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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2000
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 0-26390
CELERIS CORPORATION
(Exact name of registrant as specified in its charter)
MINNESOTA 41-1545493
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1801 WEST END AVENUE, SUITE 750
NASHVILLE, TENNESSEE 37203
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (615) 341-0223
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
COMMON STOCK, $.01 PAR VALUE
(Title of Class)
Indicate by check mark whether registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities and Exchange Act
of 1934 during the preceding twelve 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 [ ]
The aggregate market value of the common stock held by non-affiliates
of the registrant at March 19, 2001 was $2.38 million based on the last sale
price for the Common Stock as quoted on the Nasdaq National Market on that date.
As of March 19, 2001, there were 3,315,786 shares of the registrant's
common stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE: Pursuant to General Instruction
G(3), the responses to Items 10, 11 and 12 of Part III of this report are
incorporated herein by reference from the Company's definitive proxy statement
for its 2001 Annual Meeting of Shareholders to be filed with the Securities and
Exchange Commission on or before May 30, 2001.
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
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PART I
ITEM 1. BUSINESS
OVERVIEW
Celeris Corporation ("Celeris" or the "Company") is a provider of specialty
clinical research and information technology services that expedite and
streamline clinical trial and regulatory submission process for pharmaceutical,
medical device and biotechnology manufacturers. These services accelerate
specific functions within clinical trials and new product submissions which
often become bottlenecks for manufacturers seeking regulatory clearance to
market new products. Delays in obtaining regulatory clearance for new products
can result in significant lost revenues and increased expenses for
manufacturers. As a consequence, manufacturers have increasingly outsourced
clinical research functions to organizations, such as the Company, that can
offer expertise and services that speed the product development process.
CLINICAL RESEARCH OUTSOURCING AND INDUSTRY TRENDS
New pharmaceutical, medical device and biotechnology products undergo extensive
clinical testing and regulatory review to determine their safety and efficacy.
Manufacturers seeking approval for these products are often responsible for
performing and analyzing pre-clinical and multi-phase clinical trials.
Historically, manufacturers primarily used in-house personnel to conduct these
trials. In recent years, manufacturers have begun to outsource clinical trials
to clinical research organizations ("CROs"). Outsourcing of clinical research
has been done for a variety of reasons: (i) cost containment efforts have lead
companies to seek ways to reduce overhead, turning fixed costs into variable
costs; (ii) the increasingly complex nature and size of research trials requires
greater expertise, which may not be found in-house; (iii) the need to reduce the
time it takes to get a product through the Food and Drug Administration ("FDA")
approval process; and (iv) the growth of smaller niche companies, particularly
in the biotechnology and medical device industries, which lack internal
resources to complete the approval process.
Worldwide spending for research and development ("R&D") outsourcing is projected
at approximately $6.2 billion. R&D outsourcing to CROs has grown at a rate of
approximately 15% annually over the last five years. The Company believes this
trend will continue as manufacturers strive to enhance their revenues through
faster product development while containing their costs. The CRO industry
assists companies in this regard by providing a higher level of expertise or
specialization than would be available in-house, capability to perform product
development activities more quickly, and the opportunity to convert the fixed
costs required to maintain in-house resources into variable costs through
outsourcing.
In recent years, a number of CROs have emerged as large, full service providers
of a broad range of product development services on a global basis. Their
strategy is to provide a turnkey approach to meet the product development needs
of manufacturers. These organizations typically maintain offices in multiple
countries and employ hundreds or even thousands of individuals. Many of the
large CROs have sustained significant growth rates over the past several years,
produced either by internal expansion, strategic acquisitions of other
organizations that provided geographic expansion, new therapeutic expertise, or
broader service capabilities, or by a combination thereof. While successful, the
larger CROs may not meet the needs of some pharmaceutical, biotechnology and
medical device manufacturers for a variety of reasons, including a preference on
the part of some manufacturers to work with smaller, more client-focused
organizations.
This unfulfilled need has contributed to the emergence of smaller niche
providers, who are focused on providing specific services within the product
development process, or who specialize in one or more therapeutic areas.
Services provided by these organizations, including those provided by the
Company, may be utilized by product development organizations directly or by
other CROs. These organizations range in size from a few hundred employees to
sole proprietorships. Overall, the CRO industry is highly fragmented with
several hundred CROs in existence.
BUSINESS STRATEGY
The Company's overall strategy is to offer select clinical research and
information technology services to pharmaceutical, medical device and
biotechnology manufacturers in areas that accelerate the product development
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process. In its service areas, the Company focuses on services that expedite and
streamline clinical trials and regulatory submissions for new drugs, devices and
other regulated healthcare products. The Company offers its services either on a
stand-alone basis or as part of clinical study management program.
SERVICES
Clinical Monitoring Staffing Services. The clinical research process requires
highly trained, experienced individuals. The CRO industry's rapid growth over
recent years has made for a very competitive environment regarding the hiring,
training and retention of employees which has, in many cases, resulted in a high
employee turnover rate throughout the industry. Throughout the life of a
clinical study, significant employee turnover can dramatically impact data
quality and U.S. Food and Drug Administration ("FDA") submission timelines,
resulting in increased costs. To assist product development organizations and
CROs in identifying qualified resources, the Company provides experienced
clinical monitors on a contract basis to both product development organizations
and to CROs. These individuals possess a number of years experience monitoring
trials in multiple therapeutic areas, strong interpersonal skills, and a
demonstrated ability to work independently.
Data Management. Clinical trials produce large amounts of data that must be
properly collected and analyzed. This process can be inefficient, particularly
when it involves the use of antiquated systems or the merging of large data sets
housed on disparate systems. To address these issues, the Company has invested
in a state-of-the-art database management system that will allow for the
efficient replication and upload of sponsor data sets. The Company believes use
of the system provides a competitive advantage as a number of product
development companies use the same database system. In addition, the Company has
developed KnowledgePort(TM), a secure web portal which allows clients
unprecedented and continuous access to study data. KnowledgePort(TM) provides
clients with the up-to-date information necessary to evaluate projects and make
better-informed decisions during the course of the clinical research project.
The Company believes the use of KnowledgePort(TM) results in products being
approved in a more timely and cost effective manner. The Company is also
experienced in the collection and integration of disparate data sets. As the
size and complexity of clinical trials grows, data sets within a particular
protocol or set of protocols may be generated using different systems making it
cumbersome to analyze and compare study results. The Company's experience in
this area allows it to assist clients in the efficient integration of data sets
suitable for statistical analysis and submission to regulatory authorities. The
Company believes the demand for data integration will continue to grow due in
part to the growth in new product development, coupled with increased licensing
activity and joint ventures between product development organizations.
Regulatory Consulting. Through its subsidiary, C.L. McIntosh & Associates
("CLMA"), Celeris provides regulatory consulting services, primarily to medical
device and biologic manufacturers. The Company assists manufacturers in
obtaining and maintaining FDA clearance to market their products and to comply
with all applicable FDA regulations. There are four consulting groups within
CLMA as described below.
Medical Device Evaluation. The Medical Device Evaluation Group provides
medical device manufacturers with strategic planning, preparation and
review services related to various FDA submissions, such as
Investigational Device Exemptions ("IDEs"), Premarket Notifications
("510(k)s"), and Premarket Approval Applications ("PMAs") for clearance
to market new medical products. In doing so, this group may prepare the
entire regulatory submission or individual sections, or review the
client's submission for potential FDA issues and completeness.
Additionally, the group will represent and advise clients in meetings
with FDA reviewers and advisory panels.
Statistics. The Statistics Group provides comprehensive statistical
consulting related to clinical study design and protocol development,
database design, programming and validation, data analysis and report
preparation. This groups also assists clients in their interactions
with and presentations to the FDA.
Quality Systems and Compliance. The Quality Systems and Compliance
Group provides consulting services to clients with medical device and
radiation-emitting electronic products regarding GMP (Good
Manufacturing Practices) and QSR (Quality System Regulations). This
group also consults on issues related to electronic product radiation
safety performance standards, product certification processes, recalls,
responses to FDA inspections, complaint handling systems and other
record-keeping and reporting requirements.
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Biologics. The Biologics Group provides regulatory and product
development strategy, submission preparation and review, FDA
interaction, and clinical trial design to companies which produce
biologic markers and assays, blood and blood-related products, biologic
therapeutic agents (recombinant proteins from cell culture and from
transgenic sources), monoclonal antibodies, classical and
biotech-derived vaccines, and cell and gene therapies.
SALES AND MARKETING, CLIENTS AND COMPETITION
Sales and Marketing. The Company has a business development team focused on
selling services to pharmaceutical, medical device and biotechnology
manufacturers who have a track record of outsourcing clinical research services
and who the Company believes can benefit from its particular services. New
client leads are generated primarily through industry contacts, as well as
through participation in medical industry seminars and exhibits, direct mail and
advertising campaigns. The Company works to generate repeat business primarily
by providing quality services to its clients. Marketing of the Company's
regulatory consulting services is focused primarily on medical device and
biologics manufacturers located in the United States and emphasizes the
extensive FDA and industry experience of its senior consultants.
Clients. To date, the Company has served over 600 pharmaceutical, medical device
and biotechnology manufacturers, predominantly all of whom are in the United
States. The Company works with various client personnel, including medical and
scientific personnel, regulatory affairs professionals, and business executives.
The Company has clients in a broad array of medical specialties, with a strong
presence in the endocrinology, cardiovascular, infectious disease and immune
deficiency specialties, among others. During 2000, revenues from Roche Molecular
accounted for 28.3% of the Company's consolidated revenues. The Company
anticipates that in the future, this client or other clients may account for
greater than ten percent of its consolidated revenues, depending on the product
development plans for each client, each client's continued use of outsourced
clinical research services and the Company's ability to retain each client's
business.
Competition. The Company competes in a large and highly fragmented industry
which consists of a broad array of companies ranging from large, publicly traded
organizations to sole proprietorships. The Company primarily competes against
in-house research and development departments of product development
manufacturers and other CROs, some of which possess substantially greater
capital, technical and other resources than the Company. CROs can possess
various competitive advantages, including previous client experience, expertise
in particular services or therapeutic areas, the quality of services performed,
financial viability and price.
