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Filed Pursuant to Rule 424(b)(1)
Registration No. 333-73059
PROSPECTUS
5,000,000 SHARES
[LOGO]
MEDICONSULT.COM, INC.
COMMON STOCK
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Mediconsult.com, Inc. is a leading provider of patient-oriented healthcare
information and services on the World Wide Web. Our Web sites provide a trusted
source of comprehensive and easy to understand medical information and are
designed to empower consumers through increased education regarding medical
conditions and treatment alternatives.
We are offering and selling 4,425,000 shares of common stock and the Selling
Stockholders are offering and selling 575,000 shares of common stock. We will
not receive any of the proceeds from the sale of our common stock by the Selling
Stockholders. On April 6, 1999, our common stock began trading on the Nasdaq
National Market under the symbol "MCNS." Previously, our common stock had been
quoted on the OTC Bulletin Board. On April 5, 1999, the last sale price of our
common stock was $15.13.
------------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 6 FOR A DISCUSSION OF CERTAIN FACTORS
THAT YOU SHOULD CONSIDER BEFORE YOU INVEST IN THE COMMON STOCK BEING SOLD
PURSUANT TO THIS PROSPECTUS.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY OTHER REGULATORY BODY
HAS APPROVED OR DISAPPROVED THESE SECURITIES OR PASSED UPON THE ADEQUACY OR
ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
<TABLE>
<CAPTION>
PER SHARE TOTAL
<S> <C> <C>
Public Price............................................................ $13.00 $65,000,000
Underwriting Discount................................................... $ 0.91 $ 4,550,000
Proceeds to Mediconsult................................................. $12.09 $53,498,250
Proceeds to the Selling Stockholders.................................... $12.09 $ 6,951,750
</TABLE>
The underwriters may purchase up to an additional 375,000 shares of common
stock from us and, if all such additional shares are purchased, up to 375,000
shares from the Selling Stockholders, at the public offering price less
underwriting discount to cover over-allotments.
The underwriters are severally underwriting the shares being offered. The
underwriters are offering the shares when, as and if delivered to and accepted
by them, subject to various prior conditions, including their right to reject
orders in whole or in part. The underwriters expect to deliver the shares
against payment in New York, New York on April 9, 1999.
ING BARING FURMAN SELZ LLC VOLPE BROWN WHELAN & COMPANY
-----------------
THIS PROSPECTUS IS DATED APRIL 6, 1999.
<PAGE>
PROSPECTUS SUMMARY
THIS SUMMARY HIGHLIGHTS CERTAIN INFORMATION CONTAINED ELSEWHERE IN THIS
PROSPECTUS. YOU SHOULD READ THE ENTIRE PROSPECTUS CAREFULLY, ESPECIALLY THE
RISKS OF INVESTING IN OUR COMMON STOCK DISCUSSED UNDER "RISK FACTORS." EXCEPT AS
OTHERWISE NOTED, ALL INFORMATION IN THIS PROSPECTUS ASSUMES NO EXERCISE OF THE
UNDERWRITERS' OVER-ALLOTMENT OPTION AND GIVES EFFECT TO THE CONVERSION OF ALL
OUTSTANDING SHARES OF PREFERRED STOCK UPON CONSUMMATION OF THIS OFFERING. UNLESS
OTHERWISE NOTED, REFERENCES IN THIS PROSPECTUS TO "MEDICONSULT," "WE," "OUR" AND
"US" REFER TO MEDICONSULT.COM, INC., A DELAWARE CORPORATION, AND ITS
SUBSIDIARIES.
OUR BUSINESS
Mediconsult is a leading provider of patient-oriented healthcare information
and services on the World Wide Web. Our Web sites provide a trusted source of
comprehensive and easy to understand medical information and are designed to
empower consumers through increased education related to medical conditions and
treatment alternatives. Our Web sites also provide a destination on the Internet
where visitors can interact with others in a community environment. We
facilitate this environment through a well-organized, easy to navigate format
and an array of complementary services, including moderated on-line support
groups and discussion forums. By fostering communities centered around prevalent
medical conditions and health issues, we believe we create significant
opportunities for pharmaceutical and other healthcare companies to reach a
highly targeted consumer audience using Internet-based marketing and advertising
programs.
OUR WEB SITES
Since our inception in 1996, we have focused on becoming the leading
independent provider of medical information to consumers on the World Wide Web.
Our main Web site, MEDICONSULT.COM, includes comprehensive information on more
than 60 chronic medical conditions and health issues. We believe that in the
United States the chronic medical conditions covered on this Web site affect
more than 90 million people and represent a significant portion of healthcare
spending. We estimate that 62% of the visitors to MEDICONSULT.COM have been
diagnosed with or believe they have a chronic medical condition and that an
additional 21% are friends, family or caregivers. Our Web sites are intended to
educate patients on particular medical conditions, increase their awareness of
treatment options, describe the benefits of various treatments and generally
increase compliance with treatment protocols. Topics of greatest interest on
MEDICONSULT.COM include arthritis, asthma, attention deficit disorder, breast
cancer, depression, diabetes, eating disorders, fitness, heart disease,
hypertension, prostate cancer and smoking cessation. For most topics, visitors
can access a variety of resources, including:
- comprehensive and easy to understand medical information from a variety of
independent sources;
- a community of visitors with an interest or experience in the topic;
- an on-line moderated support group;
- our MediXpert service, which provides customized on-line medical reports
from medical specialists; and
- a selection of recommended books and other healthcare products for
purchase on-line.
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To improve the depth and breadth of our medical content and to increase
visitor traffic, we have recently completed strategic initiatives to purchase,
manage or sponsor the following Web sites:
- PHARMINFO.COM, a leading Web site providing information on pharmaceutical
products and clinical trials for pharmacists, physicians and consumers;
- CYBERDIET.COM, a Web site providing tailored nutritional information and
programs; and
- INCIID.ORG, a Web site providing information on infertility.
We also seek to increase our visitor traffic by licensing our content to,
and supporting Web sites established by, healthcare organizations and other
third parties. We believe that our Web sites collectively represent one of the
most highly trafficked consumer healthcare information sites on the Internet. In
January 1999 (on a pro forma basis as if acquired, managed or sponsored on the
first day of the month), our owned, managed and sponsored Web sites had more
than 1.3 million visitors viewing over 9.2 million pages of information.
MEDICONSULT.COM has received "best of web" awards from over 30 independent
organizations, including ENCYCLOPAEDIA BRITANNICA and POPULAR SCIENCE, and was
nominated for a "Webby" award in January 1999 by the International Academy of
Digital Arts and Sciences.
THE INTERNET HEALTHCARE USER
The Internet provides an effective method for consumers to access large
quantities of reliable and independent information on medical conditions,
treatments and potential outcomes. We believe that access to this information,
together with support groups and interaction with medical experts on-line, leads
to a greater understanding of health issues and improved patient compliance with
treatment protocols. Cyber Dialogue estimates that, for the 12 months ended July
1998, approximately 17 million adults in the United States searched on-line for
health-related information. Cyber Dialogue data indicates that these users are
better educated, have higher household incomes, are more often female and are
more experienced with the Internet than the general population of Internet
users. The demographics of the Internet healthcare user, combined with the
Internet's interactive nature, make the Internet an attractive medium for
targeted healthcare marketing and advertising programs.
CLIENT SERVICES
Our main source of revenue is through the development and implementation of
on-line marketing and advertising programs for pharmaceutical and other
healthcare companies. Due to recent regulatory changes regarding the type of
information that may be disclosed to consumers in pharmaceutical advertising and
increased demand for healthcare information by consumers, direct-to-consumer
(DTC) advertising of prescription pharmaceuticals has increased from $590
million in 1996 to an estimated $1.8 billion in 1998 and is projected to grow to
$7.5 billion in 2005. We believe that the Internet will capture an increasing
portion of this market as pharmaceutical companies recognize the value of this
medium for their products. We structure our programs to provide our clients with
a measurable return on investment by tracking the level of interest and
interactive responses of visitors. Our marketing programs use a broad range of
on-line strategies and resources to deliver a message consistent with our
clients' global marketing strategies, including one or more of the following:
- banner advertisements, visitor polls and surveys, and live events, to
build brand awareness;
- condition-specific content to educate the targeted visitor group;
- calls to action and other visitor interactions, such as requests for
product samples;
- design and development of customized Web sites focused on a particular
product, treatment or medical condition;
- development of product positioning strategies and initiation of on-line
program launches; and
- Web site management and support and visitor services.
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We are working with a number of pharmaceutical and other healthcare
companies to develop marketing and advertising programs. In June 1998, we
launched a comprehensive on-line program for the Habitrol smoking cessation
product of Novartis Consumer Health Canada. We are also developing programs for
a number of branded pharmaceutical products of Novartis Pharma, the worldwide
pharmaceutical division of Novartis. In addition, we have completed assessment
programs for Bristol Myers Squibb, Glaxo Wellcome and Astra Merck.
To broaden our marketing initiatives with the pharmaceutical industry, in
February 1999, we entered into a memorandum agreement to form a joint venture
with CommonHealth, the leading healthcare advertising firm worldwide and an
affiliate of Ogilvy & Mather and J. Walter Thompson. The joint venture is being
formed to offer innovative multimedia solutions to pharmaceutical and other
healthcare companies, based on our Internet expertise and CommonHealth's
experience in traditional media. Also, in order to enhance our content licensing
initiatives and generate additional revenue, we have entered into marketing
alliances with a number of organizations, including the healthcare division of
IBM, GeoAccess, a software development company focused on managed care
organizations, and the Ontario Hospital Association, an association of
approximately 185 not-for-profit hospitals.
OUR STRATEGY
Our strategy is to be the leading provider of healthcare information to
consumers on the Internet and to use this position to provide targeted marketing
and advertising programs for pharmaceutical and other healthcare companies. The
key elements of this strategy are to:
- enhance visitor experience and sense of on-line community;
- increase targeted traffic through strategic acquisitions and
relationships, and content licensing;
- broaden relationships with pharmaceutical advertisers; and
- build strong brand awareness.
RECENT DEVELOPMENTS
On February 26, 1999, we sold in a private placement an aggregate of 506,329
shares of our newly designated voting senior preferred stock and warrants
exercisable for five years to purchase 224,000 shares of the senior preferred
stock to Nazem & Company IV, L.P., Transatlantic Venture Fund C.V. (a joint
venture of Nazem & Company and Banque Nationale de Paris) and other individual
investors, for an aggregate of $3.2 million. The purchase price was, and the
conversion price of the senior preferred stock and exercise price of the
warrants is, $6.32 per share, an amount equal to 85% of the average bid and ask
price of our shares on the OTC Bulletin Board for the relevant 30-day period
preceding the closing of the private placement. The shares of senior preferred
stock are convertible at any time at the option of the holder into an equal
number of shares of common stock, subject to adjustment, and will be
automatically converted into an equal number of shares of common stock upon the
closing of this offering.
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THE OFFERING
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<S> <C>
Common stock offered by Mediconsult.......... 4,425,000 shares
Common stock offered by the Selling
Stockholders............................... 575,000 shares
Common stock to be outstanding after this
offering(1)(2)............................. 27,124,278 shares
Use of proceeds.............................. We intend to use the net proceeds of this
offering for working capital and other
general corporate purposes, and repayment of
stockholder advances of $0.5 million. See
"Use of Proceeds."
Nasdaq National Market symbol................ MCNS
</TABLE>
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(1) Based on shares outstanding as of December 31, 1998 and 18,000 shares issued
for options exercised subsequent to December 31, 1998 and assumes the
automatic conversion upon the consummation of this offering of (a) all
outstanding junior preferred stock into 3,583,333 shares of common stock,
(b) the 8% payable in kind dividend which has accrued on the junior
preferred stock through December 31, 1998 into 71,666 shares of common
stock, but does not include shares accruing thereafter, and (c) all
outstanding senior preferred stock into 506,329 shares of common stock.
(2) Excludes (a) shares that the underwriters have the option to purchase to
cover over-allotments, if any; (b) an aggregate of 2,000,000 shares of
common stock issuable upon the exercise of currently exercisable options
with an exercise price of $0.003 per share; (c) 400,000 shares of common
stock issuable upon the exercise of warrants, with an exercise price of
$1.22 per share; (d) 224,000 shares of common stock issuable upon the
exercise of warrants, with an exercise price of $6.32 per share; and (e)
862,950 shares of common stock reserved for issuance under the 1996 Stock
Option Plan as of December 31, 1998, of which options to purchase 716,000
shares were outstanding at that date with a weighted average exercise price
of $1.38 per share.
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SUMMARY CONSOLIDATED FINANCIAL DATA
(in thousands, except per share data)
The following summary consolidated financial data should be read in
conjunction with the consolidated financial statements and notes thereto,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Unaudited Pro Forma Consolidated Financial Information"
included elsewhere in this prospectus. The statement of operations data for the
years ended December 31, 1996, 1997 and 1998 and the balance sheet data as of
December 31, 1998 are derived from our audited financial statements, and are
included elsewhere in this prospectus. The historical results are not
necessarily indicative of future results. The following table also sets forth
summary pro forma financial and other data of Mediconsult on a consolidated
basis for the fiscal year ended December 31, 1998, after giving affect to the
acquisition of CyberDiet, Inc., which is subject to an option held by
Mediconsult that we expect to exercise. The summary consolidated pro forma data
for the year ended December 31, 1998 are derived from the "Unaudited Pro Forma
Consolidated Financial Information," giving effect to the events described
therein, included elsewhere in this prospectus. The pro forma financial data are
not necessarily indicative of operating results or financial position that would
have been achieved had these events been consummated on the dates indicated and
should not be construed as representative of future operating results or
financial position.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
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PRO FORMA
CONSOLIDATED
STATEMENT OF OPERATIONS DATA: 1996 1997 1998 1998(1)(2)
--------- --------- --------- -------------
<S> <C> <C> <C> <C>
Revenues................................................................ $ -- $ 256 $ 1,031 $ 1,070
Operating expenses:
Product and content development....................................... -- 766 1,316 1,381
Marketing, sales and client services.................................. 436 1,130 1,812 1,813
General and administrative............................................ 404 792 1,013 1,027
Depreciation and amortization......................................... -- 133 170 1,076
Fair value of options granted to employees............................ -- 40 275 275
Fair value of options and warrants granted to consultants............. -- -- 1,354 2,448
--------- --------- --------- -------------
Total operating expenses............................................ 839 2,861 5,940 8,020
--------- --------- --------- -------------
Loss from operations.................................................... (839) (2,605) (4,909) (6,950)
Interest income (expense), net.......................................... (23) (20) -- (4)
--------- --------- --------- -------------
Net loss................................................................ $ (862) $ (2,625) $ (4,909) $ (6,954)
--------- --------- --------- -------------
--------- --------- --------- -------------
Basic and diluted net loss per share.................................... $ (0.08) $ (0.16) $ (0.27) $ (0.38)
Shares used to compute basic and diluted net loss per share............. 11,138 16,730 17,911 18,311
Pro forma basic and diluted net loss per share (2)...................... $ (0.27) $ (0.38)
Shares used to compute pro forma basic and diluted net loss per share
(2)................................................................... 17,911 18,311
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1998
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<S> <C> <C> <C>
PRO FORMA
PRO FORMA AS
BALANCE SHEET DATA: ACTUAL CONSOLIDATED(1)(2) ADJUSTED(1)(2)(3)
----------- ------------------- -------------------
Cash............................................................. $ 135 $ 3,305 $ 55,765
Working capital.................................................. (593) 2,524 55,497
Total assets..................................................... 1,142 7,036 59,496
Stockholders' equity............................................. 278 6,113 59,087
</TABLE>
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(1) See "Unaudited Pro Forma Consolidated Financial Information" and related
notes thereto.
(2) Assumes the automatic conversion upon the consummation of this offering of
(a) all outstanding junior preferred stock into 3,583,333 shares of common
stock, (b) the 8% payable in kind dividend which has accrued on the junior
preferred stock through December 31, 1998 into 71,666 shares of common
stock, but does not include shares accruing thereafter, and (c) all
outstanding senior preferred stock into 506,329 shares of common stock. As
these conversions are anti-dilutive, pro forma basic and diluted net loss
per share equals basic and diluted net loss per share.
(3) As adjusted to reflect the sale of 4,425,000 shares of common stock offered
hereby at a public offering price of $13.00 per share and the receipt and
application of the estimated net proceeds therefrom.
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RISK FACTORS
THIS OFFERING INVOLVES A HIGH DEGREE OF RISK. YOU SHOULD CAREFULLY CONSIDER
THE RISKS DESCRIBED BELOW AND THE OTHER INFORMATION IN THIS PROSPECTUS BEFORE
DECIDING TO INVEST IN SHARES OF OUR COMMON STOCK. IF ANY OF THE FOLLOWING RISKS
ACTUALLY OCCUR, OUR BUSINESS, FINANCIAL CONDITION AND RESULTS OF OPERATIONS
WOULD LIKELY SUFFER. IN SUCH CASE, THE MARKET PRICE OF OUR COMMON STOCK COULD
DECLINE, AND YOU MAY LOSE ALL OR A PART OF THE MONEY YOU PAY TO BUY OUR COMMON
STOCK.
WE HAVE ONLY BEEN IN BUSINESS FOR A SHORT PERIOD OF TIME, SO YOUR BASIS FOR
EVALUATING US IS LIMITED.
We began operations in April 1996 when we launched a limited, initial Web
site. We launched a more extensive Web site in September 1996. As a result,
there is a limited history of operations for evaluating our business. You must
consider the risks and difficulties frequently encountered by early stage
companies in new and rapidly evolving markets, including the Internet market and
the direct-to-consumer advertising market. Some of these risks and uncertainties
relate to our ability to:
- design, develop and implement effective marketing and advertising programs
for existing clients and new clients;
- maintain and expand our relationship with Novartis;
- attract additional pharmaceutical and other healthcare advertisers in
order to generate significant revenue;
- build our organizational and technical infrastructures to manage our
growth effectively;
- maintain our current strategic relationships and develop new ones;
- respond effectively to actions taken by our competitors;
- attract a larger audience to our Web sites;
- increase awareness of our brand and continue to develop visitor loyalty;
- integrate acquired and managed businesses, technologies and services; and
- attract, retain and motivate qualified personnel.
If we are unsuccessful in addressing these risks and uncertainties, our
business, financial condition and results of operations will be materially and
adversely affected.
WE HAVE LOST MONEY IN EVERY QUARTER AND YEAR, AND WE EXPECT THESE LOSSES TO
CONTINUE IN THE FUTURE.
Since we began our operations in 1996, we have lost money in every quarter
and year. As of December 31, 1998, we had an accumulated deficit of
approximately $8.4 million. We intend to increase the amount of our expenses
significantly in the future in order to expand our operations and our employee
base. We do not expect that we will generate sufficient revenue to cover these
expenses through at least the year 2000. If our revenue does not increase and we
cannot adjust our level of spending adequately, we may not generate sufficient
revenue to become profitable. Even if we do become profitable, we may not be
able to sustain or increase profitability on a quarterly or annual basis in the
future. Our ability to generate revenue depends primarily upon our ability to
attract visitors to our Web sites and to attract pharmaceutical and other
healthcare advertisers as clients.
WE ARE DEPENDENT ON NOVARTIS FOR A SIGNIFICANT PORTION OF OUR REVENUE.
Approximately 55% of our revenue for the year ended December 31, 1997 and
65% of our revenue for the year ended December 31, 1998 resulted from
engagements by various independent divisions of Novartis AG. We anticipate that
these and other divisions will account for a substantial portion of our revenue
for the foreseeable future. We currently have an agreement with one division of
Novartis, Novartis Consumer Health Canada, to manage its Habitrol smoking
cessation Web site, which we designed, developed and implemented. We are
evaluating and working with Novartis Pharma to design, develop and manage
additional Web sites. We are also discussing with Novartis other possible
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marketing and advertising programs. We cannot predict whether we will be engaged
to perform any services as a result of these discussions. Novartis may elect to
terminate our agreements or engagements or it may demand changes to the terms of
these agreements or engagements that are less favorable to us than existing
terms. We do not have written agreements with Novartis for most of these
engagements. If we lose Novartis as a customer or the relationship becomes less
favorable to us, our business, financial condition and results of operations
will be materially and adversely affected.
Novartis may also choose to change or limit the products that it advertises
on the Internet or on our Web sites. If they do, this change could materially
and adversely impact our advertising revenue. In addition, our relationship with
Novartis could be negatively affected by any business or financial developments
that impact Novartis, such as a delay or failure to obtain or maintain FDA
approval of pharmaceutical products, a general downturn in its business or a
reduction in its direct-to-consumer advertising budget.
WE MAY HAVE DIFFICULTY MANAGING OUR EXPANDING OPERATIONS.
We are currently engaged in a significant expansion of our operations. Also
to date, a portion of our software development and all of our technical support,
network and hardware operations have been outsourced to a third party. Our
network and technical support are currently being transferred to another third
party and we are in the process of evaluating the establishment of a facility in
Toronto, Canada, where our software development and technical and network
support would be located. In addition, we are considering establishing an office
in Parsippany, New Jersey in the near future, in connection with our proposed
joint venture with CommonHealth.
As part of our expansion, we will have to implement additional operational
and financial systems, procedures and controls to maintain appropriate
coordination among our technical, accounting, finance, marketing, sales and
editorial staffs. If these systems and controls are not adequate, we will have
significant difficulty managing the various business functions of our operations
from multiple locations. We will also need to recruit, train and retain a
significant number of employees, particularly employees with technical,
marketing, sales and healthcare backgrounds. Individuals with these backgrounds
are in high demand and we are not certain that we will be able to attract the
staff we need. In addition, many of our senior management personnel have
recently joined Mediconsult and have not yet become integrated into and
experienced with our operations, policies, personnel and advertising clients. In
connection with the transition of our technical operations, difficulties may
arise that could cause disruptions in the operation of our Web sites. Any of the
risks described above could have a material and adverse effect on our business,
financial condition and results of operations.
BECAUSE OUR BUSINESS MODEL IS UNPROVEN, WE MAY NOT BE SUCCESSFUL.
There are various ways to sell advertising on the Internet, the most common
means being through simple advertisements on Web sites, known as banner
advertisements. Our business depends upon the sale of in depth Internet-based
marketing and advertising programs to pharmaceutical and other healthcare
companies. Sales of these programs usually depend upon a prospective client
first deciding to engage in direct-to-consumer advertising, then deciding to
adopt an Internet-based marketing or advertising strategy and finally
implementing that strategy by developing a marketing program for a particular
drug or other healthcare product. This typically involves a significant
commitment of time and money from the client and, we believe, requires us to
establish a closer relationship with the client than in the case of banner
advertisements. Based on our experience, it typically takes six weeks to nine
months to finalize an agreement with a potential customer. In addition, our
business depends upon our ability to design, develop and implement a customized
marketing and advertising program calculated to achieve the specific client's
marketing objectives. Our business, financial condition and results of
operations will be materially and adversely affected if the business model we
have adopted is not attractive to advertisers and if we are unable to adapt to
other business models for generating Internet advertising revenue.
