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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the period ended March 31, 2000
OR
[_] Transition report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
Commission file number: 000-29282
MEDICONSULT.COM, INC.
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(Exact name of registrant as specified in its charter)
DELAWARE 84-1341886
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(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification No.)
1330 Avenue of the Americas, 17th Floor
New York, New York 10019
(Address of principal executive offices, including zip code)
Registrant's Telephone No., including area code: (212) 841-7300
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [_]
As of May 10, 2000, there were approximately 54,163,934 shares of the
Registrant's Common Stock outstanding.
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INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial statements
Unaudited Consolidated Balance Sheets - March 31, 2000 and
December 31, 1999
3
Unaudited Consolidated Statement of Operations - three months ended
March 31, 2000 and 1999
4
Unaudited Consolidated Statement of Cash Flows - three months ended
March 31, 2000 and 1999
5
Notes to Unaudited Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 8
PART II. OTHER INFORMATION 15
Item 2. Changes in Securities 15
Item 6. Exhibits and Reports Filed on Form 8-K 16
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Mediconsult.com, Inc.
Unaudited Consolidated Balance Sheets - March 31, 2000 and December 31, 1999
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March 31, December 31,
2000 1999
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ASSETS
Current assets
Cash and cash equivalents $ 7,088,071 $ 22,320,814
Accounts receivable 3,028,171 1,062,574
Unbilled revenue 4,562,793 3,433,663
Prepaid expenses and other current assets 566,254 556,646
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Total current assets 15,245,289 27,373,697
Fixed assets, net 3,100,220 2,291,772
Intangible assets, net 186,043,910 193,115,481
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Total assets $204,389,419 $222,780,950
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable and accrued expenses $ 9,029,407 $ 10,591,054
Advances from shareholder 314,979 314,979
Deferred revenue 251,021 322,488
Notes payable 2,334,549 4,974,100
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Total current liabilities 11,929,956 16,202,621
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Commitments and contingencies -- --
Stockholders' equity
Junior preferred stock, 4,000,000 shares designated,
no shares issued and outstanding at March 31,
2000 and December 31, 1999, respectively -- --
Common stock, $0.001 par value, 100,000,000 shares
authorized, 51,563,934 and 49,633,275 shares issued
and outstanding at March 31, 2000 and December 31,
1999, respectively 51,564 49,634
Additional paid-in capital 262,402,547 257,263,537
Deferred compensation (14,773,160) (16,051,925)
Accumulated deficit (55,221,488) (34,682,917)
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Total stockholders' equity 192,459,463 206,578,329
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Total liabilities and stockholders' equity $204,389,419 $222,780,950
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See accompanying notes
Mediconsult.com, Inc.
Unaudited Consolidated Statement of Operations for the Three Months Ended March
31, 2000 and 1999
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Three Months Ended March 31,
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2000 1999
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Revenues $ 6,224,191 $ 487,304
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Operating expenses:
Product and content development 8,016,917 904,530
Marketing, sales and client services 4,975,119 737,605
General and administrative 1,998,060 656,351
Depreciation and amortization 10,739,314 119,117
Fair value of options granted to employees 682,344 152,368
Fair value of warrants granted to third parties 493,697 --
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Total operating expenses 26,905,451 2,569,971
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Loss from operations (20,681,260) (2,082,667)
Interest income (expense), net 142,689 --
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Net loss (20,538,571) (2,082,667)
Dividends on preferred stock - 945,505
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Net loss attributable to common shareholders $(20,538,571) $(3,028,172)
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Per common share data
Basic and diluted net loss per share $ (0.41) $ (0.16)
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Weighted average shares of common stock
outstanding used in computing basic and
diluted net loss per share 50,563,198 18,531,750
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See accompanying notes
Mediconsult.com, Inc.
Unaudited Consolidated Statement of Cash Flows for the Three Months Ended March
31, 2000 and 1999
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Three Months Ended March 31,
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2000 1999
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Cash flows from operating activities
Net loss $(20,538,571) $(2,082,667)
Adjustment to reconcile net loss to net cash used in operating activities
Depreciation of fixed assets 532,605 50,948
Amortization of intangible assets 10,206,709 68,229
Services rendered in exchange for common stock 1,200,000 --
Amortization of deferred compensation related to shares issued
for services and membership interest in Pharma marketing 161,900 --
Fair value of options and warrants granted to consultants
and employees 1,176,041 152,368
Changes in assets and liabilities
Accounts receivable (1,965,597) (5,169)
Unbilled revenue (1,129,130) (207,310)
Prepaid expenses and other current assets 2,014 (118,669)
Accounts payable and accrued expenses (1,573,272) 531,705
Deferred revenue (71,467) (107,000)
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Net cash used in operating activities (11,998,768) (1,717,565)
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Cash flows from investing activities
Fixed assets purchases (1,341,053) (279,505)
Acquisition of subsidiaries, net of cash acquired of $82,652 (215,382) --
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Net cash used in investing activities (1,556,435) (279,505)
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Cash flows from financing activities
Repayment of long term debt (2,639,551) --
Proceeds from advances from shareholder -- 315,000
Proceeds from issuance of senior preferred stock -- 3,160,000
Proceeds from exercise of stock options 962,011 18,900
Deferred issue costs -- (219,229)
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Net cash (used in) provided by financing activities (1,677,540) 3,274,671
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(Decrease) increase in cash (15,232,743) 1,277,601
Cash - beginning of period 22,320,814 135,053
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Cash - end of period $ 7,088,071 $ 1,412,654
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See accompanying notes.
