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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 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 September 30, 2002
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 0-32601
AMERICASDOCTOR, INC.
(Exact name of registrant as specified in its charter)
Delaware 33-0597050
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
1325 Tri-State Parkway, Suite 300
Gurnee, Illinois 60031
(Address of principal executive offices, including zip code)
(847) 855-7500
(Registrant's 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 (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [_]
At November 1, 2002, there were 3,430,043 shares of Class A common stock
outstanding and 685,324 shares of Class B common stock outstanding.
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
AMERICASDOCTOR, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited, in thousands, except share data)
September 30, December 31,
2002 2001
--------------------------------
ASSETS
- ----------------------------------------------------------------------------------
CURRENT ASSETS:
Cash and cash equivalents $ 3,327 $ 5,601
Accounts receivable, net 15,099 13,566
Prepaid expenses 4,361 4,679
--------------------------------
Total current assets 22,787 23,846
--------------------------------
FIXED ASSETS:
Cost 6,671 6,441
Less-Accumulated depreciation and amortization (5,232) (4,444)
--------------------------------
Total fixed assets, net 1,439 1,997
--------------------------------
OTHER ASSETS:
Other 24 24
--------------------------------
Total other assets 24 24
--------------------------------
$ 24,250 $ 25,867
================================
LIABILITIES AND STOCKHOLDERS' DEFICIT
- ----------------------------------------------------------------------------------
CURRENT LIABILITIES:
Accounts payable $ 2,187 $ 2,778
Capital leases, current portion 8 19
Accrued investigator fees 9,873 9,589
Accrued wages and consulting 3,349 3,426
Deferred revenue 5,594 6,234
--------------------------------
Total current liabilities 21,011 22,046
--------------------------------
LONG-TERM LIABILITIES
Capital leases, noncurrent portion - 3
Other long-term liability 50 50
--------------------------------
Total long-term liabilities 50 53
--------------------------------
CONTINGENCIES AND COMMITMENTS
REDEEMABLE CONVERTIBLE PREFERRED STOCK:
Series A redeemable convertible preferred stock, par value $0.001 per share;
9,741,400 shares authorized; 4,992,621 shares issued and outstanding 73,063 68,928
--------------------------------
STOCKHOLDERS' DEFICIT:
Class A common stock, par value $0.001 per share; 25,000,000 shares
authorized; 3,430,043 shares issued and outstanding 3 3
Class B convertible common stock, par value $0.001 per share; 685,324 shares
authorized; issued and outstanding 1 1
Series B convertible preferred stock, par value $0.001 per share; 228,436 shares
authorized; issued and outstanding - -
Series E convertible preferred stock, par value $0.001 per share; 30,164 shares
authorized; issued and outstanding - -
Warrants to purchase common stock 55 55
Additional paid-in-capital 33,161 33,083
Accumulated deficit (103,094) (98,302)
--------------------------------
Total stockholders' deficit (69,874) (65,160)
--------------------------------
$ 24,250 $ 25,867
================================
See accompanying notes to condensed consolidated financial statements.
2
AMERICASDOCTOR, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited, in thousands, except share data)
Three Months Ended Nine Months Ended
September 30, September 30,
--------------------------- ------------------------
2002 2001 2002 2001
--------------------------- ------------------------
REVENUE $ 11,875 $ 11,031 $ 38,467 $ 36,052
--------------------------- ------------------------
EXPENSES:
Direct study costs 7,449 7,116 24,377 23,396
Selling, general and administrative 4,408 4,979 14,033 16,314
Depreciation and amoritzation 248 409 792 1,160
--------------------------- ------------------------
Total expenses 12,105 12,504 39,202 40,870
--------------------------- ------------------------
OPERATING LOSS (230) (1,473) (735) (4,818)
OTHER INCOME, net
Loss before provision for income taxes 14 56 79 278
--------------------------- ------------------------
(216) (1,417) (656) (4,540)
PROVISION FOR INCOME TAXES - - - -
--------------------------- ------------------------
NET LOSS (216) (1,417) (656) (4,540)
ACCRETION OF PREFERRED STOCK 1,379 1,296 4,136 3,886
--------------------------- ------------------------
Net loss applicable to common stockholders $ (1,595) $ (2,713) $ (4,792) $ (8,426)
=========================== ========================
BASIC AND DILUTED NET LOSS PER COMMON SHARE:
Loss per common share-
Class A $ (0.38) $ (0.66) $ (1.16) $ (2.05)
Class B (0.38) (0.66) (1.16) (2.05)
=========================== ========================
Weighted average number of common shares
outstanding-
Class A 3,430,043 3,430,042 3,430,043 3,430,042
Class B 685,324 685,324 685,324 685,324
=========================== ========================
See accompanying notes to condensed consolidated financial statements.