GOVERNMENT REGULATION
The clinical investigation of new pharmaceutical, biotechnology and medical
device products is highly regulated by governmental agencies. The purpose of
United States federal regulations is to ensure that only those products that
have been proven to be safe and effective are made available to the public. The
FDA has set forth regulations and guidelines that pertain to virtually all
aspects of the product approval process. Pursuant to FDA regulations, CROs that
assume obligations of a company sponsor are required to comply with applicable
FDA regulations and are subject to regulatory action for failure to comply with
such regulations. In the United States, the historical trend has been in the
direction of increased regulation by the FDA.
The services provided by the Company are ultimately subject to FDA regulation in
the United States and comparable agencies in other countries, although the level
of applicable regulation in other countries is generally less comprehensive than
regulation present in the United States. The Company and its clients are
obligated to comply with FDA regulations governing all activities related to the
clinical trial process. The Company must also maintain records for each study
for specified periods for inspection by the study sponsor and the FDA during
audits. If such audits document that the Company has failed to adequately comply
with federal regulations and guidelines, it could have a material adverse effect
on the Company. In addition, the Company's failure to comply with applicable
regulations could possibly result in termination of ongoing research or the
disqualification of data, either of which could also have a material adverse
effect on the Company, including, without limitation, damage to the Company's
reputation.
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EMPLOYEES
As of February 28, 2001, the Company had 89 full-time employees. The Company's
performance depends on its ability to attract, develop, motivate and retain
qualified management, professional, scientific and technical staff. There is
significant competition for employees with the skills required to perform the
services offered by the Company from other CROs as well as from the in-house
research departments of pharmaceutical, medical device and biotechnology
companies. The Company's employees are not covered by collective bargaining
agreements. The Company has experienced no work stoppages and believes its
relations with its employees to be good.
DISCONTINUED OPERATIONS
On June 10, 1998, the Company announced its intent to transition out of the
healthcare provider software business ("software business") and direct its
resources on its clinical research services segment. On December 24, 1998, the
Company completed the sale of the software business. See Item 7, "Management's
Discussion and Analysis of Financial Condition and Results of Operations," for
further discussion of discontinued operations.
CAUTIONARY STATEMENT AND RISK FACTORS
This Annual Report on Form 10-K contains forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995. These
forward-looking statements include statements regarding intent, belief, or
current expectations of the Company and its management related to the business,
financial condition, liquidity, results of operations or prospects of the
Company. Such forward-looking statements are not guarantees of future
performance and involve risks and uncertainties that may cause the Company's
actual results to differ materially from the results expressed or implied by the
forward-looking statements. The risk factors set forth below, among others, in
the context of a forward-looking statement means that any one of the factors may
cause actual results to differ materially from those implied by such
forward-looking statements. These risk factors are in addition to any other
cautionary statements, written or oral, which may be made or referred to in
connection with any such forward-looking statement.
The Company May Continue to Incur Net Losses
The Company has incurred substantial net losses since its formation. Net losses
for the year ended December 31, 2000 were $4.61 million, and the accumulated
deficit at that date was $62.15 million. The Company's ability to increase
revenue will depend on a number of factors, including expanding its regulatory
and clinical studies consulting services and developing its new models for
clinical research services. The Company also anticipates increased operating
expenses for personnel to expand services. As a result, the Company expects that
it may continue to experience operating losses through 2001. The Company's
ability to achieve profitability and positive cash flow in future periods will
depend on its ability to control costs and to keep increases in expenditures
below growth in revenue, if any. The Company cannot predict whether it will
generate sufficient revenues, or adequately control costs, to achieve
profitability or positive cash flow.
The Company Will Experience Fluctuations in Quarterly Operating Results
The Company's quarterly operating results may fluctuate significantly because of
several factors, including the commencement or completion of significant
contracts, delays in implementing or completing particular clinical trials and
terminations of clinical trials. Due to the relatively fixed nature of most
costs, including personnel and facilities costs, any unanticipated shortfall in
revenue in any fiscal quarter would have an adverse effect on the results of
operations in that quarter. In general, quarterly revenue is difficult to
forecast because many of the Company's services have been recently introduced,
which makes forecasting demand for, and revenue from, these services uncertain.
As a result of the foregoing factors, it is possible that in some future
quarters results of operations will be below the expectations of public market
analysts and investors. In such event, the price of the Company's Common Stock
could be adversely affected.
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Large Contracts May Be Terminated or Delayed
Most of the Company's contracts are terminable by the client. Clients may
terminate, delay or change the scope of contracts for a variety of reasons,
including, among others, the failure of products being tested to satisfy safety
requirements, unexpected or undesired clinical results of the product, the
client's decision to forego a particular study, such as for economic reasons,
insufficient patient enrollment or investigator recruitment or production
problems resulting in shortages of the product being tested. In addition, the
Company believes that cost-containment and competitive pressures have caused
sponsor companies to apply more stringent criteria to the decision to proceed
with clinical trials and, therefore, may result in a greater willingness of
these companies to cancel contracts with CROs. The loss, delay or change in
scope of a large contract or multiple contracts could have a material adverse
effect on the Company's financial performance.
Backlog May Not be a Meaningful Indicator of Future Revenue
The Company periodically reports backlog of potential revenue yet to be earned
from projects under contracts or letters of intent. Backlog includes the value
of signed contracts and letters-of-intent less recognized revenues, if any, on
those contracts. Contracts included in backlog may be terminated, delayed or
revised in scope by clients for a variety of reasons. At December 31, 2000,
backlog was $12.2 million. The Company believes that its backlog as of any given
date may not necessarily be a meaningful predictor of future results and no
assurances can be given that the Company will be able to realize fully all of
its backlog as revenue.
Dependence on a Single Client for a Significant Portion of Revenue
The Company has in the past, and may in the future, derive a significant portion
of its revenue from a single client. In 2000, the Company derived 28.3% of its
revenue from Roche Molecular. In 1999, the Company derived 24.0% and 14.8% of
its revenue from Roche Molecular and BioCompatibles, Inc., respectively. The
loss of, or significant decrease in business from, a single client or clients
may have a material adverse effect on the Company.
The Company May Experience Operational Difficulties
Expansion in the clinical research services market will place a strain on
operational, human and financial resources. In order to manage such expansion,
the Company must continue to improve operating, administrative and information
systems, accurately predict future personnel and resource needs to meet client
contract commitments, track the progress of ongoing client projects, and attract
and retain qualified management, professional, scientific and technical
operating personnel. Failure to meet the demands of the expansion of the
business could have a material adverse effect on the Company.
The Company Operates in a Highly Competitive Industry
The market for clinical research services offered by the Company is highly
competitive. The Company competes against traditional CROs, the in-house
research and development departments of sponsor companies, as well as
universities and teaching hospitals. Most of these competitors have established
market positions and greater capital, technical and other resources than the
Company. Increased competition may lead to price and other forms of competition
that may affect margins.
The Company Depends on Certain Industries
The Company's revenue is highly dependent upon the research and development
expenditures of the pharmaceutical, medical device and biotechnology industries
and the use of outside clinical research services by these industries. The
Company's operations could be materially and adversely affected by a general
economic decline in these industries or by any reduction in their research and
development expenditures or in the outsourcing of clinical research services.
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The Company Depends on Government Regulation
The clinical research industry depends on the comprehensive government
regulation of the product development process. In the United States, the general
trend has been in the direction of continued or increased regulation. Changes in
regulation, including a relaxation in regulatory requirements or the
introduction of simplified approval procedures, could materially and adversely
impact the demand for the services offered by the Company. In addition, failure
to comply with applicable regulations could result in the termination of ongoing
research or the disqualification of data, either of which could have a material
adverse effect on the Company.
The Possibility of a Material Adverse Outcome Related to the Company's SEC
Investigation
The Division of Enforcement of the Securities and Exchange Commission (the
"SEC") is conducting an investigation relating to the Company's restatement of
certain financial statements in 1997. The Company is cooperating fully with the
SEC and its investigation. The Company cannot predict whether any order, decree
or other action issued or taken by the SEC arising out of its investigation will
not result in sanctions which could have a material adverse effect on the
Company or certain individuals.
The Company may be Unable to Regain Compliance with Nasdaq National Market
Continued Listing Requirements
The market value of the Company's public float does not currently comply with
the Nasdaq National Market's continued listing requirement that it exceed $5
million. On March 19, 2001, the market value of the Company's public float was
$2.04 million, based on a public float of approximately 2.83 million shares. The
Company has requested an oral hearing before a Nasdaq Qualifications Panel to
maintain its listing on the Nasdaq National Market. There can be no assurance
that Company will be able to regain compliance with Nasdaq National Market
continued listing requirements, any appeal the Company makes to Nasdaq will be
successful, or that the Company will be able to meet the to meet the listing
requirements of other stock exchanges, including the Nasdaq SmallCap Market.
Shareholder Rights Agreement
On March 6, 2001, the Company's Board of Directors approved the adoption of a
shareholder rights agreement. The rights agreement is intended to encourage
potential acquirers to negotiate with the Company's Board of Directors and to
discourage coercive, discriminatory and unfair proposals. The rights become
exercisable only if an entity acquires, without approval of the Company's Board
of Directors, 15% or more of the Company's common stock or announces a tender
offer with the intention to do the same. Each right allows holders to acquire
additional shares of common stock in either Celeris or an acquiring entity at a
50% discount to market. Shareholders do not need to take any action to receive
the rights, and, until the rights become exercisable, the existing stock
certificates will represent both the rights and the common shares. The rights
agreement may have the effect of discouraging or making more difficult an
acquisition or change of control of the Company.
ITEM 2. PROPERTIES
The Company leases approximately 13,000 square feet for its corporate
headquarters in Nashville, Tennessee; approximately 15,500 square feet for its
office in Rockville, Maryland; and approximately 16,000 square feet for its
office in Morrisville, North Carolina. The Company believes that the space
leased is adequate for the Company's operations and that the leases generally
reflect market rates in their respective geographic locations. The expiration
dates of the leases range from 2001 to 2003.