MEDICONSULT.COM, INC.
NOTES TO CONSOLIDATED FINANCING STATEMENTS
(Unaudited)
1. ORGANIZATION
Mediconsult.com, Inc. ("the Company" or "Mediconsult") was originally
incorporated under the laws of the State of Colorado in October 1989. In April
1996, the Company purchased Mediconsult.com Limited, a Bermuda corporation
("MCL"), through a merger in which MCL became a wholly-owned subsidiary,
resulting in 90% of the outstanding stock of Mediconsult being held by the
former stockholders of MCL, The Mediconsult Trust, controlled by Mr. Robert
Jennings, and Dr. Michel Bazinet. In December 1996, the Company consummated a
re-incorporation merger pursuant to which it became a Delaware corporation.
Mediconsult conducts its business primarily through MCL.
2. BASIS OF PRESENTATION
These consolidated financial statements are unaudited and reflect all
adjustments that, in the opinion of management, are necessary for a fair
presentation of the results for the interim period. The results of operations
for the current interim period are not necessarily indicative of results to be
expected for the current year or any other period. Certain amounts have been
reclassified to conform to the fiscal 2000 presentation.
These consolidated financial statements should be read in conjunction with the
consolidated financial statements and notes thereto included in the Company's
Annual Report on form 10-K as filed with the Securities and Exchange Commission.
3. UNBILLED REVENUE
Unbilled revenue represents the value of development work completed but not
billed at March 31, 2000.
4. STOCK OPTIONS
The Company has a 1996 Stock Option Plan (the "Plan") to provide incentives to
employees, directors and consultants. The maximum term of options granted under
the Plan is ten years. The Board of Directors has the exclusive power over the
granting of options and their vesting provisions. Stock options for common stock
comprise:
March 31, 2000
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No. Weighted Avg.
Shares Exercise Price
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Outstanding - December 31, 1999 4,008,651 $4.50
Granted during the period - -
Exercised during the period (1,260,454) 0.66
Cancelled during the period (403,654) 6.94
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Outstanding - March 31, 2000 2,344,543 6.16
============
Exercisable - March 31, 2000 723,341 $2.00
============
During the three months ended March 31, 1999 and 2000 the fair values of the
options granted to employees were $653,794, and nil respectively. The weighted
average exercise price and weighted average fair value of options whose exercise
price exceeded the market value at the grant date during the first three months
of 1999 and 2000 were $8.00 and nil, respectively. The weighted average exercise
price and weighted average fair value of options whose exercise price was less
than the market value at the grant date during the first three months of 1999
and 2000 were $7.36 and nil, respectively.
The fair values of the options were estimated using an option-pricing model
based on the weighted average risk-free interest rates ranging between 4.63% and
6.45%, an expected life of the options of one to five years, an expected
volatility of the common stock ranging between 110% and 133% and no expected
dividends on the common stock.
5. WARRANTS
The Company issued warrants to purchase 400,000 shares of common stock at an
exercise price of $1.22 per share to Arnold and S. Bleichroeder, Inc. in
consideration of investment advisory services. These warrants have been
delivered or are being held in escrow and are deliverable as follows: 200,000
were delivered upon initial filing of Mediconsult's secondary offering
prospectus in April 1999 and have been exercised: 100,000 were delivered on
March 15, 2000: and 100,000 will be delivered on September 15, 2000.The delivery
of the remaining 100,000 warrants is subject to continued performance of
financial advisory services for the Company by a particular individual on behalf
of this firm. The Company will be required to recognize as an expense the fair
value of the warrant over the vesting period. These warrants, which expire on
March 1, 2004, have net issue election and anti-dilution provision comparable to
the senior preferred stock warrants. These warrants do not confer upon the
holder any voting or any other right of a stockholder. On March 15, 2000,
warrants representing 100,000 shares vested, however the remaining warrants
representing the final 100,000 shares will not vest, due to the fact that the
individual referenced above is no longer employed at Arnold and S. Bleichroeder.
On March 23, 2000 the Company and Andersen Consulting "Andersen" entered into a
warrant agreement under which the Company issued Andersen warrants to purchase
1,503,425 shares of the Company's common stock at an exercise price of $3.8125
per share in connection with consulting services rendered by Andersen to the
Company under a consulting services agreement signed on September 10, 1999. The
warrants have a term of five years and vest over time, based upon consulting
services performed by Andersen on the Company's behalf. In connection with the
issuance of these warrants the Company reserved 1,503,425 shares of common stock
issuable upon exercising of these warrants.
6. RELATED PARTY TRANSACTIONS
None to report
7. SUBSEQUENT EVENTS
On May 1, 2000, McKesson HBOC, Inc., the leading online provider of information
and tools for physicians and patients, announced its investment of $6.5 million
to purchase 2.6 million newly issued shares of Mediconsult.com, Inc. The
investment forms the basis of a relationship through which the two companies
will seek to accelerate deployment and adoption of web-based applications and
services for physicians.
