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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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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, 2000
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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COMMISSION FILE NUMBER 000-26883
MEDSCAPE, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 7375 13-3879679
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
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134 WEST 29TH STREET
NEW YORK, NEW YORK 10001-5399
(212) 760-3100
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(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
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MEDSCAPE, INC.
134 WEST 29TH STREET
NEW YORK, NEW YORK 10001-5399
(212) 760-3100
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE OF AGENT FOR SERVICE)
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Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
As of May 10, 2000, there were 45,885,444 shares of the Registrant's common
stock outstanding.
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<PAGE>
TABLE OF CONTENTS
PAGE
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets - March 31, 2000
and December 31, 1999 3
Condensed Consolidated Statements of Operations - three 4
months ended March 31, 2000 and 1999
Condensed Consolidated Statements of Cash Flows - three
months ended March 31, 2000 and 1999 5
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 7
Item 3. Quantitative and Qualitative Disclosures About Market Risk 10
PART II. OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds 12
Item 6. Exhibits and Reports on Form 8-K 12
SIGNATURES 13
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<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
MEDSCAPE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
AS OF MARCH 31, 2000 AND DECEMBER 31, 1999
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
2000 1999
(UNAUDITED) (AUDITED)
ASSETS
Current Assets:
<S> <C> <C>
Cash and cash equivalents............................................. $ 5,803 $ 4,456
Investment securities, available for sale............................. 22,711 36,363
Accounts receivable................................................... 6,320 5,946
Prepaid marketing..................................................... 9,868 12,000
Prepaid expenses and other assets..................................... 4,671 3,256
---------- ----------
Total current assets.......................................... 49,373 62,021
Fixed assets - net...................................................... 7,962 7,568
Intangible assets and goodwill - net.................................... 12,068 12,590
Investment in Softwatch................................................. 3,156 3,156
---------- ----------
Total assets.................................................. $ 72,559 $ 85,335
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued liabilities.............................. $ 10,108 $ 9,567
Deferred revenue...................................................... 1,016 1,580
---------- ----------
Total current liabilities..................................... 11,124 11,147
Stockholders' Equity:
Common stock, par value $.01; 100,000,000 shares authorized,
45,152,540 issued and 45,127,174 outstanding at March 31, 2000..... 453 447
Additional paid-in-capital............................................ 266,378 266,196
Deferred stock compensation........................................... (6,501) (7,984)
Treasury stock........................................................ (78) (3)
Contribution of services.............................................. (135,395) (145,224)
Warrants.............................................................. 6,353 6,840
Note receivable from stockholder...................................... (628) (628)
Accumulated other comprehensive loss.................................. (39) (36)
Accumulated deficit................................................... (69,108) (45,420)
---------- ----------
Total stockholders' equity.................................... 61,435 74,188
Total liabilities and stockholders' equity.................... $ 72,559 $ 85,335
========== ==========
</TABLE>
See notes to condensed consolidated financial statements.
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<PAGE>
MEDSCAPE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2000 AND 1999
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
---------------------------
MARCH 31, MARCH 31,
2000 1999
<S> <C> <C>
Revenues....................................................... $ 6,009 $ 1,644
-------------- --------------
Operating expenses:
Editorial, production, content and technology (excludes
stock-based compensation expense of $33 in the 2000
period and $30 in the 1999 period, included below)......... 5,555 1,268
Sales and marketing (excludes stock-based compensation
expense of $498 in the 2000 period and $15 in the 1999
period, included below).................................... 18,547 1,247
General and administrative (excludes stock-based
compensation expense of $279 in the 2000 period and
$253 in the 1999 period, included below)................... 2,167 562
Merger costs (excludes stock-based compensation
expense of $186 in the 2000 period and $0 in the 1999
period, included below).................................... 2,180 0
Stock-based compensation..................................... 996 298
Depreciation and amortization................................ 741 95
-------------- --------------
Total operating expenses............................. 30,186 3,470
-------------- --------------
Loss from operations........................................... (24,177) (1,826)
Interest income.............................................. 490 81
-------------- --------------
Net loss....................................................... $ (23,687) $ (1,745)
============== ==============
Basic and diluted net loss per share........................... $ (0.53) $ (0.25)
Weighted average number of shares of common stock
Outstanding................................................ 44,827,358 6,871,000
</TABLE>
See notes to condensed consolidated financial statements.