3
AMERICASDOCTOR, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, in thousands)
Nine Months Ended
September 30,
-------------------------------------
2002 2001
---------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (656) $ (4,540)
Adjustments to reconcile net loss to net
cash and cash equivalents used in operating
activities
Depreciation and amortization 792 1,160
Compensatory stock options 78 119
Other (5) (7)
Changes in assets and liabilities (2,239) (2,955)
------------------------------------
Net cash and cash equivalents used in
operating activities (2,030) (6,223)
------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of fixed assets (230) (168)
------------------------------------
Net cash and cash equivalents used in
investing activities (230) (168)
------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on capital leases (14) (106)
------------------------------------
Net cash and cash equivalents used in
financing activities (14) (106)
------------------------------------
Net decrease in cash and cash
equivalents (2,274) (6,497)
CASH AND CASH EQUIVALENTS, beginning of period 5,601 9,389
------------------------------------
CASH AND CASH EQUIVALENTS, end of period $ 3,327 $ 2,892
====================================
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for
Interest on capital leases $ 12 $ 6
Taxes 1 1
====================================
See accompanying notes to condensed consolidated financial statements.
4
AMERICASDOCTOR, INC. AND SUBSIDIARIES
UNAUDITED NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
1. Basis of Presentation
The accompanying unaudited interim condensed consolidated financial
statements of AmericasDoctor, Inc. (the "Company") have been prepared pursuant
to the rules of the Securities and Exchange Commission for quarterly reports on
Form 10-Q and do not include all of the information and note disclosures
required by accounting principles generally accepted in the United States of
America. The information furnished herein includes all adjustments, consisting
of normal recurring adjustments, which are, in the opinion of management,
necessary for a fair presentation of results for the interim periods presented.
The results of operations for the quarter and nine months ended September 30,
2002 are not necessarily indicative of the results to be expected for the year
ending December 31, 2002. These financial statements should be read in
conjunction with the audited financial statements and notes to the audited
financial statements as of and for the year ended December 31, 2001 included in
the Company's Annual Report on Form 10-K.
2. Liquidity and Future Operations
Net cash used in operating activities was approximately $2.0 million and
$6.2 million for the nine months ended September 30, 2002 and 2001,
respectively. Cash used in operating activities decreased substantially in the
nine months ended September 30, 2002 due to the cost cutting measures (primarily
contract terminations and staff reductions due to structure changes) started in
prior years and continuing into 2002. Additionally, the Company substantially
reduced its on-line business activities, and by the end of 2001, the Company had
exited this business.
Working capital was approximately $1.8 million as of September 30, 2002 and
December 31, 2001.
The Company has generated negative cash flows since its inception. As a
result, it has financed its operations to date through the sale of its equity
securities. To date, the Company has raised approximately $53.6 million in net
proceeds from the sale of its common and preferred stock.
Cash and cash equivalents and short-term marketable securities were
approximately $3.3 million and $5.6 million as of September 30, 2002 and
December 31, 2001, respectively.
During the first quarter of 2002, the Company entered into a secured
revolving credit agreement that permits a maximum borrowing capacity of $4.0
million. Amounts available under this credit agreement depend on the amount of
the Company's eligible receivables. At September 30, 2002, available borrowings
under the credit facility were $3.6 million. Borrowings under this agreement are
secured by substantially all of the Company's assets. Among other restrictions,
the credit agreement includes certain restrictive covenants, including covenants
related to indebtedness, related party transactions and investment limitations
and requires the Company to comply with a number of affirmative covenants,
including covenants
5
related to its net worth and the operation of its business. The credit agreement
has a three-year term and borrowings bear interest at prime plus 2.0%, subject
to a minimum interest rate of 7.5%. As of September 30, 2002, the Company was in
compliance with the debt covenants and had not borrowed any funds under this
credit facility.