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We currently intend to sell advertising on our Web sites solely to
pharmaceutical and other healthcare companies. Accordingly, our target customer
base is limited. Most of our current or potential advertising clients have
little or no experience using the Internet for marketing and advertising and
have allocated only a limited portion of their marketing and advertising budgets
to the Internet. The adoption of Internet marketing and advertising by entities
that have historically relied upon traditional media for marketing and
advertising requires the acceptance of a new way of conducting business,
exchanging information and advertising products and services. These customers
may find Internet advertising to be less effective than traditional advertising
media for promoting their products and services. In addition, direct-to-consumer
pharmaceutical advertising is a relatively new concept and, as a result, we
cannot assure you that it will increase, or if so, to what extent it will
increase, generally or through the Internet.
WE WILL NOT BE SUCCESSFUL IF THE USE OF THE INTERNET FOR ADVERTISING DOES NOT
CONTINUE TO INCREASE.
A significant percentage of our revenue will be derived from Internet
marketing and advertising for the foreseeable future. Since the Internet
advertising market is new and rapidly evolving, we cannot yet gauge its
acceptance as an effective media by advertisers. Our business, financial
condition and results of operations will be materially and adversely affected if
the Internet advertising market develops more slowly than we expect. Moreover,
"filter" software programs that limit or prevent advertising from being
delivered to an Internet visitor's computer are available. Widespread adoption
of this software could adversely affect the commercial viability of Internet
advertising and as a result would materially and adversely affect our business,
financial condition and results of operations.
Advertisers may choose not to advertise on our Web sites or may pay less for
advertising on our Web sites if they do not perceive the visitor measurements of
our Web sites to be reliable. No standards have been widely accepted to measure
the effectiveness of Internet advertising or to measure the demographics of our
visitor base. Third parties currently provide these measurement services for us.
If they are unable to provide these services in the future, we would be required
to perform them ourselves or obtain them from another provider. This could cause
us to incur additional costs or cause interruptions in our business while we
replace these services. In addition, we are implementing additional systems
designed to record demographic data of visitors. If we do not implement these
systems successfully, we may not be able to accurately evaluate the demographic
characteristics of the visitors.
WE DEPEND ON THE CONTINUED GROWTH OF THE INTERNET FOR OUR SERVICES.
The Internet is relatively new and is rapidly evolving. Our business,
financial condition and results of operations will be materially and adversely
affected if Internet usage does not continue to grow. Internet usage may be
inhibited for a number of reasons:
- demands placed on the Internet infrastructure and the potential decline in
performance and reliability as usage grows;
- security and authentication concerns with respect to the transmission over
the Internet of confidential information, like credit card numbers and
medical information, and attempts by unauthorized computer visitors, known
as hackers, to penetrate online security systems; and
- privacy concerns, including those related to the placement by Web sites of
certain information to gather visitor information, known as cookies, on a
visitor's hard drive without the visitor's knowledge or consent.
We must adapt as the Internet continues to evolve. To be successful, we must
adapt to the changing technologies in our rapidly evolving market by continually
enhancing our Web sites and introducing new services to address our customers'
changing demands. This will entail a continuous level of development and capital
spending and we could incur substantial additional costs if we need to modify
our services or infrastructure. Our business, financial condition and results of
operations will be
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materially and adversely affected if we incur significant costs to adapt, or
cannot adapt, to these changes.
YOU SHOULD NOT RELY ON OUR QUARTERLY OPERATING RESULTS AS AN INDICATION OF HOW
WE WILL DO IN THE FUTURE.
Our quarterly operating results may vary significantly in the foreseeable
future due to a number of factors that could affect our revenue, expenses or
prospects during any particular quarter. These factors include:
- the demand for direct-to-consumer healthcare advertising on the Internet
in general and on our Web sites in particular;
- visitor traffic levels on our Web sites;
- our ability to retain our significant clients, particularly Novartis;
- our ability to attract and retain other advertisers that are seeking
in-depth Internet-based marketing and advertising programs;
- changes in rates paid for Internet advertising resulting from competition
or other factors;
- technical difficulties or system downtime affecting the Internet or the
operation of our Web sites;
- the amount and timing of our costs related to our marketing and sales
efforts;
- costs we may incur as we expand our operations;
- seasonality in advertising sales and Internet usage;
- our ability to price our marketing and advertising programs profitably;
- costs related to the acquisition and integration of other businesses,
technologies and services; and
- economic conditions specific to the healthcare and pharmaceutical
industries and to the Internet.
The timing of our advertising sales is one of the most significant factors
affecting quarterly results. The time between the date of initial contact with a
potential advertiser and the execution of a contract with the advertiser
typically ranges from six weeks for smaller agreements to nine months for larger
agreements. These contracts are also subject to delays over which we have little
or no control, including customers' budgetary constraints, their internal
acceptance reviews, whether or when regulatory approval of their products is
given by the FDA or other regulatory authority, the possibility of cancellation
or delay of projects by advertisers and any post-approval actions taken by the
FDA or other regulatory authority, including product recalls. During the selling
process, we may expend substantial funds and management resources and yet not
obtain adequate advertising revenue. Once a contract is executed, a significant
portion of our revenue is derived from customized Web site development and
implementation projects, rather than from recurring fees. As a result, we cannot
predict with certainty when we will perform the work neccessary to receive
payment for these projects.
In any given quarter, we may not be able to adjust spending in a timely
manner to compensate for any unexpected shortfall in our revenue. Any
significant shortfall would have an immediate material and adverse effect on our
business, financial condition and results of operations. Since we have a limited
operating history, we cannot yet determine whether seasonal factors will affect
our quarterly operating results. Traffic levels on Web sites have typically
fluctuated during the summer and year-end vacation and holiday periods, and this
could result in a decrease in user traffic on our Web sites during these
periods.
Similar seasonal or other patterns may develop in the Internet advertising
industry. Due to all of the foregoing factors, and the other risks discussed in
this section, you should not rely on quarter-to-quarter comparisons of our
results of operations as an indication of future performance. It is
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possible that in some future periods our operating results will be below the
expectations of public market analysts and investors. In this event, the price
of our common stock would likely fall.
THERE ARE MANY COMPETITORS IN THE HEALTHCARE SEGMENT OF THE INTERNET MARKET AND
WE MAY NOT BE ABLE TO COMPETE EFFECTIVELY AGAINST THEM.
There are many companies that provide Internet and non-Internet based
marketing and advertising services to the healthcare industry. All of these
companies compete with us for advertisers, and Internet healthcare companies
also compete with us for visitor traffic. We expect competition to continue to
increase as there are no substantial barriers to entry in our market. Increased
competition could result in reductions in the fees we receive for our marketing
and advertising services, lower margins, loss of clients, reduced visitor
traffic to our Web sites, or loss of market share. Any of these occurrences
could materially and adversely affect our business, financial condition and
results of operations. Competition is also likely to increase significantly, not
only as new entities enter the market, but also as current competitors expand
their services. Our principal competitors include:
- advertising agencies and consulting firms, such as Young & Rubicam and
Agency.com, that develop marketing and advertising programs for
pharmaceutical and other healthcare companies;
- Web sites that deliver consumer healthcare information, either as their
sole focus or as part of a more broadly-based site, such as Health Oasis,
InteliHealth, iVillage, OnHealth, Thrive Online and WebMD;
- general purpose consumer on-line service providers, such as America Online
and Microsoft Network;
- Web site development firms, such as USWeb/CKS; and
- publishers and distributors of television, radio and print, such as CBS,
Disney, NBC and Time Warner.
Our ability to compete depends on a number of factors, many of which are
outside of our control. These factors include quality of content, ease of use,
timing and market acceptance of new and enhanced services, and level of sales
and marketing efforts.
Many of our existing competitors, as well as a number of potential new
competitors, have longer operating histories, greater name recognition, existing
relationships with pharmaceutical and other healthcare companies and
significantly greater financial, technical and marketing resources than we do.
This may allow them to devote greater resources than we can to the development
and promotion of their services. These competitors may also engage in more
extensive development efforts, undertake more far-reaching marketing campaigns,
adopt more aggressive pricing policies and make more attractive offers to
existing and potential employees, advertisers and alliance partners. Our
competitors may develop services that are equal or superior to those we provide
or that achieve greater market acceptance and brand recognition than we achieve.
In addition, current and potential competitors have established or may establish
cooperative relationships among themselves or with third parties to increase
their ability to address the needs of advertisers. It is possible that new
competitors may emerge and rapidly acquire significant market share. We may not
be able to compete successfully or competitive pressures may have a material
adverse effect on our business, results of operations and financial condition.
If advertisers perceive the Internet generally or our Web sites to be a
relatively limited or ineffective advertising medium, advertisers may be
reluctant to devote a significant portion of their advertising budget to
Internet advertising or to advertise on our Web sites.
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WE MUST CONTINUALLY ENHANCE AND DEVELOP THE CONTENT AND FEATURES OF OUR WEB
SITES TO ATTRACT VISITOR TRAFFIC AND ADVERTISERS.
We produce only a portion of the editorial content available on our Web
sites and rely on third-party firms and organizations for most of our content.
Much of the information on our Web sites is easily available from other sources.
Other Web sites may present the same or similar content in a superior manner to
our Web sites, which would adversely affect our visitor traffic. To remain
competitive, we must continue to enhance and improve our content. In addition,
we must continually improve the responsiveness, functionality and features of
our Web sites and develop other products and services attractive to visitors and
advertisers. Changes to our Web sites may contain undetected programming errors
that require significant design modifications, which may result in a loss of
consumer confidence and user support and a decrease in the value of our brand
name. We plan to develop and introduce new features, functions, content,
products and services that will require the development or licensing of
increasingly complex technologies. We may not succeed in developing or
introducing features, functions, products and services that will attract
visitors and advertisers, which would be likely to materially and adversely
affect our business, financial condition and results of operations.
WE NEED TO CREATE A MEDICONSULT BRAND IDENTITY TO BE SUCCESSFUL.
In order to build and align our brand awareness, we must succeed in our
marketing efforts, provide high-quality services and increase the number of
visitors to our Web sites. In addition, healthcare consumers must, among other
things, perceive us as offering relevant, reliable healthcare information from
trustworthy sources. We intend to increase significantly our marketing
expenditures as part of our brand-building efforts. If these efforts are
unsuccessful and we cannot increase our brand identity and increase revenue, our
business, financial condition and results of operations will be materially and
adversely affected.
WE ARE SUBJECT TO THE RISKS OF INTEGRATING AND SUCCESSFULLY FUNDING OUR JOINT
VENTURES AND ACQUISITIONS.
We have in the past developed joint ventures with and acquired complementary
businesses, technologies, services or products, including topic-specific Web
sites, and may continue to do so in the future. In February 1999, we executed a
memorandum of agreement outlining the principal terms of a joint venture with
CommonHealth, a healthcare advertising agency specializing in traditional media
advertising, to offer multimedia solutions to pharmaceutical and other
healthcare companies. We and CommonHealth have agreed on the outline of a
business plan and are in the process of developing more formal documentation for
the joint venture. We intend to commit a significant amount of personnel and
financial resources to the joint venture. The joint venture may not be
successfully established. If the joint venture is established, the operation of
the joint venture could be a significant distraction for our management and
require significant resources. In addition, issues may arise between the parties
as to whether the joint venture or one of the venturers has the right to market
and perform particular services for specific clients.
We recently acquired PHARMINFO.COM, a Web site providing information on
pharmaceutical products and clinical trials for pharmacists, physicians and
consumers. We also entered in agreements to manage CYBERDIET.COM, a Web site
providing tailored nutritional information and programs, and INCIID.ORG, a Web
site providing information on infertility. We have an option to acquire
CYBERDIET.COM as well. We may not receive a positive return on our investment in
these Web sites and may not realize other benefits anticipated from these
transactions. We may have difficulty assimilating these Web sites and their
operations with our existing Web sites, and this could result in a loss of
visitor traffic and revenue.
We may not be able to identify suitable acquisition candidates or joint
venture and alliance partners in the future. Even if we do identify suitable
candidates, we may not be able to enter into
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transactions with these candidates on commercially acceptable terms. If we make
other acquisitions or enter into these other arrangements, we could have
difficulty in integrating the acquired products, services or technologies into
our operations. These difficulties could disrupt ongoing business, distract
management and employees, increase our expenses and materially and adversely
affect our business, financial condition and results of operations. We may incur
significant amortization charges from the goodwill resulting from acquisitions.
We may also incur indebtedness or issue equity securities to pay for future
acquisitions or management or sponsorship rights. The issuance of equity
securities could be dilutive to our existing stockholders.
ASPECTS OF OUR WEB SITES MAY SUBJECT US TO REGULATORY OVERSIGHT AND OTHER
CONCERNS.
Under the "MediXpert" service we offer through MEDICONSULT.COM, visitors pay
a fee and ask a licensed physician particular medical questions. A number of
states have enacted laws which prohibit what is known as the corporate practice
of medicine. These laws are designed to prevent interference in the medical
decision-making process from anyone who is not licensed in that state. Although
we have attempted to structure this service in a manner that will not constitute
the practice of medicine, if the specialist is deemed to be practicing medicine,
the specialist may be required to be licensed as a physician in the jurisdiction
where the visitor resides, or we may be forced to cease providing the
"MediXpert" service. In addition, if our specialists are deemed to be practicing
medicine without a license, we may be subject to a lawsuit alleging the aiding
or abetting of the unlicensed practice of medicine or potentially a medical
malpractice lawsuit. We have attempted to design the "MediXpert" service to
avoid the claim that we or our specialists are practicing medicine. The
specialists provide general information in response to hypothetical questions.
No medical opinions or diagnoses are provided and no patient-specific
recommendations are made. We instruct the specialist to recommend that a visitor
consult with his/her physician, and state that all information provided is for
educational purposes only. Based on these limitations, we believe that the
services provided by our specialists do not constitute practicing medicine. In
the event that some state or other regulatory agency determines that we or our
specialists are practicing medicine without a license, we will be required to
revise or terminate this portion of our business and we could be subject to
possible liability.
Numerous state and federal laws also govern the delivery of healthcare
services and goods. Healthcare licensing laws and laws prohibiting the offer,
payment or receipt of remuneration to induce referrals to entities providing
healthcare services or goods, many of which are being actively enforced, apply
to Internet healthcare applications as well. In the event some state or federal
regulatory agency determined that our relationship with one or more of our
advertisers that deliver healthcare services or goods violate any such laws,
then we could be subjected to fines and other costs and could be required to
revise or terminate that portion of our business. Our pharmaceutical clients are
also subject to review by the FDA for compliance with regulations governing the
information that can be provided to consumers on a pharmaceutical product. These
regulations, for example, limit recommended uses to the specific uses approved
by the FDA. The FDA also monitors compliance with DTC advertising regulations.
If the FDA adopts regulations specifically aimed at pharmaceutical advertising
on the Internet or takes action with respect to a particular client's
advertising program, our existing marketing and advertising programs for clients
and future opportunities could be materially and adversely affected.
OUR KEY PERSONNEL ARE VERY IMPORTANT TO OUR SUCCESS.
Our future success depends on the services of our senior management
personnel. We do not have key person life insurance on any of our personnel.
Loss of any one or more of our senior management personnel would have a material
adverse effect on our business, financial condition and results of operations.
To be successful, we will also need to attract and retain individuals with
expertise in the areas of marketing and sales and technology. In addition, the
successful staffing and integration of our planned in-house programming
operations will depend on our ability to attract and retain qualified
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employees. Although we do not currently have a full-time Chief Financial
Officer, we are in the process of recruiting for this position. There is no
assurance as to when we will engage a Chief Financial Officer. Competition for
qualified personnel is intense, and the loss of key personnel, or the inability
to attract, train and retain the additional highly skilled personnel required
for the expansion of our activities, would materially and adversely affect our
business, financial condition and results of operations.
WE ARE CONTROLLED BY ONE OF OUR EXISTING STOCKHOLDERS, WHOSE INTERESTS MAY
DIFFER FROM OTHER STOCKHOLDERS.
Mr. Robert A. Jennings, our Chief Executive Officer, currently owns as an
individual and through affiliated entities controls 59.9% of the outstanding
shares of our common stock, and after the offering will own 48.9% of the
outstanding shares of our common stock. Accordingly, pursuant to Delaware
corporate law, Mr. Jennings will nearly control the election of all of our
directors and, in general, have sufficient voting power to determine (without
the consent of our other stockholders) the outcome of any corporate transaction
or other matter submitted to the stockholders for approval. These include
mergers, consolidations and the sale of all or substantially all of our assets,
and also the power to prevent or cause a change in control. The interests of Mr.
Jennings may differ from the interests of other stockholders.
WE ARE SUBJECT TO RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS.
Our business is conducted through operations and employees in Bermuda,
Canada and the United States. Our international operations and activities
subject us to a number of risks, which include the risk of complying with
multiple complex regulatory requirements, like European Community regulations
affecting Internet operations, and the risks of political and economic
instability, difficulty in managing foreign operations, potentially adverse
taxes, higher expenses and difficulty in collection of account receivables. In
addition, we receive most of our revenue in U.S. dollars, but a substantial
portion of our payroll and other expenses are paid in the currency of the
country where our employees reside or operations are located. Because our
financial results are reported in U.S. dollars, they are affected by changes in
the value of the various foreign currencies that we use to make payments in
relation to the U.S. dollar. We do not cover known or anticipated operating
exposures through foreign currency exchange option or forward contracts.
THE INTERNET IS SUBJECT TO MANY GOVERNMENTAL REGULATIONS WHICH MAY IMPACT OUR
ABILITY TO CONDUCT BUSINESS.
There is, and will be, an increasing number of laws and regulations
pertaining to the Internet. These laws or regulations may relate to liability
for information received from or transmitted over the Internet, online content
regulation, user privacy, taxation and quality of products and services. In
addition, the applicability to the Internet of existing laws governing
intellectual property ownership and infringement, copyright, trademark, trade
secret, obscenity, libel, employment, personal privacy and other issues is
uncertain and developing. Any new law or regulation, or the adverse application
or interpretation of existing laws, may decrease the growth in the use of the
Internet or our Web sites. This could decrease the demand for our services,
increase our cost of doing business or otherwise have a material adverse effect
on our business, financial condition or results of operations.
WE MAY BE SUBJECT TO CLAIMS BASED ON THE CONTENT WE PROVIDE ON THE INTERNET.
Because visitors to our Web sites may distribute our content to other
people, third parties might sue us for defamation, negligence, product
liability, copyright, or trademark infringement, or other matters. These types
of claims have been brought, sometimes successfully, against other on-line
services in the past. We may also incur liability for the content on other Web
sites that are linked to our Web sites or for content and materials that may be
posted by visitors in chat rooms or bulletin boards. Our
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e-mail services may also subject us to potential claims resulting from
unsolicited e-mail, lost or misdirected messages, illegal or fraudulent use of
e-mail or interruptions or delays in e-mail service. We also enter into
agreements with commerce partners that entitle us to receive a share of any
revenue from the purchase of goods and services through direct links from our
Web sites to their Web sites. These arrangements may subject us to additional
claims, including product liability or personal injury related to these products
and services, because we provide access to these products or services, even if
we do not provide the products or services ourselves.
SATISFACTORY PERFORMANCE OF OUR WEB SITES IS CRITICAL TO OUR BUSINESS AND
REPUTATION.
The performance of our Web sites is critical to our business and reputation
and to our ability to attract visitors and advertisers to our Web sites. We are
dependent upon the continuous, reliable and secure operation of Internet servers
and related hardware and software. To the extent that service is interrupted or
delayed, we could experience a decrease in traffic and revenue. We do not at
present have any back up "off-site" systems or a formal disaster recovery plan,
nor do we have insurance coverage for business interruption. Substantially all
of our communications hardware and some of our other computer hardware
operations are located in Cambridge, Massachusetts and Toronto, Canada. Fire,
floods, earthquakes, power loss, telecommunications failures, break-ins and
similar events could damage these systems. Computer viruses, electronic
break-ins or other similar disruptive problems could also adversely affect our
Web sites.
Our Web sites must accommodate a high volume of traffic and deliver
information that is updated frequently. Our Web sites have in the past and may
in the future experience slower response times or decreased traffic for a
variety of reasons. In addition, our visitors depend on Internet service
providers, online service providers and other Web site operators for access to
our Web sites. Many of them have experienced significant outages in the past and
could experience outages, delays and other difficulties due to system failures
unrelated to our systems in the future.
The on-going enhancement of our Web site is dependent upon the success of
development efforts that will be performed by in-house employees and by
contractors. To the extent that these development efforts are delayed or
unsuccessful, we will incur additional development expenses and may not remain
competitive in the design and use of our Web sites.
A LACK OF SECURITY OVER THE INTERNET MAY IMPACT OUR BUSINESS.
A significant barrier to electronic commerce and confidential communications
over the Internet has been the need for secure transmission of confidential
information. Internet usage could decline if any well-publicized compromise of
security occurred. We may incur significant costs to protect against the threat
of security breaches or to alleviate problems caused by such breaches.
Experienced programmers could attempt to penetrate our network security.
Programmers who are able to penetrate our network security could misappropriate
proprietary information or cause interruptions in our services, and we could be
required to expand capital and resources to protect against or to alleviate
problems caused. Purposeful security breaches could have a material adverse
effect on our business, results of operation and financial condition.
WE ARE DEPENDENT ON OUR INTELLECTUAL PROPERTY.
Trademarks, copyrights and other proprietary rights are important to our
success and our competitive position. Third parties may infringe or
misappropriate our trademarks, copyrights and other proprietary rights, which
could have a material and adverse effect on our business, financial condition
and results of operations. In addition, we do not know how extensive our
intellectual property protection is since the validity, enforceability and scope
of protection of proprietary rights in Internet-related industries is uncertain
and still evolving.
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We license some of our content from third parties. It is possible that we
could become subject to infringement actions based upon the content obtained
from these third parties. In addition, others may use this content and we may be
subject to claims from our licensors. These claims, with or without merit, could
subject us to costly litigation and the diversion of our financial resources and
technical and management personnel. We have entered into confidentiality
agreements with our key employees and independent consultants and we have
instituted procedures to control access to and distribution of our technology,
documentation and other proprietary information and the proprietary information
of others from which we have licensed content or technology. Despite our efforts
to protect our proprietary rights, parties may attempt to disclose, obtain or
use our content or technologies. There can be no assurance that the steps we
have taken will prevent misappropriation of our content or technologies.
YEAR 2000 PROBLEMS MAY DISRUPT OUR BUSINESS.
It is generally anticipated that many organizations will experience
operational difficulties at the beginning of the year 2000 as a result of the
fact that many currently installed computer systems and software products are
coded to accept only two digit entries in the date code field. The costs of
defending and resolving year 2000-related disputes, and any liability of
Mediconsult for year 2000-related damages, including consequential damages,
could have a material adverse effect on our business, financial condition and
results of operations. Based on our assessment to date, we believe that our
internal systems are year 2000 compliant and will not produce erroneous results,
fail to function, or interrupt performance. Despite our testing, our systems may
contain undetectable errors or defects associated with the year 2000 and
operational difficulties may result. To the extent that our assessment is
finalized without identifying any additional material non-compliant information
technology systems or non-information technology systems that we operate or that
are operated by third parties, the most reasonably likely worst case year 2000
scenario is a systemic failure beyond our control, such as a prolonged Internet,
telecommunications or electrical failure. Such a failure could prevent us from
operating our business, prevent visitors from accessing our Web sites, or change
the behavior of consumers accessing our Web sites. We believe that the primary
business risks, in the event of such a failure, would include lost advertising
revenue, increased operating costs, loss of visitors to our Web site, or other
business interruptions of a material nature, as well as claims of mismanagement,
misrepresentation, or breach of contract, any of which could have a material
adverse effect on our business, results of operations and financial condition.
