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 September 30, 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 (I.R.S. Employer
incorporation or organization) Identification No.)
560 White Plains Road, 4th Floor
Tarrytown, NY 10591
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(Address of principal executive offices, including zip code)
Registrant's Telephone No., including area code: (914) 332-6100
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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 October 30, 2000, there were approximately 54,224,312 shares of the
Registrant's Common Stock outstanding.
INDEX
PART I. FINANCIAL INFORMATION PAGE
Item 1. Financial statements
Unaudited Consolidated Balance Sheets - September 30, 2000 and
December 31, 1999 3
Unaudited Consolidated Statement of Operations - three and nine
months ended September 30, 2000 and September 30, 1999 4
Unaudited Consolidated Statement of Cash Flows - nine months ended
September 30, 2000 and September 30, 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 14
Item 1. Pending Legal Proceedings 14
Item 2. Changes in Securities 14
Item 6. Exhibits and Reports Filed on Form 8-K 14
2
PART I. FINANCIAL INFORMATION
Mediconsult.com, Inc.
Unaudited Consolidated Balance Sheets
- -------------------------------------
September 30, December 31,
2000 1999
------------- ------------
ASSETS
Current assets
Cash and cash equivalents $ 892,314 $ 22,320,814
Accounts receivable 5,602,170 1,062,574
Unbilled revenue -- 3,433,663
Assets held for disposal 276,892 --
Prepaid expenses and other current assets 810,402 556,646
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Total current assets 7,581,778 27,373,697
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Fixed assets, net 3,477,378 2,291,772
Intangible assets, net 157,598,836 193,115,481
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Total assets $ 168,657,992 $222,780,950
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable and accrued expenses $ 10,134,795 $ 10,591,054
Advances from shareholder -- 314,979
Deferred revenue 992,212 322,488
Notes payable 2,334,549 4,974,100
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Total current liabilities 13,461,556 16,202,621
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Commitments and contingencies -- --
Stockholders' equity
Senior Preferred stock, $0.001 par value, 5,000,000
shares authorized, 1,000,000 shares designated, no
shares issued and outstanding at September 30, 2000 and
December 31, 1999, respectively -- --
Junior preferred stock, 4,000,000 shares designated,
no shares issued and outstanding at
September 30, 2000 and December 31, 1999, respectively -- --
Common stock, $.001 par value, 100,000,000 shares
authorized, 54,224,312 and 49,633,275 shares issued
and outstanding at September 30, 2000 and December 31,
1999, respectively 54,224 49,634
Additional paid-in capital 267,247,181 257,263,537
Deferred compensation (10,069,076) (16,051,925)
Accumulated deficit (102,035,893) (34,682,917)
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Total stockholders' equity 155,196,436 206,578,329
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Total liabilities and stockholders' equity $ 168,657,992 $222,780,950
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See accompanying notes.
3
Mediconsult.com, Inc.
Unaudited Consolidated Statement of Operations
- ----------------------------------------------
Three Months Ended Nine Months Ended
------------------ -----------------
September 30, September 30, September 30, September 30,
2000 1999 2000 1999
------------ ----------- ------------ ------------
Revenues $ 6,507,105 $ 2,416,012 $ 17,270,999 $ 3,715,432
------------ ----------- ------------ ------------
Operating expenses:
Product and content development 4,651,665 2,368,609 19,753,410 4,641,565
Marketing, sales and client services 3,841,144 6,087,397 12,143,572 7,661,904
General and administrative 1,643,070 1,846,665 5,679,344 3,332,837
Depreciation and amortization 10,581,923 885,339 32,440,039 1,392,204
Restructuring charge 2,830,599 -- 2,830,599 --
Charge for impairment of long-lived assets 8,557,690 -- 8,557,690 --
Fair value of options granted to employees (98,212) 517,183 1,536,346 1,060,949
Fair value of warrants granted to third parties 221,650 209,942 1,805,347 1,707,611
------------ ----------- ------------ ------------
Total operating expenses 32,229,529 11,915,135 84,746,347 19,797,070
------------ ----------- ------------ ------------
Loss from operations (25,722,424) (9,499,123) (67,475,348) (16,081,638)
Interest (expense) income, net (58,578) 592,272 122,372 1,168,308
------------ ----------- ------------ ------------
Net loss (25,781,002) (8,906,851) (67,352,976) (14,913,330)
Dividends on preferred stock -- -- -- 945,505
Net loss attributed to common stockholders $(25,781,002) $(8,906,851) $(67,352,976) $(15,858,835)
============ =========== ============ ============
Per common share data:
Basic and diluted net loss per share $ (0.48) $ (0.31) $ (1.28) $ (0.64)
============ =========== ============ ============
Weighted average shares of common stock
outstanding used in computing basic
and diluted net loss per share 53,610,765 28,559,488 52,654,870 24,882,258
========== ========== ========== ==========
See accompanying notes.