ITEM 3. LEGAL PROCEEDINGS
On October 4, 2000, the Company announced the preliminary approval by the United
States District Court of Minnesota of a settlement in the securities cases
against the Company of In Re Summit Medical Systems, Inc. Securities Litigation
and Teachers' Retirement System of Louisiana v. Summit Medical Systems, Inc. et
al. The settlement terms included $750,000 in cash, 100,000 shares of common
stock, and warrants to purchase 500,000 shares of common stock at $4.00 over the
next five years. On January 17, 2001, the United States District Court of
Minnesota filed its order for final judgement, which finalized the settlement.
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The Division of Enforcement of the SEC is conducting an investigation of the
Company, relating to the Company's restatement of certain financial statements.
The Company is cooperating fully with the SEC and its investigation. There can
be no assurance that any order, decree or other action issued or taken by the
SEC arising out of its investigation will not result in sanctions against the
Company or certain individuals that could have a material adverse effect on the
Company or its business.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDERS
MATTERS
The Company's Common Stock trades on The Nasdaq Stock Market(R) ("Nasdaq") under
the symbol "CRSC". On March 19, 2001 the last reported sale price for the Common
Stock on Nasdaq was $0.72. As of March 19, 2001 the Company had approximately
162 holders of record of the Common Stock and the Company estimates an
additional 1,800 beneficial owners. The following table shows the high and low
sales prices for the Common Stock as reported by Nasdaq for the periods
indicated (adjusted to reflect the 1999 one for three reverse stock split).
HIGH LOW
---- ---
1999
First quarter $ 4.13 $ 2.25
Second quarter $ 3.75 $ 1.69
Third quarter $ 4.03 $ 1.13
Fourth quarter $ 2.38 $ 0.94
2000
First quarter $ 9.38 $ 1.25
Second quarter $ 6.00 $ 2.22
Third quarter $ 3.19 $ 0.94
Fourth quarter $ 2.38 $ 0.38
The Company has paid no dividends since its inception date.
On January 17, 2001, the United States District Court of Minnesota filed its
order for final judgement to finalize the settlement of the securities cases
against the Company of In Re Summit Medical Systems, Inc. Securities Litigation
and Teachers' Retirement System of Louisiana v. Summit Medical Systems, Inc. et
al. The settlement terms included $750,000 in cash, 100,000 shares of common
stock, and warrants to purchase 500,000 shares of common stock at $4.00 over the
next five years. Because the terms and conditions of the settlement were
approved by the District Court after a hearing upon the fairness of such terms
and conditions, the common stock and warrants were not registered and were
issued in reliance on the exemption set forth in Section 3(a)(10) of the
Securities Act of 1933, as amended.
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On March 13, 2001, the Company announced that the value of its public float did
not comply with the Nasdaq National Market's continued listing requirements.
Under applicable continued listing requirements, the market value of the
Company's public float must exceed $5 million. On March 19, 2001, the market
value of the Company's public float was $2.04 million, based on a public float
of approximately 2.83 million shares. The Company has requested an oral hearing
before a Nasdaq Listing Qualifications Panel to maintain its listing on the
Nasdaq National Market. There can be no assurance that the Company will be
successful in its efforts to remain on the Nasdaq National Market.
ITEM 6. SELECTED FINANCIAL DATA
The consolidated statements of operations data set forth below for each of the
three years ended December 31, 2000, 1999 and 1998 and the consolidated balance
sheet data at December 31, 2000 and 1999 are derived from, and are qualified by
reference to, the audited consolidated financial statements included elsewhere
in this Annual Report on Form 10-K. The consolidated statements of operations
data for the years ended December 31, 1997 and 1996 and the consolidated balance
sheet data at December 31, 1998, 1997 and 1996 are derived from audited
consolidated financial statements of the Company not included herein. The
consolidated statements of operations data for the years ended December 31, 1999
and 1998 have been restated to reflect the adoption of SEC Staff Accounting
Bulletin No. 101, "Revenue Recognition in Financial Statements", as amended
("SAB 101"), and the related Emerging Issue Task Force's Issue No. 99-19,
"Reporting Revenue Gross as a Principal Versus Net as an Agent" ("EITF 99-19").
The consolidated statements of operations data for the years ended December 31,
1997 and 1996 do not reflect any amounts related to the adoption of SAB 101 and
EITF 99-19 as the amounts were immaterial. The information set forth below
should be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations," the Company's Consolidated
Financial Statements and related Notes, and other financial information included
elsewhere herein. All prior period amounts have been restated for discontinued
operations.
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YEARS ENDED DECEMBER 31,
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2000 1999 1998 1997 1996
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(IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
Revenues:
Clinical research services $ 10,268 $ 9,253 $ 5,783 $ 5,102 $ 3,671
Project pass-through expenses 940 871 647 -- --
--------- --------- --------- --------- ---------
11,208 10,124 6,430 5,102 3,671
Costs of sales:
Direct costs 7,236 6,312 4,028 3,424 2,100
Project pass-through expenses 940 871 647 -- --
--------- --------- --------- --------- ---------
8,176 7,183 4,675 3,424 2,100
Gross profit 3,032 2,941 1,755 1,678 1,571
General and administrative expenses 6,997 7,508 5,068 2,767 2,390
--------- --------- --------- --------- ---------
Loss from operations (3,965) (4,567) (3,313) (1,089) (819)
Interest income, net 337 537 1,199 1,946 1,888
--------- --------- --------- --------- ---------
Income (loss) from continuing operations (3,628) (4,030) (2,114) 857 1,069
Discontinued operations:
Loss from discontinued operations -- -- (4,707) (19,902) (13,905)
Income (loss) on disposal of discontinued operations (985) 1,915 (5,832) -- --
--------- --------- --------- --------- ---------
Total discontinued operations (985) 1,915 (10,539) (19,902) (13,905)
--------- --------- --------- --------- ---------
Net loss $ (4,613) $ (2,115) $ (12,653) $ (19,045) $ (12,836)
========= ========= ========= ========= =========
Basic income (loss) per common share:
Continuing operations $ (1.14) $ (1.29) $ (0.66) $ 0.25 $ 0.34
Discontinued operations (0.31) 0.61 (3.30) (5.82) (4.44)
--------- --------- --------- --------- ---------
$ (1.45) $ (0.68) $ (3.96) $ (5.57) $ (4.10)
========= ========= ========= ========= =========
Diluted income (loss) per common share:
Continuing operations $ (1.14) $ (1.29) $ (0.66) $ 0.24 $ 0.32
Discontinued operations (0.31) 0.61 (3.30) (5.52) (4.17)
--------- --------- --------- --------- ---------
$ (1.45) $ (0.68) $ (3.96) $ (5.28) $ (3.85)
========= ========= ========= ========= =========
Weighted average shares outstanding:
Basic 3,174 3,115 3,191 3,420 3,133
Diluted 3,174 3,115 3,191 3,604 3,339
Balance sheet data (end of period):
Cash, cash equivalents, restricted funds and
short-term investments $ 5,238 $ 8,965 $ 15,222 $ 27,996 $ 44,630
Working capital 5,407 8,628 11,192 24,226 41,707
Total assets 8,647 13,178 18,164 30,671 49,847
Long-term debt -- -- -- -- --
Current portion of capital lease obligation 124 -- -- -- --
Long-term portion of capital lease obligation 123 -- -- -- --
Shareholders' equity 6,609 10,016 12,205 25,597 46,083
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with the
Company's Consolidated Financial Statements and Notes thereto included in this
Annual Report on Form 10-K. Except for the historical information contained
herein, the following discussion and analysis may contain forward-looking
statements that involve risks and uncertainties, such as statements of the
Company's plans, objectives, expectations and intentions. The cautionary
statement made in Item 1 in this Annual Report on Form 10-K should be read as
being applicable to all related forward-looking statements wherever they appear
in this discussion and analysis. The Company's results could differ materially
from those implied by the following discussion and analysis. Factors that could
cause or
9
11
contribute to such differences include those discussed in Item 1 in this
Annual Report on Form 10-K under the caption "Cautionary Statement and Risk
Factors," as well as other factors discussed elsewhere herein.
OVERVIEW
Celeris Corporation and Subsidiaries is a provider of specialty clinical
research and information technology services that expedite and streamline the
clinical trial and regulatory submission process for pharmaceutical, medical
device and biotechnology manufacturers.
On June 10, 1998, the Company announced its intent to transition out of the
software business and direct its resources on its clinical research services
segment. As a result of the decision to dispose of the software business, the
Company recorded a charge of $5.83 million in 1998. This charge represented
management's estimate of the costs to exit the software business and the net
book value of the assets sold and liabilities transferred to the buyer net of
cash received at closing and related transaction costs. The Company sold the
software business effective December 24, 1998 and has collected $1.5 million in
related proceeds. The Company estimates its retained liabilities from the
discontinued operations to be $99,000 as of December 31, 2000, including certain
liabilities related to the disposal of the business. The financial position and
results of operations of the software business are reported as discontinued
operations and all prior period amounts have been restated to reflect the
discontinued operations.
Effective January 29, 1999, the Company changed its name from Summit Medical
Systems, Inc. to Celeris Corporation.
On July 26, 1999, the Company's Board of Directors approved a one-for-three
reverse split of its common stock, applicable to shareholders of record at the
close of trading on July 29, 1999. The reverse split was intended, in part, to
address compliance for continued listing of the Company's common stock with the
Nasdaq Stock Market criteria, which requires a minimum bid price of $1.00 per
share. Income (loss) per share, common stock outstanding and stock option data
included herein have been adjusted retroactively to give effect to the reverse
split.
Calculated on a post split basis, the Company had approximately 3.3 million
shares of common stock outstanding as of December 31, 2000.
As of December 31, 2000, the Company had a backlog of projects for clinical
studies management, clinical monitoring staffing and data management services
with an aggregate contract value of approximately $12.2 million. Backlog
includes the value of signed contracts and letters-of-intent less recognized
revenues, if any, on those contracts. Potential cancellation, delay or change in
scope of projects may affect the value of the Company's backlog.
The Company has experienced net losses for each of the past five years. Net
losses for the year ended December 31, 2000 were $4.61 million. The Company had
an accumulated deficit of $62.15 million as of December 31, 2000. The Company's
ability to increase revenue and to achieve profitability and positive cash flow
will depend on a number of factors as summarized in Item 1 under the caption
"Cautionary Statement and Risk Factors."
