UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2002
Or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _____________to______________
Commission File Number 0-26390
CELERIS CORPORATION
(Exact name of registrant as specified in its charter)
MINNESOTA 41-1545493
(State or other jurisdiction of
incorporation or organization) (IRS Employer ID No.)
1801 WEST END AVENUE
SUITE 750
NASHVILLE, TN 37203
(615) 341-0223
(Address including zip code, of Registrant's
principal executive offices and telephone
number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and has been subject to such
filing requirements for the past 90 days. [X] Yes [ ] No
As of May 6, 2002 there were 3,423,987 shares of the registrant's common stock
outstanding.
CELERIS CORPORATION
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets as of March 31, 2002 and December 31, 2001 ................... 1
Condensed Consolidated Statements of Operations For the Three Months Ended March 31, 2002 and 2001 . 2
Condensed Consolidated Statements of Cash Flows For the Three Months Ended March 31, 2002 and 2001 . 3
Notes to Condensed Consolidated Financial Statements ............................................... 4
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations ..... 7
Item 3. Quantitative and Qualitative Disclosures About Market Risks ............................... 10
PART II. OTHER INFORMATION
Item 1. Legal Proceedings ......................................................................... 10
Item 5. Other Information ......................................................................... 10
Item 6. Exhibits and Reports on Form 8-K .......................................................... 10
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF
1995.
This Quarterly Report on Form 10-Q contains forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933, as amended and
Section 21E of the Securities Exchange Act of 1934, as amended. These
forward-looking statements include statements regarding intent, belief or
current expectations of Celeris Corporation (the "Company") and its management.
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 discussed in the forward-looking statements.
The forward-looking statements herein are qualified in their entirety by the
cautionary statement and risk factors set forth in Item 1, under the caption
"Cautionary Statement and Risk Factors," of the Company's Annual Report on Form
10-K, dated April 1, 2002. A copy of the Form 10-K may be obtained from the
Public Reference Branch of the SEC at 450 Fifth Street NW, Washington, DC at
prescribed rates. Risks and uncertainties related to the Company's proposed
sale of substantially all of its assets as described in the Overview section of
Item 2 on this quarterly report on Form 10-Q are described in the Company's
press release dated May 15, 2002, which is filed as Exhibit 99 to this
quarterly report on Form 10-Q.
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
CELERIS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(In thousands, except per share amount)
MARCH 31, DECEMBER 31,
2002 2001
--------- ------------
ASSETS
Current assets:
Cash and cash equivalents $ 2,184 $ 2,465
Restricted funds 277 342
Accounts receivable, net of allowance of
$154 and $162, respectively 555 493
Other current assets 195 181
Current assets held for sale 1,437 1,906
--------- ---------
Total current assets 4,648 5,387
Furniture, fixtures and equipment held for sale, net 737 867
--------- ---------
Total assets $ 5,385 $ 6,254
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 1,147 $ 918
Deferred revenue and payables 205 202
Current liabilities held for sale 929 1,234
--------- ---------
Total current liabilities 2,281 2,354
Commitments and contingencies -- --
SHAREHOLDERS' EQUITY:
Common stock, $.01 par value - 13,511 shares
authorized; 3,424 shares issued and
outstanding, respectively 34 34
Additional paid-in capital 68,749 68,749
Accumulated deficit (65,679) (64,883)
--------- ---------
Total shareholders' equity 3,104 3,900
--------- ---------
Total liabilities and shareholders' equity $ 5,385 $ 6,254
========= =========
The accompanying notes are an integral part of these condensed
consolidated financial statements.
1
CELERIS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(In thousands, except per share amounts)
FOR THE THREE MONTHS ENDED
MARCH 31,
---------------------------
2002 2001
--------- ---------
Revenues:
Clinical research services $ -- $ --
Project pass-through expenses -- --
--------- ---------
Cost of sales:
Clinical research services -- --
Project pass-through expenses -- --
--------- ---------
Gross profit -- --
Selling, general and administrative expenses 715 680
--------- ---------
Loss from operations (715) (680)
Interest income, net 8 62
--------- ---------
Net loss from continuing operations (707) (618)
Discontinued operations:
Loss from discontinued operations (89) (124)
--------- ---------
(89) (124)
--------- ---------
Net loss $ (796) $ (742)
========= =========
Basic loss per common share:
Continuing operations $ (0.21) $ (0.18)
Discontinued operations $ (0.02) $ (0.04)
--------- ---------
$ (0.23) $ (0.22)
========= =========
Diluted loss per common share:
Continuing operations $ (0.21) $ (0.18)
Discontinued operations $ (0.02) $ (0.04)
--------- ---------
$ (0.23) $ (0.22)
========= =========
Weighted average shares outstanding:
Basic 3,424 3,316
Diluted 3,424 3,316
The accompanying notes are an integral part of these condensed
consolidated financial statements.