4
Mediconsult.com, Inc.
Unaudited Consolidated Statement of Cash Flows
- ----------------------------------------------
Nine Months Ended
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September 30, September 30,
2000 1999
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Cash flows from operating activities
Net loss $(67,352,976) $(14,913,330)
Adjustments to reconcile net loss to net cash used
in operating activities
Depreciation of fixed assets 2,121,907 389,586
Bad debts expense 216,900 --
Amortization of intangible assets 30,318,132 1,002,618
Fair value of options and warrants granted 6,733,650 2,768,560
Restructuring charge 2,830,599 --
Charge for impairment of long-lived assets 8,557,690 --
Forfeiture of options by employees (3,613,607) --
Services received in exchange for common stock 2,028,710 --
Amortization of deferred compensation related to
interest in Pharma marketing 421,200 1,219,280
Changes in assets and liabilities
Accounts receivable (4,756,496) (278,000)
Unbilled revenue 3,433,663 (1,812,100)
Prepaid expenses and other current assets (253,756) (397,322)
Accounts payable and accrued expenses (3,286,861) 1,818,746
Deferred revenue 669,724 (107,000)
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Net cash used in operating activities (21,931,521) (10,308,962)
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Cash flows from investing activities
Fixed assets purchases (3,808,445) (1,511,414)
Purchase of businesses, net of cash acquired (215,381) (4,127,343)
Advance to Physicians' Online, Inc. -- (10,096,438)
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Net cash used in investing activities (4,023,826) (15,735,195)
------------ ------------
Cash flows from financing activities
Proceeds from advances from shareholder -- 315,000
Repayment of advances from stockholder (314,979) (828,599)
Proceeds from issuance of senior preferred stock -- 3,160,000
Proceeds from issuance of common stock in a
public offering -- 56,988,792
Proceeds from exercise of warrants -- 111,353
Proceeds from issuance of common stock in a
private offering 6,500,000 --
Proceeds from exercise of stock options 981,377 90,154
Payment of long-term debt (2,639,551) --
------------ ------------
Net cash provided by financing activities 4,526,847 59,836,700
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(Decrease) increase in cash (21,428,500) 33,792,543
Cash - beginning of period 22,320,814 135,053
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Cash - end of period $ 892,314 $ 33,927,596
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See accompanying notes.
5
MEDICONSULT.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. 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
Mediconsult.com, Inc.'s (the "Company") Annual report on Form 10-K, and first
and second quarter 10-Q's as filed with the Securities and Exchange Commission.
2. STOCK OPTIONS
We have 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:
September 30, 2000
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Weighted Average
Number of Exercise
Shares Price
----------------- ----------------
Outstanding - December 31, 1999 4,008,651 $4.50
Granted during the period 2,336,047 1.27
Exercised during the period (1,266,238) 0.66
Forfeited during the period (1,394,192) 7.07
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Outstanding - September 30, 2000 3,684,268 4.08
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Exercisable - September 30, 2000 689,274 $1.88
---------- -----
During the three months ended September 30, 2000 and 1999 the fair values of the
options granted to employees were $1,395,396 and $517,183, respectively.
3. WARRANTS
On March 23, 2000, the Company and Andersen Consulting LLP ("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 exercise of these warrants.
4. RESTRUCTURING CHARGES
During the third quarter of 2000, the Company initiated a restructuring program.
The restructuring is intended to reduce the Company's cost structure for its web
site operations to focus resources on its core businesses related to educating
and connecting physicians and patients. The restructuring predominantly affects
the Company's operations in its Canadian location.
6
During the third quarter of 2000, a charge of approximately $2.8 million was
recorded with respect to the restructuring of the Company's Canadian location
and website operations. Approximately 100 employees were notified of
terminations as operations were curtailed in line with current demands for the
company's products. As a result 96 employees were terminated as of September
30, 2000 and the remaining employees will be terminated by December 31, 2000.
