HAI owns its headquarters located at 2500 DeKalb Pike in East Norriton, Pennsylvania. The headquarters is approximately 47,000 square feet and is situated on approximately 6.5 acres. HealthAxis leases 41,000 square feet of the headquarters from HAI with the balance leased to PILIC or used by HAI. In addition, HealthAxis leases office space at the following locations:
5215 North O'Connor Blvd, 800 Central Tower, Irving, TX 31,325 2121 Precinct Line Road, Hurst TX (1) 20,000 4001 McEwen, Dallas, TX (1) 4,000 990 West Atherton Dr, Ste. 200 Salt Lake City, UT 5,000 670 East Main St, Castledale, UT 5,450 1200 East Ephraim Canyon, Ephraim, UT 10,000 Montego Bay Free Zone, Bldg No. 2, Montego Bay, Jamaica 5,000 1-3 Pimento Way, Montego Freeport, Montego Bay, Jamaica 10,000 577 Howard Street, San Francisco, CA 2,100 - ------------------------ (1) Leased by HealthAxis from UICI or one of its subsidiaries.
The following selected consolidated financial information has been derived from the consolidated financial statements of HAI and should be read in conjunction with the Consolidated Financial Statements and notes thereto included elsewhere in this report which have been audited by BDO Seidman, LLP for 1999, 1998 and 1997, and by PricewaterhouseCoopers, LLP for 1996 and 1995. HAI's financial results include that of its subsidiary, HealthAxis.
(1) Assumes conversion of Series A and Series B Preferred stock into common stock of HAI on a share-for-share basis in 1995 and conversion of Series A Preferred stock in 1998, 1997 and 1996 on a share-for-share basis.
(2) As the result of the discontinuation of the insurance operations the Selected Financial Data has been restated for all years presented.
Operating expenses of $6.0 million in 1999 increased from $0.8 million in 1998 primarily due to higher HealthAxis expense due to employee and recruiting expenses related to planning and scheduling website implementation of carriers, website enhancements, and general operations. Operating expenses increase as more carriers and products are integrated into HealthAxis' website.
Sales and marketing expense of $20.1 million in 1999 increased from $1.3 million in 1998 due primarily to the amortization of HealthAxis' interactive marketing agreements with Internet portals based on the number of HealthAxis' Internet advertisements that it placed on distribution partners' web pages and viewed by Internet users ("impressions"). Interactive marketing amortization was $14.6 million in 1999 compared to $0.6 million in 1998. Interactive marketing amortization expense represents the cost of exclusivity and Internet advertisements delivered to HealthAxis from strategically selected websites. Amortization of HealthAxis' interactive marketing agreements in 2000 is anticipated to approximate $11.2 million. In addition, HealthAxis employee and recruiting expense increased.
Amortization of goodwill of $0.8 million in 1999 relates to HAI's purchase of 1,415,000 shares of HealthAxis common stock from HealthPlan Services Inc. Amortization of HAI's $7.9 million of goodwill in 1999 includes 3 1/2 months amortization for the purchase of these shares and accordingly will be higher in 2000. Further, HealthAxis anticipates recognizing approximately $623 million of goodwill as a result of the January 7, 2000 merger of Insurdata into HealthAxis to be amortized on a straight line basis over a 3 year period.
Interest income of $0.7 million in 1999 relates to interest earned in short term investments. There was no corresponding income during 1998.
Net loss from discontinued operations of $18.3 million included a $10.3 million loss on the sale of PILIC and $8.0 million loss in discontinued operations as compared to $6.7 million loss in discontinued operations in 1998. HAI's discontinued operations were conducted through its former wholly owned life insurance company Provident Indemnity Life Insurance Company ("PILIC") sold November 30, 1999 and PILIC's subsidiaries which during 1997 through 1998 were Provident American Life and Health Insurance Company ("PALHIC") sold December 31, 1998, Montgomery Management Corporation ("MMC") of which 80% was sold during 1998 and the remainder sold during 1999 and NIA Corporation ("NIA") sold December 31, 1998. The insurance operations are being reported as discontinued operations for all periods presented. 1998 results included realized gains on the sale of PALHIC, MMC and NIA of $3 million.