Management believes that the funds available under the credit facility and
the Company's cash on hand will be sufficient to meet its liquidity needs and
fund operations through 2003. However, any projections of future cash inflows
and outflows are subject to substantial uncertainty. In addition, management
may, from time to time, consider acquisitions of or investments in complementary
businesses, products, services and technologies, which may impact its liquidity
requirements or cause the Company to seek additional equity or debt financing
alternatives. Beyond 2003, the Company may need to raise additional capital to
meet its long-term liquidity needs. If the Company determines that it needs
additional capital, it may seek to issue equity or obtain debt financing from
third party sources. The sale of additional equity or convertible debt
securities could result in dilution to its stockholders. Any additional debt
financing, if available, could involve further restrictive covenants, which
could adversely affect its operations. There can be no assurance that any of
these financing alternatives will be available in amounts or on terms acceptable
to the Company, if at all. If the Company is unable to raise any needed
additional capital, it may be required to significantly alter its operating
plan, which could have a material adverse effect on its business, financial
condition and results of operations.
3. Net Losses Per Share
Net losses per share for the quarter and nine months ended September 30,
2002 and 2001 is calculated based on the weighted average number of shares of
Class A and Class B common stock outstanding. Stock warrants, preferred stock
and stock options were not included in the net diluted loss per common share
calculation since their impact is antidilutive.
The following is a reconciliation of the Company's basic and diluted net
loss per share for the quarter and nine months ended September 30, 2002 and 2001
(unaudited, in thousands, except share data):
Quarter Ended September 30,
------------------------------------------------------------------------------
2002 2001
------------------------------------- -------------------------------------
Number of Per Share Number of Per Share
Net Loss Shares Amount Net Loss Shares Amount
------------------------------------- -------------------------------------
Net loss available to:
Class A stockholders $ (1,329) 3,430,043 $ (0.38) $ (2,261) 3,430,042 $ (0.66)
Class B stockholders (266) 685,324 (0.38) (452) 685,324 (0.66)
6
Nine Months Ended September 30,
------------------------------------------------------------------------------
2002 2001
------------------------------------- -------------------------------------
Number of Per Share Number of Per Share
Net Loss Shares Amount Net Loss Shares Amount
------------------------------------- -------------------------------------
Net loss available to:
Class A stockholders $ (3,994) 3,430,043 $ (1.16) $ (7,023) 3,430,042 $ (2.05)
Class B stockholders (798) 685,324 (1.16) (1,403) 685,324 (2.05)
4. New Accounting Pronouncements
SFAS No. 142, "Goodwill and Other Intangible Assets," eliminates the
current requirement to amortize goodwill and indefinite-lived intangible assets,
addresses the amortization of intangible assets with a defined life and
addresses the impairment testing and recognition for goodwill and intangible
assets. This standard had no impact on the Company's financial statements upon
adoption on January 1, 2002 as all previously existing goodwill had been
amortized and written off in prior periods.
The following pro forma financial information reflects net loss and
basic and diluted net loss per share as if goodwill was not subject to
amortization for the quarter and nine months ended September 30, 2001:
Quarter Ended Nine Months Ended
September 30, 2001 September 30, 2001
------------------ ------------------
(unaudited, in thousands, except share data)
Reported net loss ................................ $ (2,713) $ (8,426)
Add back: Goodwill amortization ................. 85 255
------------------ ------------------
Adjusted net loss ................................ $ (2,628) $ (8,171)
================== ==================
Basic and diluted net loss per share:
Reported net loss per share ...................... $ (0.66) $ (2.05)
Goodwill amortization per share .................. 0.02 0.06
------------------ ------------------
Adjusted net loss per share ...................... $ (0.64) $ (1.99)
------------------ ------------------
SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived
Assets," requires that one accounting model be used for long-lived assets to be
disposed of by sale and broadens the presentation of discontinued operations to
include more disposal transactions. This standard had no impact on the Company's
financial statements upon adoption on January 1, 2002.
7
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operation
Overview
We are a pharmaceutical services company that combines and integrates
physician researchers in conducting clinical research trials to assist the
pharmaceutical industry in developing, positioning and promoting its products.