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Unless otherwise noted, references to "we," "our," and "us" refer to Mediconsult
and its subsidiaries.
OVERVIEW
Mediconsult.com, Inc. uses the Internet to educate and connect doctors and
patients. Our Web communities and interactive solutions educate physicians,
empower patients and enable more effective doctor-patient relationships. We
provide relevant tools, reliable services and quality medical information that
save doctors time and improve health outcomes for their patients.
Our focus is on the chronic medical conditions that are responsible for the
majority of healthcare spending. By fostering communities centered on prevalent
medical conditions and health issues, we believe we create significant
opportunities for pharmaceutical and other healthcare companies to effectively
reach physician and patient audiences using Internet-based marketing and
sponsorship programs.
BACKGROUND
For the period from the inception of our operations in April 1996 through
January 1997, our operating activities related primarily to the initial
development of the mediconsult.com Web site and operating infrastructure, and
the recruitment of employees. Since the launch of mediconsult.com in 1996,
we have focused on developing and organizing content in an easy to navigate
format, and improving the functionality of mediconsult.com. We continue to
refine our strategy of creating targeted online marketing and sponsorship
programs for large pharmaceutical and other healthcare organizations. We
continue to develop and implement these types of programs for our clients.
In May 1999, the Company acquired CyberDiet, LLC, which provides tailored
nutritional information and programs in exchange for 400,000 shares of
Mediconsult common stock. The total purchase price including acquisition costs
and assumption of net liabilities, was $2.8 million.
In June 1999, the Company acquired Cyber-Tech, Inc., a company that develops
online content and tools focused on heart disease and related areas. The
consideration paid to Cyber-Tech shareholders consisted of $3,765,000 in cash
and 267,732 shares of Mediconusult common stock. The total purchase price was
$7.6 million.
In October 1999, the Company acquired Mood Sciences, a company that specializes
in mental health disease management innovations in exchange for 215,000 shares
of Mediconsult common stock. The total purchase price, including acquisition
costs was $1.9 million.
In September 1999, the company entered into a various agreements with Pharma
Marketing, LLC, an entity organized to perform certain sales and marketing
operation of the Company and operate solely on behalf of the Company for
$1,250,000 and 200,000 shares of Mediconsult common stock.
In December 1999, the Company acquired shares of Physicians' Online, Inc. a
provider of an exclusive network for physicians in addition to online medical
information and communications. As consideration for the acquisition, the
Company issued approximately 18.5 million shares of Mediconsult common stock.
The total value of consideration was $183.1 million including the assumption of
debt and acquisition costs.
In February 2000, the Company acquired Web Northstar Interactive, Corp., a
company that specializes in research evaluation. As consideration for the
acquisition, the company issued approximately 435 thousand shares for an
aggregate price of $2.8 million.
In March 2000, the Company acquired Storknet, a company dedicated to pregnancy
and parenting issues. As consideration for the acquisition the company issued
approximately 34 thousand shares for an aggregate price of $210,000.
REVENUE SOURCES
Our main sources of revenue have historically been through client services
related to the development, support of online marketing and sponsorship
programs for pharmaceutical, and other healthcare companies. These services
continue to be a source of revenue and typically include the design, development
and management of customized Web sites relating to a particular pharmaceutical
or other health-related products. Client services also include marketing
research, focus group testing and online testing of visitors' preferences.
Revenue from client services is recognized on the basis of contractual
commitments over the period of each engagement using the percentage-of-
completion method, based on labor hours and costs incurred as the measure of
progress towards completion. Revenue from support services, principally the
management of Web sites that we develop for our clients, is recognized ratably
over the periods services are provided, generally on a monthly basis. Payments
received from clients prior to the performance of client services are recorded
as unearned revenue.
We also provide advertising services involving the sale of advertising space on
certain Web sites we own, manage or sponsor. These services can be provided
separately or as part of a more comprehensive suite of client services.
Advertising services include banner advertisements, polls, surveys, registration
programs,coupons and other interactive forms of advertising. Revenue from
advertising sales is recognized ratably over the period in which the
advertisement is displayed, if no significant obligations remain. In certain
cases, advertising revenue from the sale of advertising space is related to the
delivery of impressions or click-throughs from pages viewed by visitors to our
Web sites. Payments received from advertisers prior to displaying their
advertisements are recorded as deferred revenue. Mediconsult does not recognize
revenue from barter transactions with respect to its advertising services.
Effective October 1, 1999 we no longer sell banner advertising on our consumer
Web sites. As a result, this source of revenue may decline in future periods
even though we will continue to sell such advertising on our professional sites
such as Physicians' Online.
In 1999, we expanded our focus on long-term strategic relationships with major
pharmaceutical manufacturers to include other Internet-based initiatives in
addition to marketing programs. The initial relationship in this new strategic
direction was entered into with Bristol-Myers Squibb Company to develop
innovative new approaches to electronic medical education.