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<PAGE>
MEDSCAPE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 2000 AND 1999
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
---------------------------
MARCH 31, MARCH 31,
2000 1999
OPERATING ACTIVITIES
<S> <C> <C>
Net loss...................................................... $ (23,687) $ (1,745)
Adjustments to reconcile net loss to net cash used in
Operating activities:
Stock-based compensation expense........................... 996 298
Amortization of license fees............................... 477 0
Non-cash advertising and promotion expense................. 9,989 0
Depreciation and amortization.............................. 741 95
Changes in assets and liabilities:
Increase in accounts receivable............................ (374) (743)
(Increase) decrease in prepaid marketing, expenses
and other assets........................................ 557 (166)
Increase (decrease) in accounts payable and
accrued liabilities..................................... 541 (170)
Increase (decrease) in deferred revenue.................... (565) 998
------------- ------------
Net cash used by operating activities................. (11,325) (1,433)
------------- -------------
INVESTING ACTIVITIES
Purchases of fixed assets.................................. (1,090) (79)
Acquisition of intangible assets........................... 0 (50)
Unrealized loss on securities.............................. (3) 0
Purchase of investment securities.......................... (6,448) 0
Proceeds from maturities and sales of
investment securities.................................... 20,100 0
------------- -------------
Net cash provided (used) by investing activities...... 12,559 (129)
------------ -------------
FINANCING ACTIVITIES
Issuance of preferred stock, net proceeds.................. 0 19,415
Issuance of preferred stock, professional fees to be paid.. 0 1,185
Proceeds from exercise of stock options.................... 113 0
------------ ------------
Net cash provided by financing activities............. 113 20,600
------------ ------------
Increase in cash and cash equivalents........................... 1,347 19,038
Cash and cash equivalents, beginning of period.................. 4,456 1,595
------------ ------------
Cash and cash equivalents, end of period........................ $ 5,803 $ 20,633
======= ========
</TABLE>
See notes to condensed consolidated financial statements.
5
<PAGE>
MEDSCAPE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
FOR THE THREE MONTHS ENDED MARCH 31, 2000
1. ORGANIZATION AND NATURE OF BUSINESS
Medscape, Inc. ("Medscape") was formed and incorporated under the laws of the
State of New York in March 1996, and commenced operations in April 1996.
Medscape was reincorporated in Delaware in December 1998. Medscape operates
Medscape.com, a Web site that supplies online clinical information, interactive
services and goods to healthcare professionals, and CBS.Healthwatch.com, a Web
site that offers health care information and tools and related goods and
services to consumers. The Medscape Web sites are valuable resources that enable
users to make better informed healthcare decisions by providing comprehensive,
authoritative and timely medical information, including original proprietary
articles written by renowned medical experts. Medscape sells advertising and
sponsorship, market research and other services to pharmaceutical, medical
device and other healthcare companies. Medscape also sells products, such as
medical books, to physicians, allied healthcare professionals and consumers.
On February 21, 2000, Medscape entered into an Agreement of Reorganization and
Merger (the "Merger Agreement") with MedicaLogic, Inc., an Oregon corporation
("MedicaLogic"), providing for the merger of a newly-formed subsidiary of
MedicaLogic with and into Medscape, with Medscape as the surviving corporation
and, thus, becoming a wholly-owned subsidiary of MedicaLogic (the "Merger").
Under the terms of the Merger Agreement, each outstanding share of common stock
of Medscape will be converted into the right to receive .323 shares of common
stock of MedicaLogic (the "Conversion Rate"), and each Medscape option and
warrant will be assumed by MedicaLogic at the Conversion Rate. Consummation of
the Merger is subject to certain conditions, including (i) approval of the
Merger by the stockholders of Medscape, and (ii) approval by the stockholders of
MedicaLogic of the issuance of MedicaLogic common stock in the Merger. In
connection with the Merger, certain stockholders of Medscape have entered into
voting agreements, dated as of February 21, 2000, under which those stockholders
agree to vote in favor of adopting the Merger Agreement.
In February 2000, Medscape signed a plan of merger and reorganization to acquire
all of the outstanding shares of Dialog Medical, Inc., a Delaware corporation,
in exchange for 275,000 shares of Medscape common stock. Dialog Medical provides
integrated patient education and informed consent materials for physicians and
consumers. Medscape expects to complete the acquisition in the second quarter of
2000.