The remaining restructuring costs relate to non-cancellable operating leases for
office space at the Canadian location and contracts for telephone and website
services.
The following table illustrates the different components of the restructuring
accrual:
Other
Employee Operating Long-term
Compensation Leases Contracts Total
------------- ---------- ---------- -----------
Accrual in third quarter $1,338,826 $ 660,135 $831,639 $2,830,600
Payments made through
September 30, 2000 (609,686) (124,536) (62,513) (796,735)
---------- --------- -------- ----------
Ending Balance $ 729,140 $ 535,599 $769,126 $2,033,865
---------- --------- -------- ----------
5. IMPAIRMENT OF LONG-LIVED ASSETS
As a result of the Company's restructuring program resulting in the closing of
its Canadian location and related operations, the Company has realized an
impairment of long-lived assets. A charge of approximately $8.3 million was
recorded related to the write-off of the carrying value of goodwill originally
acquired with the purchase of the operations affected by the restructuring.
Management has determined that there are no future cash flows associated with
the goodwill. In addition, certain fixed assets used in the restructured
operations will be disposed of during the fourth quarter resulting in a charge
of approximately $0.3 million to reflect a reduction in their carrying value to
approximate their fair value, which is the estimated disposal sales price of the
fixed assets.
6. DEFAULT ON NOTES PAYABLE
The Company is in default with respect to all of their notes due on October 31,
2000, of $2.9 million including interest of $0.6 million. Management is
currently in negotiations with the holders of these notes to arrange payment
alternatives.
7
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.com, Inc. and its subsidiaries.
OVERVIEW
The Company 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. The Company provides
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 educational,
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 educational, 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 1999, we added new sites through subsequent acquisitions including
cyberdiet.com and heartinfo.com, and new Internet-based healthcare tools through
the acquisition of Mood Sciences.
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 435,000 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 34,000 shares for an aggregate price of $0.2 million.
In July 2000, the Company announced expense reductions resulting in a
restructuring plan targeted primarily at its consumer Web site operations as
part of an overall evaluation of potential cost savings. This restructuring plan
highlights the Company's shift toward building its physician community and
developing product offerings for its pharmaceutical clients. Management believes
that the reductions will result in savings of approximately $1 million per
month. The majority of expense reductions are targeted at those business units
that are stand-alone consumer channels. The expense reductions will reduce the
Company's headcount by approximately 100 employees, about 45% of the total
workforce at September 30, 2000.
For further information, refer to the Consolidated Financial Statements and
footnotes thereto included in the Company's Annual Report on Form 10-K for the
year ended December 31, 1999.
8
REVENUE SOURCES
Our main sources of revenue have historically been through services related to
the development, support of online education 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 particular pharmaceutical or
other health-related products. These services also include marketing research,
focus group testing and online testing of visitors' preferences. Revenue from
these 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 sponsorships and
advertising space on the Company's Physicians' Online Web site. These services
can be provided separately or as part of a more comprehensive suite of Internet-
based services. Sponsorship and advertising services include banner
advertisements, polls, surveys, email campaigns, registration programs, coupons
and other interactive forms of advertising. Revenue from advertising sales is
recognized ratably over the duration of the sponsorship program or the period
during which the advertisement is displayed, if no significant obligations
remain. Mediconsult does not recognize revenue from barter transactions with
respect to its advertising services.
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 and sponsorship 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.
MARKETING AND SALES INITIATIVES
Revenue is principally derived by developing programs and internet tools for
pharmaceutical companies. For the nine months ended September 30, 2000, revenue
from Bristol-Myers Squibb and Eli Lilly and Company represented $12.5 million or
72% of the Company's total revenue. We develop Web sites, Internet-based
healthcare applications and educational tools for these companies, and receive
payment as services are performed. The loss of Bristol-Myers Squibb or Eli Lilly
and Company as a customer or any changes to the existing relationships that are
less favorable to us, will materially and adversely affect our business,
financial condition and results of operations.
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 nine month
periods ended September 30, 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 operations 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 September 30,
2000, we have determined that the final 100,000 warrant shares will not vest.
