounting change was recorded as a result of our adoption of SFAS No. 142 Goodwill and Other Intangible Assets. No such charge was
recorded in 2003.
Liquidity and Capital Resources
Overview of Cash Resources
At December 31, 2004, our cash
and cash equivalents amounted to $3.9 million compared to $7.9 million at December 31, 2003. The sources and uses of cash during 2004 are described
more fully in Analysis of Cash Flows below. We have experienced repeated losses, with the result that our cash resources have declined. The
Companys focus is on positive cash generation. We have been taking measures to address our liquidity needs, including increasing our marketing
and sales efforts, implementing further productivity improvements and seeking new sources of capital. To this end, the Company recently entered into a
Purchase Agreement with Tak Investments, Inc., and if the related transactions are consummated, the funds from the issuance of shares of the
Companys common stock will provide the Company with an additional source of liquidity. Please see Overview Purchase Agreement
with Tak Investments for a summary of the potential transactions with Tak Investments, Inc. No assurance can be given that the transactions
contemplated by the Purchase Agreement will be consummated or that any or all of the foregoing liquidity initiatives will prove successful. We believe
that the Company will maintain sufficient liquidity to fund operations for at least the next 12 months, even if one were to assume that the financing
transactions contemplated by the Purchase Agreement with Tak Investments, Inc. were not completed. However, in the event that we are unable to maintain
or increase our revenues, or effectively reduce our expenses to a level commensurate with our revenues, or raise additional capital, then our business
would likely be adversely affected.
The Company is encumbered with
certain costs of being a public company, which cause its overhead structure to be higher than that normally associated with a company its size. The
Companys general and administrative expenses as a percent of revenue were 22%, 16% and 19% during 2004, 2003 and 2002 respectively. Management
believes the fixed costs of remaining a public company will continue to be a significant burden on operating results until offsetting revenue growth is
achieved. The increased percentage in 2004 was primarily the result of increased legal and accounting expenses incurred in connection with the
Preferred Stock Modification Agreement (see Overview Preferred Stock above), and as result of reduced
revenues.
With regard to maintaining cash
flow from current customers, we are dependent on a small number of clients to generate a significant amount of annual and quarterly revenues. We
believe that the relationships with our customers are generally positive. For the year ended December 31, 2004, our four largest customers accounted
for 63% of revenues from continuing operations. One of these customers, accounting for 16% of total 2004 revenue, was purchased by another TPA in 2002
and has indicated they will be winding down their use of the Healthaxis system during 2005 and migrating the processing to a system used by its parent
company. We believe that we will continue to provide certain services to this customer for 2005 and beyond. However, it is likely that the total
revenue from this customer will decrease significantly. New sales made in late 2004 are expected to partially offset this lost revenue, in addition to
new sales anticipated in 2005.
Our plans for generating new
revenues are based upon recent additions to our sales staff and refinement of our sales processes. We believe that Healthaxis offers competitive, and
competitively priced, products and
15
services its target markets.
However, there can be no assurances that we will be successful in achieving our revenue growth goals.
Analysis of Cash Flows
Cash used in operating
activities for the year ended December 31, 2004 was approximately $2.8 million as compared to $1.2 million and $2.1 million for the same periods in
2003 and 2002, respectively. The increase in cash used in 2004 compared to 2003 was primarily due to a $1.7 million increase in the net loss and an
$816,000 reduction in depreciation expenses from 2003, partially offset by an improvement in working capital of $840,000. Cash used in 2004 was roughly
the same as in 2002 despite a reduction in the net loss. The net loss in 2002 included a number of non-cash expenses and gains as detailed in the
Consolidated Statements of Cash Flows.
Cash used in investing
activities for the year ended December 31, 2004 was $891,000 as compared to $1.1 million and $1.7 million for the same periods in 2003 and 2002,
respectively. The Companys investing activities continue to be primarily in the areas of developing software enhancements, contract start-up
activities and the acquisition of property, equipment and software. The decrease in cash used in 2004 compared to 2003 was primarily due to a reduction
in expenditures for purchased property, equipment and software, partially offset by increased expenses related to internally developed software and job
start-up expenses. The decrease in cash used in 2004 compared to 2002 was primarily due to a $1.1 million reduction in internally developed software
and job start-up, partially offset by increased costs of purchased property and equipment and smaller collections on notes receivable.
Cash used in financing
activities for the year ended December 31, 2004 was $223,000 as compared to $1.2 million for the same period in 2003 and cash generated of $2.0
million in 2002. The decrease in cash used in 2004 compared to 2003 was due to a $467,000 reduction in payments on preferred stock dividends resulting
from amending and restating the terms of the preferred stock agreements completed in June 2004. See Overview Preferred Stock above.
The initial $500,000 payment to UICI for purchasing Healthaxis stock and warrants in 2003 also contributed to the increased expenditures in that
year. Subsequent principal and interest payments of $799,000 and $138,000 in 2004 and 2003, respectively, were netted against accounts receivable and
therefore are reflected as a non-cash financing activity in the Consolidated Statements of Cash Flows. See Overview Repurchase of
Securities Held by UICI above. The $2.0 million cash generated in 2002 was largely the net effect of $6.4 million received from UICI related to
the early termination of the Services Agreement, partially offset by a $4.0 million payment on the cancellation of the convertible debentures. Both of
these transactions are fully described in the Overview Termination of UICI Services Agreement and the Overview
Convertible Debenture Exchange sections above.
Contractual Obligations
The following table summarizes
the Companys known contractual obligations (in $000s) as of December 31, 2004:
|
|
|
|
Total
|
|
Less than 1 Year
|
|
13 Years
|
|
35 Years
|
|
After 5 Years
|
Long term
debt obligations (1) |
|
|
|
$ |
2,678 |
|
|
$ |
637 |
|
|
$ |
2,041 |
|
|
$ |
|
|
|
$ |
|
|
Operating
lease obligations (2) |
|
|
|
|
1,089 |
|
|
|
991 |
|
|
|
98 |
|
|
|
|
|
|
|
|
|
Purchase
obligations (3) |
|
|
|
|
370 |
|
|
|
170 |
|
|
|
200 |
|
|
|
|
|
|
|
|
|
Other
long-term liabilities (4) |
|
|
|
|
929 |
|
|
|
135 |
|
|
|
174 |
|
|
|
159 |
|
|
|
461 |
|
Total |
|
|
|
$ |
5,066 |
|
|
$ |
1,933 |
|
|
$ |
2,513 |
|
|
$ |
159 |
|
|
$ |
461 |
|
16
(1) |
|
Long-term debt obligations relate to the promissory note payable
to UICI, excluding related interest. |
(2) |
|
Operating lease obligations consist primarily of leases of
office space and various pieces of equipment. |
(3) |
|
Purchase obligations consist primarily of contractual
obligations for estimated future payments related to the licensing of various software modules that are integrated into Healthaxis
products. |
(4) |
|
Other long-term liabilities consist of estimated payments
anticipated for funding of post-retirement benefits for a group of former executives of the Company. The benefits consist primarily of medical and
dental insurance. |
The Companys commitments to make payments in
addition to these contractual commitments are the other accounts payable and short-term liabilities reflected on the Consolidated Balance
Sheets.
Critical Accounting Policies
General
Our discussion and analysis of
Healthaxis financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in
accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make
estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. We base our estimates on historical experience
and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments
about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates
under different assumptions or conditions.
Critical accounting policies are
those which are most important to the financial statement presentation and that require the most difficult, subjective complex judgments. We believe
the following critical accounting policies include the more significant judgments and estimates used in the preparation of our consolidated financial
statements.
Revenue Recognition
See Overview
Revenue Model above.
Capitalized Software
Healthaxis incurs development
costs that relate primarily to the development of new products and major enhancements to existing services and products. All development costs related
to software development projects incurred prior to the time of completing analysis, design and a detailed project plan are expensed. Costs incurred
after completion of the project plan are capitalized until the software is released into production and made available to customers on our system. Once
released into production, the capitalized costs are then amortized over the estimated useful life of the asset.
Goodwill and Other Intangible Assets
Effective January 1, 2002, the
Company adopted Statements of Financial Accounting Standards (SFAS) No. 142 Goodwill and Other Intangible Assets, which
requires companies to stop amortizing goodwill and certain intangible assets with an indefinite useful life. Instead, SFAS No. 142 requires that
goodwill and intangible assets deemed to have an indefinite useful life be reviewed for impairment upon adoption of SFAS No. 142 (January 1, 2002),
annually thereafter and upon the occurrence of any event that
17
indicates potential
impairments. The Company performs its annual impairment review during the fourth quarter of each year based upon an October 1 date. The Company does
not have any intangible assets with an indefinite life.
SFAS No. 142 prescribes a
two-phase process for impairment testing of goodwill. The first phase screens for potential impairment, while the second phase (if necessary), measures
the impairment. Goodwill is potentially impaired if the net book value of a reporting unit exceeds its estimated fair value. The Company has a single
reporting unit, as defined by SFAS No. 142, for purposes of analyzing goodwill.
In calculating the impairment
charges, the fair value of the reporting unit is estimated using a discounted cash flow methodology. This methodology differs from the Companys
previous policy, as permitted under accounting standards existing at that time, of using undiscounted cash flows on an enterprise-wide basis to
determine if goodwill is recoverable. The significant assumptions used in these calculations include discount rates and estimated future growth rates
and operating margins. A change in any of these assumptions could significantly impact the estimated fair value of the reporting unit.
Impairment of Long-Lived Assets
In 2002, the Company adopted SFAS
No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets (SFAS 144), which supersedes SFAS No. 121,
Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be disposed of. In accordance with SFAS 144, the Company
records impairment losses on long-lived assets when events and circumstances indicate that such assets are not recoverable and impaired such that the
estimated fair value of the asset is less than its recorded amount. Conditions that would necessitate an impairment assessment included material
adverse changes in operations, significant adverse differences in actual results in comparison with initial valuation forecasts prepared at the time of
acquisition, a decision to abandon acquired products, services or technologies, or other significant adverse changes that would indicate the carrying
amount of the recorded asset might not be recoverable.
The Company reviews its
long-lived assets and certain intangible assets for impairment on a quarterly basis or whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Recoverability of assets held and used is generally measured by a comparison of the carrying amount
of an asset to undiscounted pre-tax future net cash flows expected to be generated by that asset. An impairment loss is recognized for the amount by
which the carrying amount of the assets exceeds the fair value of the assets estimated using discounted cash flows.
Income Taxes
Deferred income taxes reflect the
net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used
for income tax purposes. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that
the deferred tax assets will not be realized. As a result of the capital transactions of both Healthaxis and its subsidiaries, including the Insurdata
Merger, the HAXS Merger, the re-purchase of all Healthaxis stock and warrants from UICI and the modification to the Preferred Stock agreements, the
utilization of NOL carryforwards is limited. Additionally, the utilization of these NOLs, if available, to reduce future income taxes is
dependent on the generation of sufficient taxable income prior to their expiration. As it is considered more likely than not that the deferred tax
assets will not be realized, the Company has established a valuation allowance for all net deferred tax assets
Post Retirement Benefits
We have an obligation to provide
certain post retirement benefits to a group of retirees formerly employed by a predecessor of the Company. The benefits are lifetime health and life
insurance coverage.
18
Because this obligation
exists until the death of the participants, actuarial calculations, which include the use of estimates, are used to determine the carrying value of the
liability. These estimates include the life expectancy of the participants, a discount rate to calculate the present value of the expected future
costs, and growth rates to project anticipated future increases in the cost of the benefits provided. The amount necessary to satisfy this obligation
may, therefore, be different than the amount accrued. The most sensitive variable in the calculation is the life expectancy of the participants. The
Company uses current mortality tables to project life expectancy. As mortality rates do not change rapidly, the Company does not expect to have
material changes to the calculation and therefore to the estimated liability.
Contingent Liabilities
Healthaxis policy is to
record contingent liabilities that are both measurable and probable. In assessing whether or not to record a contingent liability, both of these
criteria may be subjective. The final amount paid, if any, could be different than the amount we have accrued.
Recent Accounting Pronouncements
See Note 1 to the Consolidated
Financial Statements herein for a discussion of the impact on the Companys financial statements of new accounting standards.
19
Item
8. |
|
Financial Statements and Supplementary Data |
|
|
|
|
Page
|
Report of
Independent Registered Public Accounting Firm |
|
|
|
|
21 |
|
Report of
Independent Registered Public Accounting Firm |
|
|
|
|
22 |
|
Consolidated
Balance Sheets December 31, 2004 and 2003 |
|
|
|
|
23 |
|
Consolidated
Statements of Operations Years ended December 31, 2004, 2003 and 2002 |
|
|
|
|
24 |
|
Consolidated
Statements of Changes in Stockholders Equity Years ended December 31, 2004, 2003 and 2002 |
|
|
|
|
25 |
|
Consolidated
Statements of Cash Flows Years ended December 31, 2004, 2003 and 2002 |
|
|
|
|
26 |
|
Notes to
Consolidated Financial Statements |
|
|
|
|
28 |
|
20
Report of Independent Registered Public Accounting
Firm
To the Board of Directors
Healthaxis Inc. and Subsidiaries
Dallas, Texas
We have audited the consolidated balance sheet of
Healthaxis Inc. and Subsidiaries (the Company) as of December 31, 2004, and the related consolidated statements of operations, changes in
stockholders equity and cash flows for the year then ended. These financial statements are the responsibility of the Companys management.
Our responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with the standards of
the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements
referred to above present fairly, in all material respects, the financial position of Healthaxis Inc. and Subsidiaries as of December 31, 2004, and the
results of their operations and their cash flows for the year then ended in conformity with U.S. generally accepted accounting
principles.
As described in Note 18 to the consolidated financial
statements, the 2004 net loss and loss per share attributed to common stockholders as well as certain items in the consolidated statement of cash flows
have been restated.
/s/ McGladrey & Pullen, LLP
Dallas, Texas
March 11, 2005, except for Note 18 as to
which the date is November 9, 2005
21
Report of Independent Registered Public Accounting
Firm
The Board of Directors and Stockholders
Healthaxis Inc.
We have audited the accompanying consolidated balance
sheet of Healthaxis Inc. and Subsidiaries as of December 31, 2003, and the related consolidated statements of operations, stockholders equity and
cash flows for each of the two years in the period ended December 31, 2003. These financial statements are the responsibility of the Companys
management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards
of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements
referred to above present fairly, in all material respects, the financial position of Healthaxis Inc. and Subsidiaries at December 31, 2003, and the
consolidated results of their operations and their cash flows for each of the two years in the period ended December 31, 2003, in conformity with U.S.
generally accepted accounting principles.