2
CELERIS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(In thousands)
FOR THE THREE MONTHS ENDED
MARCH 31,
---------------------------
2002 2001
--------- ---------
OPERATING ACTIVITIES:
Net loss $ (796) $ (742)
Adjustment to reconcile net loss to net cash
used in continuing operating activities:
Loss from discontinued operations 89 124
Changes in operating assets and liabilities:
Accounts receivable (77) 337
Other current assets (14) (5)
Accounts payable and accrued expenses 229 (40)
Deferred revenue and payables 3 4
--------- ---------
Net cash used in operating activities - continuing operations (566) (322)
Net cash provided by (used in) operating activities - discontinued
operations 268 (17)
--------- ---------
Net cash used in operating activities (298) (339)
INVESTING ACTIVITIES:
Decrease in restricted funds 65 91
--------- ---------
Net cash provided by investing activities - continuing operations 65 91
Net cash used in investing activities - discontinued operations (15) (35)
--------- ---------
Net cash provided by investing activities 50 56
FINANCING ACTIVITIES:
Net cash used in financing activities - discontinued operations (33) (30)
Decrease in cash and cash equivalents (281) (313)
Cash and cash equivalents at beginning of period 2,465 4,728
--------- ---------
Cash and cash equivalents at end of period $ 2,184 $ 4,415
========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for interest $ 3 $ 5
The accompanying notes are an integral part of these condensed
consolidated financial statements.
3
CELERIS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements of
Celeris Corporation (the "Company") have been prepared in accordance with
generally accepted accounting principles for interim financial information and
with the instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments (including normal recurring
accruals) considered necessary for a fair presentation have been included.
Certain prior period amounts have been reclassified to conform with current
presentation. Operating results for the three month period ended March 31, 2002
are not necessarily indicative of the results that may be expected for the year
ended December 31, 2002. For further information, refer to the consolidated
financial statements and footnotes thereto for the year ended December 31, 2001
in the Company's Annual Report on Form 10-K for the year ended December 31,
2001.
2. FINANCIAL CONDITION, RESULTS OF OPERATIONS, CASH FLOWS, AND RECENT
DEVELOPMENTS
The Company has experienced operating losses for each of the past five years,
expects to continue to experience operating losses and has limited resources
available to meet its operating and capital expenditure requirements in 2002.
Net losses for the quarter ended March 31, 2002 were $796,000, and the Company
had an accumulated deficit of $65.68 million at March 31, 2002. The Company has
historically funded its operating losses with its cash and cash equivalents
balances. As of March 31, 2002, the Company maintains cash and cash equivalents
of $2.46 million, including restricted funds of $277,000 related to certain
lease agreements that extend to August 2003. Additionally, the Company has
conditional access of up to $1.5 million under its revolving line of credit
(see Note 3) as of March 31, 2002. The Company believes that its cash and cash
equivalents, including restricted funds, of $2.46 million at March 31, 2002, may
not be sufficient to fund its operations throughout 2002. Further, the Company
may not be able to maintain the $3.0 million minimum net worth covenant required
by the revolving line of credit (see Note 3) based on its projected operating
losses in 2002. As such, the Company may not be able to access the revolving
line of credit during or after the second quarter of 2002. As a result of the
Company's financial condition and capital resource availability, the Company's
independent public accountants issued an opinion in connection with the audited
consolidated financial statements as of and for the year ended December 31, 2001
which included their belief as to the material uncertainty related to the
Company's ability to continue as a going concern during 2002.
The Company has negotiated the sale of its regulatory consulting business
effective April 30, 2002 for an equitable amount. The sale transfers all client
contracts and certain assets and liabilities of the regulatory consulting
business to the buyer. Related to the sale, the Company has recorded a charge of
$100,000 in the quarter ended March 31, 2002 for the termination of certain
operating leases of the regulatory consulting business. Any gain or loss on the
sale of the regulatory consulting business will be recorded during the quarter
ended June 30, 2002, and the Company does not anticipate such gain or loss will
have a material impact on the Company's consolidated statement of operations for
the quarter ended June 30, 2002.