As of November 1, 2002, we offered clinical research services through
approximately 150 independently owned investigative sites encompassing
approximately 300 principal investigators operating in 34 states in the United
States.
We were originally incorporated in the State of California on November 23,
1993 and reincorporated on September 19, 1996 in the State of Delaware. On
January 6, 2000, our wholly owned subsidiary merged with AmericasDoctor.com,
Inc., or Old AmDoc, an interactive Internet healthcare information site for
consumers based in Maryland. Following the merger with Old Amdoc, or the Merger,
Old AmDoc became our wholly owned subsidiary and changed its name to
"AmericasDoctor Internet Operations, Inc." and we changed our corporate name to
"AmericasDoctor.com, Inc." In November 2001, we changed our corporate name to
"AmericasDoctor, Inc."
We have built our network of independently owned investigative sites to
facilitate and coordinate independent clinical research trials on drugs for
pharmaceutical and biotechnology companies and contract research organizations,
or CROs, located throughout the world; these entities are commonly referred to
as "sponsors." Each of the sites in our network is a party to an exclusive
clinical research services agreement with us. Pursuant to the agreement, we
perform various services for the site through our central office or management
services company, including patient recruitment, source documentation,
regulatory services, quality assurance and other consultation services. Although
we provide various services to facilitate clinical research, the actual clinical
trials are performed by the investigative sites. Through our network of
investigative sites, we provide sponsors of clinical research with study
management services, including access to experienced investigators and study
coordinators and large numbers of patients and centralized management of
clinical research studies. These capabilities are designed to facilitate study
start-up and quality and accuracy of study data. Our network of investigative
sites provides sponsors with the ability to complete clinical research trials
quickly and efficiently. In 2001, we provided site selection and management
services to approximately 160 sponsors. Our business is currently focused on the
U.S. markets.
In November 1993, Dr. Norman Zinner led a group of urologists in forming
the company to provide sponsors of clinical research a range of services
designed to enhance their ability to conduct efficient clinical research
studies. We initially provided clinical research services in the field of
urology and later expanded into other therapeutic areas. Dr. Zinner served as
Chairman of our board of directors from our inception through 1999. Under Dr.
Zinner's leadership, we recruited a significant number of clinical research
sites to become affiliated with us. As of November 1, 2002, our network included
investigative sites that performed clinical research trials in a wide range of
therapeutic areas, including:
8
cardiology endocrinology gastroenterology neuroscience
pulmonology rheumatology urology women's health
Our services allow investigative sites in our network to build and sustain
successful clinical research businesses without the cost of maintaining their
own infrastructure and personnel locally. By facilitating study start-up
activities and providing management support and patient recruitment services, we
assist the investigative sites in growing their research practices.
In 1998, we acquired Pacific Coast Clinical Coordinators, Inc., a
Washington based company that provided investigative sites with study
coordinators who worked directly with physicians in the conduct of clinical
research trials and provided on-site administrative and management services. To
date, the net cash flows from the Pacific Coast Clinical Coordinators
acquisition have been negative. In 2001, it was determined that future net cash
flow would likely be negative over the next three years. Accordingly, all
unamortized goodwill ($7,208,000) associated with the acquisition was written
off as of December 31, 2001.
On January 6, 2000, we merged with Old AmDoc, an interactive Internet
healthcare information site for consumers. We acquired Old AmDoc to focus on
three web-related initiatives: patient recruitment, hospital marketing and new
drug marketing. After the Merger, we eliminated the positions of substantially
all of the employees acquired from Old AmDoc and undertook other cost cutting
measures to reduce our use of cash and minimize the costs associated with the
web site. In December 2000, based on market trends and management's assessment
of market conditions, the web patient recruitment and new drug marketing
programs that we intended to conduct through the businesses acquired in the
Merger were abandoned. In addition, it was determined that net cash flows from
the remaining Old AmDoc hospital sponsorship business would likely be negative
over the next three years. Accordingly, all unamortized goodwill ($23.0 million)
associated with the acquisition of Old AmDoc was written off as of December 31,
2000.