2. BASIS OF PRESENTATION
The condensed consolidated financial statements include the accounts of
Medscape. Such financial statements have been prepared in accordance with
generally accepted accounting principles ("GAAP") for interim financial
reporting and with instructions to form 10-Q. Accordingly, they do not include
all of the information and footnotes as required by GAAP for annual financial
statements. Certain information and footnote disclosures normally included in
annual financial statements prepared in accordance with GAAP have been condensed
or omitted pursuant to these rules and regulations; however, in the opinion of
Medscape's management, the condensed consolidated financial statements include
all adjustments, consisting only of normal recurring accruals, necessary to
present fairly the financial information for the three months ended March 31,
2000.
Basic loss per common share was computed by dividing net loss by the weighted
average number of shares of common stock outstanding. Diluted loss per common
share has not been presented since the impact for options and warrants would
have been anti-dilutive.
Certain prior period amounts have been reclassified to conform to the current
period presentation.
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3. STOCKHOLDERS' EQUITY
In connection with the proposed transaction with MedicaLogic, Inc. (see Note 1),
Medscape issued warrants to purchase 100,000 shares of its common stock at
$9.3125 per share to its financial advisor.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
FORWARD LOOKING STATEMENTS
The following discussion of our financial condition and operations should be
read in conjunction with the consolidated financial statements and the related
notes included elsewhere in this report. This report contains forward-looking
statements based on our current expectations, assumptions, estimates and
projections about Medscape and our industry. We generally identify
forward-looking statements in this report using words like "believe," "intend,"
"expect," "may," "will," "should," "plan," "project," "contemplate,"
"anticipate" or similar statements. The cautionary statements made in this
document should be read as being applicable to all related forward-looking
statements wherever they appear in this document. These statements are based on
our beliefs as well as assumptions we made using information currently available
to us. Because these statements reflect our current views concerning future
events, these forward-looking statements involve risks and uncertainties.
Factors that could cause or contribute to such differences include those
discussed below, as well as those discussed in our Annual Report on Form 10-K
for the fiscal year ended December 31, 1999 and Amendment No. 1 thereto, and the
Registration Statement on Form S-4 filed by MedicaLogic, Inc. on March 4, 2000
and Amendment No. 1 thereto. Medscape's actual results could differ materially
from those anticipated in these forward-looking statements as a result of many
factors. Medscape undertakes no obligation to update publicly any
forward-looking statements for any reason, even if new information becomes
available or other events occur in the future.
OVERVIEW
We operate Medscape.com, a healthcare Web site for physicians and allied
healthcare professionals, such as pharmacists and nurses. To enhance and
personalize the consumer experience, we launched a separate consumer site,
CBS.Medscape.com, in the third quarter of 1999. On November 1, 1999,
CBS.Medscape.com was relaunched as CBS.Healthwatch.com. In the fourth quarter of
1999 and the first quarter of 2000, we developed and launched several additional
co-branded consumer sites under an agreement with America Online, Inc.
Medscape, Inc. commenced operations in April 1996. In October 1998, we acquired
Healthcare Communications Group, LLC, which operated a leading HIV Web site. In
the first quarter of 1999, we acquired the trademarks and hired key employees of
Bonehome.com, a leading orthopedic Web site, and CompuRx, Inc., a healthcare
market research company serving pharmaceutical and other healthcare companies.
These transactions are consistent with our strategy to be the leading online
information source for selected medical specialties and to broaden our revenue
streams.
Since our inception, we have derived substantially all of our revenues from
advertising and sponsorships from pharmaceutical companies. We also generate
revenues from our e-commerce partners who either provide us with a placement fee
or a commission on sales of their products generated through our Web site. We
offer banner advertising to third-party advertisers and generally guarantee
delivery of a specified number of advertising impressions. We derive sponsorship
revenues from the development of client-sponsored content, including modules on
disease topics and editorial coverage of medical conferences. We expect our
revenues to be seasonal due to the scheduling of major medical conferences.