RESULTS OF OPERATIONS
Year Ended December 31, 2000 Compared to Year Ended December 31, 1999
The Company incurred a net loss of $4.61 million, or $1.45 per diluted share,
for the year ended December 31, 2000 as compared to a net loss of $2.11 million,
or $0.68 per diluted share, for the year earlier period. The 2000 results
include a loss from continuing operations of $3.63 million, or $1.14 per diluted
share, and a loss from discontinued operations of $985,000, or $0.31 per diluted
share. The 1999 results include a loss from continuing operations of $4.03
million, or $1.29 per diluted share, and a gain from discontinued operations of
$1.92 million, or $0.61 per diluted share.
10
12
Continuing operations. Clinical research services revenues for the year ended
December 31, 2000 were $10.27 million compared to $9.25 million for the year
earlier period, an increase of 11.0%. This increase in clinical research
services revenues resulted primarily from a higher volume of the new services
introduced in 1998.
Direct cost of revenues were $7.24 million for the 2000 period, or 70.5% of
clinical research services revenues, compared to $6.31 million for the 1999
period, or 68.2% of clinical research services revenues. This increase in direct
cost of revenues as a percentage of clinical research services revenues is
primarily the result of decreased utilization of client service personnel.
Improvement in cost of clinical research services revenues as a percentage of
revenue will be dependent upon keeping client service personnel utilized as
billable resources.
General and administrative expenses were $7.00 million, or 68.1% of clinical
research services revenues, for the 2000 period compared to $7.51 million, or
81.1% of clinical research services revenues, for the 1999 period. This decrease
in general and administrative expenses as a percentage of clinical research
services revenues is primarily due to a higher volume of business during 2000.
Further improvement in general and administrative expenses as a percentage of
clinical research services revenues will be dependent upon higher volumes of
business as the Company has in place the infrastructure necessary to support
expanded service offerings.
Interest income for the 2000 period was $337,000 compared to $537,000 for the
1999 period as the Company's cash and cash equivalents balance, including
restricted funds and short-term investments, decreased to $5.24 million at
December 31, 2000 from $8.97 million at December 31, 1999.
Discontinued operations. During the year ended December 31, 2000, the Company
incurred a loss on the disposal of discontinued operations of $985,000, which
included a loss of $1.83 million representing the settlement of the Company's
outstanding securities litigation and a gain of $843,000 representing a decrease
in estimated liabilities retained after the sale of the software business. The
Company recorded a gain on the disposal of discontinued operations of $1.92
million for the 1999 period, representing the receipt of $1.3 million related to
the December 1998 sale of the software business and a $615,000 decrease in
estimated liabilities retained after the sale.
Year Ended December 31, 1999 Compared to Year Ended December 31, 1998
The Company incurred a net loss of $2.11 million, or $0.68 per diluted share,
for the year ended December 31, 1999 as compared to a net loss of $12.65
million, or $3.96 per diluted share, for the year earlier period. The 1999
results include a loss from continuing operations of $4.03 million, or $1.29 per
diluted share, and a gain from discontinued operations of $1.92 million, or
$0.61 per diluted share. The 1998 results include a loss from continuing
operations of $2.11 million or $0.66 per diluted share, and a loss from
discontinued operations of $10.54 million, or $3.30 per diluted share.
Continuing operations. Clinical research services revenues for the year ended
December 31, 1999 were $9.25 million compared to $5.78 million for the year
earlier period, an increase of 60.0%. This increase in clinical research
services revenues resulted primarily from a higher volume of the new services
introduced in 1998.
Direct cost of revenues were $6.31 million for the 1999 period, or 68.2% of
clinical research services revenues, compared to $4.03 million for the 1998
period, or 69.7% of clinical research services revenues. This decrease in direct
cost of revenues as a percentage of clinical research services revenues is
primarily the result of increased utilization of client service personnel.
Further improvement in direct cost of revenues as a percentage of clinical
research services revenues will be dependent upon keeping client service
personnel utilized as billable resources.
General and administrative expenses were $7.51 million, or 81.1% of clinical
research services revenues, for the 1999 period compared to $5.07 million, or
87.6% of clinical research services revenues, for the 1998 period. This decrease
in general and administrative expenses as a percentage of clinical research
services revenues is primarily due to a higher volume of business during 1999.
Further improvement in general and administrative expenses as a percentage of
clinical research services revenues will be dependent upon higher volumes of
business as the Company has in place the infrastructure necessary to support
expanded service offerings.
11
13
Interest income for the 1999 period was $537,000 compared to $1.20 million for
the 1998 period as the Company's cash and cash equivalents balance, including
restricted funds and short-term investments, decreased to $8.97 million at
December 31, 1999 from $15.22 million at December 31, 1998.
Discontinued operations. During the year ended December 31, 1999, the Company
recorded a gain on the disposal of discontinued operations of $1.92 million,
representing the receipt of $1.3 million related to the December 1998 sale of
the software business and a $615,000 decrease in estimated liabilities retained
after the sale. The Company incurred losses from the discontinued operations of
its software business of $10.54 million for the 1998 period, which included
charges for disposal of discontinued operations of $5.35 million recorded in the
second quarter related to the decision to exit the software business and
$483,000 recorded in the fourth quarter related to the sale of the assets of the
software business.
The loss from discontinued operations of $4.71 million in the 1998 period
represents results of operations of the discontinued business through June 30,
1998. Losses for the period July 1, 1998 to December 24, 1998 (the date the
assets of the discontinued segment were sold) were accrued in conjunction with
the $5.35 million charge discussed above.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash and cash equivalents, including restricted funds and
short-term investments, totaled $5.24 million as of December 31, 2000, a
decrease of $3.73 million from December 31, 1999. This decrease was primarily
due to: a) $2.49 million used in continuing operating activities, b) $1.00
million used in discontinued operations, c) $252,000 used for the purchase of
furniture, fixtures and equipment, principally computer and computer systems
equipment, d) $113,000 used for principal payments on the capital lease
obligation, and e) $128,000 provided by transactions involving the Company's
stock.
As of December 31, 2000, the Company had net working capital of $5.41 million,
compared to $8.63 million at December 31, 1999. This decrease resulted primarily
from the loss from continuing operations of $3.63 million incurred during the
year ended December 31, 2000. Management anticipates the Company will continue
to experience operating losses into 2001, and as a result, it believes working
capital will continue to decline.
As of December 31, 2000, the Company had $1.87 million in accounts receivable,
net of bad debt allowance, compared to $1.77 million as of December 31, 1999.
The Company believes its current allowance of $258,000 for bad debts is
adequate. The Company's days sales outstanding in accounts receivable net of
deferred revenue was 52 days at December 31, 2000 and 51 days at December 31,
1999. Days sales outstanding in accounts receivable may fluctuate in future
periods as the Company's mix of business continues to evolve.
On March 13, 2001, the Company announced that the value of its public float did
not comply with the Nasdaq National Market's continued listing requirements.
Under applicable continued listing requirements, the market value of the
Company's public float must exceed $5 million. On March 19, 2001, the market
value of the Company's public float was $2.04 million, based on a public float
of approximately 2.83 million shares. The Company has requested an oral hearing
before a Nasdaq Listing Qualifications Panel to maintain its listing on the
Nasdaq National Market. There can be no assurance that the Company will be
successful in its efforts to remain on the Nasdaq National Market.
The Company sold its software business effective December 24, 1998 and has
collected $1.5 million in related proceeds. The Company has retained liabilities
related to the discontinued operations of $99,000 as of December 31, 2000,
including certain amounts due under customer contracts and other liabilities
related to the disposal of the segment.
The Company's Board of Directors has authorized a stock repurchase program under
which up to 666,667 shares of the Company's common stock may be repurchased.
From inception of the stock repurchase program in August 1997 through December
31, 2000, the Company has repurchased 439,867 shares of common stock for
approximately $3.05 million. As of December 31, 2000, there were 3,315,786
shares of the Company's common stock issued and outstanding.
As of December 31, 2000, the Company had approximately $510,000 subject to
withdrawal restrictions as a condition of certain lease agreements for office
space and equipment. The amount of funds restricted under the lease agreements
decreases periodically over the term of the leases, which extend to December
2002.
The Company believes that continued expenditure of funds will be necessary to
support its future operations, and that cash and cash equivalents, including
restricted funds and short-term investments, of $5.24 million on hand at
December 31, 2000 will be sufficient to fund its operations, capital
requirements, and expansion goals through 2001. However, there can be no
assurances that the Company will generate sufficient revenue, or adequately
control
12
14
costs, to achieve profitability or positive cash flow for periods into and
beyond 2001. If the Company cannot achieve profitability or positive cash flow,
or if its contingencies result in material expenditures, the Company may require
additional external financing in the future. There can be no assurances that
such financing will be available on terms acceptable to the Company.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
The Company has no derivative financial instruments or derivative commodity
instruments in its cash and cash equivalents, restricted funds or short-term
investments. The Company invests its cash and cash equivalents, restricted funds
and short-term investments in investment grade, highly liquid investments,
consisting of money market instruments and U.S. agency bonds and does not
believe these investments are subject to material market risks. In addition, all
of the Company's transactions are conducted and accounts are denominated in U.S.
dollars. Accordingly, the Company is not exposed to foreign currency risks.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements and related supplementary data of the
Company as of and for the year ended December 31, 2000 begin on page F-1 of this
Annual Report on Form 10-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information concerning this Item is incorporated herein by reference to the
Company's definitive proxy materials for the Company's 2001 Annual Meeting of
Shareholders.
ITEM 11. EXECUTIVE COMPENSATION
Information concerning this Item is incorporated herein by reference to the
Company's definitive proxy materials for the Company's 2001 Annual Meeting of
Shareholders.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information concerning this Item is incorporated herein by reference to the
Company's definitive proxy materials for the Company's 2001 Annual Meeting of
Shareholders.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) (1) Financial Statements of the Company and its subsidiaries
required to be included in Part II, Item 8 begin on page F-1
of this Annual Report on Form 10-K.
(a) (2) and (d) Schedule II - Valuation and Qualifying Accounts is located on
page S-1 of this Annual Report on Form 10-K.