During 2000, we incurred significant costs related to the Merger and
related operating costs and costs associated with several long-term contractual
obligations assumed in the Merger. We incurred additional costs to support and
centralize corporate operations in Gurnee, Illinois, mainly in the areas of
information technology, marketing, accounting, human resources and corporate
development. In addition, during 2000, revenue from our research services
decreased due to the time and resources required to focus on the on-line
operations.
Subsequent to the Merger, we have undertaken cost cutting measures as
discussed above and have hired additional sales people to focus on increasing
revenue from research services while focusing on reducing and controlling costs
throughout our organization. In connection with the acquisition, several
long-term contractual obligations were assumed. During 2000, efforts were
undertaken to reduce costs by terminating or minimizing these arrangements. In
addition, corporate management functions were consolidated into our central
office in Gurnee, Illinois and operations in Seattle, Washington and Owings
Mills, Maryland were closed.
In the later part of 2001, we recognized that the hospital sponsors were
reducing their marketing budgets and internalizing or abandoning consumer
web-related activity and that this
9
decline in future spending would adversely affect our on-line business revenue
growth potential. Accordingly, we ceased all of our on-line services business in
the fourth quarter of 2001 to focus on growing our core clinical research and
patient recruitment services. During 2002, we expect to incur expenditures to
expand our range of services in an effort to enhance our patient recruitment
activity.
Our Class B common stock was established in 1996 as a mechanism by which
our research sites that have signed a clinical research service agreement and
own Class A common stock could have an opportunity to participate in our equity.
All of our Class B common stock is currently held by Affiliated Research
Centers, LLC, a Delaware limited liability company, or the LLC, for the benefit
of its members. The amounts reflected in the results of operations represent
non-cash charges or credits relating to changes in value of the LLC and the
Class B common stock which it owns. The value of the LLC and of the Class B
common stock is determined periodically by an independent appraisal with interim
valuations being made by our board of directors. Each LLC member's percentage
interest in the limited liability company determines that member's share of the
Class B common stock to which they would be entitled if a distribution of those
shares occurs. Each member's percentage is determined based on a formula which
includes the amount of gross revenues earned by us through that member as a
percentage of the total qualifying research revenues of all members of the LLC.
We have recognized operating losses in each fiscal year since our
formation. Our research services rely heavily on the revenues generated by our
investigative sites. In addition, we experienced significant capital and
operational expenditures associated with the acquisition of our on-line services
in January 2000. As a result of expenditures designed to expand our business, we
expect to incur operating losses and negative cash flows for fiscal 2002.
Because we have a history of losses and anticipate losses in the future, we may
never achieve significant profitability, or if we are able to achieve
profitability, we may not be able to sustain or increase profitability in future
periods.
Revenue is generated primarily from contracts with research services
sponsors and the timing of our receipt of revenue is affected by the type of
studies conducted. Revenue on each clinical research study contract is
recognized as the qualified patient visits occur or the service is provided. Our
service agreements with the investigative sites provide that a percentage of the
contract amount will be paid to the sites as investigator fees. The percentage
of fees paid to investigative sites varies by contract depending upon the level
of services provided to these sites. As study revenue is recognized, the
investigator fees to the sites are recognized as costs. Advances on contracts by
sponsors are classified as deferred revenue until services are performed. The
related payments to investigative sites are classified as prepaid investigator
fees until services are performed.
10
Quarterly Results
Third Quarter 2002 Compared to Third Quarter 2001
Revenue increased $0.8 million, or 7.7%, to $11.9 million for the quarter
ended September 30, 2002 from $11.1 million for the quarter ended September 30,
2001. For the third quarter 2002, research services revenue increased $0.9
million and hospital sponsorship revenue decreased $0.07 million. The following
table sets forth revenue from research services and hospital sponsorships for
the third quarter 2002 and 2001 (in thousands):
2002 2001
----------- -----------
Research services $ 11,875 $ 10,959
Hospital sponsorships -- 72
----------- -----------
$ 11,875 $ 11,031
=========== ===========
The research services revenue increase of $0.9 million resulted from a $0.6
million increase in study revenue and a $0.3 million increase in patient
recruitment and project management revenue. The hospital sponsorship revenue
decrease of $0.07 million resulted from the phase-out of this program during
2001 as a result of decreasing market demand and the abandonment of the on-line
business.