We also derive revenue from licensing our mediconsult.com content and providing
Web site support to healthcare and other organizations. These client
organizations make our content available to visitors to their Web sites or to
Web sites of their clients. Revenue from content licensing is recognized over
the period of the license. In certain cases, we design and develop these Web
sites. The portion of licensing revenue related to up-front customized design
work is recognized over the period that the work is performed. In certain cases,
we realize additional revenue from management of the Web site or its content.
Revenue from management services is recognized ratably over the period the
services are performed, generally on a monthly basis. We may also retain the
right to place advertising on a Web site that hosts our content.
MARKETING AND SALES INITIATIVES
In late 1997, we initiated our first significant marketing and advertising
program. The Company was engaged by Novartis Consumer Health Canada to develop a
comprehensive online smoking cessation program for its Habitrol brand, focused
on Canadian consumers. We developed the Web site for this program during early
1998, for which we received payment as services were performed. We receive
revenue for maintaining and upgrading this program (beginning with its launch in
June 1998), and receive monthly advertising revenue for referring visitor
traffic to the Habitrol Web site. We have recently expanded the Habitrol program
to provide French and professional healthcare versions of the Web site.
We have also generated revenue by developing programs for a number of branded
pharmaceutical products. For the three months ended March 31, 2000, revenue from
Bristol-Myers Squibb and Eli Lilly and Company represented $4.8 million or 77%
of the company's total revenue. We are also developing the Web sites for these
programs and receive payment as services are performed. We are developing a
custom version of an electronic medical education product for Bristol-Myers
Squibb. The loss of Bristol-Myers Squibb or Eli Lilly and Company as a customer
or any changes to the existing relationship that are less favorable to us, or
any significant reduction in traffic on or through the Web sites that we manage,
will materially and adversely affect our business, financial condition and
results of operations.
VISITOR TRAFFIC
To improve the depth and breadth of our medical content and to increase visitor
traffic, in 1999 and 2000 we completed strategic initiatives to purchase, manage
or sponsor the following Web sites:
. Pharminfo.com, a leading Web site providing information on
pharmaceutical products and clinical trials for pharmacists, physicians
and consumers;
. INCIID.org, a Web site providing information on infertility;
. Cyberdiet.com, a Web site providing tailored nutritional information and
programs;
. Heartinfo.org, a leading Web site for patients and professionals
seeking information on heart disease and hypertension;
. Mood Sciences, a developer of a Web-based software tool for the
screening and monitoring of 12 mood related disorders;
. POL.net, the flagship site of Physicians' Online., a company with more
authenticated doctor-users than any other medical web site,
("Physicians' Online"); and
. Storknet.org, a leading Web site for pregnancy and parenting issues.
We believe that Mediconsult's Web sites together represent the most highly
trafficked physicians-only Web site and one of the most highly trafficked
consumer healthcare information sites on the Internet. During the first quarter
of 2000, our Web sites attracted 12.8 million visitors who viewed 86.2 million
pages. On average, viewers spent approximately 26 minutes per session on our Web
sites.
STOCK OPTIONS AND WARRANTS
Stock options granted to employees are expensed over their vesting period, based
on their fair value at the date of grant, under Statement of Financial
Accounting Standards No. 123 "ACCOUNTING FOR STOCK-BASED COMPENSATION." As more
fully described below in "Results of Operations," we have recorded compensation
expense in connection with the vesting of stock options during the three month
periods ended March 31, 1999 and 2000, as well as deferred compensation expense
for the value of options granted that were not vested as of such dates.
Pursuant to an agreement dated July 28, 1998 with Arnhold and S. Bleichroeder,
Inc. to provide us with investment advisory services, we have issued to this
firm 100,000 shares of our common stock and warrants to purchase an aggregate of
400,000 shares of common stock with an exercise price of $1.22 per share, which
was the closing price of our common stock on the contract date. Of this amount,
warrants for 200,000 shares of common stock were delivered upon initial filing
of a prospectus and warrants for 200,000 shares of common stock are deliverable
in 2000, if certain conditions are met. Warrants for 100,000 shares were
delivered on March 15, 2000. Delivery of the warrants will result in the
recognition of an expense in the statement of operation equal to the fair value
of the warrants on the date of delivery in accordance with EITF 96-18
"Accounting for Equity Instruments That Are Issued to Other Than Employees for
Acquiring, or in Conjunction with Selling Goods or Services". At March 31, 2000,
the criteria required for exercise of such warrants vesting in 2000 had not been
met.
RESULTS OF OPERATIONS
REVENUE. Revenue consists of fees received for the design, development and
implementation, of online marketing and sponsorship programs, including Web site
development and implementation, advertising services, internet service provider
membership fees, licensing our content and Web site support. Total revenues
increased from $0.5 million in the quarter ended March 31, 1999 to $6.2 million
in the quarter ended March 31, 2000, an increase of 1,177%. This increase was
primarily attributable to initiatives focused on the delivery of electronic
medical education over the internet, and sponsorship programs of $0.05 million
for the quarter ended March 31, 1999 vs. $5.3 million for the quarter ended
March 31, 2000.