As discussed in Note 7 to the financial statements, the
Company changed its method of accounting for goodwill as of January 1, 2002.
/s/ Ernst & Young
LLP
Dallas, Texas
March 24, 2004
22
Healthaxis Inc. and Subsidiaries
Consolidated Balance
Sheets
(Dollars in thousands except share data)
|
|
|
|
December 31, |
|
|
|
|
|
2004
|
|
2003
|
Assets
|
|
|
|
|
|
|
|
|
|
|
Current
assets:
|
|
|
|
|
|
|
|
|
|
|
Cash and cash
equivalents |
|
|
|
$ |
3,930 |
|
|
$ |
7,887 |
|
Accounts
receivable, net of allowance for doubtful accounts of $48 and $44, respectively |
|
|
|
|
2,368 |
|
|
|
3,077 |
|
Prepaid
expenses |
|
|
|
|
635 |
|
|
|
605 |
|
Notes
receivable |
|
|
|
|
|
|
|
|
124 |
|
Total current
assets |
|
|
|
|
6,933 |
|
|
|
11,693 |
|
Property,
equipment and software, less accumulated depreciation and amortization of $6,661 and $9,952, respectively |
|
|
|
|
966 |
|
|
|
1,238 |
|
Contract
start-up costs, less accumulated amortization of $1,199 and $704, respectively |
|
|
|
|
655 |
|
|
|
759 |
|
Capitalized
software, less accumulated amortization of $2,760 and $2,199, respectively |
|
|
|
|
688 |
|
|
|
990 |
|
Customer base,
less accumulated amortization of $4,130 and $3,121, respectively |
|
|
|
|
84 |
|
|
|
1,093 |
|
Goodwill |
|
|
|
|
11,276 |
|
|
|
11,276 |
|
Notes
receivable |
|
|
|
|
23 |
|
|
|
|
|
Other
assets |
|
|
|
|
56 |
|
|
|
65 |
|
Total
assets |
|
|
|
$ |
20,681 |
|
|
$ |
27,114 |
|
Liabilities and Stockholders Equity
|
|
|
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
|
|
|
Accounts
payable |
|
|
|
$ |
1,238 |
|
|
$ |
981 |
|
Accrued
liabilities |
|
|
|
|
674 |
|
|
|
795 |
|
Deferred
revenues |
|
|
|
|
923 |
|
|
|
888 |
|
Notes payable,
current portion |
|
|
|
|
637 |
|
|
|
599 |
|
Current
portion, post retirement and employment liabilities |
|
|
|
|
135 |
|
|
|
117 |
|
Total current
liabilities |
|
|
|
|
3,607 |
|
|
|
3,380 |
|
|
|
|
|
|
|
|
|
|
|
|
Notes
payable |
|
|
|
|
2,041 |
|
|
|
2,697 |
|
Post
retirement and employment liabilities |
|
|
|
|
794 |
|
|
|
823 |
|
Other
liabilities |
|
|
|
|
1,417 |
|
|
|
1,467 |
|
Total
liabilities |
|
|
|
|
7,859 |
|
|
|
8,367 |
|
Commitments
and contingencies |
|
|
|
|
|
|
|
|
|
|
Stockholders Equity: |
|
|
|
|
|
|
|
|
|
|
Preferred
stock, par value $1.00: authorized 100,000,000 shares: |
|
|
|
|
|
|
|
|
|
|
Series A
Convertible, 3,100,000 shares issued and outstanding (no liquidation preference) Series A cumulative convertible, issued and outstanding 22,076 shares
(liquidation preference $22,076) |
|
|
|
|
3,100 |
|
|
|
5,899 |
|
Common stock,
par value $.10: authorized 1,900,000,000 shares, Issued and outstanding 3,518,291 and 2,767,592 shares, respectively |
|
|
|
|
352 |
|
|
|
277 |
|
Additional
paid-in capital |
|
|
|
|
444,221 |
|
|
|
441,464 |
|
Accumulated
deficit |
|
|
|
|
(434,851 |
) |
|
|
(428,893 |
) |
Total
stockholders equity |
|
|
|
|
12,822 |
|
|
|
18,747 |
|
Total
liabilities and stockholders equity |
|
|
|
$ |
20,681 |
|
|
$ |
27,114 |
|
See notes to consolidated financial
statements
23
Healthaxis Inc. and Subsidiaries
Consolidated
Statements of Operations
(Dollars in thousands except share data)
|
|
|
|
Years Ended December 31, |
|
|
|
|
|
2004
|
|
2003
|
|
2002
|
|
|
|
|
(As Restated) |
|
|
|
Revenue |
|
|
|
$ |
16,162 |
|
|
$ |
19,422 |
|
|
$ |
17,732 |
|
Revenue from
affiliates |
|
|
|
|
|
|
|
|
1,429 |
|
|
|
2,084 |
|
Total |
|
|
|
|
16,162 |
|
|
|
20,851 |
|
|
|
19,816 |
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs of
revenues |
|
|
|
|
15,905 |
|
|
|
19,573 |
|
|
|
21,355 |
|
Sales and
marketing |
|
|
|
|
1,475 |
|
|
|
948 |
|
|
|
1,951 |
|
General and
administrative |
|
|
|
|
3,489 |
|
|
|
3,298 |
|
|
|
3,745 |
|
Research and
development |
|
|
|
|
|
|
|
|
30 |
|
|
|
366 |
|
Restructuring
and impairment charges |
|
|
|
|
|
|
|
|
|
|
|
|
6,232 |
|
Amortization
of intangibles |
|
|
|
|
1,032 |
|
|
|
1,296 |
|
|
|
1,300 |
|
Total
expenses |
|
|
|
|
21,901 |
|
|
|
25,145 |
|
|
|
34,949 |
|
Operating
loss |
|
|
|
|
(5,739 |
) |
|
|
(4,294 |
) |
|
|
(15,133 |
) |
Gain on
extinguishment of debt |
|
|
|
|
|
|
|
|
|
|
|
|
16,388 |
|
Interest income
and other income (expense) |
|
|
|
|
25 |
|
|
|
139 |
|
|
|
32 |
|
Interest
expense |
|
|
|
|
(244 |
) |
|
|
(109 |
) |
|
|
(459 |
) |
|
|
|
|
|
(219 |
) |
|
|
30 |
|
|
|
15,961 |
|
Income (loss)
from continuing operations |
|
|
|
|
(5,958 |
) |
|
|
(4,264 |
) |
|
|
828 |
|
Loss from
disposal or sale of discontinued operations |
|
|
|
|
|
|
|
|
|
|
|
|
(3,564 |
) |
Gain from
discontinued operations |
|
|
|
|
|
|
|
|
|
|
|
|
850 |
|
Total loss from
discontinued operations |
|
|
|
|
|
|
|
|
|
|
|
|
(2,714 |
) |
Net loss before
cumulative effect of accounting change |
|
|
|
|
(5,958 |
) |
|
|
(4,264 |
) |
|
|
(1,886 |
) |
Cumulative
effect of accounting change |
|
|
|
|
- |
|
|
|
|
|
|
|
(6,674 |
) |
Net
loss |
|
|
|
|
(5,958 |
) |
|
|
(4,264 |
) |
|
|
(8,560 |
) |
Less: Cash
dividends on preferred stock |
|
|
|
|
|
|
|
|
(690 |
) |
|
|
(198 |
) |
Less: Fair value
of consideration transferred over carrying value of preferred stock |
|
|
|
|
(3,973 |
) |
|
|
|
|
|
|
|
|
Net loss
attributable to common stockholders |
|
|
|
$ |
(9,931 |
) |
|
$ |
(4,954 |
) |
|
$ |
(8,758 |
) |
Income (loss)
per share of common stock (basic and diluted)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing
operations |
|
|
|
$ |
(3.48 |
) |
|
$ |
(1.05 |
) |
|
$ |
0.12 |
|
Discontinued
operations |
|
|
|
|
|
|
|
|
|
|
|
|
(0.51 |
) |
Cumulative
effect of accounting change |
|
|
|
|
|
|
|
|
|
|
|
|
(1.24 |
) |
Net
loss |
|
|
|
$ |
(3.48 |
) |
|
$ |
(1.05 |
) |
|
$ |
(1.63 |
) |
Weighted average
common shares and equivalents used in computing loss per share basic and diluted |
|
|
|
|
2,856,532 |
|
|
|
4,699,244 |
|
|
|
5,360,954 |
|
See notes to consolidated financial
statements
24
Healthaxis Inc. and Subsidiaries
Consolidated
Statements of Changes in Stockholders Equity
(Dollars and shares in thousands)
|
|
|
|
Preferred Stock |
|
Common Stock |
|
Additional Paid-In |
|
Accumulated
|
|
Unearned |
|
|
|
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
|
Capital
|
|
Deficit
|
|
Compensation
|
|
Total
|
Balance,
December 31, 2001 |
|
|
|
|
|
|
|
$ |
|
|
|
|
5,298 |
|
|
$ |
530 |
|
|
$ |
438,154 |
|
|
$ |
(416,069 |
) |
|
$ |
(226 |
) |
|
$ |
22,389 |
|
Net
loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(8,560 |
) |
|
|
|
|
|
|
(8,560 |
) |
Issuance of
Series A Convertible Preferred Stock |
|
|
|
|
23 |
|
|
|
6,280 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,280 |
|
Contribution
from UICI |
|
|
|
|
|
|
|
|
|
|
|
|
(50 |
) |
|
|
(5 |
) |
|
|
6,364 |
|
|
|
|
|
|
|
|
|
|
|
6,359 |
|
Preferred
stock dividends |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(198 |
) |
|
|
|
|
|
|
|
|
|
|
(198 |
) |
Common stock
issued in lieu of interest and severance |
|
|
|
|
|
|
|
|
|
|
|
|
118 |
|
|
|
11 |
|
|
|
893 |
|
|
|
|
|
|
|
|
|
|
|
904 |
|
Employee stock
option compensation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
307 |
|
|
|
|
|
|
|
|
|
|
|
307 |
|
Other |
|
|
|
|
|
|
|
|
|
|
|
|
(2 |
) |
|
|
|
|
|
|
(6 |
) |
|
|
|
|
|
|
|
|
|
|
(6 |
) |
Amortization/forfeiture of unearned compensation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(93 |
) |
|
|
|
|
|
|
226 |
|
|
|
133 |
|
Balance,
December 31, 2002 |
|
|
|
|
23 |
|
|
|
6,280 |
|
|
|
5,365 |
|
|
|
536 |
|
|
|
445,421 |
|
|
|
(424,629 |
) |
|
|
|
|
|
|
27,608 |
|
|
Net
loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,264 |
) |
|
|
|
|
|
|
(4,264 |
) |
Preferred
stock dividends |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(690 |
) |
|
|
|
|
|
|
|
|
|
|
(690 |
) |
Common stock
received for payment on note receivable |
|
|
|
|
|
|
|
|
|
|
|
|
(12 |
) |
|
|
|
|
|
|
(41 |
) |
|
|
|
|
|
|
|
|
|
|
(41 |
) |
Repurchase of
UICI stock and warrants |
|
|
|
|
(1 |
) |
|
|
(381 |
) |
|
|
(2,586 |
) |
|
|
(259 |
) |
|
|
(3,260 |
) |
|
|
|
|
|
|
|
|
|
|
(3,900 |
) |
Employee stock
option compensation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
34 |
|
|
|
|
|
|
|
|
|
|
|
34 |
|
Balance,
December 31, 2003 |
|
|
|
|
22 |
|
|
|
5,899 |
|
|
|
2,768 |
|
|
|
277 |
|
|
|
441,464 |
|
|
|
(428,893 |
) |
|
|
|
|
|
|
18,747 |
|
|
Net
loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,958 |
) |
|
|
|
|
|
|
(5,958 |
) |
Modification
of Preferred Stock |
|
|
|
|
3,828 |
|
|
|
(2,049 |
) |
|
|
|
|
|
|
|
|
|
|
2,049 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion of
Preferred Stock to Common |
|
|
|
|
(750 |
) |
|
|
(750 |
) |
|
|
750 |
|
|
|
75 |
|
|
|
675 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise of
Stock Options |
|
|
|
|
|
|
|
|
|
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee stock
option compensation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
33 |
|
|
|
|
|
|
|
|
|
|
|
33 |
|
Balance,
December 31, 2004 |
|
|
|
|
3,100 |
|
|
$ |
3,100 |
|
|
|
3,518 |
|
|
$ |
352 |
|
|
$ |
444,221 |
|
|
$ |
(434,851 |
) |
|
$ |
|
|
|
$ |
12,822 |
|
See notes to consolidated financial
statements
25
Healthaxis Inc. and Subsidiaries
Consolidated
Statements of Cash Flows
|
|
|
|
Years Ended December 31, |
|
|
|
|
|
2004
|
|
2003
|
|
2002
|
|
|
|
|
(As Restated) |
|
(As Restated) |
|
Cash flows
from operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss |
|
|
|
$ |
(5,958 |
) |
|
$ |
(4,264 |
) |
|
$ |
(8,560 |
) |
Adjustments to
reconcile net loss to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss on
discontinued operations |
|
|
|
|
|
|
|
|
|
|
|
|
3,564 |
|
Cumulative
effect of accounting change |
|
|
|
|
|
|
|
|
|
|
|
|
6,674 |
|
Depreciation
and amortization |
|
|
|
|
2,626 |
|
|
|
3,442 |
|
|
|
4,669 |
|
Amortization
of unearned compensation |
|
|
|
|
|
|
|
|
|
|
|
|
133 |
|
Gain on
restructuring/forgiveness of debt |
|
|
|
|
|
|
|
|
|
|
|
|
(16,388 |
) |
Bad debt
reserve expense |
|
|
|
|
9 |
|
|
|
55 |
|
|
|
164 |
|
Non-cash
restructuring and impairment charges |
|
|
|
|
|
|
|
|
|
|
|
|
6,589 |
|
Gain on
settlement of severance obligation |
|
|
|
|
|
|
|
|
|
|
|
|
(1,345 |
) |
Stock option
compensation |
|
|
|
|
33 |
|
|
|
34 |
|
|
|
307 |
|
Write down of
investment in Digital Insurance, Inc. |
|
|
|
|
|
|
|
|
|
|
|
|
227 |
|
Common stock
issued in lieu of interest and severance |
|
|
|
|
|
|
|
|
|
|
|
|
904 |
|
Loss on
disposition of assets |
|
|
|
|
53 |
|
|
|
15 |
|
|
|
70 |
|
Non-cash
interest on convertible debt |
|
|
|
|
|
|
|
|
|
|
|
|
57 |
|
Changes in
operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts
receivable |
|
|
|
|
82 |
|
|
|
110 |
|
|
|
2,370 |
|
Prepaid
expenses |
|
|
|
|
(30 |
) |
|
|
(32 |
) |
|
|
(236 |
) |
Other
assets |
|
|
|
|
9 |
|
|
|
70 |
|
|
|
19 |
|
Costs in
excess of billings |
|
|
|
|
|
|
|
|
384 |
|
|
|
|
|
Accounts
payable and accrued liabilities |
|
|
|
|
359 |
|
|
|
(509 |
) |
|
|
(841 |
) |
Deferred
revenues |
|
|
|
|
35 |
|
|
|
(825 |
) |
|
|
(437 |
) |
Post
retirement and employment liabilities |
|
|
|
|
(11 |
) |
|
|
(26 |
) |
|
|
(29 |
) |
Other
liabilities |
|
|
|
|
(50 |
) |
|
|
382 |
|
|
|
(2 |
) |
Net cash used
in operating activities |
|
|
|
|
(2,843 |
) |
|
|
(1,164 |
) |
|
|
(2,091 |
) |
Cash flows
from investing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Software and
contract start-up costs capitalized |
|
|
|
|
(649 |
) |
|
|
(475 |
) |
|
|
(1,792 |
) |
Collection on
notes receivable, net |
|
|
|
|
101 |
|
|
|
183 |
|
|
|
384 |
|
Purchases of
property, equipment and software and internally developed capitalized software |
|
|
|
|
(343 |
) |
|
|
(847 |
) |
|
|
(263 |
) |
Net cash used
in investing activities |
|
|
|
|
(891 |
) |
|
|
(1,139 |
) |
|
|
(1,671 |
) |
See notes to consolidated financial
statements
26
Healthaxis Inc. and Subsidiaries
Consolidated
Statements of Cash Flows (Continued)
Cash flows
from financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal
payments on capital lease |
|
|
|
|
|
|
|
|
|
|
|
|
(8 |
) |
Termination of
UICI contract |
|
|
|
|
|
|
|
|
|
|
|
|
6,359 |
|
Buyback of
shares from UICI |
|
|
|
|
|
|
|
|
(500 |
) |
|
|
|
|
Payment on
convertible debentures |
|
|
|
|
|
|
|
|
|
|
|
|
(4,000 |
) |
Costs of
issuing convertible preferred stock |
|
|
|
|
|
|
|
|
|
|
|
|
(358 |
) |
Payment of
preferred stock dividends |
|
|
|
|
(223 |
) |
|
|
(690 |
) |
|
|
|
|
Net cash (used
in) provided by financing activities |
|
|
|
|
(223 |
) |
|
|
(1,190 |
) |
|
|
1,993 |
|
Decrease in
cash and cash equivalents |
|
|
|
|
(3,957 |
) |
|
|
(3,493 |
) |
|
|
(1,769 |
) |
Cash and cash
equivalents, beginning of year |
|
|
|
|
7,887 |
|
|
|
11,380 |
|
|
|
13,149 |
|
Cash and cash
equivalents, end of year |
|
|
|
$ |
3,930 |
|
|
$ |
7,887 |
|
|
$ |
11,380 |
|
Supplemental
disclosure of cash flow information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
paid |
|
|
|
$ |
3 |
|
|
$ |
14 |
|
|
$ |
90 |
|
Non-cash
financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exchange of
convertible debentures for convertible preferred stock |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
6,638 |
|
Exchange of
convertible preferred stock for new convertible preferred stock |
|
|
|
$ |
2,049 |
|
|
$ |
|
|
|
$ |
|
|
Accounts
receivable applied to note and interest payable in lieu of cash |
|
|
|
$ |
799 |
|
|
$ |
138 |
|
|
$ |
|
|
See notes to consolidated financial
statements
27
Healthaxis Inc. and Subsidiaries
Notes To Consolidated Financial Statements
Note 1 Organization and Summary of Significant
Accounting Policies
Healthaxis Inc.