On May 15, 2002, the Company announced that it had signed a definitive
agreement to sell substantially all the assets of its clinical monitoring and
data management operations to STATPROBE Inc., a provider of clinical trial
services based in Ann Arbor, Michigan. STATPROBE intends to assume all of the
Company's client contracts for clinical monitoring and data management services
along with certain assets and liabilities related to the assumed contracts, its
clinical monitoring and data management furniture, fixtures and equipment and
its operations staff. The purchase price for the assets is approximately $2
million, subject to certain purchase price adjustments, plus the assumption of
certain of the Company's liabilities and obligations. The Company's shareholders
must approve the sale at the Company's annual meeting, currently scheduled for
June 26, 2002, with the transaction to close shortly thereafter. Any gain or
loss for accounting purposes on the proposed sale to STATPROBE will be recorded
during the quarter in which the sale becomes effective, and the Company cannot
determine if such gain or loss for accounting purposes will have a material
impact on the Company's consolidated statement of operations for that quarter.
4
After the sales have been completed the Company intends to begin liquidating
its remaining assets and liabilities. The proceeds from the sales plus cash on
hand will be used to satisfy all existing liabilities and obligations of the
Company and all costs and expenses related to these transactions, with the
remainder to be distributed in cash to the shareholders. The Company currently
anticipates distributing between $0.29 and $0.35 per share in cash to its
shareholders in a liquidating distribution in the fourth quarter of 2002. The
Company's Board of Directors received a fairness opinion relative to the
consideration anticipated to be received by shareholders in the proposed
transaction. The actual distribution could be higher or lower than the range per
share contemplated depending on a number of factors, some of which are outside
of the Company's control or ability to quantify at this time. If the closing is
delayed or the Company's shareholders do not vote in favor of the transaction,
the Company cannot determine how its operations or financial position may be
affected. As a result, the Company cannot guarantee that its available capital
resources will be sufficient to fund its operations through the end of 2002.
3. REVOLVING LINE OF CREDIT
On June 1, 2001, the Company entered into a Loan and Security Agreement and
Revolving Credit Note with a lending institution, providing for a revolving line
of credit in the maximum principal amount of $1.5 million. The revolving line of
credit is secured by all of the Company's receivables and has a term of two
years. Borrowings under the revolving line of credit may not exceed 80% of
qualified accounts as defined in the Loan and Security Agreement. Interest on
the revolving line of credit accrues at prime plus 2.0% (6.75% at March 31,
2002). During the quarter ended March 31, 2002, the Company borrowed and repaid
$100,000 under the revolving line of credit, and as of March 31, 2002, the
Company had no loan balance outstanding.
The revolving line of credit requires the Company to maintain certain
covenants. As of March 31, 2002, the Company is in compliance with all
covenants related to the revolving line of credit. As discussed in Note 2,
based on projected net losses the Company anticipates that it will violate the
$3.0 million minimum net worth covenant in the second quarter of 2002 unless it
is able to negotiate a modification to this covenant. There can be no assurance
that such modification will be made to the $3.0 million minimum net worth
covenant or that the terms of such modification will be acceptable to the
Company.
Additionally, if the Company's proposed transaction with STATPROBE is completed
as discussed in Note 2, the Company will pursue its option to terminate the
revolving line of credit in order to remove liens and encumbrances on certain
of the Company's assets that are to be transferred to STATPROBE. The
cancellation of the revolving line of credit will require the Company to pay a
termination fee of $45,000 to the lender.
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.
Diluted loss per share for the three months ended March 31, 2002 and 2001 does
not include common stock equivalents of 1,763,494 and 1,852,498, respectively,
as their effect would be antidilutive.
5. DISCONTINUED OPERATIONS
As a result of the Company's plans to sell substantially all of its assets, as
described in Note 2, the Company has presented the operating results and cash
flows of its clinical monitoring, data management and regulatory consulting
businesses as discontinued operations in the accompanying condensed
consolidated financial statements for the three month periods ended March 31,
2002 and 2001. In total, discontinued operations generated $2.32 million and
$2.38 million in gross revenues and $89,000 and $124,000 in operating losses
for the periods ended March 31, 2002 and 2001, respectively. The Company has
classified as assets and liabilities held for sale on the accompanying
condensed consolidated balance sheets those assets and liabilities that the
purchasers have agreed to purchase.