During the quarter ended September 30, 2000, the Company offered employees an
opportunity to cancel existing option grants in exchange for new, re-priced
option awards. The re-pricing offer was for the same number of shares cancelled;
however, vesting of the re-priced options began at the new grant date, and
vesting of the new options does not automatically accelerate upon a change in
control of the Company. Of those eligible for the re-pricing, 3 accepted the
offer, representing 104,500 option shares. The re-pricing was effective August
7, 2000. The net affect on the second quarter option expense as a result of the
re-pricing was an increase of $3,641.
As a result of the Company's restructuring, many participants in the Company's
employee stock option plan were no longer eligible to participate in the plan,
and some or all of those employees' outstanding option grants were forfeited.
The expense previously incurred relative to the issuance of these employees'
forfeited option grants was reversed in the same period of the employees'
termination, resulting in a credit balance for the quarter ended September 30,
2000.
9
RESULTS OF OPERATIONS
REVENUE. Revenue consists of fees received for the design, development and
implementation of on-line education, marketing, sponsorship and advertising
programs, including Web site development and implementation, advertising
services, and Web site support. Revenue was $6.5 million for the quarter ended
September 30, 2000 compared to $2.4 million for the quarter ended September 30,
1999, an increase of 169%. Revenue was $17.3 million for the nine months ended
September 30, 2000 and $3.7 million for the nine months ended September 30,
1999, an increase of 365%. The period-to-period growth was primarily
attributable to new product and client initiatives focused on the delivery of
electronic medical education over the Internet, and sponsorship programs sold to
healthcare companies.
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. Total product
and content development cost increased from $2.3 million for the quarter ended
September 30, 1999 to $4.7 million for the quarter ended September 30, 2000.
Total product and content development costs increased from $4.6 million for the
nine months ended September 30, 1999 to $19.8 million for the nine months ended
September 30, 2000. These increases were primarily due to additional costs
associated with the development and implementation of specific client medical
education and sponsorship programs.
MARKETING, SALES AND CLIENT SERVICES. Marketing, sales and client service costs
include expenses incurred by the Company to obtain and maintain client
relationships. These costs include salaries and commissions paid to employees,
consultants and programming costs. Total marketing, sales and client service
costs decreased from $6.1 million in the quarter ended September 30, 1999 to
$3.8 million in the quarter ended September 30, 2000. The decreases for the
three month period ended September 30, 2000 were primarily related to cost
reduction initiatives implemented in that period. Total marketing, sales and
client service costs increased from $7.7 million for the nine months ended
September 30, 1999 to $12.1 million for the nine months ended September 30,
2000. These costs increased as our activities in sponsorships and our medical
educational programs increased.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
consist primarily of salaries and related costs for general overhead costs
including finance, accounting, legal and audit fees and other professional
services. Total general and administrative expenses decreased from $1.8 million
for the quarter ended September 30, 1999 to $1.6 million for the quarter ended
September 30, 2000. Total general and administrative expenses increased from
$3.3 million for the nine months ended September 30, 1999 to $5.7 million for
the nine months ended September 30, 2000. The decreases for the three month
period ended September 30, 2000 were primarily related to cost reduction
initiatives implemented in that period. For the nine month period ended
September 30, 2000, the increases were primarily attributable to increases in
headcount, office space and related overhead costs, over the prior year
supporting growth of our operations.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expense increased
from $0.9 million for the quarter ended September 30, 1999 to $10.6 million for
the quarter ended September 30, 2000. Depreciation and amortization expense
increased from $1.4 million for the nine months ended September 30, 1999 to
$32.4 million for the nine months ended September 30, 2000. Period-to-period
increases are primarily due to the amortization of goodwill from the Physicians'
Online acquisition in December 1999.
RESTRUCTURING. During the third quarter of 2000, we initiated a restructuring
program. The restructuring is intended to reduce our cost structure for web site
operations to focus resources on our core businesses related to educating and
connecting physicians and patients. The restructuring predominantly affects
operations in our Canadian location. During the third quarter of 2000, a charge
of approximately $2.8 million was recorded with respect to the restructuring of
our Canadian location and website operations. Approximately 100 employees were
notified of terminations as operations were curtailed in line with current
demands for our products. As a result 96 employees were terminated as of
September 30, 2000 and the remaining employees will be terminated by December
31, 2000. For detail of the components of the restructuring charge please see
note 4 to the financial statements included in this Quarterly Report on Form
10-Q.
