Back to GetFilings.com
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 March 31, 2003
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 [_]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).
Yes [_] No [X]
At May 1, 2003, there were 3,430,043 shares of Class A common stock outstanding
and 685,324 shares of Class B common stock outstanding.
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements
AMERICASDOCTOR, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited, in thousands, except share data)
March 31, December 31,
ASSETS 2003 2002
- -------------------------------------------------------------------------------------- ------------ ------------
CURRENT ASSETS:
Cash and cash equivalents $ 2,312 $ 2,774
Accounts receivable, net of allowance for doubtful accounts of $365 and $405 12,182 13,025
Prepaid expenses 3,913 4,258
------------ ------------
Total current assets 18,407 20,057
------------ ------------
FIXED ASSETS:
Cost 6,741 6,703
Less - Accumulated depreciation and amortization (5,601) (5,443)
------------ ------------
Total fixed assets, net 1,140 1,260
------------ ------------
OTHER ASSETS:
Other 26 24
------------ ------------
Total other assets 26 24
------------ ------------
$ 19,573 $ 21,341
============ ============
LIABILITIES AND STOCKHOLDERS' DEFICIT
- --------------------------------------------------------------------------------------
CURRENT LIABILITIES:
Accounts payable $ 1,759 $ 1,740
Capital leases 41 3
Accrued investigator fees 8,771 8,957
Accrued wages and other 2,579 2,771
Deferred revenue 4,704 5,454
------------ ------------
Total current liabilities 17,854 18,925
------------ ------------
LONG-TERM LIABILITIES:
Other long-term liability 25 25
------------ ------------
Total long-term liabilities 25 25
------------ ------------
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 75,942 74,442
------------ ------------
STOCKHOLDERS' DEFICIT:
Class A common stock, par value $0.001 per share; 25,000,000 shares authorized;
3,434,626 shares issued and 3,430,043 shares 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 33,182 33,170
Accumulated deficit (107,443) (105,234)
------------ ------------
(74,202) (72,005)
Treasury stock, at cost, 4,583 shares (46) (46)
------------ ------------
Total stockholders' deficit (74,248) (72,051)
------------ ------------
$ 19,573 $ 21,341
============ ============
See accompanying notes to condensed consolidated financial statements
2
AMERICASDOCTOR, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited, in thousands, except share data)
Three Months Ended
March 31,
--------------------------
2003 2002
----------- -----------
REVENUE $ 11,019 $ 13,277
----------- -----------
EXPENSES:
Direct study costs 7,012 8,408
Selling, general and administrative 4,545 4,781
Depreciation and amortization 174 274
----------- -----------
Total expenses 11,731 13,463
----------- -----------
OPERATING LOSS (712) (186)
OTHER INCOME, net 4 38
----------- -----------
Loss before provision for income taxes (708) (148)
PROVISION FOR INCOME TAXES -- --
----------- -----------
NET LOSS (708) (148)
ACCRETION OF PREFERRED STOCK 1,500 1,379
----------- -----------
Net loss applicable to common stockholders $ (2,208) $ (1,527)
=========== ===========
BASIC AND DILUTED NET LOSS PER COMMON SHARE:
Loss per common share- $ (0.54) $ (0.37)
Class A (0.54) (0.37)
=========== ===========
Class B
Weighted average number of common shares outstanding-
Class A 3,430,043 3,430,043
Class B 685,324 685,324
=========== ===========
See accompanying notes to condensed consolidated financial statements.
3
AMERICASDOCTOR, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, in thousands)
Three Months Ended
March 31,
--------------------------------
2003 2002
----------- ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (708) $ (148)
Adjustments to reconcile net loss to net cash and cash equivalents used in
operating activities
Depreciation and amortization 174 274
Compensatory stock options 12 39
Other (17) --
Changes in assets and liabilities, net 77 (1,168)
----------- ------------
Net cash and cash equivalents used in operating activities (462) (1,003)
----------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of fixed assets, net (38) (35)
----------- ------------
Net cash and cash equivalents used in investing activities (38) (35)
----------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds (payments) on capital leases, net 38 (4)
----------- ------------
Net cash and cash equivalents used in financing activities 38 (4)
----------- ------------
Net decrease in cash and cash equivalents (462) (1,042)
CASH AND CASH EQUIVALENTS, beginning of period 2,774 5,601
----------- ------------
CASH AND CASH EQUIVALENTS, end of period $ 2,312 $ 4,559
=========== ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for
Interest on capital leases $ 2 $ 1
Taxes 2 1
=========== ============
See accompanying notes to condensed consolidated financial statements.