PRODUCT AND CONTENT DEVELOPMENT. Product and content development costs include
expenses incurred to develop, enhance, manage, monitor and operate our Web sites
and to develop new products such as electronic medical education and related
products. Total product and content development cost increased from $0.9 million
in the quarter ended March 31, 1999 to $8.0 million in the quarter ended March
31, 2000, an increase of 786%. The increase was primarily due to a buildup in
personnel in the later part of 1999 in conjunction with the acquisition of
Physicians' Online and increased hiring to support the growth in revenues of the
medical educational and sponsorship programs.
MARKETING, SALES AND CLIENT SERVICES. Marketing, sales and client services costs
include expenses incurred by the company to obtain and maintain client
relationships. These costs included salaries and fees paid to employees and
consultants, and programming costs. Total marketing, sales and client services
cost increased from $0.7 million in the quarter ended March 31,1999 to $5.0
million in the quarter ended March 31, 2000, an increase of 574%. This increase
was primarily due to costs associated with the development and implementation of
specific client medical education and sponsorship programs. A substantial
portion of the increase was attributable to a marketing agreement entered into
with Pharma Marketing, LLC which resulted in sales and marketing efforts being
significantly increased.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses consist
primarily of salaries and related costs for general corporate functions,
including finance, accounting and legal expenses, and fees for other
professional services. Total general and administrative expenses increased from
$0.7 million in the quarter ended March 31, 1999 to $2.0 million in the quarter
ended March 31, 2000, an increase of 204%. The increase was primarily
attributable to salaries and related expenses associated with acquired companies
and hiring additional personnel to support the growth of our operations.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expense increased
$10.6 million to $10.7 million for the first quarter ended March 31, 2000. This
increase was primarily due to the amortization of goodwill of $9.6 million
relating to the Physicians' Online acquisition in December 1999.
FAIR VALUE OF OPTIONS GRANTED TO EMPLOYEES. We have recorded compensation
expense in connection with the vesting of employee stock options of $0.2 million
during the quarter ended March 31, 1999, and $0.7 million during the quarter
ended March 31, 2000. Compensation expense represents the amortization of
deferred compensation which is measured based on the fair value of the options
granted. These amounts are amortized over the vesting period of the applicable
options.
FAIR VALUE OF WARRANTS GRANTED TO THIRD PARTIES. We recorded expense in
connection with the vesting of warrants to Andersen Consulting and Arnhold &
S. Bleichroeder Inc. Compensation expense was $0.5 million for the three months
ended March 31, 2000. There was no corresponding expense for the three months
ended March 31, 1999.
INTEREST INCOME/(EXPENSE). During the quarter ended March 31, 2000, the Company
earned interest income, net of interest expense of $0.1 million, as compared to
nil in the quarter ended March 31, 1999. The increase in interest income
reflects increased cash on hand, and interest expense is due to debt outstanding
relating to the Physicians' Online acquisition.
PREFERRED SHARES DIVIDEND. Preferred shares dividends were issued to senior
preferred stockholders and junior preferred stockholders, these costs were $0.9
million and nil for the quarter ended March 31, 1999 and March 31, 2000
respectively.
FACTORS THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE
PROJECTED
The information and data contained in this quarterly report includes all
necessary adjustments, consisting only of normal recurring adjustments necessary
for fair presentation of this data. The results of operations for any quarter
are not necessarily indicative of the results of operations for any future
period.
We have a limited operating history upon which to evaluate our business and
predict revenue and planned operating expenses. Our quarterly operating results
may vary significantly in the foreseeable future due to a variety of factors,
many of which are outside of our control. The timing of sponsorship revenues is
one of the most significant factors affecting quarterly results. Once a contract
is executed, a significant portion of our revenue is derived from customized Web
site development and implementation projects, rather than from recurring fees.
As a result, we cannot predict with certainty when we will perform the work
necessary to receive payment for these projects.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, we have financed our operations primarily through the private
placement of equity securities and advances from our principal stockholder. In
February 1999, we received $3.2 million in proceeds from a private placement of
equity securities to certain unrelated investors. In April 1999, we received
approximately $58 million in net proceeds from a public offering of equity
securities. In May 2000, we received $6.5 million in proceeds from a placement
of equity securities to McKesson HBOC, Inc.
We have incurred substantial costs to design, develop and implement Internet-
based marketing and sponsorship programs for our clients, to build brand
awareness and to grow our business. As a result, we have incurred operating
losses and negative cash flows from operations in each quarter since we
commenced operations. As of March 31, 2000, we had an accumulated deficit of
$55.2 million.
Net cash used in operating activities during the three months ended March 31,
1999 was $1.7 million, compared to net cash used in operating activities during
the three months ended March 31, 2000 of $12.0 million. This increase in cash
used was primarily attributable to net losses during this period which were
partially offset by certain non-cash items of $13.3 million. This amount was
comprised of depreciation and amortization of $10.7 million, services rendered
in exchange for common stock of $1.2 million, deferred compensation amortization
of $0.2 million and expenses related to stock options and warrants granted to
consultants and employees of $1.2 million. Net cash used reflected several
factors, including (1) increased operating expenses as our business volume
increased; (2) a higher level of work in progress due to revenue growth; (3)
increases in accounts receivables of $2.0 million; and (4) decreases in accounts
payables of $1.6 million.