The restructuring plan was adopted due to several related factors, including the
continued difficulty in successfully executing a consumer oriented business
model and the costs associated with maintaining and enhancing our consumer Web
properties, including, mediconsult.com, heartinfo.org, cyberdiet.com,
storknet.com, and pharminfo.com. Furthermore, the capital market's change in
valuation of Web-based healthcare companies has made the raising of additional
capital more difficult. As a result of these factors we adopted the described
restructuring during the quarter ended September 30, 2000.
We believe that the actions taken in conjunction with the restructuring will not
adversely affect our ability to increase revenue in any material fashion. The
cost savings associated with the restructuring should speed our transition to
profitability and enhance future cash flows. It is not anticipated that the cost
savings realized as a result of the restructuring will be offset by future cost
increase, unless supported by additional revenue justifying any such future cost
increases.
10
Of the total restructuring charge, of $2.8 million, payments of $0.8 million
were made in the three months ended September 30, 2000. The balance of $2.0
million will be paid over time, with the final payments being made upon the
expiration of the lease on September 30, 2004.
IMPAIRMENT OF LONG-LIVED ASSETS. As a further consequence of the factors
described in the foregoing discussion of our third quarter restructuring charge,
in the third quarter of fiscal year 2000, we realized an impairment of long-
lived assets. A charge of approximately $8.3 million was recorded in this period
related to the write-off of the carrying value of goodwill originally acquired
with the purchase of the operations affected by the restructuring. We have
determined that there are no future cash flows associated with the goodwill. In
addition, certain fixed assets used in the operations affected by the
restructuring will be disposed of during the fourth quarter resulting in a
charge of approximately $0.3 million to reflect a reduction in their carrying
value to approximate their fair value, which is the estimated sales price we
will receive for the fixed assets. We believe that the actions taken in
conjunction with disposal of these assets will not adversely affect our ability
to increase revenue in any material fashion.
The charge realized for the impairment of long-lived assets is non-cash and will
have no adverse affect on our future cash flows.
FAIR VALUE OF OPTIONS GRANTED TO EMPLOYEES. We have recorded compensation
expenses in connection with the vesting of employee stock options. The related
expense decreased from $0.5 million for the quarter ended September 30, 1999 to
($0.1) million in the quarter ended September 30, 2000. The related expense
increased from $1.1 million for the nine months ended September 30, 1999 to $1.5
million for the nine months ended September 30, 2000. The compensation expense
represents the amortization of deferred compensation, which is measured based on
the fair value of options granted. This amount is amortized over the vesting
period of the applicable options. The decrease in these expenses for the period
ended September 30, 2000 was principally related to the restructuring activities
undertaken in this period. As a result of the Company's restructuring, many
participants in the Company's employee stock option plan were no longer eligible
to participate in the plan, and some or all of those employees' outstanding
option grants were forfeited. The expense previously incurred relative to the
issuance of these employees' forfeited option grants was reversed in the same
period of the employees' termination, resulting in a credit balance for the
quarter ended September 30, 2000.
FAIR VALUE OF WARRANTS GRANTED TO THIRD PARTIES. We recorded an expense in
connection with the vesting of warrants to Andersen Consulting LLP and Arnhold &
S. Bleichroeder, Inc. The related expense was unchanged at $0.2 million for the
quarters ended September 30, 1999 and September 30, 2000. The related expense
increased from $1.7 million for the nine months ended September 30, 1999 to $1.8
million for the nine months ended September 30, 2000.
INTEREST (EXPENSE) INCOME, NET. The Company incurred a net interest expense of
$0.1 million for the quarter ended September 30, 2000 compared to $0.6 million
of net interest income for the quarter ended September 30, 1999. This decrease
in interest income was primarily attributable to the lower cash balance during
the quarter ended September 30, 2000. Net interest income decreased from $1.2
million as of September 30, 1999 to $0.1 million as of September 30, 2000 due to
the decreased average cash on hand.
PREFERRED SHARES DIVIDEND. No preferred shares dividends were issued to senior
preferred stockholders and junior preferred stockholders in the three months
ended September 30, 1999 and September 30, 2000, respectively. These costs were
$0.9 million for the nine months ended September 30, 1999 and nil for the nine
months ended September 30, 2000.
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 electronic medical
education 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 development and the implementation of 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.