On December 7, 1999, HealthAxis and Insurdata Incorporated, a subsidiary of UICI, announced the signing of a definitive agreement to merge the two companies, with the combined entity retaining the HealthAxis name. Under the terms of the transaction, Insurdata's shareholders received approximately 50 percent of the newly combined company. The transaction, which closed on January 7, 2000, will be accounted for under the purchase method of accounting in accordance with APB No. 16 and HealthAxis, by virtue of its holding a majority of the voting interest, was determined to be the acquirer for accounting purposes. HealthAxis anticipates that revenues will increase as a result of including Insurdata's revenues which during 1999 were $42.9 million. It is anticipated that Insurdata's technological expertise and established customer base will benefit HealthAxis' future operations by improving the process of implementing carrier products on the website and website development, increasing revenues with their established customer base, the potential to cross market products to HealthAxis' and Insurdata's clients and providing each company with exposure to additional potential clients.
Net loss applicable to common stock was $12.4 million or ($1.20) per basic and diluted share in 1998 compared to net loss of $18.6 million or ($1.84) per basic and diluted share in 1997. HAI's 1998 results included a net loss from discontinued operations of $6.7 million as compared to $16.7 million loss from discontinued operations in 1997. Additionally the Company experienced increased expenses in both HealthAxis and HAI during 1998, which related to the start-up of HealthAxis.
General and Administrative Expenses of $3.8 million in 1998 increased from $1.9 million in 1997 due primarily to HealthAxis employee and recruiting expenses along with professional fees and overhead expenses.
Net loss from discontinued operations of $6.7 million in 1998 as compared to $16.7 million loss in discontinued operations in 1997. Results for 1998 included substantially higher group medical benefit expense partially offset by realized gains on the sale of PALHIC, MMC and NIA.
HAI does not anticipate that future cash used or provided from operations will include amounts related to HAI's Discontinued Insurance Operations which was sold effective November 30, 1999. Amounts due from reinsurers, amounts due from a third party administrator and future policy benefits and claims relate to HAI's discontinued operations.
During 1999 HAI issued 2% convertible debentures in the amount of $27.5 million the net proceeds of which were used for working capital and other general corporate purposes, including approximately $8.2 million to purchase HealthAxis Common Stock, $14.7 million to sell the Insurance Operations and retain the Company's home office and 445,916 shares of HealthAxis Series A Preferred Stock and $2 million to purchase 133,333 shares of HealthAxis common stock.
Non-cash repayment of notes payable represented $1.5 million of consideration for the Company's sale of MMC Common Stock and for HPS' exercise of its warrant obtained in 1998 in connection with the HPS E-Commerce Agreement to purchase 100,000 shares of HAI Common Stock for $0.9 million. Non cash issuance of warrants relates to HealthAxis.
o increase product offerings and client exposure, which will potentially enable the Company to generate additional revenues.
Historically Insurdata has been funded primarily through cash generated from operations. At December 31, 1999 Insurdata's cash balance was $2.1 million, current liabilities were $4.5 million of which anticipated 2000 payments under certain employee compensation plans are $1.1 million and capital purchase commitments are $1 million.
HAI believes the reorganization will benefit the Company and its shareholders because it will:
During 1999 HAI purchased 1,415,000 shares of HealthAxis common stock and has agreed to pay the seller $0.4 million to complete the transaction.
During 1998 and 1999, HealthAxis entered into agreements with AOL, Lycos, CNet, Snap! and Yahoo!. In connection with these agreements, the Company has paid $4.7 million in cash and warrants during 1999 and is required to pay $5 million in 2000. The Company believes that its current cash and cash equivalents will be sufficient to fund HealthAxis' obligations under these agreements and current
On January 7, 2000, HealthAxis and Insurdata Incorporated, a subsidiary of UICI completed the merger of the two companies. HealthAxis anticipates that it will pay out of pocket merger costs of approximately $0.6 million during 2000.
On December 7, 1999, HAI announced plans to move forward with its original plan to merge with its subsidiary, HealthAxis. The merger was approved by HAI's board of directors on January 26, 2000 and by HealthAxis' board of directors on January 26, 2000. The Company anticipates that it will pay out of pocket merger costs of approximately $2.2 million during 2000.
Higher interest rates, which have traditionally accompanied inflation, affect the Company's short-term investment revenue.
Consolidated Statements of Changes in Stockholders' Equity Years ended December 31, 1999, 1998 and 1997
Consolidated Statements of Cash Flows Years ended December 31, 1999, 1998 and 1997 to