Net cash used in investing activities during the three months ended March 31,
1999 was $0.3 million, compared to net cash used in investing activities during
the three months ended March 31, 2000 of $1.6 million. This increase in cash
used was attributable to $1.4 million of fixed assets purchases directly related
to the needs of the Company's growth, the balance of $3.1 million was offset by
the non-cash acquisition of North Star and Storknet in the first quarter of
2000.
Net cash provided by financing activities during the three months ended March
31, 1999 was $3.3 million, compared to net cash used in financing activities
during the three months ended March 31, 2000 of $1.7 million. This decrease was
primarily attributable to two major components (1) the repayment of $2.6 million
in long-term debt acquired in the Physicians' Online acquisition in the first
quarter ended March 31, 2000, and (2) the $3.2 million in proceeds from issuance
of senior preferred stock to the first quarter of 1999.
Our ability to generate significant revenue is uncertain. We incurred net losses
of approximately $20.5 million and $8.5 million after accounting for non-cash
items for the quarter ended March 31, 2000. We expect losses from operations and
negative cash flow to continue for the foreseeable future and at least through
the year 2000 as a result of our expansion plans and our expectation that
operating expenses will increase significantly in the next several years. The
rate at which these losses will be incurred may increase from current levels.
Although we have experienced revenue growth in recent periods, our revenue may
not remain at its current level or increase in the future. If our revenue does
not increase and if our spending levels are not adjusted accordingly, we may not
generate sufficient revenue to achieve profitability, which would have a
material, adverse effect on our business, financial condition and results of
operations. Even if we achieve profitability, we may not sustain or increase
profitability on a quarterly or annual basis in the future.
Our working capital requirements depend on numerous factors. We have experienced
a substantial increase in our expenditures since inception, consistent with
growth in our operations and staffing, and anticipate that this will continue
for the foreseeable future. We anticipate incurring additional expenses to
increase our marketing and sales efforts, for product development and for
technology and infrastructure development. Additionally, we will continue to
evaluate possible investments in businesses, products and technologies, the
expansion of our marketing and sales programs and more aggressive brand
promotions. If we experience a shortfall in revenue in relation to expenses, or
if our expenses precede increased revenue, our business, financial condition and
results of operation could be materially and adversely affected.
We currently anticipate that our available cash resources will be sufficient to
meet our presently anticipated working capital, capital expenditure and business
expansion requirements through the end of the year. We may need to raise
additional funds, however, in order to fund more rapid expansion, to develop new
or enhance existing services or products, to respond to competitive pressures or
to acquire complementary products, businesses or technologies. There can be no
assurance that any required additional financing will be available on terms
favorable to us, or at all. If additional funds are raised by the issuance of
equity securities, stockholders may experience dilution of their ownership
interest and these securities may have rights senior to those of the holders of
the common stock. If additional funds are raised by the issuance of debt, we may
be subject to certain limitations on our operations, including limitations on
the payment of dividends. If adequate funds are not available or not available
on acceptable terms, we may be unable to fund our expansion, successfully
promote our brand name, take advantage of acquisition opportunities, develop or
enhance services or respond to competitive pressures, any of which could have a
material adverse effect on our business, financial condition and results of
operations.
The financial results are reported in U.S. dollars, which are affected by
changes in the value of the various foreign currencies in which we make payments
in relation to the U.S. dollar. We cannot however anticipate operating exposures
through foreign currency exchange option or forward contracts relating to
foreign currency. The primary currency for which we have foreign currency
exchange rate exposure is the Canadian dollar.
FORWARD LOOKING STATEMENTS
When used in this Quarterly Report on Form 10-Q, in documents incorporated
herein and elsewhere by us from time to time, the words "believes,"
"anticipates," "expects" and similar expressions are intended to identify
forward-looking statements concerning our business operations, economic
performance and financial condition, including in particular, our business
strategy and means to implement the strategy, our objectives, the amount of
future capital expenditures required, the likelihood of our success in
developing and introducing new products and expanding the business, and the
timing of the introduction of new and modified products or services. For those
statements, we claim the protection of the safe harbor for forward looking
statements contained in the Private Securities Litigation Reform Act of 1995.
These forward looking statements are based on a number of assumptions and
estimates which are inherently subject to significant risks and uncertainties,
many of which are beyond our control and reflect future business decisions which
are subject to change. A variety of factors could cause actual results to differ
materially from those anticipated in our forward-looking statements, including
the following factors: (a) those set forth in our Form 10-K for the period ended
December 31, 1999, incorporated herein by reference, and elsewhere herein; and
(b) those set forth from time to time in our press releases and reports and
other filings made with the Securities and Exchange Commission. We caution that
such factors are not exclusive. Consequently, all of the forward-looking
statements made in this document are qualified by these cautionary statements
and readers are cautioned not to place undue reliance on these forward-looking
statements, which speak only as of the date of this Quarterly Report on Form 10-
Q. We undertake no obligation to publicly release the results of any revisions
of such forward-looking statements that may be made to reflect events or
circumstances after the date hereof, or thereof, as the case may be, or to
reflect the occurrence of unanticipated events.