13
15
(a) (3) and (c) Exhibits.
EXHIBIT NO. DESCRIPTION
- ----------- -----------
*3.1 Restated Articles of Incorporation of the Company, as
amended
**3.2 Amendment to Articles of Incorporation of the Company
for name change
*3.3 Bylaws of the Company
**4.1 Form of Certificate for Common Stock
***4.2 Rights Agreement dated March 6, 2001, between the
Company and Wells Faro Bank Minnesota, N.A.,
including Certificate of Designations, Preferences
and Rights (Exhibit A), Form of Rights Certification
(Exhibit B), and Form of Summary of Rights (Exhibit
C)
****4.3 Stock Purchase Warrant.
*10.1 Summit Medical Systems, Inc., 1993 Stock Option Plan
*10.2 Summit Medical Systems, Inc., 1995 Non-Employee
Director Stock Option Plan
*****10.3 First and Second Amendment to Summit Medical Systems,
Inc., 1993 Stock Option Plan
******10.4 Third Amendment to Summit Medical Systems, Inc., 1993
Stock Option Plan
******10.5 Fourth Amendment to Summit Medical Systems, Inc.,
1993 Stock Option Plan
******10.6 Employment Agreement dated October 6, 1997 between
Summit Medical Systems, Inc. and Barbarac A. Cannon
*******10.7 Asset Purchase Agreement, dated November 25, 1998,
between Velos Medical Informatics, Inc. and Summit
Medical Systems, Inc.
********10.8 Fifth Amendment to the Celeris Corporation Stock
Option Plan of 1993
*********10.9 Celeris Corporation 2000 Stock Option Plan
10.10 Employment Agreement between Celeris Corporation and
Donald F. Fortin dated December 31, 2000
10.11 Change in Control Severance Agreement between Celeris
Corporation and Paul R. Johnson dated January 4, 2001
23.1 Consent of Arthur Andersen LLP
99.1 Press Release dated November 17, 2000
99.2 Press Release dated January 18, 2001
99.3 Press Release dated February 7, 2001
99.4 Press Release dated March 6, 2001
99.5 Press Release dated March 13, 2001
14
16
- -----------------------
* Incorporated by reference to the Company's
Registration Statement on Form S-1 (File No.
33-93700).
** Incorporated by reference to the Company's Annual
Report on Form 10-K for the year ended December 31,
1998
*** Incorporated by reference to Exhibit 4.1 to the
Company's Registration Statement on Form 8-A dated
March 6, 2001 (File No. 0-26390)).
**** Incorporated by reference to the Company's Quarterly
Report on Form 10-Q for the quarter ended September
30, 2000 (File No. 0-26390).
***** Incorporated by reference to the Company's Current
Report on Form 8-K filed January 14, 1997 (File No.
0-26390).
****** Incorporated by reference to the Company's Annual
Report on Form 10-K for the year ended December 31,
1997 (File No. 0-26390)
******* Incorporated by reference to the Company's Current
Report on Form 8-K dated January 8, 1999 (File No.
0-26390)
******** Incorporated by reference to Exhibit A to the
Company's Definitive Proxy on Schedule 14A filed
March 24, 2000 (File No. 0-26390).
********* Incorporated by reference to Exhibit B to the
Company's Definitive Proxy on Schedule 14A filed
March 24, 2000 (File No. 0-26390).
(b) No reports on Form 8-K were filed during the quarter ended December 31,
2000.
15
17
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Date: March 29, 2001 CELERIS CORPORATION
By /S/ BARBARA A. CANNON
-------------------------------------
BARBARA A. CANNON
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed by the following persons on behalf of the registrant
and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/S/ JOHN M. NEHRA Chairman of the Board March 29, 2001
- -------------------------------------
JOHN M. NEHRA
/S/ BARBARA A. CANNON President and Chief Executive Officer March 29, 2001
- ------------------------------------- and Director (principal executive
BARBARA A. CANNON officer)
/S/ PAUL R. JOHNSON Vice President and Chief March 29, 2001
- ------------------------------------- Financial Officer and Secretary
PAUL R. JOHNSON (principal financial
and accounting officer)
/S/ W. HUDSON CONNERY, JR. Director March 29, 2001
- -------------------------------------
W. HUDSON CONNERY, JR.
/S/ RICHARD B. FONTAINE Director March 29, 2001
- -------------------------------------
RICHARD B. FONTAINE
/S/ PETER T. GARAHAN Director March 29, 2001
- -------------------------------------
PETER T. GARAHAN
/S/ ANDRE G. PERNET, PH.D. Director March 29, 2001
- -------------------------------------
ANDRE G. PERNET, PH.D
16
18
CELERIS CORPORATION AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
CONTENTS
Consolidated Financial Statements:
Consolidated Balance Sheets as of December 31, 2000 and 1999......................................F-2
Consolidated Statements of Operations for the years ended December 31, 2000, 1999 and 1998........F-3
Consolidated Statements of Shareholders' Equity...................................................F-4
Consolidated Statements of Cash Flows.............................................................F-5
Notes to Consolidated Financial Statements........................................................F-6
Report of Independent Public Accountants..................................................................F-16
Schedule II - Valuation and Qualifying Accounts............................................................S-1
F-1
19
CELERIS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)
As of December 31,
---------------------------
2000 1999
-------- -------
ASSETS
Current assets:
Cash and cash equivalents $ 4,728 $ 7,397
Restricted funds 510 545
Short-term investments -- 1,023
Accounts receivable, net of allowance of $258
and $343, respectively 1,868 1,774
Other current assets 216 1,052
-------- --------
Total current assets 7,322 11,791
Furniture, fixtures and equipment:
Furniture and fixtures 606 597
Computer and telephone equipment 2,153 1,570
Leasehold improvements 242 236
-------- --------
3,001 2,403
Less accumulated depreciation (1,676) (1,015)
-------- --------
1,325 1,388
-------- --------
Total assets $ 8,647 $ 13,179
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 798 $ 1,068
Deferred revenue and payables 605 446
Accrued compensation 289 453
Current portion of capital lease obligation 124 --
Net liabilities of discontinued operations 99 1,196
-------- --------
Total current liabilities 1,915 3,163
Long-term portion of capital lease obligation 123 --
COMMITMENTS AND CONTINGENCIES -- --
SHAREHOLDERS' EQUITY:
Common stock, $.01 par value - 13,511 shares authorized;
3,316 and 3,120 shares issued and outstanding, respectively 33 31
Additional paid-in capital 68,722 67,518
Accumulated deficit (62,146) (57,533)
-------- --------
Total shareholders' equity 6,609 10,016
-------- --------
Total liabilities and shareholders' equity $ 8,647 $ 13,179
======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
F-2
20
CELERIS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
For the Years Ended December 31,
----------------------------------------------
2000 1999 1998
-------- -------- --------
Revenues:
Clinical research services $ 10,268 $ 9,253 $ 5,783
Project pass-through expenses 940 871 647
-------- -------- --------
11,208 10,124 6,430
Cost of revenues:
Direct costs 7,236 6,312 4,028
Project pass-through expenses 940 871 647
-------- -------- --------
8,176 7,183 4,675
Gross profit 3,032 2,941 1,755
General and administrative expenses 6,997 7,508 5,068
-------- -------- --------
Loss from operations (3,965) (4,567) (3,313)
Interest income, net 337 537 1,199
-------- -------- --------
Loss from continuing operations (3,628) (4,030) (2,114)
Discontinued operations:
Loss from discontinued operations -- -- (4,707)
Gain (loss) on disposal of discontinued operations (985) 1,915 (5,832)
-------- -------- --------
Total discontinued operations (985) 1,915 (10,539)
-------- -------- --------
Net loss $ (4,613) $ (2,115) $(12,653)
======== ======== ========
Basic income (loss) per common share:
Continuing operations $ (1.14) $ (1.29) $ (0.66)
Discontinued operations (0.31) 0.61 (3.30)
-------- -------- --------
$ (1.45) $ (0.68) $ (3.96)
======== ======== ========
Diluted income (loss) per common share:
Continuing operations $ (1.14) $ (1.29) $ (0.66)
Discontinued operations (0.31) 0.61 (3.30)
-------- -------- --------
$ (1.45) $ (0.68) $ (3.96)
======== ======== ========
Weighted average shares outstanding:
Basic 3,174 3,115 3,191
Diluted 3,174 3,115 3,191
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
21
CELERIS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(In thousands)
Common Stock Additional
------------ Paid - in Accumulated
Shares Amount Capital Deficit Total
------ ------ ----------- ----------- --------
Balance at January 1, 1998 3,252 $ 32 $ 68,330 $(42,765) $ 25,597
Exercise of stock options 11 -- 48 -- 48
Repurchase of common stock (123) (1) (835) -- (836)
Value of options issued for services -- -- 49 -- 49
Net loss -- -- -- (12,653) (12,653)
------ ---- -------- -------- --------
Balance at December 31, 1998 3,140 31 67,592 (55,418) 12,205
Employee stock purchase plan 42 -- 69 -- 69
Repurchase of common stock (62) -- (196) -- (196)
Value of options issued for services -- -- 53 -- 53
Net loss -- -- -- (2,115) (2,115)
------ ---- -------- -------- --------
Balance at December 31, 1999 3,120 31 67,518 (57,533) 10,016
Exercise of stock options 10 -- 54 -- 54
Employee stock purchase plan 86 1 73 -- 74
Common stock and common stock warrants
issued in settlement of securities litigation 100 1 1,077 -- 1,078
Net loss -- -- -- (4,613) (4,613)
------ ---- -------- -------- --------
Balance at December 31, 2000 3,316 $ 33 $ 68,722 $(62,146) $ 6,609
====== ==== ======== ======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
22
CELERIS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
For the Years Ended December 31,
------------------------------------
2000 1999 1998
-------- -------- --------
OPERATING ACTIVITIES:
Net loss $(4,613) $(2,115) $(12,653)
Adjustments to reconcile net loss to net cash used in
continuing operating activities:
Depreciation 661 457 196
Provision for bad debts 206 198 120
Loss from discontinued operations -- -- 4,707
Loss (gain) on disposal of discontinued operations 985 (1,915) 5,832
Value of options issued for consulting services -- 31 13
Changes in operating assets and liabilities:
Accounts receivable (300) (455) (533)
Other current assets 850 (639) (213)
Accounts payable and accrued expenses (270) 90 (117)
Deferred revenue and payables 159 48 93
Accrued compensation (164) 173 168
------- ------- --------
Net cash used in continuing operating activities (2,486) (4,127) (2,387)
INVESTING ACTIVITIES:
Purchase of short-term investments -- -- (9,353)
Sales and maturities of short-term investments 1,023 6,061 24,316
Purchases of furniture, fixtures and equipment (252) (880) (1,020)
Decrease (increase) in restricted funds 35 (391) (154)
------- ------- --------
Net cash provided by investing activities 806 4,790 13,789
FINANCING ACTIVITIES:
Principal payments on capital lease obligation (113) -- --
Net proceeds from common stock transactions 74 69 --
Repurchase of common stock -- (196) (837)
Net proceeds from exercise of common stock options 54 -- 48
------- ------- --------
Net cash provided by (used in) financing activities 15 (127) (789)
Cash used in discontinued operations (1,004) (1,124) (8,578)
------- ------- --------
Increase (decrease) in cash and cash equivalents (2,669) (588) 2,035
Cash and cash equivalents at beginning of period 7,397 7,985 5,950
------- ------- --------
Cash and cash equivalents at end of period $ 4,728 $ 7,397 $ 7,985
======= ======= ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for interest $ 27 $ -- $ 4
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
Assets acquired under capital lease obligation $ 383 $ -- $ --
Issuance of common stock for settlement of securities litigation $ 200 $ -- $ --
Issuance of common stock warrants for settlement of securities litigation $ 878 $ -- $ --
The accompanying notes are an integral part of these
consolidated financial statements.