(Healthaxis), formerly Provident American Corporation, is a Pennsylvania corporation organized in 1982. Healthaxis is a technology-enhanced
provider of fully integrated solutions and services for health benefit administrators and health insurance claim processors. These solutions, which are
comprised of software products and related business process services, are designed to assist health insurance payers and third party administrators
(TPA) to provide enhanced services to members, employees, employers and providers at lower cost. These services are provided through the
application of Healthaxis flexible technology on an Application Service Provider (ASP) basis. These technology solutions are
complemented by Healthaxis Business Process Outsourcing (BPO) services, which are offered to the Companys ASP clients and on a
stand-alone basis. BPO solutions include the automated capture, imaging, storage and retrieval of electronic claims, attachments, and related
correspondence, in addition to rules-based claims pre-adjudication and automated preferred provider organizations (PPO) routing and
repricing.
Principles of consolidation
The consolidated financial
statements include the accounts of the Company and its subsidiaries. All significant intercompany accounts and transactions have been
eliminated.
Use of estimates
The preparation of financial
statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and
assumptions that affect the reported amounts of revenues, expenses, assets, and liabilities and disclosure of contingencies. Actual results could
differ from those estimates.
Cash equivalents
Cash equivalents consist of
highly liquid investments with maturities of three months or less from date of purchase. The Company maintains its cash accounts at several commercial
banks. Cash accounts at each bank often exceed amounts that are insured by the Federal Deposit Insurance Corporation.
Accounts Receivables
Accounts receivable consist
primarily of customer billings and unbilled receivables pending billings in accordance with contract terms. An allowance for doubtful accounts is
maintained based upon the Companys history and a periodic review of the accounts. Amounts charged to bad debt expense during the years ended
December 31, 2004, 2003 and 2002 were $9,000, $55,000, and $164,000, respectively. As individual accounts are deemed to be uncollectable, they are
deducted from the allowance for doubtful accounts. Amounts deducted as such during the years ended December 31, 2004, 2003 and 2002 were $5,000,
$206,000,and $19,000, respectively
28
Property, equipment and software
Property, equipment and software
are recorded at cost. Expenditures for improvements that increase the estimated useful lives of the assets are capitalized. Expenditures for repairs
and maintenance are charged to operations as incurred. Depreciation and amortization are provided using the straight-line method over the estimated
useful lives of the assets ranging from 1 to 7 years.
Contract Start-up costs
Healthaxis capitalizes costs,
including direct labor and fringe benefits, directly attributable to start-up activities for ASP arrangement based long-term contracts. Such costs are
amortized ratably over the life of the respective contract. All other start-up costs are expensed as incurred. Contract start-up costs capitalized
during the years ended December 31, 2004, 2003, and 2002 totaled $390,000, $171,000, and $714,000, respectively. Healthaxis recorded amortization
expense relating to contract start-up costs of $494,000, $561,000, and $434,000, during the years ended December 31, 2004, 2003, and 2002,
respectively.
Capitalized software
Healthaxis incurs development
costs that relate primarily to the development of new products and major enhancements to existing services and products. All development costs related
to internal use software development projects incurred prior to the time of completing analysis, design and a detailed project plan are expensed. Costs
incurred after completion of the project plan are capitalized until the software is released into production and made available to customers on our
system. These costs are included in property, equipment and software.
Healthaxis has in the past
incurred development costs that relate primarily to the development of software to be sold, leased or otherwise marketed. All development costs related
to such projects incurred prior to the time a project has reached technological feasibility are expensed. Technological feasibility is determined only
after completion of a detailed program design or working model. Software development costs incurred subsequent to reaching technological feasibility
are capitalized up to the point of product marketability. These costs are included in capitalized software.
Healthaxis capitalized $259,000,
$304,000, and $1.1 million, in software development costs during the years ended December 31, 2004, 2003, and 2002, respectively. All software
development costs capitalized are amortized on a straight-line basis over the remaining economic life of the product (generally three years).
Healthaxis recorded amortization expense relating to capitalized software development costs totaling $561,000, $816,000, and $614,000 during the years
ended December 31, 2004, 2003, and 2002, respectively. Estimated future amortization expense is $461,000, $157,000 and $70,000 for years 2005, 2006 and
2007 respectively.
In 2002, an impairment charge of
$592,000 related to developed software was recorded. Impairment was determined based upon on analysis of estimated future cash flows in connection with
a decision by management to divert marketing efforts away from a product. The charge, which represents the remaining carrying value of the asset, has
been included in costs of revenue.
29
Customer Base
Healthaxis customer base
was recorded as a result of a business combination transaction and is being amortized over a period of four years. Healthaxis recorded amortization
expense relating to the customer base costs totaling $1.0 million, $1.0 million, and $1.0 million during the years ended December 31, 2004, 2003, and
2002, respectively. Estimated future amortization expense is $84,000 for year 2005.
Goodwill
Effective January 1, 2002, the
Company adopted Statement of Financial Accounting Standards (SFAS) No. 142 Goodwill and Other Intangible Assets, which requires
companies to stop amortizing goodwill and certain intangible assets with an indefinite useful life. Instead, SFAS No. 142 requires that goodwill and
intangible assets deemed to have an indefinite useful life be reviewed for impairment upon adoption of SFAS No. 142, annually thereafter and upon the
occurrence of any event that indicates potential impairments. The Company performs its annual impairment review during the fourth quarter of each year
based upon an October 1 date. The Company does not have any intangible assets with an indefinite life.
SFAS No. 142 prescribes a
two-phase process for impairment testing of goodwill. The first phase screens for potential impairment, while the second phase (if necessary), measures
the impairment. Goodwill is potentially impaired if the net book value of a reporting unit exceeds its estimated fair value.
Impairment of long-lived assets
The Company records impairment
losses on long-lived assets when events and circumstances indicate that such assets are not recoverable and are impaired such that the estimated fair
value of the asset is less than its recorded amount. Conditions that would necessitate an impairment assessment included material adverse changes in
operations, significant adverse differences in actual results in comparison with initial valuation forecasts prepared at the time of acquisition, a
decision to abandon acquired products, services or technologies, or other significant adverse changes that would indicate the carrying amount of the
recorded asset might not be recoverable.
The Company reviews its
long-lived assets and certain intangible assets for impairment on a quarterly basis or whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Recoverability of assets held and used is generally measured by a comparison of the carrying amount
of an asset to undiscounted pre-tax future net cash flows expected to be generated by that asset. An impairment loss is recognized for the amount by
which the carrying amount of the assets exceeds the fair value of the assets estimated using discounted cash flows.
Discontinued Operations
The Company reports discontinued
operations as a component of the Companys operations where the components operations and cash flows have been or will be eliminated from ongoing
operations of the Company and the Company will have no significant continuing involvement in the operations of the component after disposal. The
results of discontinued operations are reported as a separate component of income, net of income taxes, with all prior periods restated for
comparability purposes.
30
Stock-Based Compensation
The Company has elected to
continue to utilize the accounting method prescribed by APB Opinion No. 25 Accounting for Stock Issued to Employees (APB 25), and provide
the disclosure requirements of SFAS No. 123, Accounting for Stock-Based Compensation (SFAS 123), as amended by SFAS No. 148,
Accounting for Stock-Based Compensation Transition and Disclosure (SFAS 148). Although the Company selected an
accounting policy which requires only the excess of the market value of its common stock over the exercise price of options granted to be recorded as
compensation expense (intrinsic method), pro forma information regarding net loss is required as if the Company had accounted for its employee stock
options under the fair value method of SFAS 123. Pro forma net loss applicable to the option granted is not likely to be representative of the effects
on reported net loss for future years. The fair value for these options is estimated at the date of grant using a Black-Scholes option pricing model.
Stock compensation determined under the intrinsic method is recognized over the vesting period using the straight-line method.
Had compensation cost for the
Companys stock option grants been determined based on the fair value at the date granted in accordance with the provisions of SFAS 123, the
Companys net loss and net loss per common share would have been increased to the following pro forma amounts:
|
|
|
|
(Table in thousands, except per share data)
|
|
|
|
|
|
2004
|
|
2003
|
|
2002
|
Net loss
attributable to common shareholders |
|
|
|
$ |
(9,931 |
) |
|
$ |
(4,954 |
) |
|
$ |
(8,758 |
) |
Stock based
compensation expense recorded under the intrinsic value method |
|
|
|
|
33 |
|
|
|
34 |
|
|
|
307 |
|
Pro forma
stock based compensation expense computed under the fair value method |
|
|
|
|
(1,256 |
) |
|
|
(1,616 |
) |
|
|
(3,117 |
) |
Pro forma net
loss applicable to common stock |
|
|
|
$ |
(11,154 |
) |
|
$ |
(6,536 |
) |
|
$ |
(11,568 |
) |
Loss per share
of common stock, basic and diluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As
reported |
|
|
|
$ |
(3.48 |
) |
|
$ |
(1.05 |
) |
|
$ |
(1.63 |
) |
Pro
forma |
|
|
|
$ |
(3.91 |
) |
|
$ |
(1.39 |
) |
|
$ |
(2.16 |
) |
The fair value of the options and
warrants granted are estimated on the date of grant using the Black-Scholes option pricing model. The major assumptions used include no dividends paid,
a weighted average expected life of two to three years, expected stock volatility of 60% to 69% and risk free interest rates ranging from 2.75% to
4.85%. The weighted-average grant-date fair value of options granted during 2004 was $1.02.
Revenue recognition
The Companys revenues
consist primarily of application service provider (ASP) fees, transaction fees and professional service fees. The ASP services are substantially
dependent of the Companys proprietary software and agreements with customers contain a license for the use of the relevant software. However, the
customer does not have the contractual right to take possession of the software. The customers access to the Companys hosted software is
through dedicated data lines or the internet. With some exceptions, the Company has not historically licensed its benefits administration and claims
processing software for installation on customers systems. No new such licenses were granted in 2004 and the only revenue in 2004 from such
licenses were ongoing fees from past licenses that are payable based on customer usage. These revenue sources are described below.
31
A significant portion of the
Companys revenue is based on providing ASP services to our health insurance company, third-party administrator and self-insured plan customers.
The ASP service includes a license to use our benefits administration and claims processing software, including hosting, maintenance and support, which
is typically charged on a per-employee-per-month (PEPM), or per-member-per-month (PMPM) basis. In addition, the Company surrounds these hosted
software-use rights with such BPO services as imaging, data capture and retrieval, EDI and print and mail services, as well as PPO routing and
repricing services, and claims editing services. These services are typically charged on a transaction fee basis, such as per claim, per image and per
document. Due to the long-term nature of the ASP arrangement, and because all revenue elements included in the collective services are typically not
sold separately, the ASP and BPO service revenues are recognized ratably over the term of the agreement and/or as transaction services are
provided.