We recognize banner advertising revenues in the period that we display the
advertisement, provided that no significant obligations remain and collection of
the resulting receivable is probable. We recognize revenues from modules on a
cost of completion basis and editorial coverage of medical conferences in the
period in which the conference was held. We recognize revenues from e-commerce
based on commissions when earned from our third-
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<PAGE>
party partners or, in cases where third-party partners pay placement fees to us,
over the life of the product placement. We generally invoice for our services at
the inception of a project and record a receivable. Accordingly, our receivables
have increased in connection with our increase in revenues and due to an
increase in the number of large scale sponsored programs which have become a
more prominent part of our business following our acquisition of Healthcare
Communications Group, LLC.
To date, we have incurred substantial costs to create and enhance our content,
build brand awareness, develop our infrastructure and grow our business, and
have yet to achieve significant revenue. As a result, we have incurred operating
losses in each fiscal quarter since we were formed. We expect operating losses
and negative cash flow to continue for the foreseeable future as we intend to
significantly increase our operating expenses to grow our business. These costs
could have an adverse effect on our future financial condition or operating
results. We believe that period-to-period comparison of our financial results is
not necessarily meaningful and you should not rely upon them as an indication of
our future performance.
On February 21, 2000, Medscape entered into an Agreement of Reorganization and
Merger (the "Merger Agreement") with MedicaLogic, Inc., an Oregon corporation
("MedicaLogic"), providing for the merger of a newly-formed subsidiary of
MedicaLogic with and into Medscape, with Medscape as the surviving corporation
and, thus, becoming a wholly-owned subsidiary of MedicaLogic (the "Merger").
Under the terms of the Merger Agreement, each outstanding share of common stock
of Medscape will be converted into the right to receive .323 shares of common
stock of MedicaLogic (the "Conversion Rate"), and each Medscape option and
warrant will be assumed by MedicaLogic at the Conversion Rate. Consummation of
the Merger is subject to certain conditions, including (i) approval of the
Merger by the stockholders of Medscape, and (ii) approval by the stockholders of
MedicaLogic of the issuance of MedicaLogic common stock in the Merger. In
connection with the Merger, certain stockholders of Medscape have entered into
voting agreements, dated as of February 21, 2000, under which those stockholders
agree to vote in favor of adopting the Merger Agreement.
RESULTS OF OPERATIONS
REVENUE AND EXPENSE COMPONENTS
The following descriptions of the components of revenues and expenses apply to
the Comparison of Results of Operations:
REVENUES. Revenues consist of sales of advertising banners, sponsorships
for developing content for modules and medical conferences, commission revenues
or placement fees from product sales such as medical books, and market research
services to pharmaceutical and other healthcare companies.
EDITORIAL, PRODUCTION, CONTENT AND TECHNOLOGY. Product development expenses
consist primarily of salaries, third-party content acquisition costs, the
development of sponsored content and expenditures associated with maintaining
and enhancing our Web site.
SALES AND MARKETING. Sales and marketing expenses consist primarily of
salaries, commissions, advertising, promotions and related marketing costs.
GENERAL AND ADMINISTRATION. General and administration expenses consist
primarily of salaries, facility costs and fees for professional services.
MERGER COSTS. Merger costs consist of merger transaction costs such as fees
for investment bankers, attorneys, accountants, and other costs to effectuate
the merger.
STOCK-BASED COMPENSATION. In connection with the issuance of stock options
during the second half of fiscal 1998 and the first half of fiscal 1999, our
management determined that the valuation of such issuances should be revised. As
a result, an amount equal to the excess of the fair market value of our common
stock over the option exercise prices is being amortized over four years, the
vesting period of the options. The amortization commenced in the fiscal 1998
fourth quarter. Additionally, stock-based compensation includes the amortization
of the fair value of the warrants issued to AOL and the amortization of the
warrants issued to our financial advisor in connection with the proposed merger
with MedicaLogic, Inc.
DEPRECIATION AND AMORTIZATION. Depreciation expense reflects the charge for
depreciation of capitalized fixed assets, including computer equipment, Web site
servers and related equipment, and the amortization of office leasehold
improvements. Additionally, this category includes goodwill amortization related
to corporate acquisitions.
INTEREST EXPENSE/INCOME. Interest income consists primarily of interest
earned on cash and cash equivalents invested in money market funds.
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<PAGE>
COMPARISON OF THREE MONTHS ENDED MARCH 31, 2000 AND 1999
REVENUES. Revenues increased 266% to $6.0 million for the three months ended
March 31, 2000 from $1.6 million for the comparable period in 1999. The increase
in revenues was due primarily to increased advertising and sponsorship sales.