We have not made any contingency plans to address such risks.
WE CURRENTLY HAVE NO SPECIFIC USE FOR A SUBSTANTIAL PORTION OF THE NET PROCEEDS
FROM THIS OFFERING.
Our management will have broad discretion with respect to how the net
proceeds of this offering will be spent. Except to repay amounts advanced by a
stockholder, market our Web sites and brand name and hire new personnel, we
currently do not have any specific plans for the use of the net proceeds from
this offering. Accordingly, we will have broad discretion as to the use of the
net proceeds, including uses with which the stockholders may not agree.
FUTURE SALES OF OUR COMMON STOCK BY OUR EXISTING STOCKHOLDERS COULD HAVE AN
ADVERSE EFFECT ON THE MARKET PRICE OF OUR COMMON STOCK.
The market price of our common stock could decline as a result of sales by
our existing stockholders of a large number of shares of common stock in the
market after this offering, or the perception that these sales may occur. These
sales also might make it more difficult for us to sell equity securities in the
future at a time and at a price that we deem appropriate. Please see
"Description of Securities--Registration Rights" and "Shares Eligible for Future
Sale."
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OUR STOCK PRICE IS VOLATILE AND COULD CONTINUE TO BE VOLATILE.
Following this offering, investment interest in Mediconsult may not lead to
the development of an active or liquid trading market. The market price of our
common stock has fluctuated in the past and is likely to continue to be volatile
and subject to wide fluctuations. In addition, the stock market has experienced
extreme price and volume fluctuations. The stock prices and trading volumes for
many Internet companies fluctuate widely for reasons that may be unrelated to
their business or results of operations. The market price of our common stock
may decline below the offering price. General economic, market and political
conditions could also materially and adversely affect the market price of our
common stock and investors may be unable to resell their shares of common stock
at or above the offering price.
INVESTORS WILL EXPERIENCE IMMEDIATE AND SUBSTANTIAL DILUTION.
Investors purchasing common stock in this offering will incur immediate
dilution of net tangible book value per share of common stock. For a more
detailed discussion of this dilution, see "Dilution."
IT MAY BE DIFFICULT FOR A THIRD PARTY TO ACQUIRE US.
Provisions of our certificate of incorporation, our by-laws and Delaware law
could make it more difficult for a third party to acquire us, even if it would
be beneficial to our stockholders.
FORWARD LOOKING STATEMENTS; MARKET DATA
A number of statements made in this prospectus, including under the captions
"Prospectus Summary," "Risk Factors," "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Business" are
forward-looking statements. These forward-looking statements are not historical
facts. Because these forward-looking statements involve risks and uncertainties,
there are important factors that could cause actual results to differ materially
from those expressed or implied by these forward-looking statements, including
those discussed under "Risk Factors."
This prospectus contains market data related to Mediconsult and the
Internet. This data has been included in the studies prepared by the Internet
market research firms of Cyber Dialogue, Jupiter Communications and Media
Metrix. This market data includes projections that are based on a number of
assumptions. The assumptions include that: (1) no catastrophic failure of the
Internet will occur; (2) the number of people who use the Internet and the total
number of hours spent online will increase significantly over the next five
years; (3) the value of online advertising dollars spent for each hour a visitor
is online will increase; (4) the speed at which content can be downloaded from
the Internet will increase dramatically; and (5) Internet security and privacy
concerns will be adequately addressed.
This prospectus also contains market data related to DTC advertising. This
data has been included in the studies prepared by Consumer Health Information
Corporation and Med Ad News. This market data includes projections that are
based on a number of assumptions. The assumptions include that: (1) there will
be no adverse changes in existing DTC advertising regulations; (2) DTC
advertising spending will continue to be accepted by pharmaceutical companies as
an attractive vehicle for advertising; (3) the number of pharmaceutical products
covered by DTC advertising will continue to increase; and (4) advertisers will
increasingly use the Internet as a forum for DTC advertising.
If any one or more of these assumptions turns out to be incorrect, actual
results may differ from the projections given by these firms. These markets may
not grow at the rates projected by the firms named above or at all. The failure
of these markets to grow at such projected rates could have a material adverse
effect on our business, financial condition and results of operations, and the
market price of our common stock.
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USE OF PROCEEDS
The net proceeds to us from the sale of the shares offered by us under this
prospectus, after deducting underwriting discounts and the estimated offering
expenses payable by us, are estimated to be approximately $52,973,250 (and an
additional $4,533,750 if the underwriters' over-allotment option is exercised in
full), at a public offering price of $13.00 per share. We will not receive any
proceeds from the sale of common stock by the Selling Stockholders.
We intend to use a significant portion of the net proceeds to recruit, train
and manage an expanded marketing, sales and technical staff and to significantly
expand the marketing of our Web sites and brand name. We also intend to use $0.5
million to repay advances from our majority stockholder and $0.7 million for the
establishment of our in-house technical operations. The balance of the net
proceeds will be used for working capital and other general corporate purposes.
Management will have significant flexibility in applying the net proceeds of
this offering. Pending any such use, as described above, we intend to invest the
net proceeds in investment grade interest-bearing instruments.
PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY
On April 6, 1999, our common stock began trading on the Nasdaq National
Market. Previously, our common stock had been quoted on the OTC Bulletin Board.
The following table sets forth, for the periods indicated, the high and low
closing sale prices per share of the common stock as reported on the OTC
Bulletin Board.
<TABLE>
<CAPTION>
PRICE RANGE OF
COMMON STOCK
--------------------
HIGH LOW
--------- ---------
<S> <C> <C>
Year Ended December 31, 1997
First Quarter.............................................................................. $ 2.10 $ 1.61
Second Quarter............................................................................. 2.44 1.32
Third Quarter.............................................................................. 3.00 1.70
Fourth Quarter............................................................................. 1.70 1.05
Year Ended December 31, 1998
First Quarter.............................................................................. $ 2.10 $ 1.00
Second Quarter............................................................................. 1.92 1.25
Third Quarter.............................................................................. 1.68 0.64
Fourth Quarter............................................................................. 9.56 0.49
Year Ending December 31, 1999
First Quarter.............................................................................. $ 23.88 $ 6.19
</TABLE>
On April 5, 1999, the reported last sale price of the common stock on the
OTC Bulletin Board was $15.13.
We have not declared or paid any cash dividends on our capital stock since
inception and do not expect to pay any cash dividends for the foreseeable
future. We currently intend to retain future earnings, if any, to finance the
expansion of our business.
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CAPITALIZATION
The following table sets forth (a) the historical capitalization as of
December 31, 1998 on an actual basis, (b) the pro forma consolidated
capitalization adjusted to give effect to (i) the issuance of $3.2 million of
senior preferred stock, (ii) the conversion of the outstanding junior preferred
stock and senior preferred stock into shares of common stock upon the
consummation of this offering, (iii) the issuance of 400,000 shares of common
stock for the acquisition of CyberDiet, which is subject to an option held by
Mediconsult that we expect to exercise, and (iv) 18,000 shares issued in respect
of options exercised subsequent to December 31, 1998, and (c) the pro forma
consolidated capitalization, as further adjusted to give effect to the sale of
the shares of common stock offered by this prospectus and the receipt and
application of the estimated net proceeds therefrom. This should be read in
conjunction with "Selected Financial Data," "Management's Discussion and
Analysis of Financial Condition and Results of Operations," "Certain
Transactions" and our financial statements and notes thereto included elsewhere
in this prospectus.
<TABLE>
<CAPTION>
DECEMBER 31, 1998
-------------------------------------------------
<S> <C> <C> <C>
PRO FORMA
PRO FORMA AS
ACTUAL CONSOLIDATED(1) ADJUSTED(1)(2)
-------------- ----------------- --------------
<CAPTION>
(IN THOUSANDS)
<S> <C> <C> <C>
Advances from stockholder.................................... $ 514 $ 514 $ --
Stockholders' equity:
Preferred stock, 5,000,000 shares authorized:
Senior preferred stock, $0.001 par value, 1,000,000
shares authorized, no shares issued or outstanding
actual, pro forma and pro forma as adjusted............ -- -- --
Junior preferred stock, $0.001 par value, 1,000,000
shares authorized, 430,000 shares issued and
outstanding actual; no shares issued and outstanding
pro forma and pro forma as adjusted.................... 4,300 -- --
Common stock, $0.001 par value; 50,000,000 shares
authorized, 18,519,950 shares issued and outstanding
actual; 23,099,278 shares issued and outstanding pro
forma; 27,524,278 shares issued and outstanding pro forma
as adjusted.............................................. 19 23 28
Additional paid-in capital................................. 5,243 16,539 69,508
Deferred compensation...................................... (884) (884) (884)
Accumulated deficit........................................ (8,399) (9,565) (9,565)
------- ------- -------
Total stockholders' equity............................... 278 6,113 59,087
------- ------- -------
Total capitalization..................................... $ 792 $ 6,627 $ 59,087
------- ------- -------
------- ------- -------
</TABLE>
- ------------------------------
(1) Excludes (a) an aggregate of 2,000,000 shares of common stock issuable upon
the exercise of currently exerciseable options with an exercise price of
$0.003 per share; (b) 400,000 shares of common stock issuable upon the
exercise of warrants, with an exercise price of $1.22 per share; (c) 224,000
shares of common stock issuable upon the exercise of warrants, with an
exercise price of $6.32 per share; (d) shares issuable in respect of the 8%
payable in kind dividend on the junior preferred stock accruing from and
after January 1, 1999; and (e) 862,950 shares of common stock reserved for
issuance under the 1996 Stock Option Plan as of December 31, 1998, of which
options to purchase 716,000 shares were outstanding at the date with a
weighted average exercise price of $1.38 per share.
(2) As adjusted to reflect the sale of 4,425,000 shares of common stock offered
hereby at a public offering price of $13.00 per share and the receipt and
application of the estimated net proceeds therefrom.
18
<PAGE>
DILUTION
Our adjusted net tangible book value as of December 31, 1998 was
approximately $2.6 million, or $0.11 per share of common stock, calculated as
follows. Net tangible book value per share is equal to our total tangible assets
minus total liabilities divided by the number of shares of common stock
outstanding at February 26, 1999, after giving effect to the conversion of all
outstanding shares of junior preferred stock into 3,654,999 shares of common
stock and the issuance, application of net proceeds from and conversion of all
outstanding shares of senior preferred stock into 506,329 shares of common
stock, upon the closing of this offering. After giving effect to the sale of the
4,425,000 shares of common stock offered by this prospectus and deducting
underwriting discounts and commissions and estimated offering expenses payable
by us, our pro forma net tangible book value would have been approximately $55.5
million, or $2.05 per share of common stock. This represents an immediate
increase in net tangible book value of $1.94 per share to existing stockholders
and an immediate dilution of $10.95 per share to new investors. Dilution is
determined by subtracting pro forma net tangible book value per share after the
offering from the amount of cash paid by a new investor for a share of common
stock. The following table illustrates this dilution:
<TABLE>
<S> <C> <C>
Public offering price per share.................................... $ 13.00
Net tangible book value per share as of December 31, 1998...... $ 0.11
Increase in net tangible book value per share attributable to
new investors................................................ $ 1.94
Pro forma net tangible book value per share after the offering..... $ 2.05
---------
Dilution per share to new investors................................ $ 10.95
---------
---------
</TABLE>
Based on the same assumptions used in the table set forth above, the
following table sets forth on a pro forma basis, after giving effect to the
conversion of the outstanding junior preferred stock and senior preferred stock
into shares of common stock as of December 31, 1998 and the issuance of 18,000
shares of common stock subsequent to December 31, 1998, the number of shares of
common stock purchased from us, the total consideration paid and the average
price per share paid by existing stockholders and by new investors:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
----------------------- ------------------------ PRICE PER
NUMBER PERCENT AMOUNT PERCENT SHARE
------------ --------- ------------- --------- -----------
<S> <C> <C> <C> <C> <C>
Existing stockholders (1)(2)...................... 22,699,278 83.7% $ 15,678,058 21.4% $ 0.69
New investors..................................... 4,425,000 16.3 57,525,000 78.6 13.00
------------ --------- ------------- ---------
Total......................................... 27,124,278 100.0% $ 73,203,058 100.0%
------------ --------- ------------- ---------
------------ --------- ------------- ---------
</TABLE>
- ------------------------------
(1) Excludes (a) an aggregate of 2,000,000 shares of common stock issuable upon
the exercise of currently exerciseable options with an exercise price of
$0.003 per share, (b) 400,000 shares of common stock issuable upon the
exercise of warrants, with an exercise price of $1.22 per share; (c) 224,000
shares of common stock issuable upon the exercise of warrants, with an
exercise price of $6.32 per share; and (d) 862,950 shares of common stock
reserved for issuance under the 1996 Stock Option Plan as of December 31,
1998, of which options to purchase 716,000 shares were outstanding at that
date with a weighted average exercise price of $1.38 per share.
(2) The sale of 575,000 shares of common stock in this offering (375,000
additional shares if the underwriters over-allotment option is exercised in
full) by the Selling Stockholders includes 100,000 shares issuable upon the
exercise of a warrant, and will cause the number of shares owned by existing
stockholders to be reduced to 22,224,278, or 81.9% of the total number of
shares of common stock outstanding after this offering.
19
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
The following unaudited pro forma consolidated financial information is
based on Mediconsult's and CyberDiet's historical financial statements included
elsewhere herein. The Unaudited Pro Forma Financial Information gives effect to
(a) the acquisition of CyberDiet, which is subject to an option held by
Mediconsult that we expect to exercise, as if such transaction had occurred on
January 1, 1998 for the pro forma consolidated statements of operations and
December 31, 1998 for the pro forma balance sheet and (b) other adjustments
relating to (i) the issuance of $3.2 million of senior preferred stock, net of
issuance cost, and (ii) the conversion of the outstanding junior preferred stock
and senior preferred stock into shares of common stock upon the consummation of
this offering. The pro forma adjustments are described in the accompanying notes
and are based upon available information and certain assumptions that we believe
are reasonable. The Unaudited Pro Forma Consolidated Financial Information is
presented for informational purposes only and does not purport to represent what
our financial position or results of operations would actually have been if this
transaction had occurred on the date specified or to project our financial
position or results of operations at any future date or for any future periods.
The Unaudited Pro Forma Consolidated Financial Information should be read in
conjunction with Mediconsult's consolidated historical financial statements, and
the notes thereto, included elsewhere herein. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
MEDICONSULT ACQUISITION OTHER PRO FORMA
HISTORICAL CYBERDIET ADJUSTMENTS(1) ADJUSTMENTS(2) CONSOLIDATED
----------- ------------- --------------- -------------- ------------
<S> <C> <C> <C> <C> <C>
Revenues...................................... $ 1,031 $ 39 $ -- $ -- $ 1,070
Operating expenses:
Product and content development............. 1,316 65 -- -- 1,381
Marketing, sales and client services........ 1,812 1 -- -- 1,813
General and administrative.................. 1,013 14 -- 1,027
Depreciation and amortization............... 170 906(1) 1,076
Fair value of options granted to
employees................................. 275 -- -- -- 275
Fair value of options and warrants granted
to consultants............................ 1,354 -- -- 1,094 2,448
----------- --- ----- ------- ------------
Total operating expenses.................. 5,940 80 906 1,094 8,020
----------- --- ----- ------- ------------
Loss from operations.......................... (4,909) (41) (906) (1,094) (6,950)
Interest income (expense)..................... -- (4) -- -- (4)
----------- --- ----- ------- ------------
Net loss...................................... $ (4,909) $ (45) $ (906) $ (1,094) $ (6,954)
----------- --- ----- ------- ------------
----------- --- ----- ------- ------------
</TABLE>
See Notes to Unaudited Pro Forma Consolidated Financial Statements.
20
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
MEDICONSULT ACQUISITION OTHER PRO FORMA
HISTORICAL CYBERDIET ADJUSTMENTS(1) ADJUSTMENTS(2)(3) CONSOLIDATED(4)
----------- ------------- --------------- ----------------- --------------
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash.......................... $ 135 $ 10 $ -- $ 3,160 $ 3,305
Accounts receivable........... 136 6 -- -- 142
----------- ------ ------ ------ --------------
Total current assets...... 271 16 -- 3,160 3,447
----------- ------ ------ ------ --------------
Non-current assets:
Tangible assets............... 53 -- -- -- 53
Intangible assets............. 819 -- 2,718 -- 3,536
----------- ------ ------ ------ --------------
Total non-current
assets.................. 872 -- 2,718 -- 3,589
----------- ------ ------ ------ --------------
Total assets.............. $ 1,142 $ 16 $ 2,718 $ 3,160 $ 7,036
----------- ------ ------ ------ --------------
----------- ------ ------ ------ --------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued
liabilities................. $ 243 $ 5 $ -- $ -- $ 248
Advances from stockholder..... 514 -- -- -- 514
Unearned revenue.............. 107 -- -- -- 107
Other current liabilities..... -- 54 -- -- 54
----------- ------ ------ ------ --------------
Total current
liabilities............. 864 59 -- -- 923
----------- ------ ------ ------ --------------
Stockholders' Equity:
Preferred stock............... 4,300 -- -- (4,300) --
Common stock.................. 19 -- -- 4 23
Additional paid-in capital.... 5,243 71 2,604 8,622 16,539
Deferred compensation......... (884) -- -- -- (884)
Retained earnings (8,399) (113) 113 (1,166) (9,565)
----------- ------ ------ ------ --------------
Total stockholders'
equity.................. 278 (43) 2,718 3,160 6,113
----------- ------ ------ ------ --------------
Total liabilities and
stockholders' equity.... $ 1,142 $ 16 $ 2,718 $ 3,160 $ 7,036
----------- ------ ------ ------ --------------
----------- ------ ------ ------ --------------
</TABLE>
See Notes to Unaudited Pro Forma Consolidated Financial Statements.
21
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
(1) Represents the preliminary allocation of the excess of the purchase price
over the assets and liabilities to be acquired and the related amortization
in connection with the probable acquisition of CyberDiet. Mediconsult is in
the process of completing its valuation of the assets and liabilities of
CyberDiet, pending the completion of its valuation. Mediconsult has assumed
for purposes of pro forma information that the fair values of assets and
liabilities will approximate underlying book values. The purchase price was
determined based on the quoted market price of the 400,000 shares of common
stock of Mediconsult.com, Inc. on February 25, 1999, when substantial
agreement was reached on the terms of the acquisition. Purchase price
($2,675,000) in excess of the assumed fair value of net assets acquired
($(43,083)) has been allocated to intangible assets and amortized over three
years. This resulted in adjustments to record $2,718,083 of intangible
assets and annual amortization of $906,044. The final allocation of purchase
price may differ materially from amounts assumed in the accompanying pro
forma information.
(2) Represents the approximate fair value of the 200,000 warrants with an
exercise price of $1.22 per share delivered to Arnhold and S. Bleichroeder,
Inc. upon the initial filing of this prospectus,
which will be recorded as an expense in Mediconsult's statement of
operations for 1999.
(3) Represents the (i) issuance and conversion of $3.2 million of senior
preferred stock into shares of common stock upon the consummation of this
offering, (ii) the conversion of $4.3 million of junior preferred stock into
shares of common stock upon the consummation of this offering and (iii) the
conversion of cumulative dividends payable on the junior preferred stock
into 71,666 shares of common stock.
(4) Excludes (a) an aggregate of 2,000,000 shares of common stock issuable upon
the exercise of currently exercisable options with an exercise price of
$0.003 per share; (b) 200,000 shares of common stock issuable upon the
exercise of warrants, with an exercise price of $1.22 per share; (c) 224,000
shares of common stock issuable upon the exercise of warrants, with an
exercise price of $6.32 per share; (d) shares issuable in respect of the 8%
payable in kind dividend on the junior preferred stock accruing from and
after January 1, 1999; and (e) 862,950 shares of common stock reserved for
issuance under the 1996 Stock Option Plan as of December 31, 1998, of which
options to purchase 716,000 shares were outstanding at the date with a
weighted average exercise price of $1.38 per share.
22
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
(in thousands, except per share data)
The following selected consolidated financial data should be read in
conjunction with the consolidated financial statements and notes thereto,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," and "Unaudited Pro Forma Consolidated Financial Information"
included elsewhere in this prospectus. The statement of operations data for the
years ended December 31, 1996, 1997 and 1998 and the balance sheet data as of
December 31, 1997 and 1998 are derived from our audited financial statements,
and are included elsewhere in this prospectus. The balance sheet data as of
December 31, 1996 is derived from our audited financial statements not included
in this prospectus. Our historical results are not necessarily indicative of
future financial results. The following table also sets forth selected
consolidated pro forma financial and other data of Mediconsult on a consolidated
basis for the fiscal year ended December 31, 1998, after giving effect to the
acquisition of CyberDiet, Inc., which is subject to an option held by
Mediconsult that we expect to exercise. The selected consolidated pro forma data
for the fiscal year ended December 31, 1998 are derived from the "Unaudited Pro
Forma Consolidated Financial Information," giving effect to the events described
therein, included elsewhere in this prospectus. The pro forma financial data are
not necessarily indicative of operating results or financial positions that
would have been achieved had these events been consummated on the dates
indicated and should not be construed as representative of future operating
results or financial position.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------
PRO FORMA
CONSOLIDATED
STATEMENT OF OPERATIONS DATA: 1996 1997 1998 1998(1)(2)
--------- --------- --------- ---------------
<S> <C> <C> <C> <C>
Revenues............................................... $ -- $ 256 $ 1,031 $ 1,070
Operating expenses:
Product and content development...................... -- 766 1,316 1,381
Marketing, sales and client services................. 436 1,130 1,812 1,813
General and administrative........................... 404 792 1,013 1,027
Depreciation and amortization........................ 133 170 1,076
Fair value of options granted to employees........... -- 40 275 275
Fair value of options and warrants granted to
consultants........................................ -- -- 1,354 2,448
--------- --------- --------- ---------------
Total operating expenses........................... 839 2,861 5,940 8,020
--------- --------- --------- ---------------
Loss from operations................................... (839) (2,605) (4,909) (6,950)
Interest income (expense), net......................... (23) (20) -- (4)
--------- --------- --------- ---------------
Net loss............................................... $ (862) $ (2,625) $ (4,909) $ (6,954)
--------- --------- --------- ---------------
--------- --------- --------- ---------------
Basic and diluted net loss per share................... $ (0.08) $ (0.16) $ (0.27) $ (0.38)
Shares used to compute basic and diluted net loss per
share................................................ 11,138 16,730 17,911 18,311
Pro forma basic and diluted net loss per share (2)..... $ (0.27) $ (0.38)
Shares used to compute pro forma basic and diluted net
loss per share (2)................................... 17,911 18,311
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------------------
PRO FORMA
CONSOLIDATED
BALANCE SHEET DATA: 1996 1997 1998 1998(1)(2)
--------- --------- --------- ---------------
<S> <C> <C> <C> <C>
Cash................................................... $ 393 $ 401 $ 135 $ 3,305
Working capital........................................ 292 373 (593) 2,524
Total assets........................................... 760 752 1,142 7,036
Stockholders' equity................................... 525 566 278 6,113
</TABLE>
- ------------------------------
(1) See "Unaudited Pro Forma Consolidated Financial Information" and related
notes thereto.