5
The assets purchased consist mainly of accounts receivable related to customer
contracts that the purchasers have agreed to assume and fixed assets and prepaid
expenses related to the fixed assets. The liabilities assumed by the purchasers
include deferred revenues related to customer contracts that purchasers have
agreed to assume and the Company's capital lease obligation. Current assets and
liabilities held for sale are as follows (in thousands):
MARCH 31, 2002 DECEMBER 31, 2001
-------------- -----------------
Current assets held for sale:
Accounts receivable $ 1,130 $ 1,848
Prepaid expenses 307 58
--------- ---------
$ 1,437 $ 1,906
========= =========
Current liabilities held for sale:
Deferred revenue $ 838 $ 1,110
Capital lease obligation 91 123
--------- ---------
$ 929 $ 1,234
========= =========
6. CONTINGENCIES
The Division of Enforcement of the Securities and Exchange Commission (the
"SEC") began an investigation of the Company on March 27, 1997, relating to the
Company's restatement of certain financial statements associated with the Summit
Medical Systems software business. 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.
7. SEGMENT REPORTING INFORMATION
The Company has adopted Statement of Financial Accounting Standards ("SFAS")
No. 131, "Disclosures About Segments of an Enterprise and Related Information."
SFAS No. 131 established standards for disclosure of financial information
related to operating segments of the Company. 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; data management services group; regulatory consulting services
group; and the Company's corporate operating function. As discussed in Notes 2
and 5, the Company has announced its plans to sell its clinical monitoring and
data management businesses, as well as its regulatory consulting business and
has classified the results of these segments' operations as discontinued
operations in the accompanying consolidated financial statements.
The Company's operating segment disclosures are as follows (in thousands):
CLINICAL DATA
MONITORING MANAGEMENT REGULATORY
SERVICES SERVICES CONSULTING CORPORATE CONSOLIDATED
---------- ---------- ---------- --------- ------------
THREE MONTHS ENDED MARCH 31, 2002
Gross revenues from discontinued operations $ 898 $ 1,079 $ 344 $ -- $ 2,321
Loss from continuing operations -- -- -- (707) (707)
Income (loss) from discontinued operations 62 (108) (43) -- (89)
Segment assets 817 1,200 881 2,487 5,385
THREE MONTHS ENDED MARCH 31, 2001
Gross revenues from discontinued operations $ 786 $ 678 $ 913 $ -- $ 2,377
Loss from continuing operations -- -- -- (618) (618)
Income (loss) from discontinued operations (29) (229) 134 -- (124)
Segment assets 777 1,280 1,001 4,667 7,725
6
8. NEWLY ADOPTED ACCOUNTING PRONOUNCEMENTS
Effective January 1, 2002 the Company adopted SFAS No. 142, "Goodwill and Other
Intangible Assets". SFAS No. 142 supercedes APB Opinion No. 17, "Intangible
Assets" and addresses how intangible assets and goodwill should be accounted
for upon and after acquisition. Specifically, goodwill and intangible assets
with indefinite useful lives will not be amortized, but will be subject to at
least annual impairment tests based on their fair value. Adoption of SFAS No.
142 had no effect on the Company's financial statements, as the Company
currently has no goodwill or intangible assets.
Effective January 1, 2002, the Company adopted SFAS No. 144, "Accounting for
the Impairment or Disposal of Long-Lived Assets". SFAS No. 144 supercedes SFAS
No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of" and the accounting and reporting provisions for the
disposal of a segment of a business of Accounting Principles Board ("APB")
Opinion No. 30, "Reporting the Results of Operations - Reporting the Effects of
Disposal of a Segment of a Business, and Extraordinary, Unusual and
Infrequently Occurring Events and Transactions". SFAS No. 144 retains the
fundamental provisions of SFAS No. 121 for (a) recognition and measurement of
the impairment of long-lived assets to be held and used and (b) measurement of
long-lived assets to be disposed of by sale. Further, SFAS No. 144 retains the
requirements of APB Opinion No. 30 to report discontinued operations separately
from continuing operations and extends the reporting of discontinued operations
to include a component of an entity (rather than a segment of a business). As
discussed in Note 5 and in accordance with SFAS No. 144, the Company has
presented the operating results and cash flows of its clinical monitoring, data
management and regulatory consulting businesses as discontinued operations in
the accompanying condensed consolidated financial statements for the three
month period ended March 31, 2002 and 2001. Additionally, the accompanying
condensed consolidated balance sheets reflect, as assets held for sale, the net
assets of these businesses as of March 31, 2002 and December 31, 2001, which
are expected to be sold in the second quarter of 2002.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
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.