4
AMERICASDOCTOR, INC. AND SUBSIDIARY
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 ended March 31, 2003 are not
necessarily indicative of the results to be expected for the year ending
December 31, 2003. 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, 2002 included in the Company's Annual
Report on Form 10-K.
2. Liquidity and Future Operations
Net cash used in operating activities was approximately $0.5 million and
$1.0 million for the three months ended March 31, 2003 and 2002, respectively.
Cash used in operating activities decreased substantially in the three months
ended March 31, 2003 due to changes in working capital (primarily accounts
receivable).
Working capital was approximately $0.6 million and $1.1 million as of March
31, 2003 and December 31, 2002, respectively. The decrease from December 31,
2002 to March 31, 2003 was primarily the result of the decrease in cash from
funding operations.
The Company has generated negative cash flows since its inception. As a
result, it has financed its operations to date through the sale of equity
securities. To date, the Company has raised approximately $53.6 million in net
proceeds from the sale of common and preferred stock. Cash and cash equivalents
and short-term marketable securities were approximately $2.3 million and $2.8
million as of March 31, 2003 and December 31, 2002, respectively.
During the first quarter of 2002 and amended in the first quarter of 2003,
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 March
31, 2003, available borrowings under the credit facility were $3.2 million, and
the Company had no amounts outstanding on the revolving credit agreement. The
credit agreement requires the Company to pay a commitment fee of 0.5% per annum
on the average daily unused portion of the revolving loan. The Company paid
$18,000 and $40,000 in commitment fees during the quarter ended March 31, 2003
and 2002, respectively. 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
5
covenants 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 March 31, 2003, the Company
was in compliance with the debt covenants.
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 the first quarter of 2004. However, any projections of
future cash inflows and outflows are subject to substantial uncertainty. In
addition, the Company 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 it to seek additional
equity or debt financing alternatives. Beyond the first quarter of 2004, 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 the Company's 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
Basic and diluted net loss per common share is based on the weighted
average number of Class A and Class B shares of common stock outstanding. Basic
net loss per share is computed by dividing net loss available to Class A and
Class B common stockholders for the period by the weighted average number of
Class A and Class B common shares outstanding during the period. Diluted net
loss per share is computed by dividing net loss available to Class A and Class B
common stockholders for the period by the weighted average number of Class A and
Class B common and common equivalent shares outstanding during the period. Stock
warrants, preferred stock and stock options were not included in the diluted net
loss per common share calculation since their impact is anti-dilutive. For the
period ended March 31, 2003, 5,251,221 outstanding preferred stock shares,
2,785,899 outstanding stock options and 22,291 outstanding Class A common stock
warrants were excluded from the calculation of diluted earnings per share
because they were anti-dilutive. However, these options could be dilutive in the
future.
The following is a reconciliation of the Company's basic and diluted net
loss per share for the quarter ended March 31, 2003 and 2002 (unaudited, in
thousands, except share data):
Quarter Ended March 31,
-----------------------------------------------------------------------------------
2003 2002
---------------------------------------- ----------------------------------------
Number of Per Share Number of Per Share
Net Loss Shares Amount Net Loss Shares Amount
-----------------------------------------------------------------------------------
Net loss available to:
Class A stockholders $(1,840) 3,430,043 $(0.54) $(1,273) 3,430,043 $(0.37)
Class B stockholders (368) 685,324 (0.54) (254) 685,324 (0.37)
6
4. New Accounting Pronouncements
SFAS No. 148, "Accounting for Stock-Based Compensation - Transition and
Disclosure," provides alternative transition methods for a voluntary change to
the fair value based method of accounting for stock-based employee compensation.
