Wednesday, August 10, 2005 5:43:34 PM
Initial Due Diligence/Buy Recommendation: Transax Int'l TNSX.OB
www.transax.com Health Information Management
This is not a Naz play, but I have the approval to alert this thread's members to what I believe is an extraordinary opportunity. Plenty of links here for your DD.
Transax is “dedicated to improving healthcare delivery by providing hospitals, physician practices, and health insurance companies innovative health information management systems to manage coding, compliance, abstracting and records management processes”. (4/18/05 10K)
Transax facilitates the real time automation of eligibility and authorization for the process of routine transactions, i.e. auto-adjudication of healthcare claim processing, thus enabling a dramatic decrease in costs for both the heath care providers and the insurers, in addition to improving the service to the patient.
Key features of TNSX’s “Connectivity Solution” include:
*Retained ownership of the terminal network (VPN: virtual private network)
*A turnkey solution enabling rapid capture, routing & authorization
*A fee charged per transaction (as opposed to the one time sale or rental of the solutions to the provider).
*The solution allows for the capture of 100% of transactions at .50/transaction
*The technology is operator friendly in any provider environment at the provider’s level of technological sophistication.
…………………………………
I have spent considerable time doing due diligence on TNSX including several hours via phone with the president and CEO, Stephen Walters and consults with their IR rep, Jamie Dryer, jamie@otcfn.com . I have also reviewed the websites: http://otcfn.com/tnsx/index.html and http://www.transax.com and related SEC filings.
Recent news:
8/10 Transax International Releases New Web Solution http://www.knobias.com/individual/public/news.htm?eid=3.1.0ee9c957216ed3cfeca3c7094150cfa5ebbfb0e238....
7/27 Transax International Limited Reports Second Quarter Net Revenues up 200%
http://www.knobias.com/individual/public/news.htm?eid=3.1.649d8aea2569a9f74e55f5bb745a5bf8a276bf4f64....
Revenues are ramping dramatically (see the transaction volume graph on the homepage)
"Real Time" Transactions undertaken in 2003 : 1.1 Million
"Real Time" Transactions undertaken in 2004 : 2.8 Million
"Real Time" Transactions in first 1/2 2005 : 3.0 Million
They've already done more transactions, at .50per, in the first half of the year than all of last year. "Transax projects to undertake up to 8 million transactions during fiscal 2005."
8/3 Transax International to Be Featured on CNN
http://www.knobias.com/individual/public/news.htm?eid=3.1.2bbe748c6793a8f7d14ebac3a3631fb6acf0ab6ad8....
Transax provides a service that mirrors the credit card or ATM process we routinely use for retail purchases and banking via terminal, but for the health insurance industry. The core of their processor is, in fact, a modification of the same core that drives ATM transactions. In the health care setting the transaction consists of approving eligibility, authorization, auto-adjudication of the health claim and generating the claim payable files all instantaneously in "real time" regardless of method of claim generation. The "on line" solution has been proven to significantly decrease health insurance claim expenditure.
“MedLink, a Transax subsidiary, is the total connectivity system that allows hospitals, clinics, medical specialists and other healthcare providers to easily capture, route, and authorize medical, hospital, and dental claims. MedLink addresses pre-existing technological and communication problems by creating a universal virtual link between the insurer and the care provider.
MedLink is composed of various capture solutions and a network processor, and allows the real-time authorization or denial of a health care claim even before the procedure takes place.
MedLink Solutions are tailored to the care provider's environment based upon its technological resources, physical installation and volume of claims. “ (Website descriptor)
7/20 Transax International Retains OTC Financial Network for Comprehensive Investor Relations Program
……………………………………
Their intellectual property portends the shifting of the current authorization process for medical claims from the current EDI Electric Data Interchange process to a virtually paperless office for the insurer and an online, real-time feedback to the health provider that their proposed procedure will be paid for.
