Net loss applicable to common stock was $46.6 million or ($3.80) per basic and diluted share in 1999 compared to net loss of $12.4 million or ($1.20) per basic and diluted share in 1998. The Company's 1999 results included a net loss from discontinued operations of $18.3 million as compared to $6.7 million loss from discontinued operations in 1998. Additionally the Company experienced increased expenses in both HealthAxis and HAI during 1999 compared to 1998.
Interactive commission and fee revenue of $0.3 million represents commission and administrative fees earned on individual health insurance policies sold on HealthAxis' website. There were no revenues in 1998 due to the launch of HealthAxis' website, which is the only source of revenue, on December 3, 1998. Revenue related to HealthAxis' website is anticipated to grow in 2000 as a result of growth in first year, renewal commissions and fees, and the introduction of new products onto the website.
General and Administrative Expenses of $8.5 million in 1999 increased from $3.8 million in 1998 due primarily to employee and recruiting expenses relating to the increase in HealthAxis' administrative and executive staff. The increase was also due to professional fees and overhead expenses. General and administrative expenses include executive management, accounting, legal, and human resource personnel and expenditures for applicable overhead costs.
On January 26, 2000, HAI, HealthAxis and a wholly owned subsidiary of HAI entered into the Agreement and Plan of Reorganization which provides for the merger of HealthAxis with and into the subsidiary of HAI which will result in former shareholders of HealthAxis becoming shareholders of HAI. This transaction is referred to as the reorganization. The HAI subsidiary will continue as the surviving corporation of the reorganization, will retain all of its separate corporate existence and will be known as HealthAxis.com Inc. The reorganization will be accounted for by HAI as a recapitalization in accordance with generally accepted accounting principles. As a recapitalization, HAI capital stock issued to HealthAxis stockholders will be accounted for at the historical cost and the net assets of HAI will be recorded at historical cost. As a result of the recapitalization, the preferred and common stock of HealthAxis will be converted to HAI common stock eliminating all minority interest in HealthAxis and the minority interest net loss of subsidiary line item on the statement of operations. In addition, outstanding HealthAxis options and warrants will be converted into options or warrants to purchase HAI common stock. HAI anticipates that HAI will issue a total of 33,386,730 shares of HAI common stock to HealthAxis shareholders in the reorganization. HAI also anticipates that HAI will issue up to approximately 6,072,728 shares of HAI common stock upon the exercise of options and warrants to purchase HealthAxis common stock to be assumed by HAI of which HAI anticipates recording approximately $61 million of prepaid compensation which will be expensed over the vesting period of the options. There can be no assurance, however, that the conditions to the reorganization will be satisfied or that the reorganization documents will not be terminated.
Operating expenses of $0.8 million in 1998 were the result of HealthAxis consulting fees relating to carrier partner integration planning and website design.
Sales and marketing expense of $1.3 million in 1998 were primarily due to the amortization of expenses related to HealthAxis' interactive marketing agreements based on the number of impressions received by the HealthAxis website.
Interest expense of $0.3 million in 1998 includes interest on loans payable.
Prior to 1999 HAI's liquidity requirements were primarily created and met by HAI's discontinued operations. During 1999, HAI's liquidity requirements were primarily created and met by HealthAxis and HAI through the private placement of debt and equity securities. During 1999 the primary uses of cash for HAI were the operation of PILIC and HAI's November 30, 1999 sale of PILIC, HAI's purchases of HealthAxis stock and HealthAxis' operating costs and payments to America Online, Inc. ("AOL"), Lycos, Inc. ("Lycos"), CNet, Inc. ("CNet"), Snap! LLC ("Snap!") and Yahoo! Inc, ("Yahoo!").
Cash and cash equivalents as of December 31, 1999 amounted to $58.1 million of which $56.5 million was in HealthAxis and was partially attributable to the December private placement of common stock and $1.6 million was in HAI and is the net remaining funds from the September 1999 issuance of convertible debentures. HAI anticipates the need to obtain cash advances from HealthAxis during 2000 to fund HAI's costs of the Pending Merger involving HealthAxis and a wholly-owned subsidiary and HAI corporate expenditures.
Net cash used in operating activities of $40.0 million in 1999 was primarily the result of claim payments to policyholders in HAI's discontinued operations and operating losses in HAI and HealthAxis.
During 1999 HealthAxis made the final payment of $1.5 million to AOL under the initial term of Second Amendment to the Amended and Restated Interactive Marketing Agreement with AOL. Additionally, HealthAxis paid $3.3 million to Lycos, CNet, Snap! and Yahoo! which are included in prepaid interactive marketing expense.
During 1999 HealthAxis completed private offerings of approximately $74.7 million the net proceeds of which have been used to and are anticipated to be used to fund amounts due under HealthAxis' distribution agreements with AOL, Lycos, CNet and Snap! and an Advertising Agreement with Yahoo! with the balance intended to be used by HealthAxis for its working capital and other general purposes.
Payment of dividends paid by HealthAxis to HAI is subject to restrictions set for in the Certificate of Designation related to HealthAxis Series A, B, C and D Convertible Preferred Stock. HAI and HealthAxis do not anticipate paying cash dividends on Common Stock or on any class of HealthAxis preferred stock in the foreseeable future.
The Company believes that the merger between HealthAxis and Insurdata will benefit the Company and its shareholders because the Company will:
o increase its revenues, as demonstrated by the increase in revenues from $291,000 in 1999 to a combined revenue of $43.2 million for 1999;
o eliminate investor confusion stemming from HAI's long history as a health insurance underwriter; and
o streamline corporate structure to eliminate dual shareholder approvals in connection with annual meetings and other shareholder actions and their associated costs.
operations through March 31, 2001. However, subsequent equity or debt financings will be necessary to enable the Company to fund future operations and continue to implement its current business strategies.
HAI has no material commitments for capital expenditures at December 31, 1999 and such expenditures totaled approximately $4.2 million in 1999. Such expenditures were primarily for HealthAxis' equipment, software, furniture and building improvements.
HAI does not anticipate paying cash dividends on common stock or on any series or class of HealthAxis preferred stock in the foreseeable future.
Inflation has significantly increased the cost of health care. The adequacy of premium rates in relation to the level of health claims is constantly monitored and, where appropriate, premium rates on such policies, when appropriate, are increased as policy benefits increase. Failure to make such increases commensurate with health care cost increases may result in a loss to HealthAxis' insurance carriers. Implementation by HealthAxis' insurance carriers of changes in premium rates may affect HealthAxis commission revenue and may increase HealthAxis operating expense.
Year 2000 issues are the result of computer programs being written using two digits rather than four to define the applicable year. In other words, date-sensitive software may recognize a date using "00" as the year 1900 rather than the Year 2000. This could result in system failures or miscalculations causing disruptions in operations, including, among other things, a temporary inability to process transactions, send invoices, or engage in similar normal business activities
To date, the Company has experienced very few Year 2000 problems with those problems centering on life administration processing sold to PILIC on November 30, 1999 with no further liability to the Company regarding Year 2000 issues. The cost of programming changes as of December 31, 1999 was less than $150,000.