In addition, it amends the disclosure and certain transition provisions of SFAS
No. 123, "Accounting for Stock-Based Compensation," to require prominent
disclosures in annual financial statements about the method of accounting for
stock-based employee compensation and the pro forma effect on reported results
of applying the fair value based method for entities that use the intrinsic
value method of accounting. The pro forma effect disclosures are also required
to be prominently disclosed in interim period financial statements. The Company
does not plan to change to the fair value based method of accounting for
stock-based employee compensation and has adopted the disclosure provisions of
this standard.
At March 31, 2003, the Company had stock-based employee incentive plans and
stock-based director, consultants and network founders plans. The Company
accounts for the employee plans under the recognition and measurement principals
of APB Opinion 25, "Accounting for Stock Issued to Employees," and related
Interpretations. No stock-based employee incentive cost is reflected in net
loss, as all options granted under those plans had an exercise price equal to
the market value of the underlying common stock at the date of grant. The
following table illustrates the effect on net loss and earnings per share if the
Company had applied the fair value recognition provisions of FASB Statement 123,
"Accounting for Stock-Based Compensation," to stock-based employee incentives
(unaudited, in thousands, except share data):
Quarter Ended March 31
------------------------------
2003 2002
------------- ------------
Net loss, as reported $(2,208) $(1,527)
Deduct: Total stock-based employee compensation
expense determined under fair value based
method for all awards, net of related tax
effects (832) (108)
------------ -----------
Pro forma net loss $(3,040) $(1,635)
============ ===========
Loss per share:
Basic and diluted - as reported $ (0.54) $ (0.37)
============ ===========
Basic and diluted - pro forma $( 0.74) $ (0.40)
============ ===========
The pro forma disclosure is not likely to be indicative of pro forma
results which may be expected in future years because of the fact that options
vest over several years, pro forma compensation expense is recognized as the
options vest and additional awards may also be granted.
7
For purposes of determining the effect of these options, the fair value
of each option is estimated on the date of grant based on the Black-Scholes
single-option pricing model assuming the following for the years ended March 31,
2003 and 2002:
2003 2002
------------ ------------
Dividend yield 0.0% 0.0%
Risk-free interest rate 3.9% 4.8%
Volatility factor 66.0% 66.0%
Expected life in years 10 10
============ ============
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 May 1, 2003, we offered clinical research services through approximately
175 independently owned investigative sites encompassing approximately 500
principal investigators, with over 1,400 total physicians, operating in 32
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., an interactive Internet healthcare information site for consumers based in
Maryland. In this report, the merger is sometimes referred to as the "Merger"
and the Maryland-based AmericasDoctor.com, Inc. is sometimes referred to as "Old
AmDoc." Following 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." In December 2002, Old AmDoc was
merged into us.
We have built a network of approximately 175 independently owned
investigative sites to facilitate and coordinate independent clinical research
trials on drugs for pharmaceutical and biotechnology companies and contract
research organizations located throughout the world. 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 2002, we provided
site selection and
8
management services to approximately 160 sponsors. Our business is currently
focused on the U.S. markets.
As of May 1, 2003, our network included investigative sites that performed
clinical research trials in a wide range of therapeutic areas, including:
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 AmericasDoctor.com Coordinator Services, Inc.
(formerly 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
AmericasDoctor Coordinator Services 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
9
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 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 incurred expenditures in connection with an expansion of 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
noncash 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. Although we ceased all of the on-line services business in the
fourth quarter of 2001, we expect to incur operating losses and negative cash
flows for the foreseeable future as we fund operating and other expenditures
designed to expand our business. 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.
Critical Accounting Policies
Our consolidated financial statements are prepared in accordance with
accounting principles generally accepted in the United States, or GAAP. These
accounting principles require us to make certain estimates, judgments and
assumptions. We believe that the estimates, judgments and assumptions upon which
we rely are reasonably based upon information available to us at the time that
these estimates, judgments and assumptions are made. These estimates, judgments
and assumptions can affect the reported amounts of assets and liabilities as of
the date of the financial statements, as well as the reported amounts of revenue
and expenses during the periods presented. To the extent there are material
differences between these estimates,
10
judgments and assumptions and actual results, our financial statements will be
affected. The significant accounting policies that we believe are the most
critical to aid in fully understanding and evaluating our reported financial
results include the following:
. Revenue recognition;
. Allowance for doubtful accounts;
. Impairment of long-lived assets; and
. Accounting for income taxes.