The "Solution Architecture" on the home page schematically represents their health information management product and network information flow. Procedure information is "captured" by the provider and routed to the company's IP and network processors which communicates via a virtual link to the insurer. The insurer verifies the pending procedure and authorizes/denies. The network processor gives the provider the "code" so that the patient's procedure is approved. The left side of the schematic identifies the many ways that providers can interface with the company’s routing processors.
"We believe that the Health Information Management Products will increase an organization's progress in reducing improper payments and ensuring that medical record documentation support services are provided."
6/6 SB-2 http://xml.10kwizard.com/filing_raw.php?repo=tenk&ipage=3510376
Read this PR from last December that describes the authorization process in Brazil.
http://transax.com/investors/20041221.pdf.
“Transax ‘Total Connectivity’ solution operates in ‘real time’ regardless of location or method of claim generation.”
There is a very listenable CEOcast interview with Stephen Walters broadcast last May:
http://www.transax.com/investors/ceocast.htm
(the website date identifies an earlier interview CEOcast interview date, and I have informed the company that their link identifier needs updating)
…………
The company ‘s revenues have primarily come from their Brazilian operations which are now profitable. They are working with 2 of the 3 largest private insurers in Brazil
On November 3, 2003 Transax announced it signed a two year contract with Bradesco Insurance for health insurance connectivity, eligibility and authorization using its "Medlink" solution. Bradesco Insurance is a wholly owned subsidiary of Bradesco Bank, Brazil's largest financial institution and Brazil's largest health insurer with approximately 2.5 million lives covered. It is of no small consequence that Transax was chosen over both Visa and Siemens Health for this contract, organizations with vastly larger resources but NO realtime solution.
The Bradesco contract is up for renewal and the company has recently been told that they are producing “significant savings” for the insurer. Transax sounded confident that the contract will be renewed.
They have a subsidiary in Australia and are embarking upon a trial with a Florida-based dental practice: http://www.uniondentalcorp.com/ir/pr/12_2_2004.htm They have been working on a web solution to enable this program’s initiation. The process was further described in http://www.transax.com/investors/TransaxPressRelease_March2005_UnionDental_Vers3.pdf and is about ready for primetime. (See 8/10 news release).
The Union Dental initiative still, however, requires the company, which has used International Organization for Standardization (ISO) codesets to translate to the ASI codesets. The world uses ISO, meters, liters, etc. but we use ASI, feet, quarts, etc. Transax should be receiving ISO 9001 certification within a year’s time, btw.
The company has a number of meetings with potential clients in the coming months and a new OTCFN profile in the works including the ValueRich Small Cap Financial Conference next month in NYC. http://www.valuerichonline.com/ny05/index.php?id=home
Valuation:
Jamie (OTCFN) believes that a share price in the mid 20's (cents) is very attractive, as TNSX is trading recently at about 2.5x 2005 estimated revenues. I was encouraged to look at Medcomm USA (EMED.OB) as a comparable, recently trading at .67 with 52wkhi of 2.50 with less than 3m sales and trading at 13x sales on 54 million shares O/S http://finance.yahoo.com/q/ks?s=EMED.OB
Even a 1/3 valuation of EMED’s P/S multiple should put share price in .40-.50 range for TNSX without any new business: market cap. Of 7.5 mil., O/S about 30mil, share price at .25.
TNSX revenues are being estimated at $3m this year and potentially more on several factors including a 30 day pilot program just started with a healthcare provider that if successful could return a contract worth $6m annually. This contract is with a Brazilian company that wants to utilize fingerprint identification on the front end of the solution architecture.
Mr. Walters believes that the float is in the neighborhood of 6 million shares and the current number of shares outstanding is about 30 million.
Future:
The grand slam application for TNSX, imo, would be the ability to interface and code for Medicare payments as well as private insurer networks. The company could become extremely valuable to a larger concern, like a VISA or other large transaction provider (e.g. Aetna or Accenture). I doubt that VISA captures .50 from every transaction they process.