Direct study costs (investigator fees and other study costs such as
laboratory fees and patient stipends) were $7.4 million for the third quarter
2002 compared to $7.1 million for the third quarter 2001, an increase of $0.3
million, or 4.7%. The increase in study costs resulted from the increase in
study revenue discussed above.
Selling, general and administrative costs were $4.4 million for the quarter
ended September 30, 2002 compared to $5.0 million for the comparable period in
2001, a decrease of $0.6 million, or 11.5%. As a percentage of revenue, these
costs decreased 8.0% from 45.1% in the third quarter of 2001 to 37.1% in the
third quarter of 2002. The majority of the decrease was attributable to the
elimination of costs associated with on-line services and cost cutting measures
(primarily contract terminations and staff reductions due to structure changes).
The valuation of the Class B common stock, performed by our independent
outside valuation firm, remained unchanged for the quarter ended September 30,
2002, primarily due to continued operating losses. Because there is no public
market for our equity securities, any valuation is highly judgmental and a
change in valuation assumptions could have a material impact on our financial
statements.
Depreciation and amortization expenses decreased to $0.2 million in the
third quarter of 2002 compared to $0.4 million in 2001. This decrease resulted
from the elimination of the Pacific Coast Clinical Coordinator, Inc. goodwill
amortization that was written off in 2001 and certain fixed assets becoming
fully depreciated.
Operating loss decreased to $0.2 million for the quarter ended September
30, 2002 compared to $1.5 million for the comparable period in 2001. This $1.3
million improvement
11
primarily resulted from increased research services revenue, reduced operating
costs and the elimination of the Pacific Coast Clinical Coordinator, Inc.
goodwill in 2001.
Nine Months Ended September 30, 2002 Compared to the Nine Months Ended
September 30, 2001
Revenue increased $2.4 million, or 6.7%, to $38.5 million for the nine
months ended September 30, 2002 from $36.1 million for the nine months ended
September 30, 2001. For the nine months ended September 30, 2002, revenue from
research services increased $2.9 million; however, this increase was offset by
$0.5 million decrease in hospital sponsorship revenue. The following table sets
forth revenue from research services and hospital sponsorships for the nine
months ended September 30, 2002 and 2001 (in thousands):
2002 2001
----------- -----------
Research services $ 38,467 $ 35,534
Hospital sponsorships -- 518
----------- -----------
$ 38,467 $ 36,052
=========== ===========
The research services revenue increase of $2.9 million resulted from a $1.4
million increase in study revenue and a $1.5 million increase in patient
recruitment and project management revenue. The hospital sponsorship revenue
decrease of $0.5 million resulted from the phase-out of this program during 2001
as a result of decreasing market demand and the abandonment of the on-line
business.
Direct study costs were $24.4 million for the nine months ended September
30, 2002 compared to $23.4 million for the comparable period in 2001, an
increase of $1.0 million, or 4.2%. The increase in study costs resulted from the
increase in study revenue discussed above.
Selling, general and administrative costs were $14.0 million for the nine
months ended September 30, 2002 compared to $16.3 million for the nine months
ended September 30, 2001, a decrease of $2.3 million, or 14.0%. As a percentage
of revenue, these costs decreased 8.7% from 45.2% in 2001 to 36.5% in 2002. The
majority of the decrease, $1.7 million, was attributable to the elimination of
costs associated with on-line services and cost cutting measures (primarily
contract terminations and staff reductions due to structure changes). Selling,
general and administrative costs were also favorably impacted by a reduction in
the areas of corporate administration, information technology and marketing.
The valuation of the Class B common stock, performed by our independent
outside valuation firm, remained unchanged for the nine months ended September
30, 2002, primarily due to continued operating losses. Because there is no
public market for our equity securities, any valuation is highly judgmental and
a change in valuation assumptions could have a material impact on our financial
statements.
Depreciation and amortization expenses decreased to $0.8 million for the
nine months ended September 30, 2002 compared to $1.2 million for the nine
months ended September 30, 2001. This decrease resulted from the elimination
Pacific Coast Clinical Coordinator, Inc.
12
goodwill amortization that was written off in 2001 and certain fixed assets
becoming fully depreciated.