In many cases, the accounting treatment of a particular transaction is
specifically dictated by GAAP and does not require management's judgment in its
application. There are also areas in which management's judgment in selecting
among available alternatives would not produce a materially different result.
Our senior management has reviewed these critical accounting policies and
related disclosures with our audit committee. See the unaudited notes to
consolidated financial statements, which contain additional information
regarding our accounting policies and other disclosures required by GAAP.
Revenue Recognition
Revenue is generated from contracts with sponsors. Revenue on each
contract, or study revenue, 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 the investigator sites varies
by contract depending on the level of services that we provide. As study revenue
is recognized, the investigator fees to investigative sites are recognized as
costs and amounts to be paid to the sites are recorded as accrued investigator
fees. Advances on contracts by sponsors are classified as deferred revenue until
services are performed. The related payments to sites are classified as prepaid
expenses until services are performed.
In accordance with Emerging Issues Task Force recommendation 99-19 and
Staff Accounting Bulletin SAB 101, we recognize our study revenue on a gross
basis as we act as a principal in such transactions, can influence price, are
involved in the product specifications and have credit risk.
Allowance for Doubtful Accounts
We determine our allowance by considering a number of factors, including
the length of time trade accounts receivable are past due, our previous loss
history, the customer's current ability to pay its obligation and the condition
of the general economy and the industry as a whole. We make judgments as to our
ability to collect outstanding receivables based on these factors and provide
allowances for these receivables when collections become doubtful. Provisions
are made based on specific review of all significant outstanding balances.
11
Impairment of Long-lived Assets
Long-lived assets are reviewed for impairment whenever events such as
service discontinuance, contract terminations, economic or other changes in
circumstances indicate that the carrying amount may not be recoverable. When
these events occur, we compare the carrying amount of the assets to undiscounted
expected future cash flows. If this comparison indicates that there is
impairment, the amount of the impairment is typically calculated using
discounted expected future cash flows.
Accounting for Income Taxes
We account for income taxes in accordance with Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes." Under the asset and
liability method of SFAS No. 109, deferred income taxes are recognized for the
expected future tax consequences of temporary differences between financial
statement carrying amounts and the tax bases of existing assets and liabilities
using enacted tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered or settled.
We have incurred historical net operating losses, or NOLs, for federal
income tax purposes. Accordingly, no federal income tax provision has been
recorded to date, and there are no taxes payable. In assessing the realizability
of deferred tax assets, management considers whether it is more likely than not
that some portion or all of the deferred tax assets will not be realized. The
ultimate realization of deferred tax assets is dependent upon generation of
future taxable income during the periods in which those temporary differences
become deductible. Based upon the level of historical losses that may limit
utilization of NOL carry forwards in future periods, management is unable to
predict whether these net deferred tax assets will be utilized prior to
expiration. The unused NOL carry forwards expire in years 2008 through 2022. As
such, we have recorded a full valuation allowance against net deferred tax
assets. Although we believe that our estimates are reasonable, no assurance can
be given that the final outcome of these matters will not be different than that
which is reflected in our historical income tax provisions. Such differences
could have a material effect on our income tax provision and net income in the
period in which such determination is made.
Quarterly Results
First Quarter 2003 Compared to First Quarter 2002
Revenues were $11.0 million in the quarter ended March 31, 2003 compared to
$13.3 million in the quarter ended March 31, 2002, a decrease of $2.3 million,
or 17.0%. The decrease in revenue recognized in 2003 compared to 2002 was the
result of a decrease in new contracts and study delays. The economic slow down
and a downturn in research and development spending from certain biotech
companies had a negative impact on new contracts during the fourth quarter 2002.
Additionally, customers, at their discretion, delayed a number of new contract
start-ups until the second quarter 2003 and beyond due primarily to formulation
issues and increased mergers and acquisitions in the industry. Initial revenue
recognition generally lags new contract execution by approximately 75 days due
to certain regulatory and patient recruitment initiatives. Therefore, the
previous quarter's new contracts generally have a direct
12
impact on the current quarter's revenue. New contracts entered into during the
fourth quarter 2002 decreased by $5.2 million, or 27.3%, as compared to the
fourth quarter of 2001.