I believe that TNSX is a very reasonable speculation at current price levels due to the rapid revenue increase and recurring revenue potential. Once a provider/insurer spends the resources to establish the link with TNSX, establishes codes to authorize procedures, adopts the paperless solution, and finds the savings from working closely with Transax to develop a more efficient authorization system, the business process of the health insurance company is irrevocably?! changed, thus leading to an ever increasing and recurring revenue stream.
http://www.transax.com/content.php?Action=medlink/faq may answer some of the questions that have come to your mind reading the above information.
Potential Red Flag issues:
1. If you read the filings you will note that the company has an agreement in place with Cornell Capital. The only outstanding obligation to Cornell is a promissory note in the amount of $255K (includes accrued interest). Cornell did receive a one time commitment fee of 1.2million shares or basically 4% of the value of the initial SEDA (subsequently withdrawn) as an underwriting fee The company has drawn no funds from either the original or subsequent Standby Equity Distribution Agreements. An amended SB-2/A will be filed shortly after the 2nd quarter numbers are released (due on August 15). I expressed my concerns re. the terms of the SEDA that might allow Cornell to short shares in the 5 day “ Pricing Period” following the company’s Advance Notice Date. Article III. 8-K 5/20/05.
Mr. Walters agreed to speak with his lawyers regarding the “shorting” risk. He remarked that the company was likely to be in a financial position to obtain financing with better terms than the 8% discount that the current SEDA carries at the point that more working capital is required.
2. The 10-K filed 4/18/2005 identifies a deficiency in the payment of Brazilian payroll taxes and Social Security taxes. Stephen Walters told me there are no few than 6 kinds of taxes and the company’s Brazilian operations are profitable even counting the schedule of back payments they are making on over ½ of the overdue balances. He stated they are negotiating with the Brazilian authorities on the balance of overdue payments.
3. The company is going to need to raise capital at some point in the not too distant future. It is of course, impossible to know what combination of debt/equity/dilution will be involved.
www.transax.com Health Information Management
This is not a Naz play, but I have the approval to alert this thread's members to what I believe is an extraordinary opportunity. Plenty of links here for your DD.
Transax is “dedicated to improving healthcare delivery by providing hospitals, physician practices, and health insurance companies innovative health information management systems to manage coding, compliance, abstracting and records management processes”. (4/18/05 10K)
Transax facilitates the real time automation of eligibility and authorization for the process of routine transactions, i.e. auto-adjudication of healthcare claim processing, thus enabling a dramatic decrease in costs for both the heath care providers and the insurers, in addition to improving the service to the patient.
Key features of TNSX’s “Connectivity Solution” include:
*Retained ownership of the terminal network (VPN: virtual private network)
*A turnkey solution enabling rapid capture, routing & authorization
*A fee charged per transaction (as opposed to the one time sale or rental of the solutions to the provider).
*The solution allows for the capture of 100% of transactions at .50/transaction
*The technology is operator friendly in any provider environment at the provider’s level of technological sophistication.
…………………………………
I have spent considerable time doing due diligence on TNSX including several hours via phone with the president and CEO, Stephen Walters and consults with their IR rep, Jamie Dryer, jamie@otcfn.com . I have also reviewed the websites: http://otcfn.com/tnsx/index.html and http://www.transax.com and related SEC filings.
Recent news:
8/10 Transax International Releases New Web Solution http://www.knobias.com/individual/public/news.htm?eid=3.1.0ee9c957216ed3cfeca3c7094150cfa5ebbfb0e238....
7/27 Transax International Limited Reports Second Quarter Net Revenues up 200%
http://www.knobias.com/individual/public/news.htm?eid=3.1.649d8aea2569a9f74e55f5bb745a5bf8a276bf4f64....