F-5
23
CELERIS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. DESCRIPTION OF BUSINESS
Celeris Corporation and Subsidiaries ("Celeris" or the "Company") is a provider
of specialty clinical research and information technology services that expedite
and streamline the clinical trial and regulatory submission process for
pharmaceutical, medical device and biotechnology manufacturers. These services
accelerate specific functions within clinical trials and new product submissions
which often become bottlenecks for manufacturers seeking regulatory clearance to
market new products. Delays in obtaining regulatory clearance for new products
can result in significant lost revenues and increased expenses for
manufacturers. As a consequence, manufacturers have increasingly outsourced
clinical research functions to organizations, such as the Company, that can
offer expertise and services which speed the product development process.
The Company has experienced operating losses for each of the past five years.
Net losses for the year ended December 31, 2000 were $4.61 million, and the
Company had an accumulated deficit of $62.15 million at December 31, 2000. The
Company's ability to increase revenue and achieve profitability and positive
cash flow will depend on a number of factors including (i) the Company's ability
to control costs and keep increases in expenditures below growth in revenue, if
any; (ii) the Company's success in obtaining market acceptance of the Company's
service offerings in an intensely competitive market for clinical research
services; (iii) the Company's ability to attract and integrate new key employees
and to develop new operational and financial systems, procedures and controls
related to the new service offerings; and (iv) the possibility of an adverse
outcome related to the investigation of the Company by the Securities and
Exchange Commission ("SEC"). There can be no assurances that the Company will
generate revenue, or adequately control costs, to achieve profitability or cash
flow.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and
its wholly owned subsidiaries. All intercompany balances and transactions have
been eliminated.
Revenue Recognition
Clinical research services revenues on fee for service contracts are recognized
when the related service has been rendered. Clinical research services revenues
for services rendered in connection with contractual arrangements other than
fee-for-service contracts are recognized using the percentage-of-completion
method of accounting, in accordance with the Accounting Standards Executive
Committee of the American Institute of Certified Public Accountants ("AcSEC")
Statement of Position 81-1, "Accounting for Performance of Construction-Type and
Certain Production-Type Contracts." Contracts generally range in duration from a
few months to in excess of one year. Revenue is recognized as costs are incurred
on the basis of the relationship between costs incurred and total estimated
costs.
Provisions for estimated losses on uncompleted contracts are made in the period
in which such losses are determined. Changes in project performance, project
conditions and estimated profitability, including those arising from final
contract settlements, may result in revisions to costs and income and are
recognized in the period in which the revisions are determined.
Because contractual arrangements other than fee-for-service contracts dictate
billing schedules that do not necessarily coincide with revenue recognition, the
Company recognizes, as assets, revenues recognized in excess of amounts billed
and, as liabilities, billings in excess of revenues recognized. The related
assets are included on the accompanying consolidated balance sheets in accounts
receivable and amount to $432,000 and $87,000 at December 31, 2000 and 1999,
respectively. The related liabilities are included on the accompanying
consolidated
F-6
24
balance sheets in deferred revenue and payables and amount to $477,000 and
$80,000 at December 31, 2000 and 1999, respectively.
Effective October 1, 2000, the Company adopted SEC Staff Accounting Bulletin No.
101, "Revenue Recognition in Financial Statements", as amended ("SAB 101"), and
the related Emerging Issue Task Force's Issue No. 99-19, "Reporting Revenue
Gross as a Principal Versus Net as an Agent" ("EITF 99-19"). Accordingly, the
Company has recognized, as revenue and expense, amounts billed to clients
relating to project pass-through expenses incurred in the performance of the
Company's clinical research services in the accompanying consolidated financial
statements. Revenues and expenses related to these pass-through expenses totaled
$940,000, $871,000 and $647,000 in 2000, 1999 and 1998, respectively. The
Company has retroactively applied the effects of the adoption of SAB 101 and
EITF 99-19; accordingly, the prior period amounts have been restated to reflect
the adoption of the pronouncements.
Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with maturities of
three months or less to be cash equivalents. Cash equivalents are carried at
cost, which approximates market value. As of December 31, 2000, the Company had
approximately $510,000 subject to withdrawal restrictions as a condition of
certain lease agreements for office space and equipment. The amount of cash
restricted under the lease agreements decreases periodically over the term of
the leases, which extend to December 2002.
Short-Term Investments
Investments with maturities of more than 90 days at the date of purchase are
classified as short-term investments. Management determines the appropriate
classification of debt securities at the time of purchase and reevaluates such
designation as of each balance sheet date. The Company has classified its
short-term investments, consisting of U.S. agency bonds, as available for sale.
At December 31, 2000, the fair market value of the short-term investments
approximated cost.
Accounts Receivable and Allowance for Doubtful Accounts
The Company's clients consist of pharmaceutical, medical device and
biotechnology manufacturers. Accounts receivable represent receivables from
clients in the ordinary course of business. The Company determines an allowance
for doubtful accounts based upon an analysis of the collectability of specific
accounts and the aging of the accounts receivable. The Company is subject to
losses from uncollectible accounts in excess of its reserves.
Other Current Assets
On January 31, 2000, the Company received $600,000 in proceeds from the sale of
its discontinued healthcare provider software business ("software business" --
See Note 3), which were due December 31, 1999. As a result, the Company recorded
a receivable for these proceeds at December 31, 1999, which has been included in
other current assets in the accompanying consolidated balance sheets. The
corresponding gain was recorded as a gain on disposal of discontinued operations
on the accompanying consolidated statements of operations for the year ending
December 31, 1999. The remaining balance in other current assets at December 31,
1999 and the balance at December 31, 2000 consists primarily of prepaid
expenses.
Furniture, Fixtures and Equipment
Furniture, fixtures and equipment are stated at cost. The Company provides for
depreciation using the straight-line method at rates designed to amortize the
cost of furniture, fixtures and equipment over their estimated useful lives of
three to five years.
The Company evaluates the carrying value of long-lived furniture, fixtures and
equipment in accordance with Statement of Financial Accounting Standards
("SFAS") No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of." The Company's evaluation considers
nonfinancial data such as changes in the operating environment and business
strategy, competitive information, market trends and
F-7
25
operating performance. Based on this evaluation, the Company has not
identified any impaired long-lived assets at December 31, 2000 or 1999.
Income Taxes
The Company accounts for income taxes in accordance with SFAS No. 109
"Accounting for Income Taxes". Deferred income taxes are calculated for the
temporary differences between the financial reporting and tax bases of assets
and liabilities.
Use of Estimates
The preparation of consolidated financial statements in conformity with
accounting principles generally accepted in the United States requires
management to make estimates and assumptions that affect the amounts reported in
the consolidated financial statements and accompanying notes. Actual results
could differ from those estimates.
Fair Value of Financial Instruments
The carrying amounts related to cash and cash equivalents, restricted funds,
short-term investments, accounts receivable, other current assets, accounts
payable and accrued expenses, deferred revenue and payables, accrued
compensation, current and long-term portions of the capital lease obligation,
and the liabilities of discontinued operations approximate fair value at
December 31, 2000 and 1999, due to the relatively short maturities of such
instruments.
Recently Issued Accounting Pronouncements
The Company adopted the AcSEC's Statement of Position 98-1, "Accounting for the
Costs of Computer Software Developed or Obtained for Internal Use" ("SOP 98-1")
on January 1, 1999. SOP 98-1 provides guidance on accounting for the costs of
computer software developed or obtained for internal use. Adoption of SOP 98-1
did not have a material impact on the Company's results of operations, financial
condition or cash flows.
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities", effective, as
amended, for fiscal years beginning after June 15, 2000. SFAS No. 133
establishes accounting and reporting standards for derivative instruments and
hedging activities. SFAS No. 133 requires all derivatives to be recognized in
the statement of financial position and to be measured at fair value. The
Company will adopt the provisions of SFAS No. 133 effective January 1, 2001 and
anticipates the effects of SFAS No. 133 will not be material to the Company's
financial statements.
Legal Costs
The Company's policy is to accrue all probable and estimatable legal fees as
they are identified.
Reclassifications
Certain amounts previously reported in the 1999 and 1998 financial statements
have been reclassified to conform to the 2000 presentation. These
reclassifications had no effect on previously reported net loss or shareholders'
equity.