EDITORIAL, PRODUCTION, CONTENT AND TECHNOLOGY. Product development and
content expenses increased 338% to $5.6 million for the three months ended March
31, 2000 from $1.3 million for the comparable period in 1999. The increase in
costs was primarily due to increased variable costs related to the development
of sponsored content and costs associated with expanding and enhancing editorial
content, an increase in the number of employees in our Editorial and Information
Technology groups and the associated recruitment costs, and costs incurred in
upgrading the functionality of our Web site and our internal networks.
SALES AND MARKETING. Sales and marketing expenses increased 1,387% to $18.5
million for the three months ended March 31, 2000 from $1.2 million for the
comparable period in 1999. The increase in costs was primarily due to the
continued development and implementation of our marketing and branding campaigns
with CBS, AOL, NDC and others along with the addition of sales and marketing
personnel. Approximately $10.0 million of the March 31, 2000 period expense is
non-cash in nature and results from the use of services granted in exchange for
Medscape equity in our relationship with CBS.
GENERAL AND ADMINISTRATION. General and administration expenses increased
286% to $2.2 million for the three months ended March 31, 2000 from $0.6 million
for the comparable period in 1999. The increase in costs was primarily a result
of expenses related to increased personnel and other employee compensation
expenses, professional service fees, and facility expenses necessary to support
our growth.
MERGER COSTS. In connection with the contemplated merger with MedicaLogic,
Inc., we have incurred $2.4 million in merger costs in the first quarter of
2000. Of this total, $2.2 million is recorded in the Merger Cost category with
the balance in Stock-Based Compensation in relation to the warrants issued to
our financial advisor.
STOCK-BASED COMPENSATION. Stock-based compensation expense increased 234%
to $1.0 million for the three months ended March 31, 2000 from $0.3 million for
the comparable period in 1999. The increase in costs was primarily attributable
to amortization of the AOL warrants and amortization of the warrant issued to
our financial advisor.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expenses
increased 680% to $0.7 million for the three months ended March 31, 2000 from
$0.1 million for the comparable period in 1999. The increase in costs was
attributable to increased purchases of fixed assets and amortization of office
leasehold improvements.
INTEREST EXPENSE/INCOME. Net interest income for the three months ended
March 31, 2000 was $0.5 million compared to $0.1 million for the same period in
1999. The higher interest income was due to a higher average of net cash and
cash equivalents balance as a result of our financing activities in 1999.
LIQUIDITY AND CAPITAL RESOURCES
Since our inception, we have largely financed our operations through the
placement of equity securities in the public and private market and, to a lesser
extent, from revenues generated from advertising and sponsorship sales and loans
received from a related party.
Net cash used in operating activities was $11.3 million for the three months
ended March 31, 2000, compared to $1.4 million for the same three-month period
in 1999. Cash used in operating activities for all periods was attributable to
funding net operating losses.
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Net cash provided by investing activities was $12.6 million for the three months
ended March 31, 2000 compared to $(0.1) million for the same three month period
in 1999. Cash provided by investing activities reflected maturities and sales of
short-term investment securities. Cash used by investing activities for the
three months ended March 31, 2000 related primarily to the reinvestment of
matured short-term investment securities in our portfolio. The other primary use
of funds includes investments in our technology infrastructure.
Cash provided by financing activities was $0.1 million for the three months
ended March 31, 2000 compared to $20.6 million for the same three-month period
in 1999. Cash provided by financing activities for the three-months ended March
31, 2000 reflects proceeds from the exercise of stock options and the purchase
of treasury shares. Cash provided by financing activities for the three months
ended March 31, 1999 reflects the proceeds from the sale of Series D preferred
stock.
As of March 31, 2000, the primary source of our liquidity was $28.5 million of
cash and cash equivalents and investment securities. As of this date, we have no
bank credit facilities.