As of March 31, 2002, the Company had a backlog of projects for clinical
studies management, clinical monitoring staffing and data management with an
aggregate contract value of approximately $8.75 million. Potential
cancellation, delay or change in the scope of projects may affect the value of
the Company's backlog.
The Company has negotiated the sale of its regulatory consulting business
effective April 30, 2002 for an equitable amount. The sale transfers all client
contracts and certain assets and liabilities of the regulatory consulting
business to the buyer. Related to the sale, the Company has recorded a charge of
$100,000 in the quarter ended March 31, 2002 for the termination of certain
operating leases of the regulatory consulting business. Any gain or loss on the
sale of the regulatory consulting business will be recorded during the quarter
ended June 30, 2002, and the Company does not anticipate such gain or loss will
have a material impact on the Company's consolidated statement of operations for
the quarter ended June 30, 2002.
On May 15, 2002, the Company announced that it had signed a definitive
agreement to sell substantially all the assets of its clinical monitoring and
data management operations to STATPROBE Inc., a provider of clinical trial
services based in Ann Arbor, Michigan. STATPROBE intends to assume all of the
Company's client contracts for clinical monitoring and data management services
along with certain assets and liabilities related to the assumed contracts, its
clinical monitoring and data management furniture, fixtures and equipment and
its operations staff. The purchase price for the assets is approximately $2
million, subject to certain purchase price adjustments, plus the assumption of
certain of the Company's liabilities and obligations. The Company's
shareholders must approve the sale at the Company's annual meeting, currently
scheduled for June 26, 2002, with the transaction to close shortly thereafter.
Any gain or loss for accounting purposes on the proposed sale to STATPROBE will
be recorded during the quarter in which the sale becomes effective,
7
and the Company cannot determine if such gain or loss for accounting purposes
will have a material impact on the Company's consolidated statement of
operations for that quarter.
After the sales have been completed the Company intends to begin liquidating its
remaining assets and liabilities. The proceeds from the sales plus cash on hand
will be used to satisfy all existing liabilities and obligations of the Company
and all costs and expenses related to these transactions, with the remainder to
be distributed in cash to the shareholders. The Company currently anticipates
distributing between $0.29 and $0.35 per share in cash to its shareholders in a
liquidating distribution in the fourth quarter of 2002. The Company's Board of
Directors received a fairness opinion relative to the consideration anticipated
to be received by shareholders in the proposed transaction. The actual
distribution could be higher or lower than the range per share contemplated
depending on a number of factors, some of which are outside of the Company's
control or ability to quantify at this time. If the closing is delayed or the
Company's shareholders do not vote in favor of the transaction, the Company
cannot determine how its operations or financial position may be affected. As a
result, the Company cannot guarantee that its available capital resources will
be sufficient to fund its operations through the end of 2002.
CRITICAL ACCOUNTING POLICIES
In December 2001, the SEC requested all registrants list their three to five
most "critical accounting policies" in MD&A. The SEC indicated that a "critical
accounting policy" is one which is both important to the portrayal of the
Company's financial condition and results and requires management's most
difficult, subjective or complex judgments, often as a result of the need to
make estimates about the effect of matters that are inherently uncertain. In
our Form 10-K annual report for the fiscal year ended December 31, 2001, we
identified in MD&A the following critical accounting policies as fitting this
definition.
Revenue Recognition
Allowance for Doubtful Accounts and Contingencies
Please refer to MD&A in the 2001 Form 10-K for a more complete discussion of
these policies. There are no additional critical accounting policies identified
in the first quarter of 2002.
RESULTS OF OPERATIONS
Three Months Ended March 31, 2002 Compared to Three Months Ended March 31, 2001
The Company incurred a net loss of $796,000, or $0.23 per diluted share, for the
three months ended March 31, 2002, as compared to a net loss of $742,000, or
$0.22 per diluted share, for the year earlier period. The 2002 results include a
loss from continuing operations of $707,000, or $0.21 per diluted share and a
loss from discontinued operations of $89,000, or $0.02 per diluted share. The
2001 results include a loss from continuing operations of $618,000, or $0.18 per
diluted share and a loss from discontinued operations of $124,000, or $0.04 per
diluted share.