3. DISCONTINUED OPERATIONS
On June 10, 1998, the Company announced its intention to transition out of the
software business and direct its resources on its clinical research services
segment. As a result of the decision to dispose of the software business, the
Company recorded a charge of $5.83 million in 1998. This charge represented
management's estimate of the costs to exit the software business and the net
book value of the assets sold and liabilities transferred to the buyer net of
cash received at closing and related transaction costs. The Company sold the
software business effective December 24, 1998 for a price of $1.5 million, which
became fixed in 1999. To date, the Company has received the total proceeds from
the sale, all of which have been recorded as
F-8
26
gain on the disposal of discontinued operations. Payments totaling $900,000 were
received prior to December 31, 1999. As discussed in Note 2, the remaining
amount of $600,000 was collected on January 31, 2000, and was recorded as an
other current asset at December 31, 1999. Also, during 1999, the Company lowered
its estimates of liabilities retained from the software business and, in doing
so, recorded an additional gain on the disposal of discontinued operations of
$615,000.
On October 4, 2000, the Company announced the preliminary settlement of its
outstanding securities litigation. Based on the stock price on that date, the
value of the settlement was $1.83 million, all of which was recorded as a loss
on disposal of discontinued operations in the fourth quarter of 2000 (see Note
6). On January 18, 2001, the Company announced the final approval of the
settlement by the United States District Court. Also in the fourth quarter of
2000, the Company lowered its estimates of liabilities retained from the
software business and, in doing so, partially offset the loss on disposal of
discontinued operations discussed above by $843,000. The Company estimates its
retained liabilities from the discontinued operations to be $99,000 as of
December 31, 2000, including certain liabilities related to the disposal of the
software business.
The financial position and results of operations of the software business are
reported as discontinued operations and all prior period amounts have been
restated to reflect the discontinued operations. Revenues related to the
discontinued business prior to the sale on December 24, 1998 were $3,126,000,
for the year ended December 31, 1998.
4. INCOME (LOSS) PER COMMON SHARE
Basic income (loss) per common share is computed by dividing income (loss) for
the period by the weighted average number of shares of common stock outstanding
during the period. The computation of diluted income (loss) per common share
requires that the number of weighted average shares outstanding be increased for
the assumed exercise of dilutive options using the treasury stock method.
Weighted average shares (in thousands) used in computing income (loss) per share
are as follows:
YEAR ENDED DECEMBER 31
-------------------------------
2000 1999 1998
------ ------ ------
Weighted average common shares outstanding 3,174 3,115 3,191
Dilutive effect of stock options outstanding,
using modified treasury stock method -- -- --
------ ------ ------
Shares used in computing diluted income (loss) per share 3,174 3,115 3,191
====== ====== ======
The shares used in computing diluted income (loss) per share for the years ended
December 31, 2000, 1999 and 1998 do not include common stock equivalents of
1,537,000, 1,190,000 and 834,000, respectively, as their effect would be
antidilutive.
5. COMMON STOCK
In August 1997, the Company announced a stock repurchase program to buyback up
to 666,667 shares. At December 31, 2000, the Company had repurchased 439,867
shares in conjunction with this program at prices ranging from $2.44 to $10.13,
for a total of $3.05 million.
On July 26, 1999, the Board of Directors declared a one-for-three reverse stock
split applicable to shareholders of record on July 29, 1999. The stated par
value of the Company's common stock was not changed from $0.01. As a result, a
total of $62,000 was reclassified from common stock to additional paid-in
capital. Income (loss) per share, common stock outstanding and stock option data
referred to in the accompanying consolidated financial statements and notes
hereto have been adjusted retroactively to give effect to the reverse stock
split.
F-9
27
6. COMMITMENTS AND CONTINGENCIES
Litigation
On October 4, 2000, the Company announced the preliminary approval by the United
States District Court of Minnesota of a settlement in the securities cases
against the Company of In Re Summit Medical Systems, Inc. Securities Litigation
and Teachers' Retirement System of Louisiana v. Summit Medical Systems, Inc. et
al. The settlement terms included $750,000 in cash, 100,000 shares of common
stock valued at $200,000, and warrants to purchase 500,000 shares of common
stock at $4.00 over the next five years valued at $878,000. The total value of
the settlement was $1.83 million. The settlement was valued based on the market
value of the Company's common stock on October 4, 2000, of $2.00 per share, with
the common stock warrants valued using the Black-Scholes option-pricing model.
On January 17, 2001, the United States District Court of Minnesota filed its
order for final judgement, which finalized the settlement.
The Division of Enforcement of the SEC began an investigation of the Company on
March 27, 1997, relating to the Company's restatement of certain financial
statements. The Company is cooperating fully with the SEC and its investigation.
There can be no assurance that any order, decree or other action issued or taken
by the SEC arising out of its investigation will not result in sanctions against
the Company or certain individuals that could have a material adverse effect on
the Company or its business.
Leases
The Company leases its office space and certain office equipment under various
operating leases, which expire at various dates through April 2004. The Company
is required to pay a pro rata share of taxes and utilities for each of the
office locations.
During 2000, the Company leased computer equipment, which when evaluated using
the criteria for classifying leases in SFAS No. 13 "Accounting for Leases" was
deemed to be a capital lease. At December 31, 2000 the Company's computer and
telephone equipment included $346,000 attributable to the capital lease. The
capital lease expires at the end of 2002. Future minimum payments under the
Company's operating and capital leases at December 31, 2000 are as follows (in
thousands):
OPERATING CAPITAL
FISCAL YEAR LEASES LEASE TOTAL
- ------------------------------------------------------------------------------- ------------- ----------- ----------
2001 $ 602 $ 141 $ 743
2002 525 129 654
2003 310 -- 310
2004 5 -- 5
2005 -- -- --
Thereafter -- -- --
------- ------- -------
$ 1,442 $ 270 $ 1,712
======= ======= =======
The Company intends to renew a lease for certain office space that terminates on
April 30, 2001. Future minimum lease payments for the renewal will be
approximately $110,000, $168,000, $173,000, $178,000, $183,000 and $62,000 for
the fiscal years ended 2001, 2002, 2003, 2004, 2005 and 2006, respectively. Rent
expense related to continuing operations for the years ended December 31, 2000,
1999 and 1998 was $891,000, $918,000 and $565,000, respectively.
7. INCOME TAXES
As of December 31, 2000, the Company had net operating loss ("NOL")
carryforwards of approximately $56,761,000 available to offset its future income
tax liability. The NOL carryforwards begin to expire in the year 2009.
F-10
28
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred tax assets and liabilities as of December 31 are as
follows (in thousands):
2000 1999
----------- ---------
Deferred tax assets:
Net operating loss carryforwards $ 21,569 $ 19,402
Other reserves and accrued expenses 132 697
Valuation allowance (21,701) (20,099)
---------- ---------
Net deferred tax asset $ -- $ --
========== =========
A valuation allowance for the entire deferred tax asset has been provided
because of the Company's history of operating losses. As a result of sales of
common stock during the past three years, ownership changes under Section 382 of
the Internal Revenue Code may have occurred. Section 382 may limit the amount of
NOLs that can be utilized in the future.
8. STOCK OPTIONS
The Company has established the Stock Option Plan of 1993 and the 2000 Stock
Option Plan, for which 1,005,555 and 300,000 shares, respectively, of common
stock are reserved. All officers, employees and consultants of the Company are
eligible to receive stock option grants under these plans. The options held by
employees of the Company are incentive stock options within the meaning of
Section 422 of the Internal Revenue Code. The options held by officers and
consultants of the Company can be either incentive stock options or nonstatutory
options. The option price is equal to the fair market value of the common stock
on the date of grant. Options vest and become exercisable at various intervals
and generally expire ten years from the date of grant.
The Company has also adopted the 1995 Director Plan, for which 22,222 shares of
common stock have been reserved. The plan provides for an automatic grant of
nonqualified stock options to purchase 2,222 shares of common stock to
nonemployee directors on the date such individuals are first appointed directors
of the Company, and an automatic grant of an option to purchase an additional
667 shares of common stock on the day after each subsequent annual meeting of
the Company's shareholders. The option price is equal to the fair market value
of the common stock on the date of grant. Options vest and become exercisable as
to 100% of such shares on the first anniversary of the date of such grant and
expire ten years from the date of grant.
In addition to the options granted under the Stock Option Plan of 1993, the 2000
Stock Option Plan and the 1995 Director Plan, the Company has issued options
outside of the plans, primarily as consideration for acquisitions. These options
are valued in accordance with SFAS No. 123, "Accounting for Stock-Based
Compensation" ("SFAS No. 123"). As of December 31, 2000 and 1999, the Company
has 250,555 such options outstanding.
F-11
29
Option activity is summarized as follows:
DIRECTOR WEIGHTED
AND AVERAGE
SHARES NONPLAN EXERCISE
AVAILABLE FOR PLAN OPTIONS OPTIONS PRICE PER
GRANT OUTSTANDING OUTSTANDING SHARE
---------------- ------------ ------------ ----------
Balance at January 1, 1998 292,498 546,841 267,890 $8.70
Granted (333,056) 333,056 7,779 6.09
Exercised -- (10,667) -- 4.50
Canceled 300,092 (300,092) (10,666) 8.55
-------- -------- -------- -----
Balance at December 31, 1998 259,534 569,138 265,003 7.83
Granted (542,152) 542,152 5,557 2.19
Exercised -- -- -- --
Canceled 190,475 (190,475) (1,112) 8.07
-------- -------- -------- -----
Balance at December 31, 1999 (92,143) 920,815 269,448 5.21
Shares reserved 430,000 -- -- --
Granted (53,700) 53,700 3,335 2.04
Exercised -- (9,791) -- 5.49
Canceled 200,789 (200,789) -- 4.30
-------- -------- -------- -----
Balance at December 31, 2000 484,946 763,935 272,783 $5.21
======== ======== ======== =====
During 1999, the Company's stock option grants exceeded the shares available for
grant under the Stock Option Plan of 1993. As a result, during 2000, the
shareholders of the Company approved the reservation of an additional 130,000
shares for issuance as stock options under the Stock Option Plan of 1993. Also
during 2000, the Company's shareholders approved the 2000 Stock Option Plan
which reserved 300,000 shares of common stock for grants as stock options.