(2) Assumes the automatic conversion upon the consummation of this offering of
(a) all outstanding junior preferred stock into 3,583,333 shares of common
stock, (b) the 8% payable in kind dividend which has accrued on the junior
preferred stock through December 31, 1998 into 71,666 shares of common
stock, but does not include shares accruing thereafter, and (c) all
outstanding senior preferred stock into 506,329 shares of common stock. As
these conversions are antidilutive, pro forma basic and diluted net loss per
share equals basic and diluted net loss per share.
23
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION AND ANALYSIS OF OUR FINANCIAL CONDITION AND RESULTS
OF OPERATIONS SHOULD BE READ IN CONJUNCTION WITH THE ACCOMPANYING FINANCIAL
STATEMENTS AND THE NOTES TO THOSE STATEMENTS INCLUDED ELSEWHERE IN THIS
PROSPECTUS. THE FOLLOWING DISCUSSION CONTAINS FORWARD-LOOKING STATEMENTS THAT
INVOLVE RISKS AND UNCERTAINTIES. PLEASE SEE "RISK FACTORS" AND "FORWARD-LOOKING
STATEMENTS; MARKET DATA."
OVERVIEW
Mediconsult is a leading provider of patient-oriented healthcare information
and services on the World Wide Web. Our Web sites provide a trusted source of
comprehensive and easy to understand medical information and are designed to
empower consumers through increased education related to medical conditions and
treatment alternatives. Our Web sites also provide a destination on the Internet
where visitors can interact with others in a community environment. We
facilitate this environment through a well-organized, easy to navigate format
and an array of complementary services, including moderated on-line support
groups and discussion forums. By fostering communities centered around over 60
prevalent medical conditions and health issues, we believe we create significant
opportunities for pharmaceutical and other healthcare companies to reach a
highly targeted consumer audience using Internet-based marketing and advertising
programs.
BACKGROUND
For the period from the inception of our operations in April 1996 through
January 1997, our operating activities related primarily to the initial
development of our MEDICONSULT.COM Web site and operating infrastructure, and
also the recruitment of employees. Since the formal launch of MEDICONSULT.COM in
1997, we have focused on developing content, organizing the content in an easy
to navigate format, and improving the functionality of MEDICONSULT.COM. We
continue to refine our strategy of creating targeted on-line marketing and
advertising programs for large pharmaceutical and other healthcare
organizations, and are developing and implementing these types of programs for
our clients. We structure our programs to provide our advertisers with a
measurable return on investment by tracking the level of interest and
interactive responses of visitors. Our programs utilize a broad range of on-line
strategies and resources to deliver a message consistent with the advertisers'
global marketing strategy.
REVENUE SOURCES
Our main source of revenue is through client services related to the
development and support of on-line marketing and advertising programs for
pharmaceutical and other healthcare companies. These services typically include
the design, development and management of customized Web sites relating to a
particular pharmaceutical or other health-related product. Client services also
include marketing research, focus group testing and on-line testing of visitors'
preferences. Revenue from client services is recognized over the period that the
services are performed. Revenue from support services, principally the
management of Web sites that we develop for our clients, is recognized ratably
over the management periods, generally on a monthly basis. Payments received
from clients prior to the performance of client services are recorded as
unearned revenue.
We also provide advertising services involving the sale of advertising space
on the Web sites we own, manage or sponsor. These services can be provided
separately or as part of a more comprehensive suite of client services.
Advertising services include banner advertisements, polls, surveys, registration
programs, coupons and other interactive forms of advertising. Revenue from
advertising sales is recognized ratably over the period in which the
advertisement is displayed, if no significant obligations remain. In certain
cases, advertising revenue from the sale of advertising space is related to the
delivery
24
<PAGE>
of impressions or click-throughs from pages viewed by visitors to our Web sites.
In these cases, we may guarantee a minimum number of impressions or
click-throughs by visitors over a specified period of time. To the extent that
revenue is related to the number of impressions or click-throughs, we defer
recognition of this revenue until the required impressions or click-throughs are
achieved. Payments received from advertisers prior to displaying their
advertisements are recorded as deferred revenue. We do not engage in barter
transactions with respect to our advertising services.
We also derive revenue from licensing our MEDICONSULT.COM content and
providing Web site support to healthcare and other organizations. These
organizations make our content available to visitors to their Web sites or to
Web sites of their clients. Revenue from content licensing is recognized over
the period of the license. In certain cases, we design and develop these Web
sites. The portion of licensing revenue related to up-front customized design
work is recognized over the period that the work is performed. In certain cases,
we derive additional revenue from the management of the Web site or its content.
Revenue from management services is recognized ratably over the period the
services are performed, generally on a monthly basis. We also may retain the
right to place advertising on a Web site that hosts our content.
Although we have certain electronic commerce alliances with merchants of
healthcare-oriented books and products, revenue from these revenue-sharing
arrangements has not been material. Revenue from our share of the proceeds from
our electronic commerce partners' sales is recognized by us upon notification
from our commerce partners of sales attributable to our Web sites.
MARKETING AND SALES INITIATIVES
In late 1997, we initiated our first significant marketing and advertising
program. We were engaged by Novartis Consumer Health Canada to develop a
comprehensive on-line smoking cessation program for its Habitrol brand, focused
on Canadian consumers. We developed the Web site for this program during early
1998, for which we received payment as services were performed. We received
revenue for maintaining and upgrading this program (beginning with its launch in
June 1998), and receive monthly advertising revenue for referring visitor
traffic to the Habitrol Web site. We are currently expanding the Habitrol
program to provide French and professional healthcare versions of the Web site.
We have also generated revenue from developing programs for a number of
branded pharmaceutical products for Novartis Pharma, the worldwide
pharmaceutical division of Novartis. We are developing the Web sites for these
programs and receiving payment as the services are performed. In 1998, revenue
from Novartis represented $0.7 million or 65% of our total revenue. We have also
completed assessment programs for Bristol Myers Squibb, Glaxo Wellcome and Astra
Merck. The loss of Novartis as a customer or any changes to the existing
relationship that are less favorable to us, or any significant reduction in
traffic on or through the Novartis Web sites that we manage, will materially and
adversely affect our business, financial condition and results of operations.
To date, our revenue has been generated primarily by our internal sales
organization and, to a lesser extent, by third party advertising
representatives. As of December 31, 1998, we had an internal marketing, sales
and program design organization of 14 professionals. We believe that we need to
significantly increase the size of our internal marketing and sales organization
to execute successfully our growth strategy and, accordingly, we intend to hire
additional marketing and sales professionals in 1999.
To complement our direct sales force, in February 1999, we entered into a
memorandum of agreement outlining the principal terms of a 50/50 joint venture
with CommonHealth LLP, the leading healthcare advertising firm worldwide.
CommonHealth is an affiliate of Ogilvy & Mather and J. Walter Thompson. The
joint venture is being formed to offer innovative multimedia solutions to
pharmaceutical and other healthcare companies, based on our Internet expertise
and CommonHealth's experience in traditional media. It is currently contemplated
that each party will perform services on behalf of the joint
25
<PAGE>
venture, and will each charge the joint venture for work performed by it at its
normal rates. The joint venture may also recruit its own employees, some of whom
may come from Mediconsult and some of whom may come from CommonHealth. Profits
of the joint venture will be shared equally by the parties, and losses of the
joint venture will be shared in proportion to each party's billings to the joint
venture.
In order to enhance our content licensing initiatives and generate
additional revenue, we have entered into marketing alliances with a number of
companies and organizations. These include the healthcare division of IBM,
GeoAccess, a software development company focused on the managed care sector,
and the Ontario Hospital Association, an association of approximately 185
not-for-profit hospitals.
VISITOR TRAFFIC
To improve the depth and breadth of our medical content and to increase
visitor traffic, we have recently completed strategic initiatives to purchase,
manage or sponsor the following Web sites:
- PHARMINFO.COM, a leading Web site providing information on pharmaceutical
products and clinical trials for pharmacists, physicians and consumers. We
acquired PHARMINFO.COM in December 1998, in exchange for 100,000 shares of
our common stock. The fair value of these shares of common stock was $0.8
million, which was capitalized and will be amortized over three years.
- CYBERDIET.COM, a Web site providing tailored nutritional information and
programs. In February 1999, we entered into a memorandum of agreement
outlining the principal terms of an exclusive management arrangement with
CyberDiet, Inc., the owner of CYBERDIET.COM, granting to Mediconsult the
sole right to place advertisements on the Web site, to link traffic, and
to manage the content on the Web site. We have an option to purchase
CyberDiet, Inc., and this company has under certain circumstances the
right to cause us to purchase it, in exchange for 400,000 shares of our
common stock. We expect to exercise this option.
- INCIID.ORG, a Web site providing information on infertility. In February
1999, we entered into an exclusive sponsorship agreement with the
InterNational Counsel of Infertility Information Dissemination, a
not-for-profit organization, relating to INCIID.ORG and granting to
Mediconsult the sole right to place advertisements on the Web site, to
link traffic, and to manage the content on the Web site. In connection
with this agreement, we have committed to pay INCIID $0.5 million per year
beginning in 1999, for three years in equal quarterly installments, in
cash or common stock as we determine with respect to each quarter.
We believe that our Web sites collectively represent one of the most highly
trafficked consumer healthcare information sites on the Internet. In January
1999 (on a pro forma basis as if acquired, managed or sponsored on the first day
of the month), our owned, managed and sponsored Web sites had more than 1.3
million visitors viewing over 9.2 million pages of information.
CORPORATE
Mediconsult was originally incorporated under the laws of the State of
Colorado in October 1989. In April 1996, we purchased Mediconsult.com Limited, a
Bermuda corporation (MCL), through a merger in which MCL became a wholly-owned
subsidiary. In December 1996, we consummated a reincorporation merger pursuant
to which we became a Delaware corporation. Mediconsult conducts its business
primarily through MCL, its Bermudian subsidiary. In addition to MCL, Mediconsult
has established subsidiaries in the United States, Canada and the United
Kingdom. Our operations are conducted by MCL, which has obtained an exemption
from all Bermudian income taxes until the year 2016. MCL has, however, entered
into service agreements with other subsidiaries of Mediconsult for
26
<PAGE>
their employees to provide services to MCL. These subsidiaries will be subject
to income taxes in their jurisdictions.
STOCK OPTIONS AND WARRANTS
Stock options granted to consultants and employees are expensed over their
vesting period, based on their fair value at the date of grant, under Statement
of Financial Accounting Standards No. 123 "ACCOUNTING FOR STOCK-BASED
COMPENSATION." As more fully described below in "Results of Operations," we have
recorded compensation expense in connection with the vesting of stock options
during the years ended December 31, 1997 and 1998, as well as deferred
compensation expense for the value of options granted that were not vested as of
such dates. We currently expect to amortize $0.9 million in 1999 and $27,693 in
2000 as deferred compensation expense in respect of options outstanding at
December 31, 1998. In addition, pursuant to an agreement with Arnhold and S.
Bleichroeder, Inc. to provide us with investment advisory services, we have
issued to this firm warrants to purchase an aggregate of 400,000 shares of
common stock with an exercise price of $1.22 per share, which was the closing
price of our common stock on the contract date. Of this amount, warrants for
200,000 shares of common stock were delivered upon initial filing of this
prospectus and warrants for 200,000 shares of common stock are deliverable in
2000, if certain conditions are met. Delivery of the warrants will result in the
recognition of an expense in the statement of operation equal to the fair value
of the warrants on the date of delivery.
RESULTS OF OPERATIONS
REVENUE. Revenue consists of fees received for the design, development and
implementation of on-line marketing and advertising programs, including Web site
development and implementation, advertising services, licensing our content and
Web site support. We did not have any revenue for the period from April 23, 1996
(the initial launch of MEDICONSULT.COM) to December 31, 1996. Revenue was $0.3
million for the year ended December 31, 1997 and $1.0 million for the year ended
December 31, 1998. The period-to-period growth in revenue was primarily
attributable to an increase in the number of clients and the number of marketing
and advertising programs developed and implemented for those clients.
PRODUCT AND CONTENT DEVELOPMENT. Product and content development costs
include expenses incurred by us to develop, enhance, manage, monitor and operate
our Web sites. These costs have consisted primarily of salaries and fees paid to
employees and consultants to develop and maintain the software and information
contained on our MEDICONSULT.COM Web site. For the period ended December 31,
1996, these costs consisted primarily of third party software development
expenses, which were deferred and amortized over the years ended December 31,
1997 and 1998. For the year ended December 31, 1997, these costs were $0.8
million and for the year ended December 31, 1998, these costs were $1.3 million.
For 1997 and 1998, these costs related primarily to the development of
healthcare content.
MARKETING, SALES AND CLIENT SERVICES. Marketing, sales and client services
costs include expenses incurred by us to obtain and maintain client
relationships. These costs included salaries and fees paid to employees and
consultants, and programming costs. In 1996, the marketing, sales and client
services costs were $0.4 million. In 1997, we began a process of developing
prototype marketing and advertising programs, and in the fourth quarter of 1997
began the development of our first client marketing program. For the year ended
December 31, 1997, marketing, sales and client services costs were $1.1 million.
For the year ended December 31, 1998, these costs were $1.8 million, consisting
primarily of costs associated with the development and implementation of
specific client marketing programs and of new prototype marketing and
advertising programs.
27
<PAGE>
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
consist primarily of salaries and related costs for general corporate functions,
including finance, accounting and legal expenses, and fees for other
professional services. For the year ended December 31, 1996, general and
administrative expenses were $0.4 million. These expenses were $0.8 million for
the year ended December 31, 1997, and $1.0 million for the year ended December
31, 1998. The increase in general and administrative expenses was primarily
attributable to increased salaries and related expenses associated with hiring
additional personnel to support the growth of our operations.
FAIR VALUE OF OPTIONS GRANTED TO EMPLOYEES AND CONSULTANTS. We have
recorded compensation expense in connection with the vesting of employee stock
options of $40,235 during the year ended December 31, 1997, and $0.3 million
during the year ended December 31, 1998. In addition, for the year ended
December 31, 1998, we recorded compensation expense of $1.4 million for a stock
option granted to a consultant. Compensation expense represents the amortization
of deferred compensation which is measured based on the fair value of the
options granted. These amounts are amortized over the vesting period of the
applicable options. Compensation expense in respect of the options granted to a
consultant is related to an option for 2,000,000 shares of common stock granted
pursuant to a Strategic Consulting Interim Agreement with Treacy & Co., LLC, a
company controlled by Michael Treacy, a director of Mediconsult, as payment for
marketing consulting services. These services included marketing, sales and
client services advice, strategic planning and seconding Mr. Swanson to act in
the capacity of Vice President, Sales. We have recorded deferred compensation
for the value of the options granted that are not yet vested of $0.1 million as
of December 31, 1997 and $0.9 million as of December 31, 1998.
QUARTERLY RESULTS OF OPERATIONS DATA
The following table sets forth certain unaudited quarterly consolidated
statement of operations data for each of the eight quarters ended December 31,
1998. In the opinion of management, this data has been prepared substantially on
same basis as the audited financial statements appearing elsewhere in this
prospectus, and includes all necessary adjustments, consisting only of normal
recurring adjustments necessary for fair presentation of this data. The
quarterly data should be read in conjunction with the financial statements and
the notes to these statements appearing elsewhere in this prospectus. The
results of operations for any quarter are not necessarily indicative of the
results of operations for any future period.
We have a limited operating history upon which to evaluate our business and
predict revenue and planned operating expenses. Our quarterly operating results
may to vary significantly in the foreseeable future due to a variety of factors,
many of which are outside of our control. The timing of our advertising sales is
one of the most significant factors affecting quarterly results. The time
between the date of initial contact with a potential advertiser and the
execution of a contract with the advertiser typically ranges from six weeks for
smaller agreements to nine months for larger agreements. These contracts are
also subject to delays over which we have little or no control, including
customers' budgetary constraints, their internal acceptance reviews, whether or
when regulatory approval of their products is given by the FDA or other
regulatory authority, the possibility of cancellation or delay of projects by
advertisers and any post-approval actions taken by the FDA or other regulatory
authority, including product recalls. During the selling process, we may expend
substantial funds and management resources and yet not obtain adequate
advertising revenue. Once a contract is executed, a significant portion of our
revenue is derived from customized Web site development and implementation
projects, rather than from recurring fees. As a result, we cannot predict with
certainty when we will perform the work neccessary to receive payment for these
projects. In addition, traffic levels on Web sites have
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typically fluctuated during the summer, and during year-end and holiday periods,
and we could experience a decrease in visitor traffic to our Web sites during
these periods.
<TABLE>
<CAPTION>
QUARTER ENDED
--------------------------------------------------------------------------------------
MAR. 31, JUN. 30, SEP. 30, DEC. 31, MAR. 31, JUN.30, SEP. 30, DEC. 31,
1997 1997 1997 1997 1998 1998 1998 1998
--------- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(in thousands)
STATEMENT OF OPERATIONS DATA:
Revenues................................ $ 16 $ 88 $ 69 $ 84 $ 206 $ 215 $ 238 $ 372
Operating expenses:
Product and content development....... 235 141 178 212 250 260 401 405
Marketing, sales and client
services............................ 232 236 284 379 189 492 234 896
General and administrative (1)........ 210 211 257 247 210 263 228 481
Fair value of options granted to
employees........................... -- -- -- 40 39 30 26 180
Fair value of options granted to
consultants......................... -- -- -- -- -- -- -- 1,354
--------- --------- --------- --------- --------- --------- --------- ---------
Total operating expenses............ 677 588 719 878 688 1,045 889 3,317
--------- --------- --------- --------- --------- --------- --------- ---------
Loss from operations.................... (661) (501) (649) (794) (482) (830) (651) (2,945)
Interest income (expense), net.......... (10) (10) -- -- -- -- -- --
--------- --------- --------- --------- --------- --------- --------- ---------
Net loss................................ $ (671) $ (511) $ (649) $ (794) $ (482) $ (830) $ (651) $ (2,945)
--------- --------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- --------- ---------
</TABLE>
- ------------------------------
(1) Includes $133 in 1997 and $170 in 1998 of depreciation expense.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, we have financed our operations primarily through the
private placement of equity securities and advances from our principal
stockholder. As of December 31, 1998, we had $0.1 million in cash and cash
equivalents. In February 1999, we received $3.2 million in proceeds from a
private placement of equity securities to certain unrelated investors.
We have incurred substantial costs to design, develop and implement
Internet-based marketing and advertising programs for our clients, to build
brand awareness and to grow our business. As a result, we have incurred
operating losses and negative cash flows from operations in each quarter since
we commenced operations. As of December 31, 1998, we had an accumulated deficit
of $8.4 million. These losses have been funded primarily through advances by our
majority stockholder, an entity controlled by Robert A. Jennings, our Chairman
and Chief Executive Officer. These advances aggregated $4.8 million as of
December 31, 1998. Of this amount, $4.3 million is evidenced by junior preferred
stock of Mediconsult, which will be converted into common stock upon
consummation of this offering. The balance constitutes an interest free advance
of $0.5 million repayable upon demand and is expected to be repaid from the
proceeds of this offering.
To date, we have experienced negative cash flows from operating activities.
For the period ended December 31, 1996, net cash used in operating activities
was $1.0 million. For the year ended December 31, 1997, net cash used in
operating activities was $2.5 million. For the year ended December 31, 1998, net
cash used in operating activities was $2.7 million. Net cash used in operating
activities for these periods was primarily attributable to our net losses during
these periods. Net cash used reflected several factors, including (1) increased
operating expenses as our business volume increased; (2) a higher level of
accounts receivable due to growth of marketing and advertising program revenue;
and (3) increases in accounts payable, accrued expenses and deferred revenues,
which partially
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offset the increases. For the year ended December 31, 1998, the increase in net
cash used in operating activities was primarily attributable to our net
operating loss of $4.9 million. The net loss for 1998 was offset by certain
non-cash items of $1.9 million in the aggregate. This amount was comprised of
deferred compensation expense of $1.6 million related to stock options granted
to consultants and employees, depreciation of $0.2 million and the value of
services received in exchange for common stock of $0.1 million.
For the period ended December 31, 1996, net cash used in investing
activities was $0.2 million. For the year ended December 31, 1997, net cash used
in investing activities was $0.1 million. For the year ended December 31, 1998,
net cash used in investing activities was $30,225. All net cash used in
investing activities related to capital expenditures, primarily the acquisition
of equipment.
For the period ended December 31, 1996, net cash provided by financing
activities was $1.6 million. For the year ended December 31, 1997, net cash
provided by financing activities was $2.6 million. For the year ended December
31, 1998, net cash provided by financing activities was $2.4 million. Net cash
proceeds from financing activities in 1996 was primarily attributable to the
issuance of common stock and to a lesser extent from unsecured advances from our
majority stockholder. Net cash proceeds from financing activities in 1997 and
1998 was primarily attributable to net proceeds we received from unsecured
advances from the majority stockholder in the aggregate amount of $2.6 million
in 1997 and $2.2 million in 1998. By September 30, 1998, $4.3 million of the
cash advances from our majority stockholder made prior to that date had been
converted into junior preferred stock. The junior preferred stock will convert
into common stock upon the closing of this offering.
As of December 31, 1998, we had no principal capital commitments
outstanding. We have spent $0.4 million on capital expenditures since inception.
We estimate that our capital expenditures will be $0.7 million for 1999,
principally for improvements to our technical infrastructure, including the
transfer of our main production and development equipment operations from a
third party to our own facility.
In connection with our planned 50/50 joint venture with CommonHealth, we
expect to advance approximately $0.3 million to the joint venture as our share
of its initial capitalization. Under our agreement with CommonHealth, we may
borrow this amount from CommonHealth. If we do borrow this amount, we must repay
it from 25% of our half of the net profits of the joint venture, if any, and, in
any event within three years from the formation of the joint venture or sooner
if the joint venture is terminated.
In connection with our sponsorship and management of INCIID.ORG, we have
committed to pay INCIID $0.5 million per year beginning in 1999 for three years
in equal quarterly installments, in cash or common stock as we determine with
respect to each quarter.
On February 26, 1999, we sold in a private placement an aggregate of 506,329
shares of our newly designated senior preferred stock and warrants exercisable
for five years to purchase 224,000 shares of such senior preferred stock to
Nazem & Company IV, L.P., Transatlantic Venture Fund C.V. (a joint venture of
Nazem & Company and Banque Nationale de Paris) and other individual investors,
for an aggregate of $3.2 million. The purchase price was, and the conversion
price of the senior preferred stock and exercise price of the warrants is, $6.32
per share, an amount equal to 85% of the average bid and ask price of our shares
on the OTC Bulletin Board for the relevant 30-day period preceding the closing.
The shares of senior preferred stock are convertible at any time at the option
of the holder into an equal number of shares of common stock, subject to
adjustment, and will be automatically converted into an equal number of shares
of common stock upon the closing of this offering. The senior preferred stock
has voting rights on an as-converted basis. In connection with such private
placement, we agreed to provide the holders of senior preferred stock or common
stock issuable upon the conversion of senior preferred stock demand and piggy
back registration rights, the right to tag-along with our founders in certain
sales of their shares, and the right to nominate a member of our
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board of directors so long as they maintain at least 50% of their original share
position. So long as the investors hold at least 50% of their original share
position, we agreed not to effect any material change in the direction of our
business unless approved by at least two-thirds of the board of directors and
then only after consultation with the investors.
