Sales of common stock. We have periodically sold shares of our unregistered common stock in private placements. The funds from such sales have been used for working capital purposes. We did not sell any shares of our common stock during 2012, but did raise approximately $1.0 million through such sales during 2011.
The accrued claims payable ranges were between $12.9 and $13.1 million at December 31, 2012 and between $13.9 and $14.1 million at December 31, 2011. Based on the information available, we determined our best estimate of the accrued claims liability to be $13.1 million and $14.0 million at December 31, 2012 and 2011 respectively. Our accrued claims liability at December 31, 2012 and 2011 includes approximately $9.8 million and $7.3 million, respectively, of submitted and approved but unpaid claims, $3.3 million and $6.2 million for IBNR claims, respectively, and zero and $0.5 million, respectively, of contract loss allowance. A 5% increase in assumed healthcare cost trends from those used in our calculations of IBNR at December 31, 2012 could increase our claims expense by approximately $145,000. Actual claims incurred could differ from estimated claims accrued.
Except for the reasons as described above, the adjustment of prior year claims expense resulted from changes in utilization patterns and changes in claim submission timeframes by providers. We consider these changes in claims expenses to be immaterial when compared to the total claims expenses incurred in prior years.
Consolidated Statements of Cash Flows, Years Ended December 31, 2012 and 2011
The following table lists the assumptions utilized in applying the Black-Scholes valuation model for options and warrants.
(5) In November 2011, we issued convertible promissory notes to one entity and one individual in exchange for aggregate cash proceeds of $700,000. The notes bear interest at the rate of 14%, payable quarterly, and the principal is due in May 2013. At any time during the term of the notes, the holders may elect to convert the principal and unpaid interest to our common stock at $0.25 per share. The holders also received warrants to purchase an aggregate of 350,000 shares of our common stock at $0.44 per share. The warrants, which were vested at issuance, expire in 2016. In March 2013, the warrant price was decreased to $0.22 per share and we agreed to assign certain receivables and a potential arbitration recovery to the creditor as a source of future repayment, but not in excess of $700,000.
(7) Capital leases were used to finance the acquisition of certain computer and telephone equipment and currently require future minimum lease payments as follows:
(1) We initiated an action against Jerry Katzman, a former director, in July 2009 alleging that Mr. Katzman fraudulently induced us to enter into an employment agreement and, alternatively, that Mr. Katzman breached that alleged employment agreement and was rightfully terminated. In September 2010, the matter proceeded to a trial by jury. The jury found that Mr. Katzman did not fraudulently induce CompCare to enter into the contract but also found that Mr. Katzman was not entitled to damages. On defendant’s motion to amend the verdict due to inconsistency, the trial court set aside the jury verdict and awarded Mr. Katzman damages of approximately $1.3 million. The Company appealed the lower court’s decision and posted a collateralized appeal bond for approximately $1.3 million. On February 14, 2013, the 11th Circuit Court of Appeals of the State of Florida reversed the lower court’s judgment in favor of Katzman and remanded the case for a new trial on both liability and damages. The appellate court also taxed appellate costs in favor of CompCare against Katzman. The decision of the appellate court also reverses the lower court’s award of attorney’s fees previously awarded to Katzman against CompCare.
In addition, under our Non-employee Directors’ Stock Option Plan, we are authorized to issue non-qualified stock options to our non-employee directors for up to 1,000,000 common shares. Each non-qualified stock option is exercisable at a price equal to the average of the closing bid and asked prices of the common stock in the over-the-counter market for the most recent preceding day there was a sale of the stock prior to the grant date. Grants of options vest in accordance with vesting schedules established by our Board of Directors’ Compensation and Stock Option Committee. Upon joining our Board of Directors, directors receive an initial grant of 25,000 options for common shares. Annually, directors are granted 15,000 options for common shares on the date of our annual meeting. As of December 31, 2012, there were 801,668 shares available for option grants and 100,000 options for common shares outstanding under the non-qualified directors’ plan, 60,000 of which were exercisable.