PART II. OTHER INFORMATION
ITEM 1. CHANGES IN SECURITIES
Sales of Unregistered Securities
In the three month period ended March 31, 2000 we issued the following
unregistered securities: Effective February 11, 2000, we issued 435,161 shares
of our common stock to the former shareholders of Web Northstar Interactive
Corp. in connection with the purchase of Web Northstar for an aggregate price of
$2,792,409. On March 23, 2000, we issued 33,676 shares of our common stock to
Maribeth Doerr, the sole proprietor of Doerr Consulting, in connection with the
purchase of the assets related to the Storknet website for an aggregate purchase
price of $200,000. Also on March 23, 2000, we issued warrants to purchase
1,503,425 shares of our common stock at an exercise price of $3.8125 per share
to Andersen Consulting in connection with Andersen's provision of consulting
services to the Company. The sales and issuance of these securities were exempt
from registration under Section 4(2) of the Securities Act of 1933, as amended,
as a private placement.
ITEM 6. EXHIBITS AND REPORTS FILED ON FORM 8-K
(a)
Exhibit Description
Number -----------
------
2.1 Northstar Agreement and Plan of Merger*
3.1 Amended and Restated Certificate of Incorporation (1)
3.2 Amended and Restated By-laws(1)
4.1 Specimen common stock certificate(4)
4.2 Form of Investor Senior Preferred Stock Warrant (4)
4.3 Form of Warrant issued to Arnhold and S. Bleichroeder, Inc. (4)
4.4 Form of Warrant issued to Andersen Consulting*
10.1 Amended and Restated Mediconsult 1996 Stock Option Plan (2)
10.2 Amended and Restated Physicians' Online 1994 Stock Option Plan (2)
10.3 Escrow Agreement, dated June 14, 1999, among Mediconsult.com, Inc.,
Cyber-Tech, Inc., Andre Pilevsky, Daniel Rader, M.D and SunTrust Bank (3)
10.4 Escrow Agreement, dated December 16, 1999, among Mediconsult.com,
Inc., Physicians' Online, Inc., Jason Fisherman as representative, and
The Wilmington Trust Company (2)
10.5 Worldwide Web Server Agreement dated November 6, 1996 between Tvisions
Inc. and Mediconsult.com Limited (5)
10.6 Operating Agreement of Pharma Marketing, LLC, Dated September 7,
1999(1)
10.7 Service Agreement, dated September 7, 1999, between Pharma Marketing,
LLC and Mediconsult.com., Inc.(1)
10.8 Membership Investment Agreement, dated September 7, 1999, between
Pharma Marketing, LLC and Mediconsult.com, Inc.(1)
10.9 Letter agreement dated December 30, 1998 among the Company,
Pharmaceutical Information Associates, Ltd., VirSci Corporation and
Pharmaceutical Information.Net, Inc. (4)
10.10 Consulting Agreement dated March 3, 1997 between the Company and IBM
Canada (3)
10.11 Source Code License Agreement dated February 26, 1999 between
Tvisions, Inc. and Mediconsult.com Limited (4)
10.12 Agreement between Brystol-Meyers Squibb Company and Mediconsult.com
Limited, dated as of September 30, 1999 (1)
10.13 Project Order pursuant to Agreement between Brystol-Meyers Squibb
Company and Mediconsult.com Limited, dated as of September 30, 1999*
10.14 Agreement between the Company and Novartis Pharma AG (4)
10.15 Exclusive Sponsorship Agreement dated as of January 15, 1999 between
InterNational Council on Infertility Information Dissemination and
Mediconsult.com Limited (4)
10.16 Perc Pilot Program Agreement, dated February 25, 2000, by and between
Eli Lilly and Company and Mediconsult.com Limited.*
10.17 Internet Consulting and Software Services Agreement between
Mediconsult, Ltd. and Eli Lilly and Company.*
10.18 Employment Agreement effective as of January 1, 1999, between 3542491
Canada Inc. and David J. Austin (4)
10.19 Employment Agreement effective as of January 1, 1999, between
Mediconsult.com Limited and
Robert A. Jennings (4)
10.20 Employment Agreement effective as of January 1, 1999, between 3542491
Canada Inc. and Ian Sutcliffe (4)
10.21 Employment Agreement dated as of April 1, 1999 between the Company and
E. Michael Ingram (4)
10.22 Employment Agreement, dated June 14, 1999, between Mediconsult.com
(US), Ltd. and Andre Pilevsky (3)
10.23 Employment Agreement, dated September 7, 1999, between Pharma
Marketing, LLC and Timothy J. McIntyre.
10.24 Noncompetition Agreement, dated June 14, 1999, between Mediconsult.com
(US), Ltd. and Andre Pilevsky (3)
10.25 Noncompetition Agreement, dated June 14, 1999, between Mediconsult.com
(US), Ltd. and Sharon Weinberg (3)
10.26 Noncompetition Agreement, dated June 14, 1999, between Mediconsult.com
(US), Ltd. and Daniel Rader, M.D(3)
10.27 Stock Purchase Agreement dated as of February 26, 1999 between the
Company and the Investors named therein (4)
10.28 Registration Rights Agreement dated February 26, 1999, among the
Company and the Investors named therein (4)
10.29 Stockholders' Agreement dated February 26, 1999 among the Company, the
Founders identified therein and the Investors identified on Schedule 1
thereto (4)
10.30 Registration Rights Agreement dated as of February 26, 1999 between
the Company and Arnhold and S. Bleichroeder, Inc. (4)
10.31 Registration Rights Agreement, dated as of March 23, 2000, between the
Company and Andersen Consulting*
27.1 Financial Data Schedule*
___________
* Filed electronically herewith.