In preparation for providing
services under these multi-year ASP contracts, the Company also usually agrees to perform certain start-up activities directly related to customizing
and configuring the licensed software and loading insurance plan data for performance under the contract. The Company defers costs and revenues
relating to these start-up activities and recognizes such costs and revenues ratably over the term of the ASP contract.
Periodically, while an ASP
contract is in place, the Company also performs professional services upon request and recognizes the related revenue on a time and materials basis as
services are performed. Such professional services are not sold in conjunction with a software license included in the original ASP contract or other
revenue elements and, therefore, are accounted for separately from the ASP contract.
The Company uses contract
accounting for contracts where significant software modification is performed or where services are performed that are essential to the functionality
of the delivered software. Generally, contracts that include significant software modification are accounted for using the percentage of completion
method with progress measured based on the cost-to-cost method. Contracts with significant customer acceptance provisions are recognized using the
completed contract method upon achieving customer acceptance of the completed project. The Company currently has no contracts in progress for which
contract accounting is being applied.
Income taxes
Deferred income taxes reflect the
net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used
for income tax purposes. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that
the deferred tax assets will not be realized.
Basic and diluted loss per share of common
stock
Basic loss per share is computed
only on the weighted average number of common shares outstanding during the respective periods. Diluted earnings per share is computed to show the
dilutive effect, if any, of convertible preferred stock, stock options and warrants using the treasury stock method based on the average market price
of the stock during the respective periods. The effect of including the convertible preferred stock, stock options and warrants, totaling 5,290,430 and
2,521,437 as of December 31, 2004 and 2003 respectively, into the computation of diluted earnings per share would be anti-dilutive. Accordingly, these
items have not been included in the computation. Following is a summary of these securities:
32
|
|
|
|
As of December 30, |
|
|
|
|
|
2004
|
|
2003
|
Options |
|
|
|
|
1,076,359 |
|
|
|
936,527 |
|
Warrants |
|
|
|
|
1,114,071 |
|
|
|
160,652 |
|
Preferred
stock |
|
|
|
|
|
|
|
|
1,424,258 |
|
Preferred stock
new |
|
|
|
|
3,100,000 |
|
|
|
0 |
|
Total common
shares if converted |
|
|
|
|
5,290,430 |
|
|
|
2,521,437 |
|
Segments
The Company has historically
presented information regarding two segments based on the Companys internal organizational structure and financial reporting. During the first
quarter of 2004, the Company re-aligned its operations under a single operating manager and further consolidated the operations. As a result of this
change, the Company now produces consolidated information on the operations (excluding sales, general and administrative), which is regularly reviewed
by the executive management committee of the Company in assessing performance and as an aid in making decisions about how resources are allocated.
Accordingly, the Company no longer has reportable segments and has discontinued disclosure of segment information for all periods.
Reclassifications of prior year amounts
Certain prior year amounts have
been reclassified to conform with the 2004 presentations.
Stock Split
During 2003, the Company
completed a 1-for-10 reverse stock split of its $.10 par value common stock. All references to the number of shares and per share amounts have been
adjusted to reflect the reverse split for all periods presented.
Concentrations of Credit Risk and Fair Value of Financial
Instruments
The Companys customers are
dispersed across many different geographical areas within the United States. During the year ended December 31, 2004, four customers accounted for 63%
of revenues with each customer representing more than 10% as follows:
Customer
A |
|
|
|
|
19 |
% |
Customer
B |
|
|
|
|
18 |
% |
Customer
C |
|
|
|
|
16 |
% |
Customer
D |
|
|
|
|
10 |
% |
At December 31, 2004, accounts
receivable from Customer A accounted for $822,000 or 35% of the accounts receivable balance. This customer is making payments in accordance with the
terms of its contract. The Company does not require collateral from its customers. Most customer contracts provide Healthaxis the ability to
discontinue monthly ASP services in the event of non-payment, which could be detrimental to the customer. As a result, historical bad debts have not
been material. An allowance for doubtful accounts is maintained for estimated losses on specific accounts. Management estimates the allowance for each
account, if any, considering the historical payment history of the customer. Generally, uncollectable accounts are charged off when the account becomes
nine months old, and the customer has indicated its intent to not pay.
33
The carrying amount of cash and
cash equivalents, accounts receivable, notes receivable, notes receivable from employees, accounts payable, notes payable and accrued liabilities
approximates fair value due to the short maturities of these instruments. The Company has no derivative financial instruments.
Recent accounting pronouncements
In May 2004 the FASB issued Staff
Position No. FAS 106-2, Accounting and Disclosure Requirements Related to the Medicare Prescription Drug, Improvement and Modernization Act of
2003, (FSP No. 106-2). FSP No. 106-2 is effective for the first interim period beginning after June 15, 2004 and provides that an
employer shall measure the accumulated plan benefit obligation and net periodic postretirement benefit cost taking into account any subsidy received
under the Act. The adoption of the Statement did not have a material impact on the Companys financial condition, results of operations or
liquidity.
In December 2005 the FASB issued
a revision of Statement of Financial Accounting Standards No. 123 (SFAS 123R), Accounting for Stock-Based Compensation. This statement
supersedes APB Opinion No. 25 (APB 25), Accounting for Stock Issued to Employees. Historically, the Company has accounted for employee
stock based compensation using the intrinsic method under APB 25 as further described in Stock-Based Compensation above. SFAS 123R
requires that the compensation cost relating to share-based payment transactions, including grants of employee stock options, be recognized in the
financial statements. The effect of the statement will be to require entities to measure the cost of employee services received in exchange for stock
options based upon the grant-date fair value of the award, and to recognize the cost over the period the employee is required to provide services for
the award. The Company will be required to apply FAS 123R as of the beginning of its first interim period that begins after June 15, 2005, which will
be the quarter ending September 30, 2005.
The impact of this Statement will
depend upon the transition method selected by the Company and various other factors including our future compensation strategy. The pro-forma costs
presented in the table above and in prior filings for the Company have been calculated using a Black-Scholes option pricing model and may not be
indicative of the amount which should be expected in the future. No decisions have been made as to which option-pricing model is most appropriate for
the Company for future awards.
Note 2 Significant Contracts
As previously disclosed, the
Company had a contract for software licensing, development and systems implementation with the State of Washington Health Care Authority
(HCA), which began in mid 2002. For the years ending December 31, 2004, 2003 and 2002, HCA accounted for $0 (0%), $946,000 (5%) and $1.0
million (5%), respectively, of the Companys revenues.
The Company was the prime
contractor on the HCA project and utilized the services of an offshore development partner to perform a significant part of the work. Also, as
previously disclosed, a dispute arose under the HCA contract in late 2003, which has now been resolved by the Company and HCA entering into an
agreement to terminate the HCA contract. The Company has also simultaneously entered into a cancellation agreement with its development partner
canceling and terminating its master software services agreement with the development partner and the work order associated with subcontracted portions
of the HCA project.
34
Under the terms of the agreement
with HCA, the Company paid HCA $300,000 and transferred title to certain project documentation to HCA. The agreement also contains full mutual releases
of all parties including HCA, Healthaxis and the development partner, and an express denial of liability or wrongdoing by all parties.
Under the terms of the agreement
between the Company and its development partner, Healthaxis received $208,000 and any rights the development partner may have in the documentation
being transferred by Healthaxis to HCA, resulting in a net cash payment by Healthaxis to HCA of $92,000. The agreement also contains full mutual
releases between Healthaxis and the development partner, and an express denial of liability or wrongdoing by either party.
The Company entered into these
agreements solely to avoid the potential time and cost of dispute resolution. The execution and funding of these agreements, which occurred in the
second quarter of 2004, resolves all outstanding issues related to the HCA project. The net impact of these transactions is included in general and
administrative expense in the accompanying condensed consolidated statement of operations.
The Company has accounted for
activities under a contract with Affiliated Computer Services (ACS) for the State of Georgia Department of Community Health under the
completed contract method. In September 2003, the Company was notified by ACS that the portion of the prime contract that the Company was working on
had been cancelled. Accordingly, the prime contractor requested that the Company stop work on this contract. Based on these events, management
determined that its work under the contract was complete. Previously deferred revenues and costs totaling $612,000, and $567,000, respectively, were
recognized during the third quarter of 2003. During the fourth quarter of 2003, the Company reached a termination agreement with ACS and received an
additional $282,000 for all work performed through the date of termination. This receipt was recorded as revenue in that period along with $137,000 of
costs paid to a subcontractor. The termination agreement with ACS included a mutual release of liability.
Note 3 Property, Equipment and
Software
Property, equipment and software,
at cost, consist of the following:
|
|
|
|
|
|
(Table in thousands) December 31, |
|
|
|
|
|
Useful Lives (Years)
|
|
2004
|
|
2003
|
Computer
equipment |
|
|
|
|
3 |
|
|
$ |
4,437 |
|
|
$ |
7,314 |
|
Office
furniture and equipment |
|
|
|
|
7 |
|
|
|
1,027 |
|
|
|
1,319 |
|
Leasehold
improvements |
|
|
|
|
3-5 |
|
|
|
434 |
|
|
|
537 |
|
Computer
software |
|
|
|
|
1-3 |
|
|
|
1,729 |
|
|
|
2,020 |
|
|
|
|
|
|
|
|
|
|
7,627 |
|
|
|
11,190 |
|
Less
accumulated depreciation and amortization |
|
|
|
|
|
|
|
|
(6,661 |
) |
|
|
(9,952 |
) |
|
|
|
|
|
|
|
|
$ |
966 |
|
|
$ |
1,238 |
|
Property, equipment, and software
depreciation and amortization expense totaled $562,000, $1.1 million and $2.1 million for the years ended December 31, 2004, 2003 and 2002
respectively. During 2002, the Company recorded an impairment charge related to the disposal of printing equipment in the amount of $123,000. The
impairment charge was caused by the Companys outsourcing of its print and distribution operations.
35
Note 4 Goodwill
Effective January 1, 2002, the
Company adopted Statement of Financial Accounting Standards (SFAS) No. 142 Goodwill and Other Intangible Assets, which requires
companies to stop amortizing goodwill and certain intangible assets with an indefinite useful life. During 2002, Healthaxis completed a transitional
goodwill impairment test in accordance with the new goodwill accounting standard. This test resulted in a $6.7 million impairment charge, which is
shown as a cumulative effect of an accounting change in the accompanying consolidated statements of operations.
In the fourth quarter of 2002,
the Company recognized an additional impairment loss of $5.9 million, which is included in restructuring and impairment charges in the accompanying
consolidated statement of operations. The Company determined the fair value of its reporting unit using a discounted future cash flows approach. The
loss results from revised estimates of future cash flows and the implementation of new guidance related to accounting for the effects of deferred tax
assets on the fair value of a reporting unit.
SFAS No. 142 also requires the
establishment of an annual impairment date for purposes of evaluating goodwill and other indefinite lived assets on an ongoing basis. Healthaxis
selected October 1 as the annual impairment testing date. During the 2004 test, the Company evaluated its goodwill on the basis of a single reporting
unit, consistent with segment disclosure requirements and the guidance of SFAS No. 142.
The carrying value of goodwill is
$11.3 million as of December 31, 2004 and 2003.
Note 5 Notes Receivable
Notes receivable consist of the
following:
|
|
|
|
(Table in thousands) December
31, |
|
|
|
|
|
2004
|
|
2003
|
Note
receivable from customer, monthly payments of $8, matures December 2004, bears no interest (discounted at 8.75%), unsecured |
|
|
|
$ |
|
|
|
$ |
88 |
|
Notes
receivable from current and former employees |
|
|
|
|
23 |
|
|
|
36 |
|
Total |
|
|
|
|
23 |
|
|
|
124 |
|
Less current
portion |
|
|
|
|
|
|
|
|
(124 |
) |
Notes
receivable, non-current |
|
|
|
$ |
23 |
|
|
$ |
|
|
36
Note 6 Accrued Liabilities and Other
Liabilities
Accrued liabilities and other
liabilities consist of the following:
|
|
|
|
(Table in thousands) December
31, |
|
|
|
|
|
2004
|
|
2003
|
Salaries,
benefits and payroll taxes |
|
|
|
$ |
590 |
|
|
$ |
389 |
|
Dividends and
interest |
|
|
|
|
|
|
|
|
223 |
|
Taxes |
|
|
|
|
1,362 |
|
|
|
1,331 |
|
Other |
|
|
|
|
139 |
|
|
|
319 |
|
|
|
|
|
|
2,091 |
|
|
|
2,262 |
|
Less other
long-term liabilities |
|
|
|
|
(1,417 |
) |
|
|
(1,467 |
) |
Accrued
liabilities |
|
|
|
$ |
674 |
|
|
$ |
795 |
|
Other long-term liabilities at
December 31, 2004 and 2003 consist of a contingent tax liability and customer deposits.
Note 7 Notes Payable
On September 30, 2003, the
Company purchased all Healthaxis securities held by UICI for $3.9 million. In conjunction with the purchase, the Company entered into a promissory note
in the amount of $3.4 million, which is due over three years and bears interest at 6%. The promissory note will be paid through deductions from the
monthly invoices for BPO services provided by the Company to the Mega Life & Health Insurance Company (Mega), a UICI subsidiary. The
amount of the monthly payment will be equal to the greater of one half of the Mega invoice amount for BPO services or $65,000. A balloon principal
payment is due at the maturity of the note on September 30, 2006, if the note has not been paid through the monthly payments.
Maturities of the note payable
for the years subsequent to December 31, 2004 are as follows:
2005 |
|
|
|
|
|
|
$ 637 |
|
2006 |
|
|
|
|
|
|
2,041 |
|
Total |
|
|
|
|
|
|
$ 2,678 |
|
Note 8 Post Retirement and Post Employment Liabilities
and Employee Benefit Plans
Healthaxis has an obligation to
provide certain post retirement benefits, primarily lifetime health, dental and life insurance coverage, to a group of individuals consisting of three
former executives and 17 retired employees of a predecessor company, as well as the Companys former Chairman. Because this obligation exists
until the death of the participants, actuarial calculations, which include the use of estimates, are used to determine the carrying value of the
liability. These estimates include a life expectancy of 85 years, a discount rate of 6% to calculate the present value of the expected future costs, a
3% annual growth factor for life insurance and a range of 6% 13% annual growth factor for medical insurance. It is reasonably possible that
these estimates could change in the near term. The effect of a one-percentage-point increase or decrease in the assumed health care cost trend rate
results in an
37
approximate $36,000 increase
and $36,000 decrease, respectively, on the accumulated post retirement obligation.