In March 1999, we entered into a source code license agreement with
TVisions, relating to the proprietary software that we use to operate
MEDICONSULT.COM and certain other of our Web Sites. We paid TVisions the sum of
$260,000 as payment in full for this license.
Our ability to generate significant revenue is uncertain. We incurred net
losses of approximately $0.9 million for the year ended December 31, 1996, $2.6
million for the year ended December 31, 1997 and $4.9 million for the year ended
December 31, 1998. We expect losses from operations and negative cash flow to
continue for the foreseeable future and at least through the year 2000 as a
result of our expansion plans and our expectation that our operating expenses
will increase significantly in the next several years. The rate at which these
losses will be incurred may increase from current levels. Although we have
experienced revenue growth in recent periods, our revenue may not remain at its
current level or increase in the future. If our revenue does not increase and if
our spending levels are not adjusted accordingly, we may not generate sufficient
revenue to achieve profitability, which would have a material adverse effect on
our business, financial condition and results of operations. Even if we achieve
profitability, we may not sustain or increase profitability on a quarterly or
annual basis in the future.
Our working capital requirements depend on numerous factors. We have
experienced a substantial increase in our expenditures since our inception
consistent with growth in our operations and staffing, and anticipate that this
will continue for the foreseeable future. We anticipate incurring additional
expenses to increase our marketing and sales efforts, for content development
and for technology and infrastructure development. Additionally, we will
continue to evaluate possible investments in businesses, products and
technologies, the expansion of our marketing and sales programs and more
aggressive brand promotions. If we experience a shortfall in revenue in relation
to our expenses, or if our expenses precede increased revenue, our business,
financial condition and results of operation and could be materially and
adversely affected.
We currently anticipate that our available cash resources combined with the
net proceeds from this offering will be sufficient to meet our anticipated needs
for working capital and capital expenditures through at least the year 2000. We
may need to raise additional funds, however, in order to fund more rapid
expansion, to develop new or enhance existing services or products, to respond
to competitive pressures or to acquire complementary products, businesses or
technologies. There can be no assurance that any required additional financing
will be available on terms favorable to us, or at all. If additional funds are
raised by the issuance of our equity securities, stockholders may experience
dilution of their ownership interest and these securities may have rights senior
to those of the holders of the common stock. If additional funds are raised by
the issuance of debt by us, we may be subject to certain limitations on our
operations, including limitations on the payment of dividends. If adequate funds
are not available or not available on acceptable terms, we may be unable to fund
our expansion, successfully promote our brand name, take advantage of
acquisition opportunities, develop or enhance services or respond to competitive
pressures, any of which could have a material adverse effect on our business,
financial condition and results of operations.
Although a significant portion of our revenue is derived from activities
conducted outside the United States, fees paid to us have been and are expected
to continue to be paid in U.S. dollars. However, a substantial portion of our
payroll is paid and it is expected that rent under leases of office facilities
outside the United States will be paid, in currencies other than U.S. dollars.
Because our financial results are reported in U.S. dollars, they are affected by
changes in the value of the various foreign currencies in which we make payments
in relation to the U.S. dollar. We do not cover known
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or anticipated operating exposures through foreign currency exchange option or
forward contracts. The primary currency for which we have foreign currency
exchange rate exposure is the Canadian dollar. Our financial instruments,
including cash, accounts receivable, accounts payable and accrued liabilities
and advances from shareholder are carried at cost which approximates their fair
value because of the short-term maturity of these instruments.
IMPACT OF RECENT ACCOUNTING PRONOUNCEMENTS
In March 1998, the Accounting Standards Executive Committee (AcSEC) issued
Statement of Position (SOP) 98-1, "ACCOUNTING FOR THE COSTS OF COMPUTER SOFTWARE
DEVELOPED OR OBTAINED FOR INTERNAL USE." This SOP provides guidance on
accounting for the costs of computer software developed or obtained for internal
use. SOP 98-1 identifies the characteristics of internal-use software and
provides examples to assist in determining when computer software is for
internal use and whether it should be expensed or capitalized. The SOP is
effective for financial statements for fiscal years beginning after December 15,
1998. We believe that we currently comply with the provisions of this standard
and, therefore, believes that the adoption of this standard will not have a
significant impact on our business, financial condition and results of
operations.
The AcSEC SOP 98-5, "REPORTING COST OF START-UP ACTIVITIES," effective for
fiscal years beginning after December 15, 1998, requires costs of start-up
activities and organization costs to be expensed as incurred. Currently, we
expense these costs as incurred and, consequently, we believe that the adoption
of this SOP will not have an impact on our business, financial condition and
results of operations.
YEAR 2000
Some computers, software and other equipment include programming code in
which calendar year data is abbreviated to only two digits. As a result of this
design decision, some of these systems could fail to operate or fail to produce
correct results if "00" is interpreted to mean 1900, rather than 2000. These
problems are widely expected to increase in frequency and severity as the year
2000 approaches and are commonly referred to as the year 2000 problem.
Significant uncertainty exists in the software and Internet industries
concerning the scope and magnitude of problems associated with the year 2000
problem.
INTERNAL INFRASTRUCTURE. We believe that we have identified substantially
all of the major computers, software applications and related equipment used in
connection with our internal operations to determine if they will be year 2000
compliant. Based on our assessment to date, we presently believe that our
internal computer systems are year 2000 compliant. Nevertheless, we continue to
test our internal systems, on a system by system basis, as we complete our
ongoing compliance efforts with respect to non-information technology systems.
SYSTEMS OTHER THAN INFORMATION TECHNOLOGY SYSTEMS. In addition to computers
and related systems, the operation of our offices and facilities equipment, such
as fax machines, photocopiers, telephone switches, security systems, elevators
and other common devices may be affected by the year 2000 problem. We have
completed the assessment of potential effect of, and costs of remediating, any
year 2000 problem related to this equipment. We do not have extensive facilities
and office equipment at this time. We estimate that our total cost of completing
any required modifications, upgrades or replacements of these internal systems
will not be material.
SUPPLIERS. We have been gathering information from and have initiated
communications with our service and content providers to identify and, to the
extent possible, resolve issues involving the year 2000 problem. However, we
have limited or no control over the actions of our service and content
providers. Thus, while we expect that we will be able to resolve any significant
year 2000 problems with our systems, we cannot guarantee that our service and
content providers will resolve any or all year
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2000 problems with their systems before the occurrence of a material disruption
to our business. Any failure of these third-parties to resolve year 2000
problems with their systems in a timely manner could have a material adverse
effect on our business, financial condition and results of operations.
MOST LIKELY CONSEQUENCES OF YEAR 2000 PROBLEMS. We expect to identify and
resolve all year 2000 problems that could materially adversely affect our
business, financial condition or operating results. However, we believe that it
is not possible to determine with complete certainty that all year 2000 problems
affecting us have been identified or corrected. The number of devices that could
be affected and the interactions among these devices are simply too numerous. In
addition, we cannot accurately predict how many failures related to the year
2000 problem will occur or the severity, duration or financial consequences of
such failures. As a result, we expect that we could possibly suffer the
following consequences:
- a significant number of operational inconveniences and inefficiencies for
us, our service and content providers and our visitors that may divert our
time and attention and financial and human resources from our ordinary
business activities; and
- a lesser number of serious system failures that may require significant
efforts by us, our service and content providers or our visitors to
prevent or alleviate material business disruptions.
In addition, there can be no assurance that governmental agencies, utility
companies, Internet access companies, third-party service providers and others
outside of our control will be year 2000 compliant. The failure of these
entities to be year 2000 compliant could result in a systemic failure beyond our
control, such as a prolonged Internet, telecommunications or electrical failure,
which could also prevent us from operating our business, prevent visitors from
accessing our Web sites, or change the behavior of consumers accessing our Web
sites, which could have a material adverse effect on our business, financial
condition and results of operations.
CONTINGENCY PLANS. As discussed above, we are engaged in an ongoing year
2000 assessment and have not yet developed any contingency plans. The results of
our year 2000 simulation testing and the responses received from third-party
vendors and service providers will be taken into account in determining the
nature and extent of any contingency plans.
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DESCRIPTION OF BUSINESS
OVERVIEW
Mediconsult is a leading provider of patient-oriented healthcare information
and services on the World Wide Web. Our Web sites provide a trusted source of
comprehensive and easy to understand medical information and are designed to
empower consumers through increased education related to medical conditions and
treatment alternatives. Our Web sites also provide a destination on the Internet
where visitors can interact with others in a community environment. We
facilitate this environment through a well-organized, easy to navigate format
and an array of complementary services, including moderated on-line support
groups and discussion forums. By fostering communities centered around prevalent
medical conditions and health issues, we believe we create significant
opportunities for pharmaceutical and other healthcare companies to reach a
highly-targeted consumer audience using Internet-based marketing and advertising
programs.
Our address is 33 Reid Street, 4th Floor, Hamilton, Bermuda. Our telephone
number is (441) 292-0474. Our main Web site is WWW.MEDICONSULT.COM. Information
contained on our Web sites is not, and should not be deemed to be, a part of
this prospectus.
INDUSTRY BACKGROUND
As consumers have become more proactive in their personal healthcare
decisions, they have increasingly searched for information about medical
conditions, treatment alternatives and medical outcomes. The Internet enables
consumers to access large quantities of this information quickly and easily.
THE RAPID GROWTH OF THE INTERNET. The growth of the Internet as a new means
of communicating, accessing information and engaging in commerce has been rapid
and is expected to accelerate. Jupiter Communications estimates that the number
of Internet users worldwide will grow from approximately 85 million at the end
of 1997 to approximately 250 million by the end of 2002. This growth is being
driven by a number of factors, including a growing base of PCs in the home and
workplace, improvements in network infrastructure, more convenient, faster and
inexpensive Internet access, technological advances in PCs and modems, increased
quantity and quality of content available on the Internet and the overall
increased public awareness of the Internet. Due to its large audience, the
Internet represents a significant channel for advertisers. Jupiter
Communications estimates that the amount of Internet advertising in the United
States will grow from approximately $300 million in 1996 to approximately $7.7
billion by 2002.
THE INTERNET HEALTHCARE USER. Health and medical information is one of the
fastest growing areas of interest on the Internet. Cyber Dialogue estimates that
for the 12 months ended July 1998, approximately 17 million adults in the United
States searched on-line for health-related information, an increase of 119%
since July 1996. Cyber Dialogue data indicates that these users are better
educated, have higher household incomes, are more often female and are more
experienced with the Internet than the general population of Internet users.
THE INTERACTIVE NATURE OF THE INTERNET. The Internet provides an effective
method for consumers to access large quantities of reliable and independent
information on medical conditions, treatment alternatives and medical outcomes.
We believe that access to this information, together with support groups and
interaction with medical experts on-line, lead to a greater understanding of
health issues and improved patient compliance with pharmaceutical protocols. The
Internet also provides an attractive vehicle for pharmaceutical and other
healthcare companies to increase consumers' awareness of diagnosed and
undiagnosed medical conditions and treatment options. The Internet allows
pharmaceutical companies to easily provide information targeted to visitors'
needs, which may lead to improved patient compliance with prescribed drug
therapies. Consumer Health Information Corporation estimates that 10% of
prescriptions are never filled, 33% are not properly refilled and
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50% are not taken as prescribed, resulting in poorer health outcomes for
patients and increased expenditures to the overall healthcare system.
DIRECT-TO-CONSUMER ADVERTISING ON THE INTERNET. The Internet's interactive
nature, coupled with the demographics of the Internet healthcare user, makes the
Internet an attractive vehicle for direct-to-consumer (DTC) advertising of
prescription pharmaceuticals. Due to recent regulatory changes regarding the
type of information that may be disclosed to consumers in pharmaceutical
advertising and increased demand for healthcare information by consumers, DTC
advertising of prescription pharmaceuticals has increased from approximately
$590 million in 1996 to an estimated $1.8 billion in 1998 and is projected to
grow to $7.5 billion in 2005. We believe that the Internet will capture an
increasing portion of this market as pharmaceutical companies recognize the
value of this medium for their products.
OUR SOLUTION
Through our Web sites, Mediconsult addresses the consumer's needs for
healthcare information and provides a targeted marketing and advertising
platform for pharmaceutical and other healthcare companies. Key elements of our
solution include:
HIGH QUALITY, TRUSTED CONTENT; USER-FRIENDLY ENVIRONMENT. We provide our
visitors with high quality content on specific medical conditions and health
issues in an easy-to-navigate environment. We search for and review extensive
amounts of health information and select relevant material from a wide variety
of sources, including medical journals, healthcare association literature and
general periodicals. For each medical topic covered on our Web sites, we
aggregate an average of 30 articles covering current news, symptoms and
treatment alternatives that are understandable to the average consumer.
MEDICONSULT.COM is constructed to enable a person interested in any one of the
60 medical topics covered on our Web sites to access a broad range of
information, including relevant information on other portions of our Web sites.
For example, a visitor to the diabetes page will be referred to relevant
information for diabetics on the nutrition section. We frequently solicit
visitor feedback through surveys and polls and use this information to refine
further our content and expand our complementary offerings.
STRONG SENSE OF ON-LINE COMMUNITY. We have developed a strong sense of
on-line community by organizing our Web sites into conditions of concern to
healthcare consumers and providing complementary services. Our Web sites provide
our visitors with the ability to:
- share and search for information in consultation with healthcare
professionals on particular conditions;
- communicate (through chat groups, bulletin boards, and participation in
polls and surveys) with other visitors with similar health conditions,
interests or experiences;
- participate in moderated on-line support groups;
- participate in live, on-line events hosted by prominent physicians; and
- receive quick responses from our visitor support staff.
LARGE, HIGHLY TARGETED AUDIENCE. Our Web sites are designed to attract a
highly desirable target audience for pharmaceutical and other healthcare
advertisers. We have developed a sophisticated, integrated database of
demographic information about patients' needs, habits, preferences and
intentions. This database of information indicates that approximately 62% of the
visitors to MEDICONSULT.COM have been diagnosed with or believe they have a
chronic medical condition covered on this Web site, and that an additional 21%
are friends, family or caregivers. This data also indicates that 64% of the
visitors to MEDICONSULT.COM are female, the average age of our visitors is 39
and approximately 70% of our visitors are college educated. We are able to
identify our visitor traffic
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patterns by condition or health issue, which provides relevant information for
advertisers seeking to target an audience for a particular pharmaceutical
product or condition.
BROAD, SOPHISTICATED INTERNET HEALTHCARE MARKETING AND ADVERTISING
PROGRAMS. We design, develop, and implement broad, sophisticated Internet
marketing and advertising programs for pharmaceutical and other healthcare
companies and provide ongoing support services as part of these programs. We
utilize our extensive knowledge of the Internet healthcare user and our high
quality content to effectively design and develop programs focused on a
particular product or health issue. These programs incorporate one or more of a
broad spectrum of advertising products ranging from banner advertisements to
customized Web sites containing relevant content from our Web sites. In
addition, we create calls to action, through visitor polls, surveys and coupons,
to allow advertisers to gain more information about the visitor. We design our
on-line marketing and advertising programs to complement our clients'
traditional off-line media campaigns.
VALUE TO ADVERTISERS. We design our marketing and advertising programs to
address highly targeted audiences, enabling our clients to direct their
advertising dollars toward consumers most likely to use their products. These
programs are structured to provide our advertisers with a measurable return on
investment by tracking the level of interest and interactive responses of
visitors.
OUR STRATEGY
Our strategy is to be the leading provider of healthcare information to
consumers on the Internet and to use this position to provide targeted marketing
and advertising programs for pharmaceutical and other healthcare companies on
the Web. The key elements of our strategy are to:
ENHANCE VISITOR EXPERIENCE AND SENSE OF ON-LINE COMMUNITY. We are committed
to continually improving the utility and perceived value of our Web sites. We
seek to:
- broaden and deepen the content of our Web sites;
- improve the navigability of our Web site environment;
- expand and enhance our suite of complementary services;
- further segment medical topics into more specific ones; and
- tailor our Web sites to meet the needs and preferences of our visitors.
INCREASE TARGETED TRAFFIC THROUGH STRATEGIC ACQUISITIONS AND RELATIONSHIPS,
AND CONTENT LICENSING. We seek to bolster our traffic and revenue through
strategic acquisitions and relationships. We believe that we can increase the
number of visitors to our Web sites by linking topic-specific or
condition-specific Web sites to ours with "click throughs." We have recently
completed strategic initiatives to purchase, manage or sponsor three significant
Web sites to improve the depth and breadth of our medical content and to
increase visitor traffic.
- PHARMINFO.COM, a leading Web site providing information on pharmaceutical
products and clinical trials for pharmacists, physicians and consumers;
- CYBERDIET.COM, a Web site providing tailored nutritional information and
programs; and
- INCIID.ORG, a Web site providing information on infertility.
We believe that there will be significant opportunities to continue to
manage or acquire Web sites or content that will complement our existing content
offerings. We also increase our visitor traffic and related revenue
opportunities by licensing our content to other Web sites that we manage.
BROADEN RELATIONSHIPS WITH PHARMACEUTICAL ADVERTISERS. We seek to broaden
our relationships with pharmaceutical advertisers in several ways. We seek to
expand our relationships with our existing clients to broaden the number of
programs, both in terms of number of products and types of client services, that
we provide to them. For example, our work with Novartis Consumer Health Canada,
in designing
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and developing a Web site for the Habitrol smoking cessation product has led to
a relationship with Novartis Pharma, the pharmaceutical division of Novartis AG.
We have a number of projects and proposals with Novartis Pharma currently in
process. We are also actively pursuing a number of major pharmaceutical
companies and other healthcare advertisers with proposals tailored to their
specific products and marketing strategies. In addition, we seek to enter into
corporate partnering relationships to expand and enhance our client base. For
example, our February 1999 memorandum of agreement with CommonHealth is intended
to broaden our marketing initiatives within the pharmaceutical industry.
BUILD STRONG BRAND AWARENESS. We believe that establishing brand awareness
is critical to attracting and retaining visitors and advertisers. We seek to
build our brand by creating a superior visitor experience and creating broad
awareness of our name as the trusted on-line source for medical information. We
intend to achieve this goal by expanding our marketing and educational efforts
through both off-line and on-line marketing initiatives, including collaborative
events with patient associations such as the National Stroke Association and the
Arthritis Foundation, speeches and media coverage.
OUR MEDICONSULT.COM WEB SITE
MEDICONSULT.COM serves as a gateway for access to a comprehensive source of
health-related information focused on the clinical and educational needs of the
general public, as well as practicing physicians and other healthcare
professionals. Since our inception in 1996, we have focused on developing our
reputation as the leading independent provider of health information to
consumers on the Web. MEDICONSULT.COM includes easy to understand information on
more than 60 chronic medical conditions and health issues. We believe that in
the United States these medical conditions affect more than 90 million people
and represent a significant portion of healthcare spending. The specific medical
conditions and health issues covered by our Web sites include:
<TABLE>
<S> <C> <C>
Acid Reflux Emphysema Multiple Sclerosis
AIDS/HIV Epilepsy Nutrition
Alzheimer's Disease Erectile Dysfunction Osteoporosis
Anxiety Fitness Palliative Care
Arthritis General Parkinson's Disease
Asthma GERD (Heartburn/Acid Reflux) Peptic Ulcers
Attention Deficit Disorder Headache Pregnancy Complications
Benign Prostatic Hypertrophy Heart Disease Prostate Cancer
Bladder Cancer Heartburn Senior Health
Brain Tumor Herpes Sexually Transmitted Diseases
Breast Cancer Hypertension Skin Cancer
Bronchitis Ileostomy Skin Disorder
Cancer Support Group Incontinence Smoking Cessation
Cervical Cancer Infertility Spinal Cord Injury
Children's Health Inflammatory Bowel Disease Stoma/Ileostomy/Colostomy
Chronic Fatigue Syndrome Interstitial Cystitis Stress
Chronic Pain Kidney Cancer Strokes
Chronic Renal Failure Leukemia Testicular Cancer
Cirrhosis Liver Disease Travel Vaccinations
Colorectal Cancer Lung Cancer Urinary Stones
Colostomy Lymphoma Vasectomy
Contraception Melatonin Vitamins
Depression Menopause Women's Health
Diabetes Men's Health
Eating Disorders Migraines
</TABLE>
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Within this group of medical conditions, we provide specific tools,
resources, experts and information databases to assist visitors in dealing with
a variety of inquiries including those relating to a recent diagnosis, general
background information, and highly technical drug profiles. These resources
include:
- comprehensive and easy to understand independent medical information from
a variety of independent sources, including medical journals, healthcare
association literature and general periodicals;
- a community of visitors with an interest or experience in the topic;
- an on-line moderated support group;
- our MediXpert service, which provides customized on-line medical reports
from medical specialists; and
- a selection of recommended books and other healthcare products for
purchase on-line.
Our MEDICONSULT.COM Web site has received awards from more than 30
independent organizations under the general categories of content, navigation
and overall design. Among the more recent awards and citations are those from
ENCYCLOPAEDIA BRITANNICA (one of 76 "Best of Web" sites out of 125,000
reviewed), THE LANCET ("An exceptionally well-designed, easy to navigate site
brimming with health news and patient-oriented information"), and POPULAR
SCIENCE (one of the "50 Best of the Web" for 1998). In January 1999, our
MEDICONSULT.COM Web site was one of 110 Web sites nominated for a "Webby" by the
International Academy of Digital Arts and Science. We believe that these awards
from independent companies and agencies help to build awareness of, and visitor
traffic to, our MEDICONSULT.COM Web site and provide third party validation of
the perceived thoroughness and quality of the Web site and its content.
Our MediXpert service provides access to more than 45 medical specialists.
For a fee, a visitor can submit a case scenario including background information
and questions to physicians specializing in their medical condition. The
specialist reviews the information and responds with a detailed report a few
days later. The specialist's report is designed to be shared with the visitor's
primary physician, who can examine the report and incorporate it into the
patient's healthcare plan, as appropriate. The report clearly indicates that it
is not a diagnosis or specific medical advice, and advises the visitor to
discuss all material received in the case scenario report with the visitor's
healthcare provider before acting on the information in any way. The information
provided is not intended to constitute the practice of medicine. In order to
ensure security, encryption technology and/or password protection is employed at
every stage. Furthermore, the visitor's name is not made available to the
specialist and a visitor name and password, known only to the visitor who
submitted the information, are required to access the report.
We also provide our visitors with the ability to purchase the following
products on-line through our MEDICONSULT.COM Web site:
- MEDI-STORE. We operate an on-line store on MEDICONSULT.COM. Through this
store, visitors can purchase selected medical products, vitamins and
supplements categorized by medical condition.
- MEDI-BOOKS. Through an agreement with Amazon.com, we offer visitors the
opportunity to purchase healthcare-related books that have been reviewed
by our medical professionals. This offers the visitor a pre-screened and
targeted list of recommended books that are relevant to their area of
interest.
We believe that visitor support services are important in order to attract
and retain visitors to our Web sites. We provide visitor support primarily
through e-mail-based correspondence. Help and feedback buttons are prominently
displayed throughout the MEDICONSULT.COM Web site, and our visitor support staff
responds to most e-mail queries within 24 hours. In addition, through our
support group activities, healthcare professionals provide free e-mail support
for a broad range of issues.