The following table summarizes information about the stock options outstanding
at December 31, 2000:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
WEIGHTED AVERAGE
REMAINING WEIGHTED
RANGE OF NUMBER CONTRACTUAL WEIGHTED AVERAGE NUMBER AVERAGE
EXERCISE PRICES OUTSTANDING LIFE EXERCISE PRICE EXERCISABLE EXERCISE PRICE
- --------------------- ------------------ ------------------ ------------------ -------------- --------------
$1.00 - 2.99 404,070 8.95 $ 1.88 181,525 $ 1.87
$3.00 - 4.99 132,233 7.36 3.38 72,148 3.52
$5.00 - 7.99 239,580 5.96 7.42 205,321 7.43
$8.00 - 9.99 190,610 6.57 8.56 145,399 8.48
$10.00 - 23.64 70,225 4.93 11.13 53,972 11.38
----------- ------ -------- ---------- --------
1,036,718 7.35 $ 5.21 658,365 $ 6.03
=========== ====== ======== ========== =========
Options outstanding expire at various dates during the period from 2000 through
2006. Exercise prices for options outstanding as of December 31, 2000 ranged
from $1.00 to $23.64 per share. The number of options exercisable as of December
31, 2000, 1999 and 1998 were 658,365, 468,361, and 342,510, respectively, at
weighted average exercise prices of $6.03, $6.85 and $8.28 per share,
respectively.
The weighted average grant date fair value of plan options granted at market
prices during the years ended December 31, 2000, 1999 and 1998 was $1.95, $2.19
and $5.04 per share, respectively. The weighted average grant date fair value of
nonplan options, which includes director options, granted at market prices
during the years ended December 31, 2000, 1999 and 1998 was $3.44, $3.30 and
$8.97, respectively. No nonplan options were granted below market prices during
the years ended December 31, 2000, 1999 and 1998.
F-12
30
The Company applies Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees," and related Interpretations in accounting for its
employee and director stock option plans. Accordingly, no compensation cost has
been recognized in the accompanying consolidated statements of operations. Had
compensation cost been recognized based on the fair values of options at the
grant dates consistent with the provisions of SFAS No. 123, the Company's net
loss and net loss per common share would have been increased to the following
pro forma amounts (in thousands, expect per share amounts):
2000 1999 1998
-------- -------- ---------
Net loss:
As reported $(4,613) $(2,115) $(12,653)
Pro forma (5,244) (2,662) (13,404)
Basic loss per common share:
As reported (1.45) (0.68) (3.96)
Pro forma (1.65) (0.85) (4.20)
Diluted loss per common share:
As reported (1.45) (0.68) (3.96)
Pro forma (1.65) (0.85) (4.20)
Because the SFAS No. 123 method of accounting has not been applied to options
granted prior to January 1, 1995, the resulting pro forma compensation cost may
not be representative of that to be expected in future years. The fair value for
these options was estimated at the date of grant using the Black-Scholes option
pricing model with the following weighted-average assumptions for 2000, 1999 and
1998, respectively: risk-free interest rate of 6.2%, 5.5% and 5.1%; no dividend
yield; volatility factors of 152.2%, 137.0% and 108.0%; and a weighted average
expected life of the options of 6.0, 6.0 and 6.0 years.
9. EMPLOYEE BENEFIT PLANS
Employee Stock Purchase Plans
Effective January 1, 1999, the Company adopted the Celeris Corporation Employee
Stock Purchase Plan ("Stock Purchase Plan") under which 166,667 shares are
reserved. All employees who have met the service eligibility requirements are
eligible to participate in the Stock Purchase Plan and may direct the Company to
make payroll deductions of 1% to 15% of their compensation during a purchase
period for the purchase of shares under the Stock Purchase Plan. The Stock
Purchase Plan provides participating employees the right, subject to certain
limitations, to purchase the Company's common stock at a price equal to the
lower of 85% of the fair market value of the Company's common stock on the first
day, or the last day, of the applicable purchase period. The first purchase
period commenced January 1, 1999 and ended on June 30, 1999. Subsequent purchase
periods will run for six months, subject to acceleration in the case of a merger
or consolidation in which the Company is not the surviving corporation, or the
liquidation, dissolution or sale of substantially all of the assets of the
Company.
401(k) Plan
All employees who are at least 18 years of age are eligible to participate in
the Company's 401(k) plan. Employees may contribute from 1% to 15% of their
eligible compensation to the plan. The Company may make discretionary matching
contributions to the plan based on employee contributions. The Company made no
matching contributions in 2000, 1999 or 1998.
10. SEGMENT REPORTING AND SIGNIFICANT CUSTOMER INFORMATION
The Company adopted SFAS No. 131, "Disclosures About Segments of an Enterprise
and Related Information," in the fourth quarter of 1998. SFAS No. 131
established standards for disclosure of financial information related to
operating segments of the Company as well as disclosure requirements for
customer and geographic information. SFAS No. 131 defines an operating segment
as a component of a company for which operating results are reviewed regularly
by the chief operating decision maker to determine resource allocation and
assess performance. The Company has four segments reportable under the
guidelines of SFAS No. 131: the Company's clinical monitoring services group, a
start-up operation formed in the first quarter of 1998; data management
F-13
31
services group, a start-up operation formed in the fourth quarter of 1998;
regulatory consulting services group; and the Company's corporate operating
function.
The Company's operating segment disclosures are as follows (in thousands):
Clinical Data
Monitoring Management Regulatory
Services Services Consulting Corporate Consolidated
----------- ---------- ----------- --------- -------------
2000
Total revenues $ 3,024 $ 2,898 $ 5,286 $ -- $ 11,208
Depreciation 130 423 108 -- 661
Interest income, net -- (27) -- 364 337
Income (loss) from
continuing operations (240) (933) 138 (2,593) (3,628)
Segment assets 874 1,320 1,373 5,080 8,647
Capital expenditures 39 520 39 -- 598
1999
Total revenues $ 783 $ 2,015 $ 7,326 $ -- $ 10,124
Depreciation 103 236 118 -- 457
Interest income, net -- -- -- 537 537
Loss from continuing operations (1,280) (651) (95) (2,004) (4,030)
Segment assets 488 1,052 1,859 9,780 13,179
Capital expenditures 121 701 58 -- 880
1998
Total revenues $ 39 $ 75 $ 6,316 $ -- $ 6,430
Depreciation 41 44 111 -- 196
Interest income, net -- -- -- 1,199 1,199
Income (loss) from
continuing operations (1,429) (596) (218) 129 (2,114)
Segment assets 344 551 2,074 15,196 18,165
Capital expenditures 330 539 151 -- 1,020
Revenues from individual clients generated by the Company that represent greater
than 10% of consolidated revenues are as follows (in thousands):
2000 1999 1998
---- ---- ----
Client A $ 2,908 $ 2,221 <10%
Client B <10% $ 1,369 <10%
Client C <10% <10% $ 760
Client D <10% <10% $ 620
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11. QUARTERLY RESULTS (UNAUDITED)
Summarized results for each quarter in the years ended December 31, 2000 and
1999 are as follows (in thousands, except per share data):
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
----------- ----------- ----------- -----------
2000
Total revenues $ 3,029 $ 3,089 $ 2,628 $ 2,462
Gross profit $ 832 $ 963 $ 577 $ 660
Loss from continuing
operations $ (846) $ (993) $ (958) $ (831)
Loss from discontinued
operations $ -- $ -- $ -- $ (985)
Net loss $ (846) $ (993) $ (958) $(1,816)
Loss per share from
continuing operations $ (0.27) $ (0.32) $ (0.30) $ (0.26)
Loss per share from
discontinued operations $ -- $ -- $ -- $ (0.30)
Net loss per share $ (0.27) $ (0.32) $ (0.30) $ (0.56)
1999
Total revenues $ 2,068 $ 2,652 $ 2,525 $ 2,879
Gross profit $ 560 $ 755 $ 813 $ 813
Loss from continuing
operations $(1,199) $(1,037) $ (920) $ (874)
Income from discontinued
operations $ 200 $ 200 $ 75 $ 1,440
Net income (loss) $ (999) $ (837) $ (845) $ 566
Loss per share from
continuing operations $ (0.38) $ (0.33) $ (0.29) $ (0.28)
Income per share from
discontinued operations $ 0.06 $ 0.06 $ 0.02 $ 0.46
Net income (loss) per share $ (0.32) $ (0.27) $ (0.27) $ 0.18
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REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Celeris Corporation:
We have audited the accompanying consolidated balance sheets of Celeris
Corporation (formerly Summit Medical Systems, Inc.) (a Minnesota corporation)
and Subsidiaries as of December 31, 2000 and 1999, and the related consolidated
statements of operations, shareholders' equity and cash flows for each of the
three years in the period ended December 31, 2000. These consolidated financial
statements and schedule referred to below are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements and schedule based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Celeris
Corporation and Subsidiaries as of December 31, 2000 and 1999, and the results
of their operations and their cash flows for each of the three years in the
period ended December 31, 2000 in conformity with accounting principles
generally accepted in the United States.
Our audit was made for the purpose of forming an opinion on the basic
consolidated financial statements taken as a whole. The schedule listed in the
index of consolidated financial statements is presented for purposes of
complying with the Securities and Exchange Commission's rules and is not part of
the basic consolidated financial statements. This schedule has been subjected to
the auditing procedures applied in the audit of the basic consolidated financial
statements and, in our opinion, fairly states in all material respects the
financial data required to be set forth therein in relation to the basic
consolidated financial statements taken as a whole.
/s/ ARTHUR ANDERSEN LLP
Nashville, Tennessee
February 2, 2001
F-16
34
CELERIS CORPORATION AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
(In thousands)
December 31,
2000 1999 1998
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Allowance for doubtful accounts (a):
Balance at beginning of period $ 343 $ 172 $ 59
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Additions:
Charged to costs and expenses 206 198 120
Charged to other accounts 17 -- --
Deductions (b) 308 27 7
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Balance at end of period $ 258 $ 343 $ 172
====== ====== ======
Net liabilities of discontinued operations:
Balance at beginning of period $1,196 $4,256 $ --
Additions:
Charged to costs and expenses -- -- 5,874
Deductions 1,097 3,060 1,618
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Balance at end of period $ 99 $1,196 $4,256
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(a) Amounts related to allowance for doubtful accounts have been restated
for discontinued operations.
(b) Uncollectible accounts written off
S-1