Changes in the post retirement
and post employment liabilities were as follows:
|
|
|
|
(Table in thousands) |
Balance at
January 1, 2003 |
|
|
|
$ |
966 |
|
Interest
cost |
|
|
|
|
62 |
|
Service
cost |
|
|
|
|
58 |
|
Benefits
paid |
|
|
|
|
(146 |
) |
Balance at
December 31, 2003 |
|
|
|
|
940 |
|
Interest
cost |
|
|
|
|
54 |
|
Service
cost |
|
|
|
|
58 |
|
Benefits
paid |
|
|
|
|
(123 |
) |
Balance at
December 31, 2004 |
|
|
|
$ |
929 |
|
At December 31, 2004 and 2003,
the unamortized, unrecognized net obligation existing at the date of the initial application of SFAS No. 106 Employers Accounting for
Postretirement Benefits Other Than Pensions was $119,000 and $177,000 respectively. The amortization of this transition liability was $58,000 per
year for the years ended December 31, 2004, 2003, and 2002, and is included as a component of service cost.
Benefits expected to be paid for
each of the next five years and in aggregate for the five years thereafter are as follows:
|
|
(Table in thousands)
|
2005 |
|
$ |
135 |
|
2006 |
|
|
82 |
|
2007 |
|
|
83 |
|
2008 |
|
|
82 |
|
2009 |
|
|
74 |
|
20102014 |
|
|
473 |
|
The Company estimates
contributions to be paid under the plan in 2005 will be $135,000, which represents the amount for premiums and other payments under the plan. There are
no plan assets related to these post retirement benefit plans.
The Company sponsors a defined
contribution retirement savings plan under section 401(k) of the Internal Revenue Code covering substantially all employees. All contributions are
subject to limitations imposed by IRS regulations. The total benefit expense under this plan amounted to $153,000, $32,000, and $304,000, for the years
ended December 31, 2004, 2003, and 2002, respectively.
38
Note 9 Income Taxes
Significant components of
deferred taxes consisted of the following:
|
|
|
|
(Table in thousands) December
31, |
|
|
|
|
|
2004
|
|
2003
|
Deferred tax
assets:
|
|
|
|
|
|
|
|
|
|
|
Allowance for
doubtful accounts |
|
|
|
$ |
17 |
|
|
$ |
15 |
|
Post
employment retirement benefits |
|
|
|
|
325 |
|
|
|
329 |
|
Net operating
and capital loss carryforwards |
|
|
|
|
52,342 |
|
|
|
50,787 |
|
Accrued
expenses and deferred revenues |
|
|
|
|
590 |
|
|
|
582 |
|
Total deferred
tax assets |
|
|
|
|
53,274 |
|
|
|
51,713 |
|
|
Deferred tax
liabilities:
|
|
|
|
|
|
|
|
|
|
|
Customer
base |
|
|
|
|
(29 |
) |
|
|
(383 |
) |
Capitalized
software development costs |
|
|
|
|
(475 |
) |
|
|
(384 |
) |
Other,
net |
|
|
|
|
(348 |
) |
|
|
(383 |
) |
Total deferred
tax liabilities |
|
|
|
|
(852 |
) |
|
|
(1,150 |
) |
|
Deferred tax
asset before valuation allowance |
|
|
|
|
52,422 |
|
|
|
50,563 |
|
Valuation
allowance |
|
|
|
|
(52,422 |
) |
|
|
(50,563 |
) |
Net deferred
tax asset |
|
|
|
$ |
|
|
|
$ |
|
|
The Companys net operating
loss carryforward amounts of $146.4 million begin to expire in 2018 and fully expire in 2025.
As a result of the Companys
numerous capital transactions, the utilization of NOL carryforwards is limited. Additionally, the utilization of these NOLs, if available, to
reduce future income taxes is dependent on the generation of sufficient taxable income prior to their expiration. As it is considered more likely than
not that the deferred tax assets will not be realized, the Company has established a valuation allowance for all net deferred tax
assets.
The reconciliation of the
recorded income tax provision to the benefit expected by applying the appropriate statutory income tax rate (35%) to the loss before income taxes is as
follows:
|
|
|
|
(Table in thousands) Years Ended December
31, |
|
|
|
|
|
2004
|
|
2003
|
|
2002
|
Amount
computed at statutory rate |
|
|
|
$ |
(2,085 |
) |
|
$ |
(1,492 |
) |
|
$ |
(2,996 |
) |
Change in
valuation allowance |
|
|
|
|
2,065 |
|
|
|
3,383 |
|
|
|
(890 |
) |
Expiration/adjustment of net operating losses |
|
|
|
|
|
|
|
|
(1,690 |
) |
|
|
4,544 |
|
Amortization/impairment of goodwill |
|
|
|
|
|
|
|
|
|
|
|
|
4,561 |
|
Gain on
extinguishment of debt |
|
|
|
|
|
|
|
|
|
|
|
|
(5,844 |
) |
Other
permanent differences |
|
|
|
|
20 |
|
|
|
(201 |
) |
|
|
625 |
|
Total income
tax benefit |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
39
Note 10 Stockholders Equity
Amendment of Convertible Preferred Stock
Previously, the Companys
Series A Convertible Preferred Stock (old) had a stated value of $22.1 million and was convertible into 1,424,258 shares of Healthaxis
common stock at a conversion price of $15.50 per share. The terms of the preferred stock provided that cumulative dividends be paid at the rate of 2%,
or approximately $442,000 per year, payable semi-annually. In general, the Company could have paid the dividends either in cash or by issuing shares of
common stock, although in some circumstances it was required to pay cash dividends. The terms of the preferred stock provided that in some situations
the holders of the preferred stock could have forced Healthaxis to buy back their shares. The Company believed that the occurrence of the situations
where it could be required to buy back shares of preferred stock was within its control. The preferred stock also contained, among other things,
provisions providing the holders a preference in the payment of dividends and also a liquidation preference equal to at least the stated value of the
preferred stock plus all accrued but unpaid dividends. The holders of the preferred stock did not have general voting rights, although they did have
the right to vote separately as a class in connection with some matters. After purchasing the preferred stock held by UICI during 2003, the recorded
value as of December 31, 2003 was $5.9 million.
Healthaxis entered into a
Preferred Stock Modification Agreement on May 12, 2004. On June 30, 2004, Healthaxis consummated a transaction modifying the terms of its Series A
Convertible preferred stock and providing for the issuance to its preferred shareholders of warrants to purchase shares of the Companys common
stock. Under the terms of the agreements with the preferred shareholders, shares of the preferred stock (new) were convertible into an
aggregate of 3,850,000 shares of the Companys common stock. The preferred shareholders also received warrants with a term of five years entitling
them to purchase up to 1,000,000 shares of common stock at an exercise price of $5.50 per share (subject to a cashless exercise feature that applies
under some circumstances). The shares of common stock into which the shares of preferred stock have been or in the future are convertible and with
respect to which the warrants are exercisable, represent approximately 54% of the common stock on a fully diluted basis as of December 31, 2004.
Holders of the preferred stock have no liquidation preference, no voting rights except as required by law, the right to receive a nominal dividend of
$0.0001 per share semi-annually (aggregating less than $1,000 per year in total) and otherwise on a pro-rata basis to the extent that dividends are
paid to holders of common stock, limited anti-dilution rights in the context of stock splits, stock dividends and similar transactions, and no
redemption rights.
The new preferred stock is
convertible into shares of common stock at the option of a preferred shareholder at any time, and in any amount, on or after June 30, 2005, but prior
to that date may only be converted if the preferred shareholder desiring to effect the conversion will not hold as a result of the conversion more than
750,000 shares of common stock, or if the common stock is trading on a national stock market and has had a closing price of $8.00 or more for 20 out of
the 30 trading days immediately preceding the conversion date (in which case, any number of shares may be converted). Notwithstanding the foregoing, in
the event of the transfer of shares of preferred stock in accordance with the terms of the agreements with the preferred shareholders, the preferred
stock automatically converts into shares of common stock. Healthaxis may compel conversion of the preferred stock or exercise of the warrants granted
to the preferred shareholders under some circumstances.
Under the agreements with the
preferred shareholders, Healthaxis agreed that it will not issue any equity securities in a transaction implying a pre-transaction valuation of
Healthaxis of less than $14.5 million or at a per share price of less than $2.15 (these restrictions do not apply to the grant of stock options to
Healthaxis employees or directors in most circumstances). Further, until June 30, 2005, the
40
preferred shareholders have a
right of first refusal to match the terms upon which any third party proposes to purchase from Healthaxis any equity securities having an aggregate
purchase price of at least $1.0 million and to match the terms upon which Healthaxis proposes an offering of its common stock.
Prior to conversion, the new
preferred stock will only have the right to vote to the extent it is entitled to do so under applicable law. Under applicable law, the new preferred
stock is entitled to vote separately as a class in certain instances, including in the event of a merger or consolidation that would effect some types
of changes in the Companys articles of incorporation. To the extent that applicable law entitles the new preferred stock to vote on a given
merger or consolidation transaction prior to June 30, 2005, the preferred shareholders have agreed to vote their shares in favor of such a merger or
consolidation if the common shareholders have approved the merger or consolidation and the per share price to be received by the preferred shareholders
in the merger or consolidation is at least $3.50 in cash for each share of preferred stock. If the Company pursues a merger or consolidation on or
after June 30, 2005, the preferred shareholders have agreed to vote their shares in favor of the merger or consolidation if the common shareholders
approve the merger or consolidation and if the per share price to be received by the preferred shareholders in the merger or consolidation for each
share of preferred stock is at least equal to what they would have received in the merger or consolidation if they had converted their shares of
preferred stock into shares of common stock immediately prior to the merger or consolidation.
As required under the preferred
stock modification agreements, Healthaxis has registered for resale the shares of common stock issuable upon conversion of the preferred stock or
exercise of the warrants. These agreements do, however, place certain restrictions on the private sale or transferability of the securities held by the
preferred shareholders, and restrict the number of shares of common stock that may be sold in the public markets below a price of $3.50 per share.
These stock transfer restrictions lapse on June 30, 2005. The Company filed a Form S-3 Registration Statement on September 2, 2004 to register for
resale the shares of common stock issuable upon conversion of the preferred stock or exercise of the warrants. On October 28, 2004 the Securities and
Exchange Commission declared the Registration Statement effective.
The Company has recorded this
transaction based upon the calculation of the new preferred stock and warrants. The calculated fair value of the new preferred stock is $8.9 million
(3,850,000 shares multiplied by the $2.32 closing sale price of the Companys common stock on the day of the transaction). The Company estimated
the fair value of the warrants to be $940,000 using the Black-Scholes pricing model. The total calculated value of the new preferred stock and warrants
is therefore $9.9 million. The $4.0 million difference between the calculated fair value of the new preferred stock and warrants and the carrying value
of the old preferred stock of $5.9 million is analogous to a dividend to the preferred stockholders and recorded as such in the Companys
Consolidated Statement of Operations.
Additionally, while the old
preferred stock had a 2% annual dividend payable semi-annually in January and July, the new preferred stock provides for the payment of a nominal
semi-annual dividend (aggregating less than $1,000 per year to all preferred shareholders). In the first quarter of 2004, the Company accrued the
$110,000 dividend payable in accordance with the terms of the old preferred stock, but this accrual was reversed in the second quarter of 2004 as a
result of the completion of the transaction described above. This amount is also netted out of the net loss applicable to common shareholders on the
consolidated statement of operations.
41
The Company will not recognize
any taxable gain or loss as a result of the closing of the preferred stock modification transaction on June 30, 2004. The closing of the transaction
may, however, result in the imposition of substantial limitations on the amount of the Companys net operating losses that may be applied to any
future taxable income of the Company.
Repurchase of Securities Held by UICI and Repricing of Series
A Convertible Preferred Stock
On September 30, 2003, the
Company purchased all Healthaxis securities held by UICI for $3.9 million. The UICI holdings included 2,585,769 shares of Healthaxis common stock, or
48% of the Companys outstanding common stock; 1,424 shares of Series A Convertible Preferred Stock, or 6% of the outstanding preferred stock; and
warrants to purchase 22,240 shares of common stock. The repurchased securities were retired. The total purchase price of $3.9 million included $500,000
cash at closing, and a $3.4 million promissory note (See Note 7). To obtain the required approval of this transaction from the Series A Preferred
shareholders, the Company agreed to reduce the conversion price of the remaining preferred shares from $26.25 to $15.50. The repurchase of the
preferred shares held by UICI reduced the total liquidation value of the outstanding Series A Preferred stock from $23.5 million to $22.1
million.
Reverse Stock Split
On August 19, 2003, the Board of
Directors authorized a 1-for-10 reverse stock split of the Companys $.10 par value common stock. As a result of the reverse split, the number of
shares outstanding on that date was reduced from 53,528,557 to 5,353,361. To gain the required approval of this transaction from the Series A Preferred
shareholders, the Company paid a one-time consent fee equal to 1 percent, or $235,000, of the then outstanding Series A Preferred stock liquidation
value. The payment has been included in dividends on preferred stock.
All references in the
accompanying financial statements to the number of common shares and per share amounts for prior periods were previously restated to reflect the
reverse stock split.
Note 11 Stock Options and
Warrants
From 1996 through 1999,
Healthaxis maintained several stock option plans that provided for option grants to directors and key employees of Healthaxis and its subsidiaries. In
addition, certain Healthaxis option plans provided for grants to non-employee field representatives and agents related to Healthaxis discontinued
insurance operations. During 2000, no options were granted and all such plans became inactive. The total number of options outstanding under these
plans as of December 31, 2004 is 441,352.
On January 26, 2001, the
Healthaxis shareholders approved the 2000 Stock Option Plan (Healthaxis 2000 Plan). Under the Healthaxis 2000 Plan, employees, officers and
directors of Healthaxis, as well as certain consultants, are eligible to receive Healthaxis options. Nonqualified or incentive stock options may be
granted. The plan is administered by the Compensation Committee, which is appointed by the Companys Board of Directors. The Compensation
Committee determines such things as the number of options to be granted to each participant, the exercise price, the vesting schedule and the
expiration date. Options awarded under this plan include a mandatory Confidentiality and Non-Interference attachment, whereby the recipient agrees to
certain covenants as a prerequisite to receiving the option award. The total number of options outstanding under these plans as of December 31, 2004 is
635,007.
42
During the period 1998 through
2001, the Company issued a total of 207,781 warrants in connection with marketing and carrier agreements related to the Companys now discontinued
website operations, and to employees, consultants and agents of the Company. Of that total, 94,071 are outstanding as of December 31, 2004. During
2004, the Company issued 1,020,000 warrants associated with the Companys new preferred stock (See Note 10), all of which are outstanding as of
December 31, 2004.