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We have strict policies and practices to ensure privacy and confidentiality
of personal information posted on MEDICONSULT.COM. We adhere to the Health on
the Network (HON) code of conduct (WWW.HON.ORG) and the Trusted Standards in
Electronic Transactions, known as Truste, privacy and disclosure requirements.
The Truste program is intended to maximize our disclosure to consumers with
regard to the collection of personally identifiable information on Web sites in
order to promote the Internet as a safe and secure place to conduct business,
education, communication and entertainment activities. In accordance with our
commitment to Truste, we do not display or make publicly available any
personally identifiable information without the prior written consent of the
individual identified, and we limit the usage of personally identifiable
information gathered on the site.
PRODUCTS AND SERVICES
MARKETING AND ADVERTISING PROGRAMS.
We design, develop and implement sophisticated on-line marketing and
advertising programs for pharmaceutical and other healthcare companies. These
programs are intended to educate patients on particular medical conditions,
increase their awareness of treatment options, describe the benefits of various
treatments and generally increase compliance with treatment protocols. Our
programs include:
- banner advertisements, visitor polls and surveys, and live events, to
build brand awareness;
- condition-specific content, to educate the targeted visitor group;
- calls to action and other visitor interactions, such as requests for
product samples;
- design and development of customized Web sites focused on a particular
product, treatment or medical condition;
- development of product positioning strategies and initiation of on-line
program launches; and
- Web site management and support and visitor services.
To date, we have marketed our capabilities to large pharmaceutical
companies, and listed below is a sample of programs developed for clients.
NOVARTIS CONSUMER HEALTH. We designed, developed and implemented an
on-line marketing and advertising program for Novartis Consumer Health
Canada covering its smoking cessation product, Habitrol, which in Canada
is a non-prescription drug. The program is targeted to Canadian consumers
and is designed to increase usage of Habitrol among those individuals
wishing to quit smoking and to improve their overall continuing
compliance with the protocol for the use of the product. Prior to
designing the HABITROL.COM Web site, we conducted an analysis of our own
visitor traffic across all of our medical conditions covered on our
MEDICONSULT.COM Web site to determine which visitors were most interested
in quitting smoking. We then developed, and launched in June 1998, the
Habitrol marketing and advertising program, which was coordinated with
Novartis' ongoing media campaign. In addition to the creation of the
HABITROL.COM Web site, the program includes a number of other
initiatives. Visitor traffic is generated through the coordination of
Habitrol banner advertisements on our MEDICONSULT.COM Web site with
Novartis' off-line media campaign. Individuals committing to the program
are offered a number of on-line support mechanisms by Novartis, including
daily e-mail reminders providing guidance on physical and emotional
expectations for the day, additional relevant medical information and
on-line "buddies" who had quit, or were themselves quitting smoking. In
addition, visitors are offered coupons for Habitrol and can participate
in on-line surveys. We have been receiving revenue for maintaining and
upgrading HABITROL.COM since its launch. We are currently expanding the
Habitrol program to provide French and professional healthcare versions
of the Web site.
NOVARTIS PHARMA. In October 1998, Novartis Pharma, the pharmaceutical
division of Novartis, engaged us to develop marketing and advertising
programs for several branded pharmaceutical
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products, including currently approved products and products under
clinical development. We are currently developing these programs.
OTHER. We are working with a number of other pharmaceutical and consumer
health organizations to develop marketing and advertising programs.
During 1998, we completed assessment programs for Bristol Myers Squibb,
Glaxo Wellcome and Astra Merck.
CONTENT LICENSING AND WEB SITE SUPPORT.
We also seek to increase our visitor traffic and generate additional revenue
by licensing our content to, and providing Web site support for, Web sites
established by healthcare organizations, including health maintenance
organizations, hospital chains and pharmacies. Under these arrangements, we
design, develop and maintain individual Web sites for our clients incorporating
the content from our MEDICONSULT.COM Web site. In addition, with certain clients
we maintain the right to place advertisements on these sites, sharing the
revenue with the client on a predetermined basis. Listed below is a sample of
some of our content licensing and Web site support clients.
IBM. In January 1998, we entered into a content licensing agreement with
IBM. Under this agreement, the healthcare division of IBM markets
MEDICONSULT.COM'S medical content to IBM's clients.
GEOACCESS. In December 1998, we entered into a content licensing
agreement with GeoAccess, a healthcare information services company that
provides enterprise-wide software for managed care companies, authorizing
GeoAccess to market our content to its managed care clients.
ONTARIO HOSPITAL ASSOCIATION. In October 1998, we entered into an
agreement with the Ontario Hospital Association, an association of
approximately 185 not-for-profit hospitals in Canada, to design, develop
and maintain a Web site template for use by their member hospitals for a
monthly fee. For each hospital that elects to participate, we will create
a customized home page that is integrated with the basic template. The
customized entry point allows each hospital to enhance the base Web site
with information about local services and support. We completed the
template in November 1998, and we have recently developed pilot Web sites
for five of the member hospitals.
OTHER. We are licensing our content and providing consulting services to
pharmaceutical companies and are seeking to expand our client base to
include other service providers, such as hospital groups, managed care
companies and retail pharmacies.
JOINT VENTURES, STRATEGIC ACQUISITIONS AND RELATIONSHIPS
JOINT VENTURES.
In February 1999, we entered into a memorandum of agreement to form a 50/50
joint venture with CommonHealth LLP which will focus on providing pharmaceutical
and other healthcare companies with innovative approaches to marketing their
products in comprehensive marketing and advertising campaigns containing both
significant Internet components and traditional media such as, print, television
and direct marketing. The joint venture has the right of first refusal to
provide services for these campaigns using our Internet expertise and
CommonHealth's experience in traditional forms of media. Mediconsult and
CommonHealth will each charge the joint venture for work performed by it at its
normal rates. Profits of the joint venture will be shared equally by the
parties, and losses of the joint venture will be shared in proportion to each
party's billings. In addition to the joint venture, CommonHealth and
Mediconsult, will each continue to pursue their individual business plans. In
connection with the formation of the joint venture, the parties agreed that a
representative of each party may serve on the board of directors of the other.
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STRATEGIC ACQUISITIONS
We have grown in part through recent strategic acquisitions and agreements.
We plan to continue this strategy in order to increase visitor traffic, increase
revenue, gain access to human resources, and increase the breadth and depth of
the medical content provided on our Web sites. Recently, we have acquired or
entered into Web site management or sponsorship agreements with respect to three
Web sites, each providing us with high quality content in a particular niche:
- PHARMINFO.COM, a leading Web site providing information on pharmaceutical
products and clinical trials for pharmacists, physicians and consumers. We
acquired PHARMINFO.COM in December 1998, in exchange for 100,000 shares of
our common stock.
- CYBERDIET.COM, a Web site providing tailored nutritional information and
programs. In February 1999, we entered into an agreement outlining the
principal terms of an exclusive management arrangement with CyberDiet,
Inc. related to CYBERDIET.COM and granting to Mediconsult the sole right
to place advertisements on the Web site, to link traffic, and manage the
content on the Web site. We have an option to purchase this company and
its Web site which we expect to exercise, and this company has under
certain circumstances the right to cause us to purchase it, in exchange
for 400,000 shares of our common stock.
- INCIID.ORG, a Web site providing information on infertility. In February
1999, we entered into an exclusive sponsorship agreement with the
InterNational Counsel of Infertility Information Dissemination, a
not-for-profit organization, relating to INCIID.ORG and granting to
Mediconsult the sole right to place advertisements on the Web site, to
link traffic, and manage the content on the Web site.
STRATEGIC RELATIONSHIPS
We have entered into strategic alliances with a number of patient
associations, including the Arthritis Foundation, Leukemia Society of America,
the National Stroke Association and the National Mental Health Association.
These alliances allow us to:
- gain access to condition-specific medical information;
- gain access to condition-specific visitor traffic;
- increase our visibility on the Internet; and
- increase resources available to us regarding particular medical
conditions.
MARKETING, SALES AND PROGRAM DESIGN
As of January 1, 1999, we had a marketing, sales and program design group of
14 professionals who consult regularly with clients and their advertising
agencies on how we can best apply our resources to meet their DTC marketing,
advertising and content licensing needs. We generally seek to hire individuals
with significant experience in program design, advertising sales and
pre-existing relationships with advertisers in a variety of media. Our
marketing, sales and program design professionals have an average of 12 years of
related experience.
INFRASTRUCTURE, OPERATIONS AND TECHNOLOGY
Our operating infrastructure has been designed and implemented to support
the reliable and swift delivery of hundreds of thousands of page views a day.
The design of our Web site allows for growth into millions of page views per
day. Web pages are generated and delivered in response to visitors' requests by
any one of six Web servers. Key attributes of this infrastructure include
scalability, performance and service availability.
We have deployed a standard production and development server environment
utilizing standard software solutions running on generally available server
hardware platforms. We are currently
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transitioning from a core production environment running on SGI hardware and
Unix platform hosted at TVisions of Cambridge, Massachusetts to an IBM Lotus
Domino software environment to be located in the United States, which we may
manage from Toronto, Canada. Our Web-based software systems use standard,
off-the-shelf software components. Our strategy is to license and integrate
"best-of-breed" commercially available technology from industry leaders such as
IBM, Sun Microsystems and Microsoft whenever possible. We believe this
architecture will allow us to increase rapidly the scale of our systems in a
cost-effective manner.
A number of other applications, such as client-developed application sites,
demonstration facilities for client projects and our Intranet site, are hosted
at Internoded of Cambridge, Massachusetts. Our MediStore electronic commerce
applications are hosted at Entrevision, Inc. of Toronto, Canada. Our production
servers are currently hosted at Exodus in Waltham, Massachusetts.
Our production data is copied to backup tapes each night and stored at a
third party, off-site storage facility. We are in the process of developing a
comprehensive disaster recovery plan to respond to system failures. We keep all
of our production servers behind firewalls for security purposes and do not
allow outside access at the operating systems level, except via special secure
channels. Strict password management and physical security measures are
followed.
COMPETITION
There are many companies that provide Internet and non-Internet based
marketing and advertising services to the healthcare industry. All of these
companies compete with us for advertisers, and Internet healthcare companies
also compete with us for visitor traffic. We expect competition to continue to
increase as there are no substantial barriers to entry in our market. Increased
competition could result in reductions in the fees we receive for our marketing
and advertising services, lower margins, loss of clients, reduced visitor
traffic to our Web sites, or loss of market share. Any of these occurrences
could materially and adversely affect our business, financial condition and
results of operations. Competition is also likely to increase significantly, not
only as new entities enter the market, but also as current competitors expand
their services. Our principal competitors include:
- advertising agencies and consulting firms, such as Young & Rubicam and
Agency.com, that develop marketing and advertising programs for
pharmaceutical and other healthcare companies;
- Web sites that deliver consumer healthcare information, either as their
sole focus or as part of a more broadly-based site, such as Health Oasis,
InteliHealth, iVillage, OnHealth, Thrive Online and WebMD;
- general purpose consumer online service providers, such as America Online
and Microsoft Network;
- Web site development firms, such as USWeb/CKS; and
- publishers and distributors of television, radio and print, such as CBS,
Disney, NBC and Time Warner.
Our ability to compete depends on a number of factors, many of which are
outside of our control. These factors include quality of content, ease of use,
timing and market acceptance of new and enhanced services, and level of sales
and marketing efforts.
Many of our existing competitors, as well as a number of potential new
competitors, have longer operating histories, greater name recognition, existing
relationships with pharmaceutical and other healthcare companies and
significantly greater financial, technical and marketing resources than we do.
This may allow them to devote greater resources than we can to the development
and promotion of their services. These competitors may also engage in more
extensive development efforts, undertake more far-reaching marketing campaigns,
adopt more aggressive pricing policies and make more attractive offers to
existing and potential employees, advertisers and alliance partners. Our
competitors
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may develop services that are equal or superior to those we provide or that
achieve greater market acceptance and brand recognition than we achieve. In
addition, current and potential competitors have established or may establish
cooperative relationships among themselves or with third parties to increase
their ability to address the needs of advertisers. It is possible that new
competitors may emerge and rapidly acquire significant market share. We may not
be able to compete successfully or competitive pressures may have a material
adverse effect on our business, results of operations and financial condition.
If advertisers perceive the Internet generally or our Web sites to be a
relatively limited or ineffective advertising medium, advertisers may be
reluctant to devote a significant portion of their advertising budget to
Internet advertising or to advertise on our Web sites.
INTELLECTUAL PROPERTY, PROPRIETARY RIGHTS AND DOMAIN NAMES
We protect our intellectual property through a combination of trademark and
copyright law, trade secret protection and confidentiality with our employees,
customers, independent contractors and strategic partners. We pursue the
registration of our domain names, trademarks and service marks in the United
States, and have obtained trademark registration in the United States of
"MEDICONSULT.COM" and assert various other trademarks and servicemarks.
Effective trademark, service mark, copyright and trade secret protection may not
be available in every country in which our services and products are made
available on-line. We obtain a majority of our content from the public domain.
In addition, we create some of our own content and obtain rights to use the
balance of our content from third parties. It is possible that we could become
subject to infringement actions based upon the content obtained from these third
parties. In addition, others may use this content and we may be subject to
claims from our licensors. We currently have no patents or patents pending and
do not anticipate that patents will become significant part of our intellectual
property in the future. We seek to enter into confidentiality agreements with
our employees and independent consultants and we have instituted procedures to
control access to and distribution of our technology, documentation and other
proprietary information and the proprietary information of others from whom we
license content. The steps we take to protect our proprietary rights may not be
adequate and third parties may infringe or misappropriate our copyrights,
trademarks, service marks and similar proprietary rights. In addition, other
parties may assert claims of infringement of intellectual property or alter
proprietary rights against us. The legal status of intellectual property on the
Internet is currently subject to various uncertainties.
HUMAN RESOURCES
As of January 31, 1999, we employed 35 full-time employees, of whom 14 were
in marketing, sales and program design, 12 were in product and content
development, four were in administration and corporate services, and five were
in operations and support. In addition, there were 10 part-time employees. As we
continue to grow and introduce more products, we expect to hire more personnel.
Competition for personnel is intense and we may not be able to retain our senior
management or other key personnel in the future. None of our current employees
is represented by a labor union or is the subject of a collective bargaining
agreement. We believe that relations with our employees are good.
GOVERNMENT REGULATION AND LEGAL UNCERTAINTIES
GENERAL. There is an increasing number of laws and regulations pertaining
to the Internet. In addition, a number of legislative and regulatory proposals
are under consideration by federal, state, local and foreign governments and
agencies. Laws or regulations may be adopted with respect to the Internet
relating to liability for information retrieved from or transmitted over the
Internet, online content regulation, visitor privacy, taxation and quality of
products and services. Moreover, the applicability to the Internet of existing
laws governing issues such as intellectual property ownership and infringement,
copyright, trademark, trade secret, obscenity, libel, employment and personal
privacy is uncertain and developing. Any new legislation or regulation, or the
application or interpretation of existing laws may have an adverse effect on our
business. In addition to Internet regulation, our Web
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sites may be subject to numerous state and federal laws that govern the delivery
of healthcare services and goods in the United States. These laws range from
laws prohibiting the offer, payment or receipt of remuneration to induce
referrals to entities providing healthcare services and goods to licensure
requirements as well as special protection for healthcare data. These laws are
complicated and are under constant revision and interpretation. These laws and
their active enforcement, particularly in the area of healthcare fraud, affects
the way all healthcare providers structure their business relationships and
deliver healthcare services and goods. New developments in this area could
affect the structure and operation of our business. In the event some state or
federal regulatory agency determined that our relationship with one or more of
our advertisers that deliver healthcare services or goods violate any such laws,
then we could be subjected to fines and other costs and could be required to
revise or terminate that portion of our business.
LIABILITY FOR INFORMATION RETRIEVED FROM OUR WEB SITES AND FROM THE
INTERNET. Content may be accessed on our Web sites and this content may be
downloaded by visitors and subsequently transmitted to others over the Internet.
This could result in claims against us based on a variety of theories, including
defamation, practicing medicine without a license, malpractice, obscenity,
negligence, copyright or trademark infringement or other theories based on the
nature, publication and distribution of this content. Some of these types of
claims have been brought, sometimes successfully, against providers of Internet
services in the past. We could also be exposed to liability with respect to
third-party content that may be posted by visitors in chat rooms or bulletin
boards offered on our Web sites. It is also possible that if any information,
including information deemed to constitute professional medical advice provided
by a specialist on MediXpert contains errors or false or misleading information,
third parties could make claims against us for losses incurred in reliance on
such information. In addition, we may be subject to claims alleging that, by
directly or indirectly providing links to other Web sites, we are liable for
copyright or trademark infringement or the wrongful actions of third parties
through their respective Web sites. The Communications Decency Act of 1996 (CDA)
provides that, under certain circumstances, a provider of Internet services
shall not be treated as a publisher or speaker of any information provided by a
third-party content provider. This safe harbor has been interpreted to exempt
certain activities of providers of Internet services. Our activities may prevent
us from being able to take advantage of this safe harbor provision. While we
attempt to reduce our exposure to such potential liability through, among other
things, visitor policies and disclaimers, the enforceability and effectiveness
of such measures are uncertain. Any claims brought against us in this respect
may have a material and adverse effect on our business.
ON-LINE CONTENT REGULATIONS. While we do not believe the content on our Web
sites is obscene or indecent, our Web sites contain healthcare content which is
explicit in nature and is intended for a mature audience. Several federal and
state statutes prohibit the transmission of certain types of indecent, obscene
or offensive content over the Internet to certain persons. The enforcement of
these statutes and initiatives, and any future enforcement activities, statutes
and initiatives, may result in limitations on the type of content and
advertisements available on our Web sites. Legislation regulating online content
could dampen the growth in use of the Internet generally and decrease the
acceptance of the Internet as an advertising and e-commerce medium, which could
have a material adverse effect on our business, results of operations and
financial condition. We adhere to the Health on the Network (HON) code of
conduct which establishes guidelines for health information on the Internet.
PRIVACY CONCERNS. The Federal Trade Commission (FTC) is considering
adopting regulations regarding the collection and use of personal identifying
information obtained from individuals when accessing Web sites, with particular
emphasis on access by minors. Such regulations may include requirements that
companies establish certain procedures to, among other things: (1) give adequate
notice to consumers regarding information collection and disclosure practices,
(2) provide consumers with the ability to have personally identifiable
information deleted from a company's database, (3) provide consumers with access
to their personal information and with the ability to rectify
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inaccurate information, (4) clearly identify affiliations or a lack thereof with
third parties that may collect information or sponsor activities on a company's
Web site and (5) obtain express parental consent prior to collecting and using
personal identifying information obtained from children under 13 years of age.
Such regulation may also include enforcement and redress provisions. While we
have implemented or intend to implement programs designed to enhance the
protection of the privacy of our visitors, including children, there can be no
assurance that such programs will conform with any regulations adopted by the
FTC. The FTC's regulatory and enforcement efforts may adversely affect the
ability to collect demographic and personal information from visitors, which
could have an adverse effect on our ability to provide highly targeted
opportunities for advertisers and e-commerce marketers.
It is also possible that "cookies" (information keyed to a specific server,
file pathway or directory location that is stored on a visitor's hard drive,
possibly without the visitor's knowledge) used to track demographic information
and to target advertising may become subject to laws limiting or prohibiting
their use. A number of Internet commentators, advocates and governmental bodies
in the United States and other countries have urged the passage of laws limiting
or abolishing the use of cookies. Limitations on or elimination of our use of
cookies could limit the effectiveness of our targeting of advertisements, which
could have a material adverse effect on our business, results of operations and
financial condition.
The European Union (EU) has adopted a directive that imposes restrictions on
the collection and use of personal data. Under the Directive, EU citizens are
guaranteed certain rights, including the right of access to their data, the
right to know where the data originated, the right to have inaccurate data
rectified, the right to recourse in the event of unlawful processing and the
right to withhold permission to use their data for direct marketing. The
directive could, among other things, affect U.S. companies that collect
information over the Internet from individuals in EU member countries, and may
impose restrictions that are more stringent than current Internet privacy
standard in the United States. In particular, companies with offices located in
EU countries will not be allowed to send personal information to countries that
do not maintain adequate standards of privacy. The directive does not, however,
define what standards of privacy are adequate. As a result, there can be no
assurance that the directive will not adversely affect the activities of
entities such as us that engage in data collection from visitors in EU member
countries.
DOMAIN NAMES. Domain names are Internet "addresses." The current system for
registering, allocating and managing domain names has been the subject of
litigation, including trademark litigation, and of proposed regulatory reform.
We have registered as our URL, the domain name "MEDICONSULT.COM." Although we
have registered "MEDICONSULT.COM" as a trademark, third parties may bring claims
for infringement against us for the use of this trademark. There can be no
assurance that our domain names will not lose their value, or that we will not
have to obtain entirely new domain names in addition to or in lieu of our
current domain names if reform efforts result in a restructuring of the current
system.
JURISDICTIONS. Due to the global nature of the Internet, it is possible
that, although transmissions by us over the Internet originate primarily in the
United States, the governments of other states and foreign countries might
attempt to regulate our transmissions or prosecute us for violations of their
laws. These laws may be modified, or new laws enacted, in the future. Any of the
foregoing developments could have a material adverse effect on our business,
results of operations and financial condition. In addition, as our service is
available over the Internet in multiple states and foreign countries, these
jurisdictions may claim that we are required to qualify to do business as a
foreign corporation in each state or foreign country. We have not qualified to
do business as a foreign corporation in any jurisdiction. This failure by us to
qualify as a foreign corporation in a jurisdiction where we are required to do
so could subject us to taxes and penalties and could result in our inability to
enforce contracts in such jurisdictions. Any new legislation or regulation, the
application of laws and regulations from jurisdictions whose laws do not
currently apply to our business, or the application of
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existing laws and regulations to the Internet and other online services could
have a material adverse effect on our business, financial condition and results
of operations.
FACILITIES
To date, we have operated without corporate office space for our employees.
We manage our operations through an internal computer network that contains
substantially all of our records, plans, projects in process and other
information and we communicate principally via e-mail, telephone and
face-to-face meetings. We have no leases for office space, as all employees are
geographically disperse and work out of home offices or independent or client
offices. We are headquartered in Hamilton, Bermuda, occupying space in the
office of Robert A. Jennings, our Chief Executive Officer, at no cost to us. We
currently anticipate that we will require office space to accommodate growth and
meet increasing client needs. In this regard, we are contemplating opening an
office in Parsippany, New Jersey, in conjunction with the CommonHealth joint
venture, and are evaluating the possibility of establishing an office in
Toronto, Canada.
LEGAL PROCEEDINGS
There are no pending legal proceedings in which Mediconsult is a party, and
Mediconsult is not aware of any threatened legal proceedings involving
Mediconsult.