Operating loss decreased to $0.7 million for the nine months ended
September 30, 2002 compared to $4.8 million for the comparable period in 2001.
This $4.1 million improvement primarily resulted from increased research
services revenue, reduced operating costs and the elimination of the Pacific
Coast Clinical Coordinator, Inc. goodwill in 2001.
Other income was $0.1 million for the nine months ended September 30, 2002
compared to $0.3 million for the nine months ended September 30, 2001. This $0.2
million reduction was the result of lower levels of interest-bearing cash
balances due to continued operating losses.
Liquidity and Capital Resources
Net cash used in operating activities was $2.0 million and $6.2 million for
the nine months ended September 30, 2002 and 2001, respectively. Cash used in
operating activities decreased substantially in the nine months ended September
30, 2002 due to the cost cutting measures (primarily contract terminations and
staff reductions due to structure changes) started in prior years and continuing
into 2002. Additionally, we substantially reduced our on-line business
activities, and by the end of 2001, we had exited this business.
Working capital was $1.8 million as of September 30, 2002 and December 31,
2001.
We have generated negative cash flows since our inception. As a result, we
have financed our operations to date through the sale of our equity securities.
To date, we have raised approximately $53.6 million in net proceeds from the
sale of our common and preferred stock.
Cash and cash equivalents and short-term marketable securities were
approximately $3.3 million and $5.6 million as of September 30, 2002 and
December 31, 2001, respectively.
During the first quarter of 2002, we entered into a secured revolving
credit agreement that permits a maximum borrowing capacity of $4.0 million.
Amounts available under this credit agreement depend on the amount of our
eligible receivables. At September 30, 2002, available borrowings under the
credit facility were $3.6 million. Borrowings under this agreement are secured
by substantially all of our assets. Among other restrictions, the credit
agreement includes certain restrictive covenants, including covenants related to
indebtedness, related party transactions and investment limitations and requires
us to comply with a number of affirmative covenants, including covenants related
to our net worth and the operation of our business. The credit agreement has a
three-year term and borrowings bear interest at prime plus 2.0%, subject to a
minimum interest rate of 7.5%. As of September 30, 2002, we were in compliance
with the debt covenants and had not borrowed any funds under this credit
facility.
Management believes that the funds available under the credit facility and
our cash on hand will be sufficient to meet our liquidity needs and fund
operations through 2003. However, any projections of future cash inflows and
outflows are subject to substantial uncertainty. In addition, we may, from time
to time, consider acquisitions of or investments in complementary businesses,
products, services and technologies, which may impact our liquidity requirements
or cause us to seek additional equity or debt financing alternatives. Beyond
2003, we may need to
13
raise additional capital to meet our long-term liquidity needs. If we determine
that we need additional capital, we may seek to issue equity or obtain debt
financing from third party sources. The sale of additional equity or convertible
debt securities could result in dilution to our stockholders. Any additional
debt financing, if available, could involve further restrictive covenants, which
could adversely affect our operations. There can be no assurance that any of
these financing alternatives will be available in amounts or on terms acceptable
to us, if at all. If we are unable to raise any needed additional capital, we
may be required to significantly alter our operating plan, which could have a
material adverse effect on our business, financial condition and results of
operations.
Impact of New Accounting Pronouncements
SFAS No. 142, "Goodwill and Other Intangible Assets," eliminates the
current requirement to amortize goodwill and indefinite-lived intangible assets,
addresses the amortization of intangible assets with a defined life and
addresses the impairment testing and recognition for goodwill and intangible
assets. This standard had no impact on our financial statements upon adoption on
January 1, 2002 as all previously exiting goodwill had been amortized and
written off in prior periods.
The following pro forma financial information reflects net loss and basic
and diluted net loss per share as if goodwill was not subject to amortization
for the quarter and nine months ended September 30, 2001:
Quarter Ended Nine Months Ended
September 30, 2001 September 30, 2001
------------------ ------------------
(unaudited, in thousands, except share data)
Reported net loss ................................ $ (2,713) $ (8,426)
Add back: Goodwill amortization ................. 85 255
------------------ ------------------
Adjusted net loss ................................ $ (2,628) $ (8,171)
================== ==================
Basic and diluted net loss per share:
Reported net loss per share ...................... $ (0.66) $ (2.05)
Goodwill amortization per share .................. 0.02 0.06
------------------ ------------------
Adjusted net loss per share ...................... $ (0.64) $ (1.99)
------------------ ------------------
SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived
Assets," requires that one accounting model be used for long-lived assets to be
disposed of by sale and broadens the presentation of discontinued operations to
include more disposal transactions. This standard had no impact on our financial
statements upon adoption on January 1, 2002.