(1) Exhibits are incorporated by reference to Mediconsult's Annual Report on
Form 10-K (File No. 000-29282) filed April 10, 2000
(2) Exhibits are incorporated by reference to the Annexes to Mediconsult's
joint information/proxy statement/prospectus on Schedule 14C (File No. 000-
29282) filed November 19, 1999
(3) Exhibits are incorporated by reference to Mediconsult's Current Report on
Form 8-K (File No. 333-73059) filed June 29, 1999
(4) Exhibits are incorporated by reference to Mediconsult's Registration
Statement on Form S-1 (Registration No. 333-73059) filed April 2, 1999
(5) Exhibits are incorporated by reference to Mediconsult's Registration
Statement on Form 10-SB (File No. 333-21883) filed December 16, 1996
(b) None.
SIGNATURES
Mediconsult.com, Inc.
Date: May 13, 2000 Signature: /s/ E. Michael Ingram
E. Michael Ingram
Chief Financial Officer
Exhibit Description
Number -----------
------
2.1 Northstar Agreement and Plan of Merger*
3.1 Amended and Restated Certificate of Incorporation (1)
3.2 Amended and Restated By-laws(1)
4.1 Specimen common stock certificate(4)
4.2 Form of Investor Senior Preferred Stock Warrant (4)
4.3 Form of Warrant issued to Arnhold and S. Bleichroeder, Inc. (4)
4.4 Form of Warrant issued to Andersen Consulting*
10.1 Amended and Restated Mediconsult 1996 Stock Option Plan (2)
10.2 Amended and Restated Physicians' Online 1994 Stock Option Plan (2)
10.3 Escrow Agreement, dated June 14, 1999, among Mediconsult.com, Inc.,
Cyber-Tech, Inc., Andre Pilevsky, Daniel Rader, M.D and SunTrust Bank
(3)
10.4 Escrow Agreement, dated December 16, 1999, among Mediconsult.com,
Inc., Physicians' Online, Inc., Jason Fisherman as representative, and
The Wilmington Trust Company (2)
10.5 Worldwide Web Server Agreement dated November 6, 1996 between
Tvisions, Inc. and Mediconsult.com Limited (5)
10.6 Operating Agreement of Pharma Marketing, LLC, Dated September 7,
1999(1)
10.7 Service Agreement, dated September 7, 1999, between Pharma Marketing,
LLC and Mediconsult.com., Inc.(1)
10.8 Membership Investment Agreement, dated September 7, 1999, between
Pharma Marketing, LLC and Mediconsult.com, Inc.(1)
10.9 Letter agreement dated December 30, 1998 among the Company,
Pharmaceutical Information Associates, Ltd., VirSci Corporation and
Pharmaceutical Information.Net, Inc. (4)
10.10 Consulting Agreement dated March 3, 1997 between the Company and IBM
Canada (3)
10.11 Source Code License Agreement dated February 26, 1999 between
Tvisions, Inc. and Mediconsult.com Limited (4)
10.12 Agreement between Brystol-Meyers Squibb Company and Mediconsult.com
Limited, dated as of September 30, 1999 (1)
10.13 Project Order pursuant to Agreement between Brystol-Meyers Squibb
Company and Mediconsult.com Limited, dated as of September 30, 1999*
10.14 Agreement between the Company and Novartis Pharma AG (4)
10.15 Exclusive Sponsorship Agreement dated as of January 15, 1999 between
InterNational Council on Infertility Information Dissemination and
Mediconsult.com Limited (4)
10.16 Perc Pilot Program Agreement, dated February 25, 2000, by and between
Eli Lilly and Company and Mediconsult.com Limited.*
10.17 Internet Consulting and Software Services Agreement between
Mediconsult, Ltd. and Eli Lilly and Company.*
10.18 Employment Agreement effective as of January 1, 1999, between 3542491
Canada Inc. and David J. Austin (4)
10.19 Employment Agreement effective as of January 1, 1999, between
Mediconsult.com Limited and Robert A. Jennings (4)
10.20 Employment Agreement effective as of January 1, 1999, between 3542491
Canada Inc. and Ian Sutcliffe (4)
10.21 Employment Agreement dated as of April 1, 1999 between the Company and
E. Michael Ingram (4)
10.22 Employment Agreement, dated June 14, 1999, between Mediconsult.com
(US), Ltd. and Andre Pilevsky (3)
10.23 Employment Agreement, dated September 7, 1999, between Pharma
Marketing, LLC and Timothy J. McIntyre.
10.24 Noncompetition Agreement, dated June 14, 1999, between Mediconsult.com
(US), Ltd. and Andre Pilevsky (3)
10.25 Noncompetition Agreement, dated June 14, 1999, between Mediconsult.com
(US), Ltd. and Sharon Weinberg (3)
10.26 Noncompetition Agreement, dated June 14, 1999, between Mediconsult.com
(US), Ltd. and Daniel Rader, M.D(3)