We expect to continue to incur significant operating costs, particularly content
creation costs and sales and marketing costs to grow our business and pursue our
branding and marketing campaign. We launched CBS.Medscape.com (subsequently
relaunched as CBS.Healthwatch.com), our separate consumer site, in the third
quarter of 1999, and we launched our AOL co-branded consumer sites in the fourth
quarter of 1999 and first quarter of 2000. CBS.Healthwatch.com and the AOL
co-branded sites will provide consumer-oriented information organized by health
topic and offer community features and interactive healthcare information
programs. A large portion of our promotional expenditures for our consumer sites
will be funded through the approximately $150 million in advertising and
promotion to be provided by CBS over the 7 year term of the agreement and the
$33 million contract with AOL of which $3 million was paid at contract closing
in September 1999, $10 million was paid in October 1999, and an additional $20
million will be paid over the next two years.
YEAR 2000
Many currently installed computer systems and software products are coded to
accept only two-digit entries in the date code field and cannot reliably
distinguish dates beginning on January 1, 2000 from dates prior to the year
2000. Many software and computer systems used by companies and governmental
agencies may need to be upgraded or replaced in order to correctly process dates
beginning in 2000 and comply with Year 2000 requirements.
In preparation for the year 2000, we conducted a comprehensive review of both
information technology and non-information systems to ensure that they were Year
2000 compliant. Significant information technology systems include its
production system, composed of the servers, networks and software that comprise
the underlying technical infrastructure that runs our business, and various
internal office systems. Our significant non-information technology systems
include the telephone systems, air conditioning and security systems. Because we
are a relatively new business, the majority of our own hardware and software has
been acquired or developed within the last two years, during which time there
was a high awareness of Year 2000 issues.
To date, we have not experienced any material difficulties associated with the
Year 2000 that would have a negative effect on our ability to conduct business.
To our knowledge, no third party upon which we depend has experienced a material
Year 2000 problem. However, it is still possible that errors or defects may
remain undetected or that dates other than January 1 may trigger Year 2000
problems. If this occurs with respect to our software systems, or those of third
parties upon which we rely, our business, reputation, financial condition and
results of operations could be adversely impacted.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
INTEREST RATE SENSITIVITY. The primary objective of our investment activities is
to preserve principal while at the same time maximizing the income we receive
from our investments without significantly increasing risk.
10
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Accordingly, we do not enter into financial instrument transactions for trading
purposes. Some of our investments may be subject to market risk which means that
a change in prevailing interest rates may cause the principal amount of the
investment to fluctuate. To minimize this risk, we invest our cash in money
market funds. In general, money market funds are not subject to market risk as
the interest paid on these funds fluctuates with the prevailing interest rate.
As of March 31, 2000, all of our investments mature in less than one year.
EXCHANGE RATE SENSITIVITY. We consider our exposure to foreign currency exchange
rate fluctuations to be minimal as we currently do not derive any revenue
denominated in a foreign currency and have minimal expenses paid in a foreign
currency.
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PART II. OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
The effective date of our registration statement, filed on Form S-1 under
the Securities Act of 1933 (File No. 333-77665) relating to our initial public
offering of 7,650,000 shares of common stock, was September 27, 1999. Net
proceeds from the offering were $54.4 million which reflects $3.9 million for
the underwriting discount and $2.6 million of offering costs applied to gross
proceeds of $60.9 million. These funds have been the principal source of
liquidity for us during the quarter ended March 31, 2000 and were used to fund
operating losses and to make capital expenditures as described in the financial
statements included with this report.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit 27 - Financial Data Schedule
(b) Reports on Form 8-K
On March 2, 2000, Medscape, Inc. filed a current report on Form 8-K,
reporting that on February 21, 2000, it had entered into an agreement pursuant
to Item 5 of that report of reorganization and merger with MedicaLogic, Inc.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
Medscape, Inc. has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
MEDSCAPE, INC.
Date: May 12, 2000 By: /S/ PAUL T. SHEILS
---------------------------------------
Name: Paul T. Sheils
Title: President and Chief Executive Officer
(Principal Executive Officer)
Date: May 12, 2000 By: /S/ STEVEN R. KALIN
---------------------------------------
Name: Steven R. Kalin
Title: Chief Operating Officer and Chief
Financial Officer (Principal Financial
and Accounting Officer)
13
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS FINANCIAL DATA SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM MEDSCAPE'S QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER ENDED MARCH 31,
2000 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> DEC-31-1999
<PERIOD-END> MAR-31-2000
<CASH> 5,803,000
<SECURITIES> 22,711,000
<RECEIVABLES> 6,320,000
<ALLOWANCES> 0
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0
0
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</TABLE>