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MANAGEMENT
DIRECTORS, EXECUTIVE OFFICERS AND SIGNIFICANT EMPLOYEES
The following table sets forth, as of February 26, 1999, the name, age and
position of Mediconsult's directors, executive officers and other significant
employees.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------------ --- ---------------------------------------------------------------------
<S> <C> <C>
Robert A. Jennings (1)(2)........... 41 Chairman and Chief Executive Officer
Ian Sutcliffe (2)(3)................ 46 President and Director
David J. Austin..................... 42 Chief Operating Officer
Michel Bazinet, M.D................. 42 Medical Director
Debora A. Falk...................... 39 Vice President, Client Services
Michael Swanson..................... 30 Vice President, Sales
Bruce Tilden........................ 45 Vice President, Administration
Michael Treacy, Ph.D. (1)(2)........ 42 Director
John Buchanan (3)................... 42 Director
Barry Guld (1)(3)................... 42 Director
</TABLE>
- ------------------------------
(1) Member of the compensation committee
(2) Member of the nominating committee
(3) Member of the audit committee
ROBERT A. JENNINGS has served as our Chairman and Chief Executive Officer
since our inception in 1996. From 1993 to 1997, Mr. Jennings acted as an advisor
to a number of companies on general business matters. Beginning in 1997, Mr.
Jennings began to work on a full-time basis on Mediconsult matters. Mr. Jennings
is a chartered accountant and was employed by Coopers & Lybrand in Canada and
England for nine years.
IAN SUTCLIFFE has served as our President and a Director since 1996. He has
17 years of experience as a management consultant, primarily in the high-tech
sector. Most recently, from 1993 to 1996, he was a consultant specializing in
re-engineering marketing and sales processes worldwide for IBM. From 1989 to
1993, Mr. Sutcliffe was a partner at BDO Dunwoody, a consulting organization
which he joined in 1989 upon the merger of his consulting firm, Sutcliffe &
Associates, with BDO Dunwoody. Mr. Sutcliffe is a chartered accountant and was
employed by Coopers & Lybrand in Canada and Europe for six years.
DAVID J. AUSTIN has served as our Chief Operating Officer since 1998. He has
18 years of experience in developing and executing strategies for high-tech
business development. From 1995 to 1998, Mr. Austin was the President and Chief
Executive Officer of Triant Technologies Inc., a publicly traded software
company. From 1980 to 1995, he held various management roles in operations,
business development and marketing at IBM.
MICHEL BAZINET, M.D. has served as our Medical Director since 1996. He is a
urologist specializing in uro-oncology and practiced medicine at McGill
University in Montreal from 1987 to 1996. His responsibilities with Mediconsult
include the supervision of the overall medical content of our Web site. He
completed his medical and specialty training at Sherbrooke and McGill
Universities in Canada and completed a fellowship in uro-oncology at the
Memorial Sloan Kettering Cancer Center in New York.
DEBORA FALK has served as our Vice President, Client Services since 1996.
From 1985 until 1996, she was employed by IBM Canada in several technical and
marketing positions, including Canadian Market Management Process Manager.
MICHAEL SWANSON has served as our Vice President, Sales since 1998 when he
was seconded from Treacy & Co., where he was a principal and provided strategic
consulting services in a variety of
47
<PAGE>
industries since 1995. From 1993 to 1995, Mr. Swanson was President of Now!Food,
a company focused on healthy living through nutrition and diet.
BRUCE TILDEN has served as our Vice President, Administration since 1998.
From 1996 to 1998, he was Vice President and General Manager of Hepworth &
Company, a leading customer satisfaction measurement and contact management
consultancy. From 1990 to 1996 he was Vice President, Corporate and Business
Development of Tilden Car Rental.
MICHAEL TREACY, PH.D. has been a Director of Mediconsult since July 1998. He
is the Managing Director of Treacy & Co. which provides strategic consulting
services in a number of industries and leads that firm's business and practice
development. From 1981 to 1989, he was a professor of management science at the
MIT Sloan School of Management, after which he formed his own consulting firm.
Mr. Treacy earned his Ph.D. from the MIT Sloan School of Management.
JOHN BUCHANAN has been a Director of Mediconsult since 1998. Since 1993, he
has been President & CEO of Retek Information Systems Inc., a wholly owned
subsidiary of HNC Software Inc. Retek develops, markets and supports predictive
software solutions to the enterprise software industry.
BARRY GULD has been a Director of Mediconsult since 1998. Mr. Guld
co-founded and served as President of Zadall Systems Group, a leading vendor of
pharmacy software systems, which was sold to National Data Corporation. He is
currently a consultant to National Data Corporation and a director of Client
Technology Inc., Mood Sciences Inc., and Velocity Computer Solutions.
On April 1, 1999, we engaged E. Michael Ingram to be our General Counsel
and, after consummation of this offering, also our Chief Financial Officer.
Prior to joining us and since 1980, Mr. Ingram, age 47, held several legal
positions with National Data Corporation. Most recently since 1988, he was
Senior Vice President, General Counsel and Secretary of National Data
Corporation. Mr. Ingram earned his J.D. degree from the University of Georgia
School of Law and his L.L.M. in taxation from Emory University School of Law.
BOARD OF DIRECTORS AND COMMITTEES
Our by-laws provide for not less than one and not more than six directors.
We currently have five directors. Directors are elected by the stockholders and
all directors hold office until the next annual meeting of stockholders or until
their successors have been duly elected and qualified.
The Audit Committee of the board of directors was established in October
1998, and reviews, acts on and reports to the board of directors with respect to
various auditing and accounting matters, including the recommendation of our
independent auditors, the scope of annual audits, fees to be paid to the
independent auditors, the performance of our independent auditors and our
accounting practices. The current members of our Audit Committee are Messrs.
Guld, Sutcliffe and Buchanan.
The Compensation Committee of the board of directors was established in
October 1998 and determines the salaries and benefits for our employees,
consultants, directors and other individuals we compensate. The Compensation
Committee also administers our compensation plans. The current members of the
Compensation Committee are Messrs. Jennings, Guld and Treacy.
The Nominating Committee of the board of directors was established on
January 15, 1999, and recommends individuals for director positions. The members
of the Nominating Committee are Messrs. Jennings, Sutcliffe and Treacy.
DIRECTOR COMPENSATION
Our directors do not receive any fees for their services as directors. Each
director, however, is reimbursed for all reasonable and necessary costs and
expenses incurred as a result of being a director, such as expenses incurred for
attendance at meetings of the board of directors.
48
<PAGE>
In November 1998, we entered into a services agreement with Treacy & Co., an
entity of which Michael Treacy, one of our directors, is a principal, under
which we received various services from Treacy & Co. in consideration of the
grant of options to acquire 2,000,000 shares of our common stock at an exercise
price of $0.003 per share. All of the options have vested and expire on November
16, 2003. In addition, the predecessor of JHC Limited, our majority stockholder,
granted Treacy & Co. an option to acquire 358,333 shares of our common stock
owned by JHC, at an exercise price of $1.20 per share. The services provided
included marketing, sales and client services advice, strategic planning and
seconding Mr. Swanson to act in the capacity of our Vice President, Sales. We
have no obligation to grant additional options to Treacy & Co.
In addition, on October 31, 1998, John Buchanan and Barry Guld each received
options to purchase 100,000 shares of our common stock at an exercise price of
$1.50 per share, which vest at a rate of 5,000 shares per month beginning on
October 30, 1998 for their services on the board of directors.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Our Compensation Committee currently consists of Messrs. Jennings, Treacy
and Guld. Other than Mr. Jennings, our Chairman and Chief Executive Officer,
none of the members of the Compensation Committee has been an officer or
employee of Mediconsult at any time since its inception. None of our executive
officers or employees serves as a member of the board of directors or
compensation committee of any entity that has one or more executive officers
serving as a member of our board of directors or Compensation Committee. Prior
to the formation of the Compensation Committee, the board of directors as a
whole made decisions relating to compensation of our executive officers. Mr.
Jennings did not receive a salary from us in 1998, but he is now entitled to
receive a salary pursuant to his employment agreement, which became effective as
of January 1, 1999. Mr. Jennings has not participated in board discussions
regarding his own compensation.
EMPLOYMENT AGREEMENTS
Robert Jennings, Ian Sutcliffe, David Austin, Debora Falk and Bruce Tilden
each has an employment agreement with Mediconsult or one of our subsidiaries.
Each agreement is effective as of January 1, 1999, and expires on December 31,
2001, and will be automatically renewed for 12 month periods after that date
unless either party gives the other written notice of termination at least three
months prior to the expiration of the initial or any subsequent term. The annual
salary for each of these executives is as follows: Robert Jennings, $275,000;
Ian Sutcliffe, $240,000; David Austin, $198,000 CDN; Debora Falk, $198,000 CDN;
and Bruce Tilden, $154,200 CDN. In addition, David Austin has received options
to purchase 100,000 shares of our common stock, 10,000 of which have vested upon
the signing of his agreement and 8,000 vest each month beginning February 1,
1999 and ending November 1, 1999. Mr. Austin is entitled to receive a cash
equivalent of 12% of his base salary until he joins the applicable employee
benefit plans and programs. Also, each of these executives is entitled to
participate in a team-based performance bonus plan, with awards based upon
predetermined deliverables being developed by Mediconsult and may receive
options to purchase shares of our common stock in the future. The employment
agreements can be terminated upon delivery of written notice from us, with or
without cause. Upon termination without cause, Robert Jennings, Ian Sutcliffe,
David Austin and Debora Falk are each entitled to 12 months salary and any bonus
earned in the preceding 12 months, and Bruce Tilden is entitled to six months
salary and bonus earned in the preceding six months.
E. Michael Ingram has an employment agreement with Mediconsult, effective as
of April 1, 1999 and expiring on March 31, 2003. This agreement will be
automatically renewed for 12 month periods after that date unless either party
gives the other written notice of termination at least three months prior to the
expiration of the initial or any subsequent term. The annual salary for Mr.
Ingram is
49
<PAGE>
$200,000. In addition, Mr. Ingram is entitled to a non-accountable expense
allowance of $50,000 per year for the first two years, and has received options
to purchase 200,000 shares of our common stock, which options vest at the rate
of 50,000 option shares per year beginning on the first anniversary of the date
of grant. Upon termination without cause, Mr. Ingram is entitled to 12 months
salary and any bonus earned in the preceding 12 months, except that upon
termination by Mediconsult without cause or by Mr. Ingram for good reason within
12 months after a change of control of Mediconsult, Mr. Ingram is entitled to 24
months salary and any bonus earned in the preceding 24 months.
Each of the executives with an employment agreement has agreed not to
compete or solicit clients or other employees during their severance period.
Each of the executives is also bound by a nondisclosure and invention assignment
agreement, which prohibits such executive from, among other things,
disseminating or using confidential information about our business or clients in
any way that would be adverse to Mediconsult.
EXECUTIVE COMPENSATION
The following table sets forth all compensation awarded to, earned by or
paid to our Chief Executive Officer and our most highly compensated executive
officers, other than the Chief Executive Officer (the "Named Executive
Officers") whose total annual salary and bonus exceeded $100,000 for the years
ended December 31, 1998, 1997 and 1996 for services rendered in all capacities
in these years.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION -------------
SECURITIES
--------------------- UNDERLYING ALL OTHER
NAME AND POSITION YEAR SALARY BONUS OPTIONS (#) COMPENSATION
- ----------------------------------------------------- --------- ---------- --------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Robert A. Jennings................................... 1998 $ -- $ -- -- $ --
Chief Executive Officer 1997 -- -- -- --
1996 55,000 -- 790,000 --
Ian Sutcliffe........................................ 1998 240,000 -- -- --
President 1997 240,000 -- -- --
1996 120,000 -- 250,000 --
Debora A. Falk....................................... 1998 100,200 -- --
Vice President, Client Services 1997 100,200 -- -- 48,000 --
1996 25,050 5,400 96,000 --
</TABLE>
50
<PAGE>
OPTION GRANTS IN THE LAST FISCAL YEAR
The Named Executive Officers did not receive any option grants during the
year ended December 31, 1998.
OPTION EXERCISES AND YEAR-END HOLDINGS
The following table sets forth certain information concerning the number and
value of unexercised options held by each of the Named Executive Officers at
December 31, 1998.
AGGREGATED OPTION EXERCISES IN THE YEAR ENDED DECEMBER 31, 1998 AND YEAR-END
OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
OPTIONS AT OPTIONS AT
FISCAL YEAR END FISCAL YEAR END (1)
-------------------------- --------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---------------------------------------------------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Robert A. Jennings........................................ -- -- $ -- $ --
Ian Sutcliffe............................................. -- -- -- --
Debora A. Falk............................................ 96,000 -- 781,440 --
</TABLE>
- --------------------------
(1) Options are In-the-Money if the market value of the shares covered thereby
is greater than the option exercise price. This calculation is based on the
fair market value of the common stock at December 31, 1998, of $8.19 per
share, less the exercise price.
1996 STOCK OPTION PLAN
In April 1996, our board of directors adopted our 1996 Stock Option Plan.
The plan was approved by our stockholders during May 1996. The plan allows the
board to grant stock options from time to time to our employees, officers,
directors and consultants. The board has the power to determine at the time the
option is granted whether the option will be an Incentive Stock Option (an
option which qualifies under Section 422 of the Internal Revenue Code of 1986)
or an option which is not an Incentive Stock Option. However, Incentive Stock
Options will only be granted to persons who are our employees. Vesting
provisions are determined by the board at the time options are granted. As
originally adopted, the total number of shares of common stock subject to
options under the plan was not to exceed 1,000,000, subject to adjustment in the
event of certain recapitalizations, reorganizations and similar transactions.
The plan provides that all outstanding options will vest upon a change of
control. The exercise price is payable in cash, stock or any other means as
determined by the board. On December 31, 1997, the shares eligible under the
plan were increased to 2,500,000 shares.
The board of directors may amend the 1996 Plan at any time, provided that
the board may not amend the plan to materially increase the number of shares
available under the plan, materially increase the benefits accruing to
participants under the plan, or materially change the eligible class of
employees without stockholder approval.
There have been a total of 2,353,050 options granted under the plan, of
which 1,626,550 have been exercised as of December 31, 1998. There were 716,000
options outstanding as of December 31, 1998.
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<PAGE>
CERTAIN TRANSACTIONS
Recently, The Mediconsult Trust, which has been our majority stockholder and
is controlled by Robert Jennings, our Chairman and Chief Executive Officer,
transferred its interest in Mediconsult to JHC Limited, a Bermuda corporation
also controlled by Mr. Jennings. As a result, JHC Limited now is our majority
stockholder. The Mediconsult Trust has from time to time advanced funds to
Mediconsult on an interest-free basis. On September 30, 1998, the board of
directors approved the conversion of these advances to us up to that date into
shares of junior preferred stock with a $10 liquidation preference. In
connection with this conversion, we amended our certificate of incorporation to
provide, among other things, that the outstanding junior preferred stock will be
automatically converted into 8.33 shares of common stock, subject to adjustment,
upon the occurrence of a "Conversion Event." This offering will be a Conversion
Event and the shares of junior preferred stock currently outstanding will be
converted into 3,583,333 shares of common stock, and the shares of junior
preferred stock issuable in respect of dividends accruing since September 30,
1998 will also be converted into common stock. Since September 30, 1998, The
Mediconsult Trust has advanced an additional $713,000 to Mediconsult as an
interest free loan. Of this amount approximately $200,000 has been repaid from
the proceeds of the private placement of senior preferred stock referred to
below and the balance is expected to be repaid from the proceeds of this
offering.
We are a party to a strategic consulting interim agreement dated November
16, 1998, with Treacy & Co. and The Mediconsult Trust. The agreement provides
that in consideration for consulting services rendered by Treacy & Co. to
Mediconsult in connection with marketing, sales and client services advice,
strategic planning and the seconding of Mr. Swanson to act in the capacity of
our Vice President, Sales, we granted Treacy & Co. immediately exercisable
options to purchase 2,000,000 shares of common stock, at an exercise price of
$0.003 per share, which expire on November 16, 2003. In addition, The
Mediconsult Trust granted Treacy & Co. an option to purchase 358,333 shares of
common stock, exercisable from and after a Conversion Event, at an exercise
price of $1.20 per share which expires on December 31, 1999. This option is now
the obligation of JHC Limited. The agreement gives Treacy & Co. registration
rights in the event of a public offering, such as this offering. Treacy & Co.'s
registration rights have been waived in connection with this offering.
We granted options to purchase 100,000 shares of common stock to Messrs.
Guld and Buchanan on October 31, 1998 for their services on our board of
directors.
On February 26, 1999, we sold in a private placement an aggregate of 506,329
shares of our newly designated senior preferred stock and warrants exercisable
for five years to purchase 224,000 shares of senior preferred stock to Nazem &
Company IV, L.P., Transatlantic Venture Fund C.V. (a joint venture of Nazem &
Company and Banque Nationale de Paris) and other individual investors, for an
aggregate of $3.2 million. The purchase price was, and the conversion price of
the senior preferred stock and exercise price of the warrants is, $6.32 per
share, an amount equal to 85% of the average bid and ask price of our shares on
the OTC Bulletin Board for the relevant 30-day period preceding the closing. The
shares of senior preferred stock are convertible at any time at the option of
the holder into an equal number of shares of common stock, subject to adjustment
for stock splits, stock dividends and similar events, and will be automatically
converted into an equal number of shares of common stock upon closing of this
offering. The holders of the senior preferred stock have the right to nominate a
member of our board of directors so long as they maintain at least 50% of their
original share position. The senior preferred stock has voting rights on an
as-converted basis. In connection with the private placement, we agreed to
provide the holders of senior preferred stock and common stock issuable upon the
conversion of senior preferred stock demand and piggyback registration rights,
the right to tag-along with our founders in certain sales of their shares. So
long as the investors hold at least 50% of their original share position, we
agreed not to effect any material change in the direction of our business unless
approved by at least two-thirds of the board of directors and then only after
consultation with the investors.
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<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information with respect to the
beneficial ownership of our common stock as of February 26, 1999 (assuming the
conversion of all of the outstanding shares of preferred stock), and as adjusted
to reflect the sale of the shares of common stock offered hereby (assuming the
Underwriters' over-allotment option is not exercised), by (1) each person (or
group of affiliated persons) who we know to beneficially own 5% or more of our
common stock, (2) each Selling Stockholder, (3) each of our directors and
executive officers and (4) all of our directors and executive officers as a
group. Unless otherwise indicated below, to our knowledge, all persons listed
below have sole voting and investment power with respect to their shares.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP
PRIOR TO THIS BENEFICIAL OWNERSHIP
OFFERING(1)(2) AFTER OFFERING
----------------------- SHARES -----------------------
NAME OF BENEFICIAL OWNER SHARES PERCENT OFFERED SHARES PERCENT
- ------------------------------------------------------------ ---------- ----------- --------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Robert A. Jennings (3)...................................... 13,644,999 59.9% 375,000 13,269,999 48.9%
Michael Treacy (4).......................................... 2,358,333 9.5 -- 2,358,333 8.1
Michel Bazinet (5).......................................... 1,000,000 4.4 100,000 900,000 3.3
Ian Sutcliffe (6)........................................... 290,000 1.3 -- 290,000 1.1
David J. Austin (7)......................................... 34,000 * -- 34,000 *
Debora A. Falk (8).......................................... 96,000 * -- 96,000 *
Michael Swanson (9)......................................... -- -- -- -- --
Bruce Tilden (10)........................................... 33,300 * -- 33,300 *
John Buchanan (11).......................................... 35,000 * -- 35,000 *
Barry Guld (12)............................................. 35,000 * -- 35,000 *
JHC Limited (13)............................................ 12,854,999 56.6 375,000 12,479,999 46.0
All Directors and Officers as a group (10 persons)(14)...... 17,096,633 68.9 475,000 16,693,299 56.9
Arnhold and S. Bleichroeder, Inc. (15)...................... 300,000 1.3% 100,000 200,000 *%
</TABLE>
- ------------------------
* Indicates beneficial ownership of less than 1% of the total outstanding
common stock.
(1) Under the rules of the Securities and Exchange Commission, a person is
deemed to be the beneficial owner of a security if such person has or shares
the power to vote or direct the voting of such security or the power to
dispose or direct the disposition of such security. A person is also deemed
to be a beneficial owner of any securities if that person has the right to
acquire beneficial ownership within 60 days. Accordingly, more than one
person may be deemed to be a beneficial owner of the same securities.
(2) Applicable percentage of ownership is based on 22,699,278 shares outstanding
prior to the offering (assuming the conversion of all of the outstanding
shares of preferred stock and payable in kind preferred stock dividends
accrued through December 31, 1998) and 27,124,278 shares to be outstanding
upon the consummation of the offering, but does not include 375,000 shares
to be issued if the Underwriters' over-allotment option is exercised.
(3) Includes 12,783,333 shares owned by JHC Limited, 71,666 shares of common
stock issuable in respect of the 8% payable in kind dividend which has
accrued on the junior preferred stock through December 31, 1998, and 790,000
shares owned by Mr. Jennings. Mr. Jennings controls JHC Limited. The
12,783,333 shares owned by JHC Limited includes 3,583,333 shares of common
stock to be issued upon the conversion of 430,000 shares of junior preferred
stock as a result of this offering, but does not include shares issuable in
respect of cumulative payable in kind dividends on the junior preferred
stock after December 31, 1998. JHC Limited owns 375,000 of the shares of
common stock being sold in this offering. Mr. Jennings' address is 33 Reid
Street, 4(th) Floor, Hamilton HM 12, Bermuda.
(4) Includes 2,000,000 shares of common stock issuable upon the exercise of a
currently exercisable option granted to Treacy &Co., LLC, of which Mr.
Treacy is a principal, on November 16, 1998, with an exercise price of
$0.003 per share, and 358,333 shares of common stock issuable upon the
exercise of an option granted to Treacy & Co. on the same date by The
Mediconsult Trust, which is now the obligation of JHC Limited, exercisable
from and after the conversion of the junior preferred stock, with an
exercise price of $1.20 per share. Mr. Treacy's address is 1184 South
Street, Needham, Massachusetts 02492.
(5) Includes 100,000 shares of common stock being sold in this offering. Dr.
Bazinet's address is 343 Brookfield Avenue, Mount-Royal, P. Quebec, Canada,
H3P 2A7.
(6) Mr. Sutcliffe's address is 16 Stonehedge Hollow, Unionville, Ontario,
Canada, L3R 3Y9.
(7) Represents currently exercisable options and options which vest within 60
days at an exercise price of $3.50 per share. Mr. Austin's address is 4608
Woodgreen Drive, West Vancouver, British Columbia, Canada, V7S 2V2.
(8) Represents currently exercisable options at an exercise price of $0.05 per
share. Ms. Falk's address is 53 Elizabeth Street, Tavistock, Ontario,
Canada, NOB 2RO.
(9) Mr. Swanson's address is 45 Milk Street, 2nd floor, Boston, Massachusetts
02109.
(10) Includes currently exercisable options and options which vest within 60
days to purchase 31,000 shares at an exercise price of $1.05 per share. Mr.
Tilden's address is 4 Stonehedge Hollow, Unionville, Ontario, Canada, L3R
3Y9.
(11) Represents currently exercisable options and options which vest within 60
days at an exercise price of $1.50 per share. Mr. Buchanan's address is 7
Rose Glen, Warwick, WKO6, Bermuda.
(12) Represents currently exercisable options and options which vest within 60
days at an exercise price of $1.50 per share. Mr. Guld's address is 4345
Erwin Drive, West Vancouver, British Columbia, Canada, V7V1H7.
(13) Includes 3,583,333 shares of common stock to be issued upon the conversion
of 430,000 shares of junior preferred stock as a result of this offering,
but does not include shares issuable in respect of cumulative paid in kind
dividends on the junior preferred stock. Mr. Jennings controls JHC Limited,
a Bermuda company.