Continuing Operations. General and administrative expenses were $715,000 for
the period compared to $680,000 for the 2001 period. Interest income net of
interest expense for the 2002 period was $8,000 compared to $62,000 for the
2001 period. The decrease is due to the Company's cash and cash equivalents
balance, including restricted funds, which decreased to $2.46 million at March
31, 2002 from $4.83 million at March 31, 2001, due to the funding of losses
incurred related to the Company's continuing and discontinued operations, as
well as capital expenditures.
Discontinued Operations. As discussed above and as a result of the Company's
decision to sell substantially all of its operations, the Company has accounted
for its clinical research service segments as discontinued operations. Clinical
research services revenues for the three months ended March 31, 2002 were $2.16
million compared to $2.20 million for the year earlier period, an decrease of
1.8%. Cost of clinical research services were $1.44 million for the 2002 period,
or 66.7% of clinical research services revenues, compared to $1.46 million for
the 2001 period, or 66.2% of clinical research services revenues.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash and cash equivalents, including restricted funds, totaled
$2.46 million as of March 31, 2002, a decrease of approximately $350,000 from
December 31, 2001. As of March 31, 2002, the Company had net
8
working capital of $2.37 million, compared to $3.03 million at December 31,
2001. This decrease resulted primarily from net losses of $796,000 incurred
during the three months ended March 31, 2002. Management anticipates the
Company will continue to experience operating losses throughout 2002, and as a
result, it believes working capital will continue to decline.
As of March 31, 2002, the Company had $555,000 in accounts receivable, net of
bad debt allowance, related to continuing operations compared to $493,000 as of
December 31, 2001. The Company believes its current allowance of $154,000 for
bad debts is adequate. The Company's days sales outstanding in accounts
receivable was 27 days at March 31, 2002, compared to 44 days at December 31,
2001. Days sales outstanding in accounts receivable may fluctuate in future
periods as the Company's mix of business related to its clinical research
service offerings continues to evolve.
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 July 1999,
the Company repurchased 439,867 shares of common stock for approximately $3.05
million. The Company has not repurchased shares of common stock since July 1999.
As of March 31, 2002, there were 3,423,987 shares of the Company's common stock
issued and outstanding.
As of March 31, 2002, the Company had approximately $277,000 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 over the term of the leases, which extend to August 2003.
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, of $2.46 million on hand at March 31, 2002 may not be
sufficient to fund its operations, capital requirements, and expansion goals
throughout 2002. As a result of the Company's financial condition and capital
resource availability, the Company's independent public accountants issued an
opinion in connection with the audited consolidated financial statements as of
and for the year ended December 31, 2001 which included their belief as to the
material uncertainty related to the Company's ability to continue as a going
concern during 2002.
On June 1, 2001, the Company entered into a Loan and Security Agreement and
Revolving Credit Note with a lending institution, providing for a revolving line
of credit in the maximum principal amount of $1.5 million. The revolving line of
credit is secured by all of the Company's receivables and has a term of two
years. Borrowings under the revolving line of credit may not exceed 80% of
qualified accounts as defined in the Loan and Security Agreement. Interest on
the revolving line of credit accrues at prime plus 2.0% (6.75% at March 31,
2002). During the quarter ended March 31, 2002, the Company borrowed and repaid
$100,000 under the revolving line of credit, and as of March 31, 2002, the
Company had no loan balance outstanding.
The revolving line of credit requires the Company to maintain certain
covenants. As of March 31, 2002, the Company is in compliance with all
covenants related to the revolving line of credit. As discussed in Note 2,
based on projected net losses the Company anticipates that it will violate the
$3.0 million minimum net worth covenant in the second quarter of 2002 unless it
is able to negotiate a modification to this covenant. There can be no assurance
that such modification will be made to the $3.0 million minimum net worth
covenant or that the terms of such modification will be acceptable to the
Company.
Additionally, if the Company's proposed transaction with STATPROBE is
completed, the Company will pursue its option to terminate the revolving line
of credit in order to remove liens and encumbrances on certain of the Company's
assets that are to be transferred to STATPROBE. The cancellation of the
revolving line of credit will require the Company to pay a termination fee of
$45,000 to the lender.