The following table summarizes
the changes in outstanding Healthaxis stock options and warrants:
|
|
|
|
Stock Options
|
|
Warrants
|
|
|
|
|
|
Number of Shares
|
|
Weighted Average Exercise Price
|
|
Number of Shares
|
|
Weighted Average Exercise Price
|
Outstanding at
January 1, 2002 |
|
|
|
|
823,974 |
|
|
$ |
23.30 |
|
|
|
226,911 |
|
|
$ |
51.70 |
|
Granted |
|
|
|
|
151,300 |
|
|
|
7.10 |
|
|
|
|
|
|
|
|
|
Exercised |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited |
|
|
|
|
(118,969 |
) |
|
|
21.90 |
|
|
|
|
|
|
|
|
|
Expired |
|
|
|
|
|
|
|
|
|
|
|
|
(29,170 |
) |
|
|
110.30 |
|
Outstanding at
December 31, 2002 |
|
|
|
|
856,305 |
|
|
|
20.70 |
|
|
|
197,741 |
|
|
|
43.10 |
|
Granted |
|
|
|
|
186,856 |
|
|
|
3.40 |
|
|
|
|
|
|
|
|
|
Exercised |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited |
|
|
|
|
(46,335 |
) |
|
|
10.25 |
|
|
|
|
|
|
|
|
|
Expired |
|
|
|
|
(60,299 |
) |
|
|
34.03 |
|
|
|
(37,089 |
) |
|
|
44.81 |
|
Outstanding at
December 31, 2003 |
|
|
|
|
936,527 |
|
|
|
16.89 |
|
|
|
160,652 |
|
|
|
42.65 |
|
Granted |
|
|
|
|
359,700 |
|
|
|
2.33 |
|
|
|
1,020,000 |
|
|
|
5.50 |
|
Exercised |
|
|
|
|
(699 |
) |
|
|
3.43 |
|
|
|
|
|
|
|
|
|
Forfeited |
|
|
|
|
(61,011 |
) |
|
|
8.25 |
|
|
|
|
|
|
|
|
|
Expired |
|
|
|
|
(158,158 |
) |
|
|
22.63 |
|
|
|
(66,581 |
) |
|
|
63.86 |
|
Outstanding at
December 31, 2004 |
|
|
|
|
1,076,359 |
|
|
$ |
11.67 |
|
|
|
1,114,071 |
|
|
$ |
7.26 |
|
Options/Warrants exercisable at December 31, |
|
|
|
Number of Options
|
|
Weighted Avg. Exercise Price of Options
|
|
Warrants
|
2002 |
|
|
|
|
709,912 |
|
|
$ |
22.35 |
|
|
|
195,211 |
|
2003 |
|
|
|
|
744,280 |
|
|
|
19.54 |
|
|
|
160,652 |
|
2004 |
|
|
|
|
758,828 |
|
|
|
15.30 |
|
|
|
1,114,071 |
|
43
Following is a summary of the
status of stock options outstanding at December 31, 2004:
Outstanding Options
|
|
Exercisable Options
|
|
Exercise Price Range
|
|
|
|
Number
|
|
Weighted Average Remaining Contractual Life
|
|
Weighted Average Exercise Price
|
|
Number
|
|
Weighted Average Exercise Price
|
$2.11
$9.90 |
|
|
|
|
712,937 |
|
|
|
7.86 |
|
|
$ |
4.30 |
|
|
|
399,651 |
|
|
$ |
5.41 |
|
$10.00
$13.30 |
|
|
|
|
152,220 |
|
|
|
3.85 |
|
|
|
12.91 |
|
|
|
148,425 |
|
|
|
12.98 |
|
$21.00
$28.75 |
|
|
|
|
61,768 |
|
|
|
4.55 |
|
|
|
25.61 |
|
|
|
61,318 |
|
|
|
25.65 |
|
$30.00
$43.30 |
|
|
|
|
132,434 |
|
|
|
1.64 |
|
|
|
33.86 |
|
|
|
132,434 |
|
|
|
33.86 |
|
$75.00
$87.50 |
|
|
|
|
17,000 |
|
|
|
1.85 |
|
|
|
86.03 |
|
|
|
17,000 |
|
|
|
86.03 |
|
|
|
|
|
|
1,076,359 |
|
|
|
|
|
|
|
|
|
|
|
758,828 |
|
|
|
|
|
Total stock based compensation
for the years ended December 31, 2004, 2003, and 2002 totaled $33,000, $34,000, and $307,000, respectively.
Note 12 Related Party and Certain
Transactions
UICI
Historically, Healthaxis
conducted a significant amount of business with a major shareholder, UICI. Prior to September 30, 2003, UICI owned a significant portion of the
Companys outstanding common stock, and also owned preferred stock and warrants. The repurchase of all such securities from UICI is described
below. As of December 31, 2003, UICI owned no Healthaxis securities and is no longer a related party.
Healthaxis previously provided
services to a number of UICI subsidiaries and affiliates pursuant to various written agreements. These services included the use of certain of its
proprietary workflow and business applications, as well as systems integration and technology management. The most significant of these agreements was
the Services Agreement. Healthaxis has previously reported the revenues and expenses associated with the Services Agreement as those from the UICI
Outsourcing segment. In June 2002, the Company and UICI terminated the Services Agreement as further described below. Notwithstanding, Healthaxis
continues to provide products and services to UICI aside from the terminated Services Agreement.
For the years ended December 31,
2004, 2003, and 2002, UICI and its subsidiaries and affiliates accounted for $1.6 million (10%), $1.8 million (9%) and $2.1 million (11%),
respectively, of the Companys revenues from continuing operations. The 2003 amount includes $1.4 million of revenue prior to September 30, at
which time UICI sold its holdings in Healthaxis and is no longer considered an affiliate. In addition, UICI revenue from discontinued operations
totaled $8.2 million for the year ended December 31, 2002, as further described below. As of December 31, 2004 and 2003, Healthaxis had accounts
receivable due from UICI and its subsidiaries and affiliates totaling $111,000 and $121,000, respectively. These amounts represented 5% and 4% of the
Companys total accounts receivable at December 31, 2004 and 2003, respectively.
44
Repurchase of Securities Held by UICI and Repricing of Series
A Convertible Preferred Stock
On September 30, 2003, the
Company purchased all Healthaxis securities held by UICI for $3.9 million. The UICI holdings included 2,585,769 shares of Healthaxis common stock, or
48% of the Companys outstanding common stock; 1,424 shares of Series A Convertible Preferred Stock, or 6% of the outstanding preferred stock; and
warrants to purchase 22,240 shares of common stock. The repurchased securities were retired. The total purchase price of $3.9 million included $500,000
cash at closing, and a $3.4 million promissory note (See Note 7).
Termination of UICI Technology Services
Agreement
On June 11, 2002, the Company
initiated and entered into an agreement with UICI terminating the amended Information Technology Services Agreement (the Services
Agreement) between the two parties. The Services Agreement was originally entered into on January 3, 2000 in conjunction with the merger of
Healthaxis.com, Inc and Insurdata Incorporated. Under the terms of the termination agreement, UICI made a one-time cash payment to Healthaxis in the
amount of $6.5 million and tendered 50,000 shares of Healthaxis common stock back to the Company. In return, approximately 165 Healthaxis employees
that were previously dedicated to providing services to UICI under the Services Agreement were transferred to and became employees of UICI on June 15,
2002. Due to the related party nature of the transaction, the Company has recorded the net proceeds, totaling $6.4 million, as a contribution of
capital from a significant shareholder. A loss on disposal of discontinued operations in the amount of $3.6 million was recorded as a result of the
termination. The loss consisted of impairment charges for goodwill and customer base totaling $484,000 and $3.1 million, respectively. The impairment
charges result from a write off of the entire amount of goodwill and customer base allocable to the Services Agreement.
The Company has previously
reported the revenues and expenses associated with the Services Agreement as those from the UICI Outsourcing segment. As a result of the termination of
the Services Agreement, the Companys financial statements have been prepared with the results of these operations presented as discontinued
operations. All historical financial statements presented have been restated to conform to this presentation.
The operating results of the
discontinued business for the year ended December 31, 2002 are as follows:
|
|
|
|
(Table in thousands)
|
Revenues |
|
|
|
$ |
8,212 |
|
|
|
|
|
|
|
|
Costs of
revenues |
|
|
|
|
6,814 |
|
Amortization
of intangibles |
|
|
|
|
548 |
|
Total
expenses |
|
|
|
|
7,362 |
|
|
|
|
|
|
|
|
Net
income |
|
|
|
$ |
850 |
|
In conjunction with the
termination of the Services Agreement in 2002, the Company paid $100,000 to a consulting firm affiliated with one of the Companys directors. The
Company paid additional professional services fees during the year ended December 31, 2002, in the amount of $366,000 to the same consulting
firm.
45
Netlojix Communications, Inc., a
telephone company in which Ronald L. Jensen, Chairman of UICI and a former director of one of the Companys subsidiaries, and parties affiliated
with Mr. Jensen own a controlling interest, provides telephone and data line services to the Company pursuant to written agreements which expire in
September 2005 and December 2006. For the years ended December 31, 2004, 2003 and 2002, Healthaxis paid Netlojix Communications, Inc. approximately
$118,000, $158,000, and $279,000, respectively, for services under this agreement.
Alvin H. Clemens Severance Agreement
On August 15, 2000, Alvin H.
Clemens and Healthaxis entered into an agreement terminating Mr. Clemens employment contract. The termination agreement became effective upon
consummation of the HAXS Merger in January 2001. Under the terms of the termination agreement, Mr. Clemens was to receive aggregate payments totaling
$2.1 million paid in quarterly installments over five years beginning in the first quarter of 2001. The Company, at its option, could make the
quarterly payments in shares of Healthaxis common stock not to exceed a total of 50,000 shares. Mr. Clemens, at his option, could request that the
Company pay one-third of the value of each payment in cash in lieu of stock to cover income tax liabilities.
On February 27, 2002, the Board
of Directors approved an agreement pursuant to which Mr. Clemens agreed to accept 35,833 shares of the Companys common stock in full payment and
satisfaction of the remainder of the severance obligation. The Company recorded a gain in the first quarter of 2002 totaling $1.3 million related to
the settlement of this liability, which was based upon the difference between the carrying amount of the liability and the fair value of the common
stock issued to Mr. Clemens.
Transactions with Digital Insurance
In connection with the sale of
the retail website operations to Digital Insurance, Healthaxis and Digital Insurance entered into various agreements including an asset purchase
agreement, a software license agreement and a consulting agreement. Revenue recognized during the years ended December 31, 2004, 2003 and 2002 under
these agreements, as subsequently amended, totaled $30,000, $133,000 and $585,000, respectively.
The asset purchase agreement
conveyed an equity interest in Digital Insurance by Healthaxis. During 2002, management concluded that an other-than-temporary decline in the fair
value of the investment had occurred and recorded a $227,000 impairment charge equal to the remaining carrying value of the investment. As of December
31, 2004 and 2003, the carrying value of the investment was zero.
Note 13 Commitments and
Contingencies
Legal Proceedings
The Company is involved in normal
litigation, including that arising in the ordinary course of business. Management is of the opinion that no pending litigation will have a material
adverse effect on the results of operations or financial position of the Company.
46
Operating Lease Obligations
The Company leases office space
and various pieces of equipment under operating leases expiring in various years through 2007. Rental expense for the years ended December 31, 2004,
2003, and 2002 was $1.2 million, $1.2 million and $1.4 million, respectively. Future minimum rent payments under capital and operating leases through
lease termination for each of the next five years and in aggregate are as follows:
|
|
|
|
(Table in thousands)
|
2005 |
|
|
|
$ |
991 |
|
2006 |
|
|
|
|
49 |
|
2007 |
|
|
|
|
49 |
|
|
|
|
|
$ |
1,089 |
|
Note 14 Restructuring and Impairment
Charges
In November 2002, Healthaxis
began a cost reduction and business effectiveness initiative designed to more closely align expenses with revenues and to enhance the Companys
operating performance. The cost reduction initiative consisted of both a reduction in the Companys labor force as well as an across-the-board
reduction in salary levels. The reduction in labor force was effective in mid-November. The Company recorded severance expenses related to the
terminated employees totaling $358,000, which is included in restructuring and impairment charges. The reduction in salary levels was effective January
1, 2003. In addition, the Company recorded an impairment charge to goodwill of $5.9 million in 2002 (See Note 4).
Note 15 Gain on Extinguishment of
Debt
On July 31, 2002, Healthaxis
completed a transaction in which the holders of its $27.5 million 2% Convertible Debentures exchanged their debentures for 23,500 shares of Series A
Convertible Preferred Stock and a cash payment of $4.0 million. The Company recorded a gain on extinguishment of debt totaling $16.4 million related to
the transaction for the difference between the carrying value of the convertible debentures and the estimated fair value of the cash and preferred
stock exchanged.
Note 16 Subsequent Event
The Company entered into a Stock
and Warrant Purchase Agreement on February 23, 2005 (the Purchase Agreement) with Tak Investments, Inc., a Delaware corporation owned by
Mr. Sharad Tak (the Investor). The issuance of up to 8,333,333 or more shares of the Companys common stock to the Investor and of the
related financing transactions and agreements contemplated by the Purchase Agreements are subject to the approval of the Companys common
shareholders. Under the terms and conditions set forth in the Purchase Agreement, at the closing of the transactions contemplated thereby (the
Closing) the Company has agreed to issue to the Investor 2,222,222 shares of common stock at a per share purchase price of $2.25 for an
aggregate initial investment of $5.0 million. The Investor will also receive at the Closing three warrants (the Warrants). The first
Warrant, which provides for an exercise price of $2.25 per share of common stock and a term of two years, would permit the Company to call the exercise
of up to 3,333,333 shares of common stock (for an aggregate of up to $7.5 million) under
47
certain conditions, but would
only permit the Investor to exercise the Warrant for up to 2,222,222 shares of common stock (for an aggregate of $5.0 million). The Companys
ability to call the exercise of the first Warrant is subject to the satisfaction of certain conditions, including unanimous approval of such action by
the Companys Board of Directors (which would require the approval of the Investors designees to the Board, as referenced below). The
Investor also will receive two additional warrants representing the right to purchase additional common stock at prices of $2.70 and $3.15 per share.
The number of shares of common stock subject to these Warrants is dependent upon the amount ultimately invested under the first Warrant. The additional
cash investment in the Company under these two warrants could reach $8.1 million.