Revenues are ramping dramatically (see the transaction volume graph on the homepage)
"Real Time" Transactions undertaken in 2003 : 1.1 Million
"Real Time" Transactions undertaken in 2004 : 2.8 Million
"Real Time" Transactions in first 1/2 2005 : 3.0 Million
They've already done more transactions, at .50per, in the first half of the year than all of last year. "Transax projects to undertake up to 8 million transactions during fiscal 2005."
8/3 Transax International to Be Featured on CNN
http://www.knobias.com/individual/public/news.htm?eid=3.1.2bbe748c6793a8f7d14ebac3a3631fb6acf0ab6ad8....
Transax provides a service that mirrors the credit card or ATM process we routinely use for retail purchases and banking via terminal, but for the health insurance industry. The core of their processor is, in fact, a modification of the same core that drives ATM transactions. In the health care setting the transaction consists of approving eligibility, authorization, auto-adjudication of the health claim and generating the claim payable files all instantaneously in "real time" regardless of method of claim generation. The "on line" solution has been proven to significantly decrease health insurance claim expenditure.
“MedLink, a Transax subsidiary, is the total connectivity system that allows hospitals, clinics, medical specialists and other healthcare providers to easily capture, route, and authorize medical, hospital, and dental claims. MedLink addresses pre-existing technological and communication problems by creating a universal virtual link between the insurer and the care provider.
MedLink is composed of various capture solutions and a network processor, and allows the real-time authorization or denial of a health care claim even before the procedure takes place.
MedLink Solutions are tailored to the care provider's environment based upon its technological resources, physical installation and volume of claims. “ (Website descriptor)
7/20 Transax International Retains OTC Financial Network for Comprehensive Investor Relations Program
……………………………………
Their intellectual property portends the shifting of the current authorization process for medical claims from the current EDI Electric Data Interchange process to a virtually paperless office for the insurer and an online, real-time feedback to the health provider that their proposed procedure will be paid for.
The "Solution Architecture" on the home page schematically represents their health information management product and network information flow. Procedure information is "captured" by the provider and routed to the company's IP and network processors which communicates via a virtual link to the insurer. The insurer verifies the pending procedure and authorizes/denies. The network processor gives the provider the "code" so that the patient's procedure is approved. The left side of the schematic identifies the many ways that providers can interface with the company’s routing processors.
"We believe that the Health Information Management Products will increase an organization's progress in reducing improper payments and ensuring that medical record documentation support services are provided."
6/6 SB-2 http://xml.10kwizard.com/filing_raw.php?repo=tenk&ipage=3510376
Read this PR from last December that describes the authorization process in Brazil.
http://transax.com/investors/20041221.pdf.
“Transax ‘Total Connectivity’ solution operates in ‘real time’ regardless of location or method of claim generation.”
There is a very listenable CEOcast interview with Stephen Walters broadcast last May:
http://www.transax.com/investors/ceocast.htm
(the website date identifies an earlier interview CEOcast interview date, and I have informed the company that their link identifier needs updating)
…………
The company ‘s revenues have primarily come from their Brazilian operations which are now profitable. They are working with 2 of the 3 largest private insurers in Brazil
On November 3, 2003 Transax announced it signed a two year contract with Bradesco Insurance for health insurance connectivity, eligibility and authorization using its "Medlink" solution. Bradesco Insurance is a wholly owned subsidiary of Bradesco Bank, Brazil's largest financial institution and Brazil's largest health insurer with approximately 2.5 million lives covered. It is of no small consequence that Transax was chosen over both Visa and Siemens Health for this contract, organizations with vastly larger resources but NO realtime solution.
The Bradesco contract is up for renewal and the company has recently been told that they are producing “significant savings” for the insurer. Transax sounded confident that the contract will be renewed.
They have a subsidiary in Australia and are embarking upon a trial with a Florida-based dental practice: http://www.uniondentalcorp.com/ir/pr/12_2_2004.htm They have been working on a web solution to enable this program’s initiation. The process was further described in http://www.transax.com/investors/TransaxPressRelease_March2005_UnionDental_Vers3.pdf and is about ready for primetime. (See 8/10 news release).