Direct study costs (investigator fees and other study costs such as
laboratory fees and patient stipends) were $7.0 million in the first quarter
2003 compared to $8.4 million in the first quarter 2002, a decrease of $1.4, or
16.6%. The decrease in direct study costs resulted from the decrease in revenues
discussed above.
Selling, general and administrative costs were $4.5 million in the first
quarter 2003 compared to $4.8 million in the first quarter 2002, a decrease of
$0.3 million, or 4.9%. The majority of the decrease was attributable to cost
reductions in the areas of marketing ($0.1 million), information technology
($0.1 million) and research operations ($0.1 million) due to structural changes.
Depreciation and amortization expenses decreased to $0.2 million in the
first quarter 2003 compared to $0.3 million in the first quarter 2002. This
decrease resulted from certain fixed assets becoming fully depreciated.
The operating loss increased to $0.7 million in the first quarter 2003
compared to $0.2 million in the first quarter 2002. As discussed above, the $0.5
million increase is driven by the $2.3 decrease in revenues, which was offset by
a $1.8 million reduction in operating expenses.
Liquidity and Capital Resources
Net cash used in operating activities was approximately $0.5 million for
the three months ended March 31, 2003 and $1.0 million for the three months
ended March 31, 2002. Cash used in operating activities decreased substantially
in the three months ended March 31, 2003 due to changes in working capital
(primarily accounts receivable).
Working capital was approximately $0.6 million as of March 31, 2003 and
$1.1 million as of December 31, 2002. The decrease from December 31, 2002 to
March 31, 2003 was primarily the result of the decrease in cash from funding
operations.
We have generated negative cash flows since our inception. As a result, we
have financed our operations to date through the sale of 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 $2.3 million as of March 31, 2003 and
$2.8 million as of December 31, 2002.
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 March 31, 2003, available borrowings under the credit
facility were $3.2 million, and we had no amounts outstanding on the revolving
credit agreement. The credit agreement requires us to pay a commitment fee of
0.5% per annum on the average daily unused portion of the revolving loan. We
paid $18,000 in commitment fees during the quarter ended March 31, 2003.
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
13
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 March 31, 2003, we were in compliance with the debt covenants.
We believe 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 the first quarter of 2004. 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 the first quarter of 2004, we may need to 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. 148, "Accounting for Stock-Based Compensation - Transition and
Disclosure," provides alternative transition methods for a voluntary change to
the fair value based method of accounting for stock-based employee compensation.
In addition, it amends the disclosure and certain transition provisions of SFAS
No. 123, "Accounting for Stock-Based Compensation," to require prominent
disclosures in annual financial statements about the method of accounting for
stock-based employee compensation and the pro forma effect on reported results
of applying the fair value based method for entities that use the intrinsic
value method of accounting. The pro forma effect disclosures are also required
to be prominently disclosed in interim period financial statements. We do not
plan to change to the fair value based method of accounting for stock-based
employee compensation and have adopted the disclosure provisions of this
standard.
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 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
14
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 March 31, 2003, available borrowings
under the credit facility were $3.2 million, and 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 and Chief Financial
Officer, of the effectiveness of our disclosure controls and procedures. Based
on that evaluation, our Chief Executive Officer and Chief Financial Officer 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 4. Submission of Matters to a Vote of Security Holders.
In lieu of an annual meeting of stockholders, stockholders representing a
majority of the issued and outstanding shares of our voting securities, elected
the following individuals to our board of directors by written consent dated
April 9, 2003:
. Fred L. Brown;
. Ira Klimberg, M.D.;
. C. Lee Jones;
. Joan Neuscheler;
15
. Zubeen Shroff;
. Christopher Steidle, M.D.; and
. Claudie E. Williams.
All of the above listed individuals were re-elected as members of our board
of directors. For further information, see the Schedule 14C filed by
AmericasDoctor on April 25, 2003 (File No. 0-32601) with the Securities and
Exchange Commission, which is incorporated herein by reference.
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
(B) Reports on Form 8-K during the quarter ended March 31, 2003
None.
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: May 12, 2003 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: May 12, 2003 /s/ C. Lee Jones
-------------------------------------------
C. Lee Jones
Chairman, President and 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: May 12, 2003 /s/ David R. Adamoli
-------------------------------------------
David R. Adamoli
Chief Financial Officer and Secretary