In connection with the Closing,
the Company and the Investor will enter into a number of related agreements. Under the terms of an Investor Rights Agreement, the securities purchased
by the Investor will be subject to limited transfer restrictions, and the Investor will have the right to approve certain fundamental corporate
activities, the right to participate in other Healthaxis equity financings and, depending upon the size of the Companys Board of Directors and
the Investors continuing ownership position in the Company, the right to designate one to three nominees for election to the Companys Board
of Directors. It is expected that following the Closing, the Companys Board of Directors will be expanded from seven members to nine members and
the Investor therefore will have the right to designate two new members to the Companys Board of Directors. The parties will also enter into a
Registration Rights Agreement under which the Company agrees to file a registration statement covering the resale of the shares of common stock
purchased under the Purchase Agreement or through exercise of the Warrants.
As a condition to the Closing,
the Company will also enter into a five year Remote Resourcing Agreement (the Resourcing Agreement) with Healthcare BPO Partners L.P., a
company affiliated with the Investor and owned by Mr. Tak. Healthcare BPO Partners will provide India-based personnel and infrastructure that will be
utilized by the Company to provide business process outsourcing services and other software development and technical support services to support the
Companys operations. The Indian operations, which will be dedicated for the Companys exclusive use, will be managed by the Company and
based in Jaipur, India. These new Indian operations will supplement the Companys existing operations in Utah, Texas and Jamaica.
The transactions with Tak
Investments might not close if, for example, the Companys common shareholders do not approve the transactions or if the conditions in the Stock
and Warrant Purchase Agreement with Tak Investments are not satisfied.
48
Note 17 Quarterly Results of Operations
(unaudited)
The following is a tabulation of
the Companys quarterly results of operations for the years ended December 31, 2004 and 2003:
|
|
|
|
(Table in thousands, except per share
amounts) |
|
|
|
|
|
2004 |
|
|
|
|
|
Q1
|
|
Q2
|
|
Q3
|
|
Q4
|
|
Total
|
Revenue |
|
|
|
$ |
4,249 |
|
|
$ |
3,894 |
|
|
$ |
3,942 |
|
|
$ |
4,077 |
|
|
$ |
16,162 |
|
Operating
expenses |
|
|
|
|
5,890 |
|
|
|
5,723 |
|
|
|
5,220 |
|
|
|
5,068 |
|
|
|
21,901 |
|
Operating
loss |
|
|
|
|
(1,641 |
) |
|
|
(1,829 |
) |
|
|
(1,278 |
) |
|
|
(991 |
) |
|
|
(5,739 |
) |
Interest
expense and other income, net |
|
|
|
|
(37 |
) |
|
|
(48 |
) |
|
|
(50 |
) |
|
|
(84 |
) |
|
|
(219 |
) |
Net
loss |
|
|
|
$ |
(1,678 |
) |
|
$ |
(1,877 |
) |
|
$ |
(1,328 |
) |
|
$ |
(1,075 |
) |
|
$ |
(5,958 |
) |
Net loss per
share of common stock (basic and diluted) |
|
|
|
$ |
(0.65 |
) |
|
$ |
(2.07 |
) |
|
$ |
(0.48 |
) |
|
$ |
(0.34 |
) |
|
$ |
(3.48 |
) |
The net loss per share
attributable to common stockholders has been restated from $.54 to $2.07 for the second quarter 2004, and from a loss of $1.99 to $3.48 for the year
2004, as further described in Note 18 below.
|
|
|
|
2003 |
|
|
|
|
Q1
|
|
Q2
|
|
Q3
|
|
Q4
|
|
Total
|
Revenue |
|
|
|
$ |
5,231 |
|
|
$ |
5,483 |
|
|
$ |
5,352 |
|
|
$ |
4,785 |
|
|
$ |
20,851 |
|
Operating
expenses |
|
|
|
|
6,615 |
|
|
|
6,419 |
|
|
|
6,149 |
|
|
|
5,962 |
|
|
|
25,145 |
|
Operating
loss |
|
|
|
|
(1,384 |
) |
|
|
(936 |
) |
|
|
(797 |
) |
|
|
(1,177 |
) |
|
|
(4,294 |
) |
Interest
expense and other income, net |
|
|
|
|
11 |
|
|
|
3 |
|
|
|
3 |
|
|
|
13 |
|
|
|
30 |
|
Net
loss |
|
|
|
$ |
(1,373 |
) |
|
$ |
(933 |
) |
|
$ |
(794 |
) |
|
$ |
(1,164 |
) |
|
$ |
(4,264 |
) |
Net loss per
share of common stock (basic and diluted) |
|
|
|
$ |
(0.28 |
) |
|
$ |
(0.20 |
) |
|
$ |
(0.22 |
) |
|
$ |
(0.46 |
) |
|
$ |
(1.05 |
) |
Note 18 Restatement of Financial
Statements
The Company has restated certain
portions of these consolidated financial statements for the years ended December 31, 2004 and 2003 to correct two items and reflect the corresponding
changes described below.
As discussed in Note 7 above, the
Company has a promissory note payable to UICI. Because UICI is also a customer of the Company, the promissory note provides for monthly payments to be
made to UICI through an offset provision against Healthaxis accounts receivable. Therefore, each month the Company nets the periodic debt payment it
owes UICI against accounts receivable from UICI for services rendered. The Company previously reported this repayment procedure in its Consolidated
Statements of Cash Flows by reporting a collection in accounts receivable as an increase in working capital, and a source of operating cash flows. It
reported the same amount, net of interest, as a payment on the long-term debt as a financing transaction. Payments made in this fashion should be
netted against accounts receivable and reflected as non-cash financing transactions in the Consolidated Statements of Cash Flows, and the Company has
therefore reclassified payments accordingly, as detailed in the table below:
49
(Table in thousands) |
|
|
|
2004
|
|
2003
|
|
|
|
|
As Previously Reported |
|
Restated |
|
As Previously Reported |
|
Restated |
Cash Flows
from Operating Activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in
operating assets an liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts
receivable |
|
|
|
$ |
700 |
|
|
$ |
82 |
|
|
$ |
214 |
|
|
$ |
110 |
|
Net cash used
in operating activities |
|
|
|
|
(2,225 |
) |
|
|
(2,843 |
) |
|
|
(1,060 |
) |
|
|
(1,164 |
) |
|
Cash Flows
from Financing Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments on
note payable to UICI |
|
|
|
|
(618 |
) |
|
|
|
|
|
|
(104 |
) |
|
|
|
|
Net cash used
in financing activities |
|
|
|
|
(841 |
) |
|
|
(223 |
) |
|
|
(1,294 |
) |
|
|
(1,190 |
) |
|
Supplemental
disclosure of cash flow information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
paid |
|
|
|
|
184 |
|
|
|
3 |
|
|
|
48 |
|
|
|
14 |
|
|
Non-cash
Financing Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts
receivable applied to note and interest payable in lieu of cash |
|
|
|
$ |
|
|
|
$ |
799 |
|
|
$ |
|
|
|
$ |
138 |
|
As described in Note 10 above, in
June 2004, Healthaxis closed a transaction modifying the terms of its Series A Convertible Preferred Stock and providing for the issuance to its
preferred shareholders of warrants to purchase shares of the Companys common stock. The Company initially recorded this transaction using the
estimated fair value that it calculated by performing a valuation of the modified preferred stock and warrants issued in the transaction. The valuation
was supported by an independent expert engaged by the Company. The Company has now concluded that the estimated fair value of the preferred stock
(convertible into shares of common stock on a one-for-one basis) should be based upon the quoted market price of the Companys common stock on the
date of the transaction. The impact of this change to the Consolidated Statement of Operations is summarized below:
(Table in thousands, except per share
data) |
|
|
|
2004
|
|
|
|
|
As Previously Reported |
|
Restated |
Net
loss |
|
|
|
$ |
(5,958 |
) |
|
$ |
(5,958 |
) |
Plus: Carrying
value of preferred stock over fair value of consideration transferred |
|
|
|
|
261 |
|
|
|
|
|
Less: Fair
value of consideration transferred over carrying value of preferred stock |
|
|
|
|
|
|
|
|
(3,973 |
) |
Net loss
attributable to common shareholders |
|
|
|
$ |
(5,697 |
) |
|
$ |
(9,931 |
) |
|
Income (loss)
per share of common stock |
|
|
|
|
|
|
|
|
|
|
(Basic and
fully diluted): |
|
|
|
$ |
(1.99 |
) |
|
$ |
(3.48 |
) |
50
There is no impact to the
Companys Consolidated Balance Sheets or the Consolidated Statements of Changes in Stockholders Equity for any period reported resulting from the
two items described above.
51
Item 9A. Controls and Procedures
As of December 31, 2004, the
Company carried out an evaluation, under the supervision and with the participation of management, including the Companys Chief Executive Officer
and Chief Financial Officer, of the effectiveness of the design and operation of the Companys disclosure controls and procedures pursuant to
Securities Exchange Act Rule 13a-15(b). Based on that evaluation, the Chief Executive Officer and the Chief Financial Officer have concluded that these
disclosure controls and procedures were effective as of December 31, 2004 to provide reasonable assurance that information required to be disclosed by
the Company in reports filed or submitted by it under the Securities and Exchange Act of 1934 is recorded, processed, summarized, and reported within
the time periods specified in the Securities and Exchange Commission rules and forms, and to provide reasonable assurance that information required to
be disclosed by the Company is accumulated and communicated to the Companys management, including the Companys Chief Executive Officer and
Chief Financial Officer, as appropriate to allow timely decisions regarding disclosure.
There were no changes in the
Companys internal controls over financial reporting that occurred during the quarter ended December 31, 2004 that have materially affected, or
are reasonably likely to materially affect, the Companys internal controls over financial reporting.
We have re-evaluated our
disclosure controls and procedures in light of the factors that led us to make the restatements to the Companys Consolidated Financial Statements
contained in this report. Based on our review and discussion with our audit committee, we determined that the restatements are necessary to properly
present the fair value of the modified preferred stock and warrants, and to reflect the non-cash financing transactions, and have amended our
Consolidated Financial Statements included in this Form 10-K/A to present them on a comparable basis with subsequent reports. We continue to believe
our disclosure controls and procedures were effective at December 31, 2004. This conclusion is based upon the following: 1) The Company views its
internal controls over financial reporting as a component of its overall disclosure controls and procedures. 2) The Company believes that the
restatement related to the recording of the modified preferred stock transaction was the result of a different interpretation of the relevant
accounting guidance, specifically with respect to the calculation of fair value of the modified preferred stock, and that the hiring of an independent
valuation expert to support the Companys internally calculated fair value reflects the Companys efforts to record an accurate fair value.
Furthermore, this transaction is not one that the Company encounters in its the normal course of business and not expected to be a recurring event. 3)
The Company believes that the reclassification related to the UICI debt payments should not change the readers view on the overall sources and
uses of cash for the accounting periods reported, or the readers opinion of the Companys overall cash position, future obligations or liquidity.
Furthermore, the netting process that lead to the reclassification in the Consolidated Statements of Cash Flows was fully disclosed in Note 7 to the
Consolidated Financial Statements, as well as in Managements Discussion and Analysis of Financial Condition and Results of Operations
Overview Repurchase of Securities Held by UICI. 4) The restatements had no effect on the Companys reported net loss on the
Statement of Operations, and had no effect on the Consolidated Balance Sheets or Consolidated Statement of Changes in Stockholders
Equity.
Limitations on Effectiveness of Controls
A control system, no matter how
well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the
design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their
costs. The likelihood of achieving the objectives of a control system is affected by limitations inherent in such controls and procedures, including
the fact that human judgment in decision-making can be faulty and that breakdowns in internal controls can occur because of human failures such as
simple errors or mistakes or intentional circumvention of the established process. The
52
Companys management,
including the Chief Executive Officer and Chief Financial Officer, does not expect that the Companys disclosure controls or internal controls for
financial reporting will prevent all error and all fraud. Due to the inherent limitations in a cost-effective control system, misstatements due to
error or fraud may occur and not be detected.
53
PART IV
Item
15. |
|
Exhibits and Financial Statement Schedules |
(a) |
|
The following consolidated financial statements of Healthaxis
Inc. are included in Item 8: |
(1) |
|
List of Financial Statements: |
Report of Independent Registered Public
Accounting Firm
Report of Independent Registered Public
Accounting Firm
Consolidated Balance Sheets
December 31, 2004 and 2003
Consolidated Statements of Operations
Years ended December 31, 2004, 2003, and 2002
|
|
Consolidated Statements of Changes in Stockholders Equity
Years ended December 31, 2004, 2003, and 2002 |
Consolidated Statements of Cash Flows
Years ended December 31, 2004, 2003, and 2002
Notes to Consolidated Financial
Statements
(2) |
|
Financial Statement Schedules: |
All schedules for which provision is
made in the applicable accounting regulations of the Securities and Exchange Commission are not required under the related instructions or are
inapplicable and therefore have been omitted.
The exhibit listing on the accompanying
Exhibit Index immediately following the signature page hereof is filed as part of, and is incorporated by reference into, this amendment to this
report.
54
SIGNATURES
Pursuant to the requirements of
Section 13 or 15(d) of the Securities Exchange Act of 1934, the Company has duly caused this amendment to this report to be signed on its behalf by
undersigned, thereunto duly authorized.
HEALTHAXIS
INC.
Date: November 9, 2005 |
By: |
|
/s/ John M. Carradine John
M. Carradine President and Chief Executive Officer (Duly Authorized Officer) |
Signature
|
|
|
|
Title
|
|
Date
|
/s/ John M.
Carradine John M. Carradine |
|
|
|
Chief Executive
Officer, President and Director (principal executive officer) |
|
November 9,
2005 |
|
/s/ Jimmy D.
Taylor Jimmy D. Taylor |
|
|
|
Chief Financial
Officer (principal financial and accounting officer) |
|
November 9,
2005 |
|
* James W. McLane |
|
|
|
Chairman of the
Board of Directors |
|
November 9,
2005 |
|
* James J. Byrne |
|
|
|
Director |
|
November 9,
2005 |
|
/s/ Aneesh
Chopra Aneesh Chopra |
|
|
|
Director |
|
November 9,
2005 |
|
* John W. Coyle |
|
|
|
Director |
|
November 9,
2005 |
|
* Thomas L. Cunningham |
|
|
|
Director |
|
November 9,
2005 |
|
* Adam J. Gutstein |
|
|
|
Director |
|
November 9,
2005 |
|
* Kevin F. Hickey |
|
|
|
Director |
|
November 9,
2005 |
|
/s/ Barry L.