The Company has negotiated the sale of its regulatory consulting business
effective April 30, 2002 for an equitable amount. The sale transfers all client
contracts and certain assets and liabilities of the regulatory consulting
business to the buyer. Related to the sale, the Company has recorded a charge of
$100,000 in the quarter ended March 31, 2002 for the termination of certain
operating leases of the regulatory consulting business. Any gain or loss on the
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sale of the regulatory consulting business will be recorded during the quarter
ended June 30, 2002, and the Company does not anticipate such gain or loss will
have a material impact on the Company's consolidated statement of operations
for the quarter ended June 30, 2002.
On May 15, 2002, the Company announced that it had signed a definitive agreement
to sell substantially all the assets of its clinical monitoring and data
management operations to STATPROBE Inc., a provider of clinical trial services
based in Ann Arbor, Michigan. STATPROBE intends to assume all of the Company's
client contracts for clinical monitoring and data management services along with
certain assets and liabilities related to the assumed contracts, its clinical
monitoring and data management furniture, fixtures and equipment and its
operations staff. The purchase price for the assets is approximately $2 million,
subject to certain purchase price adjustments, plus the assumption of certain of
the Company's liabilities and obligations. The Company's shareholders must
approve the sale at the Company's annual meeting, currently scheduled for June
26, 2002, with the transaction to close shortly thereafter. Any gain or loss for
accounting purposes on the proposed sale to STATPROBE will be recorded during
the quarter in which the sale becomes effective, and the Company cannot
determine if such gain or loss for accounting purposes will have a material
impact on the Company's consolidated statement of operations for that quarter.
After the sales have been completed the Company intends to begin liquidating its
remaining assets and liabilities. The proceeds from the sales plus cash on hand
will be used to satisfy all existing liabilities and obligations of the Company
and all costs and expenses related to these transactions, with the remainder to
be distributed in cash to the shareholders. The Company currently anticipates
distributing between $0.29 and $0.35 per share in cash to its shareholders in a
liquidating distribution in the fourth quarter of 2002. The Company's Board of
Directors received a fairness opinion relative to the consideration anticipated
to be received by shareholders in the proposed transaction. The actual
distribution could be higher or lower than the range per share contemplated
depending on a number of factors, some of which are outside of the Company's
control or ability to quantify at this time. If the closing is delayed or the
Company's shareholders do not vote in favor of the transaction, the Company
cannot determine how its operations or financial position may be affected. As a
result, the Company cannot guarantee that its available capital resources will
be sufficient to fund its operations through the end of 2002.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company has no derivative financial instruments or derivative commodity
instruments in its cash and cash equivalents and restricted funds. The Company
invests its cash and cash equivalents and restricted funds in investment grade,
highly liquid investments 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.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Division of Enforcement of the Securities and Exchange Commission (the
"SEC") began an investigation of the Company on March 27, 1997, relating to the
Company's restatement of certain financial statements associated with the Summit
Medical Systems software business. 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 5. OTHER INFORMATION
The Company has attached as Exhibit 99 its press release dated May 15, 2002.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
3.1 Restated Articles of Incorporation of the Company,
as amended (Incorporated by reference to the
Company's Registration Statement on Form S-1).
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3.2 Amendment to Amended Articles of Incorporation of
the Company for name change (Incorporated by
reference to the Company's Annual Report on Form
10-K for the year ended December 31, 1998).
3.3 Bylaws of the Company (Incorporated by reference to
the Company's Registration Statement on Form S-1).
4.1 Form of Certificate for Common Stock (Incorporated
by reference to the Company's Annual Report on Form
10-K for the year ended December 31, 1998).
4.2 Rights Agreement dated March 6, 2001, between the
Company and Wells Fargo 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) (Incorporated by reference to Exhibit 4.1 to the
Company's Registration Statement on Form 8-A dated
March 6, 2001).
4.3 Stock Purchase Warrant (Incorporated by reference to
the Company's Quarterly Report on Form 10-Q for the
quarter ended September 30, 2000).
99 Press Release dated May 15, 2002.
(b) Reports on Form 8-K
None.
SIGNATURES
Pursuant to the requirements 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.
Celeris Corporation
Date: May 15, 2002 By:/s/ Barbara A. Cannon
-------------------------------------------
Barbara A. Cannon
President and Chief Executive Officer
Date: May 15, 2002 By:/s/ Paul R. Johnson
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Paul R. Johnson
Vice President and Chief Financial Officer
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