Statement Regarding Forward-Looking Statements
Statements in this report that are not strictly historical, including
statements as to plans, objectives and future performance, are forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934, or the Exchange Act. These
forward-looking statements can be identified by the use of terminology such as
"believe," "hope," "may," "anticipate," "should," "intend," "plan," "will,"
"expect," "estimate," "project," "positioned," "strategy" and similar
expressions. In addition, the
14
statements relating to our liquidity needs and expectations are forward-looking.
We have based these forward-looking statements on our current expectations and
projections about future events. You should be aware that these forward-looking
statements are subject to risks and uncertainties that are beyond our control.
These risks and uncertainties include unanticipated trends in the clinical
research industry, changes in healthcare regulations and economic, competitive,
legal, governmental, and technological factors affecting operations, markets,
products, services and prices. These forward-looking statements are not
guarantees of future performances, and actual results could differ from those
contemplated by these forward-looking statements. In the light of these risks
and uncertainties, there can be no assurance that the results and events
contemplated by the forward-looking information contained in this report will in
fact transpire. You are cautioned not to place undue reliance on these
forward-looking statements, which speak only as of their dates.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
We maintain a portfolio of highly liquid investments in various bank
accounts, which are classified as cash equivalents. In addition, we are party to
a secured revolving credit agreement that permits a maximum borrowing capacity
of $4.0 million. Amounts available under this credit agreement depend on the
amount of our eligible receivables. At September 30, 2002, available borrowings
under the credit facility were $3.6 million. As of November 1, 2002, we had not
borrowed any funds under this credit facility. Accordingly, we do not expect
changes in interest rates to have a material effect on our income or cash flows.
Item 4. Controls and Procedures
We maintain a set of disclosure controls and procedures designed to ensure
that information required to be disclosed by AmericasDoctor in reports that it
files or submits under the Exchange Act is recorded, processed, summarized and
reported within the time periods specified in Securities and Exchange Commission
rules and forms. Within the 90-day period prior to the filing of this report, an
evaluation was carried out under the supervision and with the participation of
our management, including our Chief Executive Officer ("CEO") and Chief
Financial Officer ("CFO"), of the effectiveness of our disclosure controls and
procedures. Based on that evaluation, our CEO and CFO have concluded that
AmericasDoctor's disclosure controls and procedures are effective.
Subsequent to the date of their evaluation, there have been no significant
changes in AmericasDoctor's internal controls or in other factors that could
significantly affect these controls.
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(A) Exhibits
99.1 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
15
(B) Reports on Form 8-K during the quarter ended September 30, 2002
A Form 8-K was filed on August 8, 2002, under Item 4, reporting changes
in AmericasDoctor's certifying accountants.
A Form 8-K was filed on August 13, 2002, under Item 9, relating to a
certification by the Chief Executive Officer and Chief Financial Officer of
AmericasDoctor pursuant to section 906 of the Sarbanes-Oxley Act of 2002.
16
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.
AMERICASDOCTOR, INC.
By: /s/ David R. Adamoli
-------------------------------------
Date: November 13, 2002 David R. Adamoli
Chief Financial Officer and Secretary
Duly Authorized Officer and Principal
Financial Officer
CERTIFICATION
I, C. Lee Jones, certify that:
1. I have reviewed this quarterly report on Form 10-Q of AmericasDoctor,
Inc.;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in
this quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: November 13, 2002 /s/ C. Lee Jones
-----------------------------------
C. Lee Jones
Chief Executive Officer
CERTIFICATION
I, David R. Adamoli, certify that:
1. I have reviewed this quarterly report on Form 10-Q of AmericasDoctor,
Inc.;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in
this quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: November 13, 2002 /s/ David R. Adamoli
-----------------------------------
David R. Adamoli
Chief Financial Officer