The Union Dental initiative still, however, requires the company, which has used International Organization for Standardization (ISO) codesets to translate to the ASI codesets. The world uses ISO, meters, liters, etc. but we use ASI, feet, quarts, etc. Transax should be receiving ISO 9001 certification within a year’s time, btw.
The company has a number of meetings with potential clients in the coming months and a new OTCFN profile in the works including the ValueRich Small Cap Financial Conference next month in NYC. http://www.valuerichonline.com/ny05/index.php?id=home
Valuation:
Jamie (OTCFN) believes that a share price in the mid 20's (cents) is very attractive, as TNSX is trading recently at about 2.5x 2005 estimated revenues. I was encouraged to look at Medcomm USA (EMED.OB) as a comparable, recently trading at .67 with 52wkhi of 2.50 with less than 3m sales and trading at 13x sales on 54 million shares O/S http://finance.yahoo.com/q/ks?s=EMED.OB
Even a 1/3 valuation of EMED’s P/S multiple should put share price in .40-.50 range for TNSX without any new business: market cap. Of 7.5 mil., O/S about 30mil, share price at .25.
TNSX revenues are being estimated at $3m this year and potentially more on several factors including a 30 day pilot program just started with a healthcare provider that if successful could return a contract worth $6m annually. This contract is with a Brazilian company that wants to utilize fingerprint identification on the front end of the solution architecture.
Mr. Walters believes that the float is in the neighborhood of 6 million shares and the current number of shares outstanding is about 30 million.
Future:
The grand slam application for TNSX, imo, would be the ability to interface and code for Medicare payments as well as private insurer networks. The company could become extremely valuable to a larger concern, like a VISA or other large transaction provider (e.g. Aetna or Accenture). I doubt that VISA captures .50 from every transaction they process.
I believe that TNSX is a very reasonable speculation at current price levels due to the rapid revenue increase and recurring revenue potential. Once a provider/insurer spends the resources to establish the link with TNSX, establishes codes to authorize procedures, adopts the paperless solution, and finds the savings from working closely with Transax to develop a more efficient authorization system, the business process of the health insurance company is irrevocably?! changed, thus leading to an ever increasing and recurring revenue stream.
http://www.transax.com/content.php?Action=medlink/faq may answer some of the questions that have come to your mind reading the above information.
Potential Red Flag issues:
1. If you read the filings you will note that the company has an agreement in place with Cornell Capital. The only outstanding obligation to Cornell is a promissory note in the amount of $255K (includes accrued interest). Cornell did receive a one time commitment fee of 1.2million shares or basically 4% of the value of the initial SEDA (subsequently withdrawn) as an underwriting fee The company has drawn no funds from either the original or subsequent Standby Equity Distribution Agreements. An amended SB-2/A will be filed shortly after the 2nd quarter numbers are released (due on August 15). I expressed my concerns re. the terms of the SEDA that might allow Cornell to short shares in the 5 day “ Pricing Period” following the company’s Advance Notice Date. Article III. 8-K 5/20/05.
Mr. Walters agreed to speak with his lawyers regarding the “shorting” risk. He remarked that the company was likely to be in a financial position to obtain financing with better terms than the 8% discount that the current SEDA carries at the point that more working capital is required.
2. The 10-K filed 4/18/2005 identifies a deficiency in the payment of Brazilian payroll taxes and Social Security taxes. Stephen Walters told me there are no few than 6 kinds of taxes and the company’s Brazilian operations are profitable even counting the schedule of back payments they are making on over ½ of the overdue balances. He stated they are negotiating with the Brazilian authorities on the balance of overdue payments.
3. The company is going to need to raise capital at some point in the not too distant future. It is of course, impossible to know what combination of debt/equity/dilution will be involved.
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