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LIQUIDITY AND CAPITAL RESOURCES
From inception until April 1999, we 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. As of September 30,
2000, the cash and cash equivalents balance was $0.9 million. Subsequent to the
end of the third quarter ended September 30, 2000, we have collected accounts
receivable in excess of $4.5 million, significantly increasing our cash and cash
equivalents balance.
We have incurred substantial costs to design, develop and implement Internet-
based educational, 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 September 30, 2000, we had an accumulated deficit
of $102.0 million.
Net cash used in operating activities during the nine months ended September 30,
1999 was $10.3 million, compared to net cash used in operating activities during
the nine months ended September 30, 2000 of $21.9 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 $49.6 million. This amount was
comprised of depreciation and amortization of $32.4 million, services rendered
in exchange for common stock of $2.0 million, restructuring charges of $2.8
million, impairment of long-lived assets of $8.6 million, and warrants granted
to consultants and employees of $6.7 million. Net cash used reflected several
factors, including (1) increased operating expenses as our business volume
increased; (2) an increase in accounts receivable of $4.7 million; and (3)
decreases in accounts payable of $3.3 million.
Net cash used in investing activities during the nine months ended September 30,
1999 was $15.7 million, compared to net cash used in investing activities during
the nine months ended September 30, 2000 of $4.0 million. This decrease in cash
used was primarily attributable to the reduction of acquisition activity and was
partially offset by increased fixed asset purchases.
Net cash provided by financing activities during the nine months ended September
30, 1999 was $59.8 million, compared to net cash provided by financing
activities during the nine months ended September 30, 2000 of $4.5 million. The
net cash provided by financing activities in the nine months ended September 30,
2000, was the result of a $6.5 million private placement of common stock to
McKesson HBOC, Inc. in May 2000. The $59.8 million infusion during the nine
months ended September 30, 1999 was principally due to the public offering
completed in April 1999.
Our ability to generate significant revenue is uncertain. We incurred net
losses, before net interest income, of approximately $3.6 million and $7.8
million after accounting for non-cash items for the quarters ended September 30,
2000 and September 30, 1999, respectively. We expect losses from operations and
negative cash flow to continue at least through the year 2000. The rate that
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
an increase in our expenditures since inception, consistent with growth in our
operations and staffing. Additionally, we will continue to evaluate possible
investments in businesses, products and technologies, and the expansion of our
marketing and sales programs. 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. At September 30, 2000 we had a negative working capital
balance. As a result of this negative balance, we are actively seeking
additional capital from multiple sources. If we are unsuccessful in these
efforts to obtain additional capital, such failure could have a material adverse
effect on our business, financial condition and results of operations.
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; however, if we are unable to
successfully restructure the notes payable which matured on October 31, 2000,
our cash resources will not be sufficient to meet our requirements through the
end of the year, unless we are able to raise additional capital. We are
currently negotiating with the holders of these notes in an effort to modify the
payment terms of these notes. Further, 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
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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 forward-looking statements
made in this document are qualified by cautionary statements. 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.
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PART II. OTHER INFORMATION
ITEM 1. PENDING LEGAL PROCEEDINGS
There are no significant pending legal proceedings outside the scope of the
normal course of business.
ITEM 2. CHANGES IN SECURITIES
NONE
ITEM 6. EXHIBITS AND REPORTS FILED ON FORM 8-K
(a) Exhibit
Number Description
------ -----------
2.1 Northstar Agreement and Plan of Merger (6)
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 (6)
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 Bristol-Myers Squibb Company and Mediconsult.com
Limited, dated as of September 30, 1999 (1)
10.13 Project Order pursuant to Agreement between Bristol-Myers Squibb
Company and Mediconsult.com Limited, dated as of September 30,
1999 (6)
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 (6)
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10.17 Internet Consulting and Software Services Agreement between
Mediconsult, Ltd. and Eli Lilly and Company. (6)
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. (1)
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 (6)
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.
(6) Exhibits are incorporated by reference to Mediconsult's Quarterly Report
on Form 10-Q (file No. 000-29282) filed May 15, 2000.
(7) Exhibits are incorporated by reference to Mediconsult's Quarterly Report
on Form 10-Q (file No. 000-29282) filed August 14, 2000.
(b) None.
SIGNATURES
Mediconsult.com, Inc.
Date: November 13, 2000 Signature: /s/ E. Michael Ingram
---------------------
E. Michael Ingram
Chief Financial Officer
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