Reisig Barry L. Reisig |
|
|
|
Director |
|
November 9,
2005 |
* |
|
Signed by Jimmy D. Taylor, Attorney in Fact |
55
EXHIBIT INDEX
(Pursuant to Item 601 of Regulation S-K)
Exhibit Number |
|
|
|
Description of Exhibits |
3.1 |
|
|
|
Amended and Restated Articles of Incorporation of the Registrant. Incorporated by reference to Exhibit 3.1 to Registrants Form 8-K dated
January 30, 2001. |
|
3.2 |
|
|
|
Amended and Restated Certificate of Designation of Series A Convertible Preferred Stock of Healthaxis Inc. dated June 30, 2004. Incorporated
by reference to Exhibit 10.2 to registrants Form 10-Q for the quarterly period ended June 30, 2004. |
|
3.3 |
|
|
|
Articles of Amendment to the Companys Amended and Restated Articles of Incorporation, incorporated by reference to Exhibit 3.1 of Form
8-K filed on August 19, 2003 |
|
3.4 |
|
|
|
Second
Amended and Restated Bylaws dated February 25, 2004. Incorporated by reference to Exhibit 3.5 to registrants Form 10-K for the year ended
December 31, 2003. |
|
4.1 |
|
|
|
Amended and Restated Certificate of Designation of Series A Convertible Preferred Stock of Healthaxis Inc. dated June 30, 2004. (see Exhibit
3.2 above). |
|
4.2 |
|
|
|
Specimen Stock Certificate, incorporated by reference to Exhibit 4.1 of Form 8-K filed on August 19, 2003. |
|
10.1 |
|
|
|
Amendment to Amended and Restated Option Agreement, dated as of September 9, 1999. Incorporated by reference to Exhibit (10)(K) to
Registrants Annual Report on form 10-K for the year ended December 31, 1999. |
|
10.2 |
|
|
|
Amendment and Restatement of the Registrants Stock Option Plan for Directors, effective July 16, 1996. Incorporated by reference to
Exhibit (10)(JJ) to Registrants Annual Report on Form 10-K for the year ended December 31, 1996. |
|
10.3 |
|
|
|
Registrants Amended and Restated Stock Option Plan for Executives, dated December 11, 1996. Incorporated by reference to Exhibit
(10)(LL) to Registrants Annual Report on Form 10-K for the year ended December 31, 1996. |
|
10.4 |
|
|
|
Registrants 2000 Stock Option Plan. Incorporated by reference to Exhibit (10)(PPP) to Registrants Annual Report on Form 10-K for
the year ended December 31, 1999. |
|
10.5 |
|
|
|
Amended and Restated Healthaxis.com 1998 Stock Option Plan filed herewith. |
56
Exhibit Number |
|
|
|
Description of
Exhibits |
10.6 |
|
|
|
Employment Agreement between Healthaxis.com, Inc., Registrant and James McLane. Incorporated by reference to Exhibit 10.1 to Registrants
Form 8-K filed January 3, 2001. |
|
10.7 |
|
|
|
Severance Agreement between Healthaxis.com, Inc., Registrant and Michael Ashker. Incorporated by reference to Exhibit 10.2 to
Registrants Form 8-K filed January 3, 2001. |
|
10.8 |
|
|
|
Prepayment Agreement with Alvin H. Clemens effective March 6, 2002. Incorporated by reference to Exhibit 10.65 to Registrants Annual
Report on Form 10-K for the period ended December 31, 2001. |
|
10.9 |
|
|
|
Change
in Control Employment Agreement between James. W. McLane and Registrant dated as of January 1, 2002. Incorporated by reference to Exhibit 10.66 to
Registrants Annual Report on Form 10-K for the period ended December 31, 2001. |
|
10.10 |
|
|
|
Change
in Control Employment Agreement between John Carradine and Registrant dated as of January 1, 2002. Incorporated by reference to Exhibit 10.67 to
Registrants Annual Report on Form 10-K for the period ended December 31, 2001. |
|
10.11 |
|
|
|
Change
in Control Employment Agreement between Jonathan B. Webb and Registrant dated as of January 1, 2002. Incorporated by reference to Exhibit 10.69 to
Registrants Annual Report on Form 10-K for the period ended December 31, 2001. |
|
10.12 |
|
|
|
First
Amendment to change in Control Employment Agreement between James W. McLane and Registrant effective January 1, 2003. Incorporated by reference to
Exhibit 10.77 to Registrants Annual Report on Form 10-K for the period ended December 31, 2002. |
|
10.13 |
|
|
|
First
Amendment to change in Control Employment Agreement between John M. Carradine and Registrant effective January 1, 2003. Incorporated by reference to
Exhibit 10.78 to Registrants Annual Report on Form 10-K for the period ended December 31, 2002. |
|
10.14 |
|
|
|
First
Amendment to change in Control Employment Agreement between Jonathan B. Webb and Registrant effective January 1, 2003. Incorporated by reference to
Exhibit 10.79 to Registrants Annual Report on Form 10-K for the period ended December 31, 2002. |
|
10.15 |
|
|
|
Change
in Control Employment Agreement between Jimmy D. Taylor and Registrant dated as of February 25, 2004. Incorporated by reference to Exhibit 10.84 to
Registrants Annual Report on Form 10-K for the period ended December 31, 2003. |
57
Exhibit Number |
|
|
|
Description of
Exhibits |
10.16 |
|
|
|
Change
in Control Employment Agreement between Charles S. Ramsburg and Registrant dated as of March 8, 2004. Incorporated by reference to Exhibit 10.85 to
Registrants Annual Report on Form 10-K for the period ended December 31, 2003. |
|
10.17 |
|
|
|
Purchase Agreement, dated as of September 30, 2003 between the Company and UICI. Incorporated by reference to Exhibit 10.1 to
registrants Form 10-Q for the quarterly period ended September 30, 2003. |
|
10.18 |
|
|
|
Promissory Note, made by the Company, payable to UICI. Incorporated by reference to Exhibit 10.2 to registrants Form 10-Q for the
quarterly period ended September 30, 2003. |
|
10.19 |
|
|
|
Preferred Stock Modification Agreement dated May 12, 2004 between Healthaxis Inc. and certain Preferred Shareholders. Incorporated by
reference from Appendix A to the Registrants Definitive Proxy Statement dated June 1, 2004. |
|
10.20 |
|
|
|
Investor Rights Agreement dated as of June 30, 2004 between Healthaxis Inc. and certain Preferred Stockholders. Incorporated by reference to
Exhibit 10.3 to registrants Form 10-Q for the quarterly period ended June 30, 2004. |
|
10.21 |
|
|
|
Registration Rights Agreement dated as of June 30, 2004 between Healthaxis Inc. and certain Preferred Shareholders. Incorporated by reference
to Exhibit 10.4 to registrants Form 10-Q for the quarterly period ended June 30, 2004. |
|
10.22 |
|
|
|
Form
of Warrant dated as of June 30, 2004 and executed by Healthaxis Inc. in favor of Brown Simpson Partners I, Ltd. (490,306 common shares), OTAPE LLC
(58,072 common shares), LB I Group Inc. (387,117 common shares) and The Pennsylvania State University (64,505 common shares). Incorporated by reference
to Exhibit 10.5 to registrants Form 10-Q for the quarterly period ended June 30, 2004. |
|
10.23* |
|
|
|
Rights
Agreement dated as of November 13, 1998 between American Online, Inc. and Registrant. |
58
Exhibit Number |
|
|
|
Description of
Exhibits |
21.1 |
|
|
|
Subsidiaries of Registrant. (a) Healthaxis.com, Inc. (b) Healthaxis Managing Partner, LLC. (c) Healthaxis Limited Partner, LLC
(d) Healthaxis, Ltd. (e) Healthaxis Imaging Services, LLC. (f) Satellite Image Systems (Jamaica) Limited |
|
23.1** |
|
|
|
Consent of McGladrey and Pullen, LLP. |
|
23.2** |
|
|
|
Consent of Ernst & Young LLP. |
|
24.1* |
|
|
|
Power
of Attorney (see signature age) |
|
31.1** |
|
|
|
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, filed herewith. |
|
31.2** |
|
|
|
Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, filed herewith. |
|
32.1** |
|
|
|
Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, filed
herewith. |
|
|
Management contract or compensatory plan. |
* |
|
Previously filed with the Annual Report on Form 10-K on March
31, 2005 |
59
EX-23.1
2
d18066_ex23-1.htm
Exhibit 23.1
Consent of Independent Registered Public Accounting
Firm
We consent to the incorporation by reference in the
Registration Statements (Form S-8 No. 333-54690) pertaining to the Healthaxis Inc. 2000 Stock Option Plan, (Form S-8 No. 333-83091) the Provident
American Corporation Amended And Restated Stock Option Plan For Directors, (File No. 333-33842) the Pre-Effective Amendment No. 1 To Form S-3,
(Post-Effective Amendment No. 1 on Form S-8 to Form S-4 No. 333-30256) the Registration Statement pertaining to the Healthaxis.com, Inc. Amended and
Restated 1998 Stock Option Plan, and (File No. 333-118766) the Registration Statement on Form S-3 and the related Prospectus for the registration of
4,910,020 shares of its common stock of our report, dated March 11, 2005, (except for Note 18 as to which the date is November 9, 2005), appearing in
this Annual Report on Form 10-K/A of Healthaxis Inc. and Subsidiaries for the year ended December 31, 2004. We also consent to the reference to our
firm under the caption Selected Financial Data in this Annual Report on Form 10-K/A.
/s/ McGladrey & Pullen,
LLP
Dallas, Texas
November 9, 2005
60
EX-23.2
3
d18066_ex23-2.htm
Exhibit 23.2
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM
We consent to the incorporation by reference in the
Registration Statements (Form S-8 No. 333-54690) pertaining to the Healthaxis Inc. 2000 Stock Option Plan, (Form S-8 No. 333-83091) the Provident
American Corporation Amended And Restated Stock Option Plan For Directors, (File No. 333-33842) the Pre-Effective Amendment No. 1 To Form S-3,
(Post-Effective Amendment No. 1 on Form S-8 to Form S-4 No. 333-30256) the Registration Statement pertaining to the Healthaxis.com, Inc. Amended and
Restated 1998 Stock Option Plan, and (File No. 333-118766) the Registration Statement on Form S-3 and the related Prospectus for the registration of
4,910,020 shares of its common stock, of our report dated March 24, 2004, with respect to the consolidated financial statements of Healthaxis, Inc.
appearing in the Annual Report (Form 10-K/A) for the year ended December 31, 2004 filed with the Securities and Exchange Commission.
/s/ Ernst & Young
LLP
Dallas, Texas
November 9, 2005
61
EX-31.1
4
d18066_ex31-1.htm
Exhibit 31.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
PURSUANT TO
SECTION 302
OF THE SARBANES-OXLEY ACT OF 2002
I, John M. Carradine, Chief
Executive Officer certify that:
1. |
|
I have reviewed this annual report on Form 10-K/A of Healthaxis
Inc.; |
2. |
|
Based on my knowledge, this 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 report; |
3. |
|
Based on my knowledge, the financial statements, and other
financial information included in this 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 report; |
4. |
|
Healthaxis other certifying officer(s) and I are
responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for
Healthaxis and have: |
a) |
|
Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being
prepared; |
b) |
|
Evaluated the effectiveness of Healthaxis disclosure
controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end
of the period covered by this report based on such evaluation; and |
c) |
|
Disclosed in this report any change in Healthaxis internal
control over financial reporting that occurred during Healthaxis most recent fiscal quarter (Healthaxis fourth fiscal quarter in the case
of an annual report) that has materially affected, or is reasonably likely to materially affect, Healthaxis internal control over financial
reporting; and |
5. |
|
Healthaxis other certifying officer(s) and I have
disclosed, based on our most recent evaluation of internal control over financial reporting, to Healthaxis auditors and the audit committee of
Healthaxis board of directors (or persons performing the equivalent functions): |
a) |
|
All significant deficiencies and material weaknesses in the
design or operation of internal control over financial reporting which are reasonably likely to adversely affect Healthaxis ability to record,
process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a
significant role in Healthaxis internal control over financial reporting: and |
b) |
|
Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrants internal control over financial reporting. |
Date: November 9, 2005
By: |
|
/s/ John M. Carradine John M. Carradine Chief
Executive Officer |
62
EX-31.2
5
d18066_ex31-2.htm
Exhibit 31.2
CERTIFICATION OF CHIEF FINANCIAL OFFICER
PURSUANT TO
SECTION 302
OF THE SARBANES-OXLEY ACT OF 2002
I, Jimmy D. Taylor, Chief
Financial Officer, certify that:
1. |
|
I have reviewed this annual report on Form 10-K/A of Healthaxis
Inc.; |
2. |
|
Based on my knowledge, this 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 report; |
3. |
|
Based on my knowledge, the financial statements, and other
financial information included in this 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 report; |
4. |
|
Healthaxis other certifying officer(s) and I are
responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for
Healthaxis and have: |
a) |
|
Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to Healthaxis, including
its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being
prepared; |
b) |
|
Evaluated the effectiveness of Healthaxis disclosure
controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end
of the period covered by this report based on such evaluation; and |
c) |
|
Disclosed in this report any change in Healthaxis internal
control over financial reporting that occurred during Healthaxis most recent fiscal quarter (Healthaxis fourth fiscal quarter in the case
of an annual report) that has materially affected, or is reasonably likely to materially affect, Healthaxis internal control over financial
reporting; and |
5. |
|
Healthaxis other certifying officer(s) and I have
disclosed, based on our most recent evaluation of internal control over financial reporting, to Healthaxis auditors and the audit committee of
Healthaxis board of directors (or persons performing the equivalent functions): |
a) |
|
All significant deficiencies and material weaknesses in the
design or operation of internal control over financial reporting which are reasonably likely to adversely affect Healthaxis ability to record,
process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a
significant role in Healthaxis internal control over financial reporting; and |
b) |
|
Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrants internal control over financial reporting |
Date: November 9, 2005
By: |
|
/s/ Jimmy D. Taylor Jimmy D. Taylor Chief
Financial Officer |
63
EX-32.1
6
d18066_ex32-1.htm
Exhibit 32.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
PURSUANT TO
SECTION 906
OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of Healthaxis Inc.
(the Company) on Form 10-K/A for the period ending December 31, 2004 as filed with the Securities and Exchange Commission on the date hereof (the
Report), I, John M. Carradine, Chief Executive Officer of the Company, and Jimmy D. Taylor, Chief Financial Officer, do each herby certify, pursuant to
18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies
with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C.78m or 78o(d)); and
(2) The information contained in
the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
By: |
|
/s/ John M. Carradine
John M. Carradine Chief
Executive Officer November 9, 2005 |
By: |
|
/s/ Jimmy D. Taylor
Jimmy D. Taylor Chief
Financial Officer November 9, 2005 |
64
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