(14) Does not include E. Michael Ingram, who became General Counsel on April 1,
1999 and will become Chief Financial Officer after this offering, nor
options granted to him for 200,000 shares, which options are not currently
exercisable.
(15) Includes 200,000 shares issuable upon the exercise of currently exercisable
warrants to purchase common stock at an exercise price of $1.22 per share,
of which 100,000 shares are being sold in this offering. Does not include
warrants to purchase 200,000 shares of common stock, being held in escrow
and deliverable in 2000, with an exercise price of $1.22 per share. This
firm's address is 1345 Avenue of the Americas, New York, New York
10105-4300.
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<PAGE>
DESCRIPTION OF SECURITIES
The following summary description of our capital stock does not purport to
be complete and is subject to the provisions of our certificate and by-laws, and
applicable law.
We are authorized to issue capital stock of 50,000,000 shares of common
stock, $0.001 par value per share, and 5,000,000 shares of preferred stock with
$0.001 par value per share. We have designated 1,000,000 shares of this as
junior preferred stock and 1,000,000 shares as senior preferred stock. As of
February 26, 1999 there were 18,537,950 shares of common stock issued and
outstanding, 430,000 shares of junior preferred stock issued and outstanding
(other than the accrued payable in kind dividend), and 506,329 shares of senior
preferred stock issued and outstanding. Immediately after the completion of this
offering, we estimate there will be issued and outstanding an aggregate of
shares of common stock and no preferred stock, all of which will be
automatically converted into common stock. In addition, as of February 26, 1999,
716,000 shares of common stock will be issuable upon exercise of outstanding
options at that time pursuant to the 1996 Stock Option Plan and an aggregate of
624,000 shares will be issuable upon the exercise of warrants outstanding.
COMMON STOCK
Holders of common stock are entitled to one vote per share on all matters to
be voted upon by the stockholders and they do not have cumulative voting rights.
Accordingly, holders of a majority of the shares voting for the election of
directors can elect all of the directors. In such an event, the holders of the
remaining shares of common stock will not be able to elect any directors.
Holders of the common stock are entitled to receive such dividends as may be
declared from time to time by the board of directors out of funds legally
available for that purpose. We have never declared or paid cash dividends on our
capital stock and expects to retain future earnings, if any, for use in the
operation and expansion of its business, and do not anticipate paying any cash
dividends in the foreseeable future. In the event of the liquidation,
dissolution or winding up, the holders of common stock are entitled to share
ratably in all assets legally available for distribution after payment of all
debts and other liabilities and subject to the prior rights of any holders of
preferred stock then outstanding.
PREFERRED STOCK
The board of directors is authorized to issue the preferred stock in one or
more series and to fix the price, rights, preferences, privileges and
restrictions thereof, including dividend rights, dividend rates, conversion
rights (into common stock or other preferred stock), voting rights, terms of
redemption, redemption prices, liquidation preferences and the number of shares
constituting a series or the designation of such series, without any further
vote or action by our stockholders. The issuance of preferred stock, while
providing desirable flexibility in connection with possible acquisitions and
other corporate purposes, could have the effect of delaying, deferring or
preventing a change in control of Mediconsult without further action by the
stockholders and may adversely affect the market price of, and the voting and
other rights of, the holders of shares of common stock. The issuance of
preferred stock with voting and conversion rights may adversely affect the
voting power of the holders of common stock, including the loss of voting
control to others. We have no current plans to issue any shares of preferred
stock.
WARRANTS
We have issued warrants to purchase an aggregate of 224,000 shares of senior
preferred stock in connection with the private placement by Mediconsult of $3.2
million of senior preferred stock. Each of these warrants entitles the
registered holder to purchase one share of senior preferred stock or common
stock issuable upon conversion of senior preferred stock at a purchase price of
$6.32 per share, at any time prior to March 1, 2004. The warrants may be
exercised by payment of the purchase
54
<PAGE>
price in cash, by cancellation of indebtedness and/or delivery of shares of our
common stock, and the holders have the right to make a net issue election. The
exercise price and number and kind of shares or other securities and property
issuable upon exercise of these warrants are subject to adjustment upon a stock
split, stock dividend or subdivision. In addition, an adjustment will be made
upon the sale of all or substantially all of our assets in order to enable
holders of these warrants to purchase the kind and number of shares of stock or
other securities or property (including cash) receivable in such event by a
holder of the number of shares of common stock that might otherwise have been
purchased upon exercise of the warrants. The warrants do not confer upon the
holder any voting or any other right of a stockholder. The holders of the
warrants have registration rights described below.
In addition, we also have outstanding warrants to purchase 400,000 shares of
common stock at an exercise price of $1.22 per share, which were issued to
Arnhold and S. Bleichroeder, Inc. in consideration of investment advisory
services. These warrants have been delivered or are being held in escrow and are
deliverable in tranches, as follows: 200,000 upon initial filing of this
prospectus; 100,000 on March 15, 2000; and 100,000 on September 15, 2000. The
delivery of the remaining 200,000 warrants is subject to the continued
performance of financial advisory services for us by a particular individual on
behalf of this firm. These warrants, which expire on March 1, 2004, have net
issue election and anti-dilution provisions comparable to the senior preferred
stock warrants, and registration rights described below. These warrants do not
confer upon the holder any voting or any other right of a stockholder.
ANTI-TAKEOVER EFFECTS OF PROVISIONS OF BY-LAWS
Under Delaware law, all stockholder actions must be effected at a duly
called annual or special meeting or by written consent. Our by-laws provide
that, except as otherwise required by law, special meetings of the stockholders
can only be called by the president, the board of directors, the holders of not
less than one-tenth of all shares entitled to vote at the meeting or legal
counsel of the corporation as last designated by resolution of the board of
directors, the Chairman of the board of directors or our Chief Executive
Officer.
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
Section 145 of the Delaware General Corporation Law (DGCL) empowers a
corporation to indemnify its directors and officers and to purchase insurance
with respect to liability arising out of their capacity or status as directors
and officers, provided that this provision shall not eliminate or limit the
liability of a director: (1) for any breach of the director's duty of loyalty to
the corporation or its stockholders, (2) for acts or omissions not in good faith
or which involve intentional misconduct or a knowing violation of law, (3) for
acts in violation of Section 174 of the DGCL, or (4) for any transaction from
which the director derived an improper personal benefit pursuant to section
102(b)(7) of the DGCL. The DGCL provides further that the indemnification
permitted thereunder shall not be deemed exclusive of any other rights to which
the directors and officers may be entitled under a corporation's by-laws, any
agreement, a vote of stockholders or otherwise. The certificate of incorporation
eliminates the personal liability of directors to the fullest extent permitted
by Section 102(b)(7) of the DGCL and provides that we may fully indemnify any
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding (whether civil,
criminal, administrative or investigative) by reason of the fact that such
person is or was our director or officer or is or was serving at our request as
a director or officer of another corporation, partnership, joint venture, trust,
employee benefit plan or other enterprise, against expenses (including
attorney's fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by such person in connection with such action, suit or
proceeding.
At present, there is no pending litigation or proceeding involving any
director, officer, employee or agent as to which indemnification will be
required or permitted under the certificate. We are not aware of any threatened
litigation or proceeding that may result in a claim for such indemnification.
55
<PAGE>
EFFECT OF DELAWARE ANTI-TAKEOVER STATUTE
We are subject to Section 203 of the DGCL (the anti-takeover law), which
regulates corporate acquisitions. The anti-takeover law prevents certain
Delaware corporations, including those whose securities are listed for trading
on the Nasdaq National Market, from engaging, under certain circumstances in a
"business combination" with any "interested stockholder" for three years
following the date that such stockholder became an interested stockholder. For
purposes of the anti-takeover law, a "business combination" includes, among
other things, a merger or consolidation involving us and the interested
shareholder and the sale of more than 10% of our assets. In general, the
anti-takeover law defines an "interested stockholder" as any entity or person
beneficially owning 15% or more our outstanding voting stock and any entity or
person affiliated with or controlling or controlled by such entity or person. A
Delaware corporation may "opt out" of the anti-takeover law with an express
provision in its original articles of incorporation or an express provision in
its certificate of incorporation or bylaws resulting from amendments approved by
the holders of at least a majority of our outstanding voting shares. We have not
"opted out" of the provisions of the anti-takeover law.
TRANSFER AGENT
The Transfer Agent and Registrar for the common stock is Standard Registrar
& Transfer Agency, Albuquerque, New Mexico.
SHARES ELIGIBLE FOR FUTURE SALE
Upon the closing of this offering, we will have an aggregate of 27,124,278
shares of common stock outstanding, assuming no exercise of the underwriters'
over-allotment option and no exercise of outstanding options or warrants. Of the
outstanding shares, 13,012,950 shares will be freely tradable, except that any
shares held by our "affiliates" (as that term is defined in Rule 144 promulgated
under the Securities Act) may only be sold in compliance with the limitations
described below. The remaining 14,111,328 shares of common stock will be deemed
"restricted securities" as defined under Rule 144. Restricted securities may be
sold in the public market only if registered or if they qualify for an exemption
from registration under Rule 144 promulgated under the Securities Act, which
rule is summarized below. Subject to the lock-up agreements described below and
the provisions of Rule 144, additional shares will be available for sale in the
public market as follows:
<TABLE>
<CAPTION>
NUMBER OF SHARES DATE
- ------------------------------------------ ------------------------------------------------------------
<C> <S>
9,950,000 After 180 days from the date of this prospectus, the 180-day
lockup is released and these shares are saleable under Rule
144 (subject, in some cases, to volume limitations), Rule
144(k), or pursuant to a registration statement to register
for resale shares of common stock issued upon the exercise
of warrants.
4,161,328 Over 180 days from the date of this prospectus, restricted
securities that are held for less than one year and are not
yet saleable under Rule 144.
</TABLE>
In general, under Rule 144, as currently in effect, a person (or persons
whose shares are required to be aggregated), including an affiliate, who has
beneficially owned shares for at least one year is entitled to sell, within any
three-month period commencing 90 days after the date of this prospectus, a
number of shares that does not exceed the greater of (1) 1% of the then
outstanding shares of common stock (approximately 271,243 shares immediately
after this offering) or (2) the average weekly trading volume in the common
stock during the four calendar weeks preceding the date on which notice of such
sale is filed, subject to certain restrictions. In addition, a person who is not
deemed to
56
<PAGE>
have been our affiliate at any time during the 90 days preceding a sale and who
has beneficially owned the shares proposed to be sold for at least two years
would be entitled to sell such shares under Rule 144(k) without regard to the
requirements described above. To the extent that shares were acquired from our
affiliate, that person's holding period for the purpose of effecting a sale
under Rule 144 commences on the date of transfer for the affiliate.
On July 28, 1997 we filed a registration statement with the Commission
pursuant to which we registered 1,000,000 shares of common stock issued or
issuable upon the exercise of options granted under the 1996 Stock Option Plan.
On February 25, 1999 we filed a registration statement to increase this amount
to 2,500,000 shares. This registration statement became immediately effective
upon filing. As of December 31, 1998, there were outstanding options under the
1996 Stock Option Plan to purchase 716,000 shares of common stock, which will be
eligible for sale in the public market from time to time subject to vesting
under the 1996 Stock Option Plan. The possible sale of a significant number of
such shares by such option holders thereof may have an adverse affect on the
price of the common stock.
Our directors and officers and certain stockholders who hold 15,068,628
shares in the aggregate, together with the holders of options to purchase
2,233,300 shares of common stock and the holders of warrants to purchase 524,000
shares of common stock, have agreed that they will not sell, directly or
indirectly, any shares of common stock without the prior written consent of ING
Baring Furman Selz LLC for a period of 180 days from the date of this
prospectus.
Following this offering, under certain circumstances and subject to certain
conditions, certain stockholders and holders of options and warrants to purchase
3,130,329 shares of our outstanding common stock will have certain registration
rights with respect to these shares of common stock underlying the options and
warrants to require us to register such shares of common stock under the
Securities Act and they will have certain rights to participate in future
registrations of securities. In addition, we may also be required to issue
400,000 shares of common stock in connection with the purchase of CyberDiet,
Inc. If issued, these shares are expected to have registration rights and will
be subject to a lock-up agreement related to this offering on the same terms as
our directors and executive officers.
REGISTRATION RIGHTS
Pursuant to a consulting agreement dated November 16, 1998 between
Mediconsult and Treacy & Co., Treacy & Co. is entitled to require us to register
the shares of our common stock it owns at any time after the preferred stock
held by JHC Limited has been redeemed by Mediconsult or converted into common
stock. Treacy & Co.'s registration rights are subject to customary restrictions
and limitations. Treacy & Co. has waived its registration rights in connection
with this offering and also agreed to enter into a lock-up agreement related to
this offering on the same terms as our directors and executive officers.
In connection with an agreement we have with Arnhold and S. Bleichroeder,
Inc. (ASB) to provide investment advisory services, we have agreed that ASB
shall have piggyback registration rights with respect to the 100,000 shares it
owns and any shares issuable upon the exercise of warrants issued to ASB.
Pursuant to this agreement, ASB has been issued warrants for an aggregate of
400,000 shares, exercisable at $1.22 per share. We have agreed to include
100,000 shares owned by ASB in this offering in partial satisfaction of our
registration obligation under such agreement, and have also agreed to piggyback
registration for all other shares and warrant shares owned by ASB. ASB has
agreed to enter into a lock-up agreement related to this offering on the same
terms as our directors and executive officers.
Pursuant to a registration rights agreement, the owners of 506,329 shares of
senior preferred stock and 224,000 warrants to purchase senior preferred stock
have the right to demand that we register their
57
<PAGE>
common stock issuable upon the conversion of the senior preferred stock on two
occasions (or, subject to certain limitations, up to two registration statements
per year on Form S-3) at any time after six months from the closing of this
offering if this offering shall close by June 30,1999, but if this offering does
not close by June 30, 1999, then at any time thereafter October 15, 1999, and
provided that the shares requested to be registered have a minimum anticipated
aggregate gross offering price of at least $5.0 million. In addition, the
holders of common stock issuable upon conversion of the senior preferred stock
have piggyback registration rights. Notwithstanding the foregoing, the demand
registration rights of each stockholder will terminate at such time as such
holder may sell immediately all shares issuable to such holder upon the
conversion of the senior preferred stock under Rule 144 without limitation as to
volume. We will bear the expense of the registration of the shares, except any
underwriting discounts and commissions. The holders of senior preferred stock
have agreed to enter into a lock-up agreement related to this offering on the
same terms as our directors and executive officers.
Our memorandum of agreement with the stockholders of CyberDiet, Inc.
provides that if we acquire CyberDiet, the CyberDiet stockholders will be
entitled to piggyback and limited demand registration rights. We will bear the
expense of the registration of these shares, except any underwriting discounts
and commissions. The stockholders of CyberDiet, Inc. have agreed to enter into a
lock-up agreement related to this offering on the same terms as our directors
and executive officers.
The exercise of these registration rights may hinder our efforts to arrange
future financings, and may have an adverse effect on our market price.
58
<PAGE>
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
Underwriters named below (the "Underwriters") have severally agreed to purchase
from us and the Selling Stockholders the following respective numbers of shares
of common stock at the public offering price less the underwriting discounts and
commissions set forth on the cover page of this prospectus:
<TABLE>
<CAPTION>
UNDERWRITER NUMBER OF SHARES
- --------------------------------------------------------------------------- -----------------
<S> <C>
ING Baring Furman Selz LLC................................................. 2,500,000
Volpe Brown Whelan & Company, LLC.......................................... 2,500,000
-----------------
Total.................................................................. 5,000,000
-----------------
-----------------
</TABLE>
The Underwriting Agreement provides that the obligations of the Underwriters
are subject to certain conditions precedent and that the Underwriters will
purchase all shares of the common stock offered hereby if any of such shares are
purchased.
We have been advised by the Underwriters that the Underwriters propose to
offer the shares of common stock to the public at the public offering price set
forth on the cover page of this prospectus and to certain dealers at such price
less a concession not in excess of $0.55 per share. The Underwriters may allow,
and such dealers may reallow, a concession not in excess of $0.10 per share to
certain other dealers. After the public offering, the public offering price and
other selling terms may be changed by the Underwriters.
We and certain of our stockholders (as described below) have granted the
several Underwriters an option, exercisable not later than 30 days after the
date of this prospectus, to purchase up to 375,000 and 375,000, respectively,
additional shares of common stock at the public offering price less the
underwriting discounts and commissions set forth on the cover page of this
prospectus. To the extent that the Underwriters exercise such option, each of
the Underwriters will have a firm commitment to purchase approximately the same
percentage thereof that the number of shares of common stock to be purchased by
it shown in the table above bears to 5,000,000. Only if the Underwriters
exercise in full the option to purchase up to 375,000 shares from us may the
Underwriters purchase up to 250,000 shares from JHC Limited and up to 125,000
shares from Michel Bazinet on a pro rata basis. To the extent the Underwriters
exercise such option, Mediconsult and such stockholders will be obligated,
pursuant to the option, to sell such shares to the Underwriters. The
Underwriters may exercise such option only to cover over-allotments, if any,
made in connection with the sale of the common stock offered hereby. If
purchased, the Underwriters will offer such additional shares on the same terms
as those on which the 5,000,000 shares of common stock are being offered.
In connection with this offering, certain Underwriters may engage in passive
market making transactions in the common stock on Nasdaq immediately prior to
the commencement of sales in this offering in accordance with Rule 103 of
Regulation M. Passive market making consists of displaying bids on Nasdaq
limited by the bid prices of independent market makers and making purchases
limited by such prices and effected in response to order flow. Net purchases by
a passive market maker on each day are limited to a specified percentage of the
passive market maker's average daily trading volume in the common stock during a
specified period and must be discontinued when such limit is reached. Passive
market making may stabilize the market price of the common stock at a level
above that which might otherwise prevail and, if commenced, may be discontinued
at any time.
Subject to applicable limitations, the Underwriters, in connection with this
offering, may place bids for or make purchases of the common stock in the open
market or otherwise, for long or short account, or cover short positions
incurred, to stabilize, maintain or otherwise affect the price of the common
stock, which may be higher than the price that might otherwise prevail in the
open market. There can be no assurance that the price of the common stock will
be stabilized, or that stabilizing, if
59
<PAGE>
commenced, will not be discontinued at any time. Subject to applicable
limitations, the Underwriters may also place bids, or make purchases on behalf
of the underwriting syndicate to reduce a short position created in connection
with this offering. The Underwriters are not required to engage in these
activities and may end these activities at any time.
The Underwriting Agreement contains covenants of indemnity among the
Underwriters, Mediconsult and the Selling Stockholders against certain civil
liabilities, including liabilities under the Securities Act.
We and each of our directors and executive officers, the Selling
Stockholders and certain of our security holders, who in the aggregate will
hold, following this offering 15,068,628 shares of common stock and options and
warrants to purchase 2,757,300 shares of common stock, have agreed that they
will not directly or indirectly, without the prior written consent of ING Baring
Furman Selz LLC, offer, sell, offer to sell, contract to sell, or otherwise
dispose of any shares of common stock or securities exchangeable for or
convertible into common stock for a period of 180 days after the date of this
prospectus, except that we may issue, and grant options to purchase, shares of
common stock under its current stock option plan and other currently outstanding
options.
The Underwriters have informed us that they do not intend to confirm the
sales to any accounts over which they exercise discretionary authority.
LEGAL MATTERS
The validity of the shares of common stock offered hereby will be passed
upon for us by Golenbock, Eiseman, Assor & Bell, New York, New York. Certain
legal matters in connection with this offering will be passed upon for the
underwriters by Brobeck, Phleger & Harrison LLP.
EXPERTS
The consolidated balance sheets of Mediconsult.com, Inc. as of December 31,
1997 and 1998 and the consolidated statements of operations, stockholders'
equity and cash flows for the three years ended December 31, 1998 have been
included herein and in this Registration Statement in reliance on the report of
PricewaterhouseCoopers, independent accountants, appearing elsewhere herein,
given on the authority of said firm as experts in auditing and accounting.
60
<PAGE>
ADDITIONAL INFORMATION
We have filed with the Securities and Exchange Commission a Registration
Statement on Form S-1 (including the exhibits, schedules and amendments thereto)
under the Securities Act with respect to the shares of common stock to be sold
in this offering. This prospectus does not contain all the information set forth
in the Registration Statement. For further information with respect to
Mediconsult and the shares of common stock to be sold in this offering,
reference is made to the Registration Statement. Statements contained in this
prospectus as to the contents of any contract, agreement or other document
referred to are not necessarily complete, and in each instance reference is made
to the copy of such contract, agreement or other document filed as an exhibit to
the Registration Statement, each such statement being qualified in all respects
by such reference.
Mediconsult.com, Inc. is subject to the reporting requirements of the
Securities Exchange Act of 1934 (the "Exchange Act") and files reports and other
information with the Securities and Exchange Commission (the "Commission") in
accordance therewith. Such reports, proxy statements, and other information
filed by Mediconsult are available for inspection and copying at the public
reference facilities of the Commission at 450 Fifth Street, N.W., Washington,
D.C. 20549, and at the Commission's Regional Offices located at 7 World Trade
Center, Suite 1300, New York, New York 10048, and at Citicorp Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661-2511. Copies of such
material may be obtained by mail from the Public Reference Section of the
Commission at 450 Fifth St., N.W., Washington, D.C. 20549, at prescribed rates.
The Commission maintains a World Wide Web site on the Internet at
http://www.sec.gov that contains reports, proxy and information statements and
other information regarding registrants, including Mediconsult, that file
electronically with the Commission.
Mediconsult.com is the registered United States trademark of
Mediconsult.com, Inc., MediXpert and the Mediconsult logo are also trademarks of
Mediconsult.com, Inc. This prospectus also contains trademarks and trade names
of other companies.
61
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
MEDICONSULT.COM, INC.
Report of PricewaterhouseCoopers, Independent Accountants.................................................. F-2
Consolidated Balance Sheets as of December 31, 1997 and 1998............................................... F-3
Consolidated Statements of Operations for the Years Ended December 31, 1996, 1997 and 1998................. F-4
Consolidated Statements of Changes in Stockholders' Equity for the Years Ended December 31, 1996, 1997 and
1998..................................................................................................... F-5
Consolidated Statements of Cash Flows for the Years Ended December 31, 1996, 1997 and 1998................. F-6
Notes to Consolidated Financial Statements................................................................. F-7
CYBERDIET, LLC
Report of PricewaterhouseCoopers, Independent Accountants.................................................. F-17
Balance Sheets as of December 31, 1996, 1997 and 1998...................................................... F-18
Statements of Operations for the Years Ended December 31, 1996, 1997 and 1998.............................. F-19
Statements of Changes in Members' Equity for the Years Ended December 31, 1996, 1997 and 1998.............. F-20
Statements of Cash Flows for the Years Ended December 31, 1996, 1997 and 1998.............................. F-21
Notes to Financial Statements.............................................................................. F-22
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE DIRECTORS AND STOCKHOLDERS OF MEDICONSULT.COM, INC.
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations and stockholders' equity and of cash flows
present fairly, in all material respects, the financial position of
Mediconsult.com, Inc. and its subsidiaries at December 31, 1997 and 1998, and
the results of their operations and their cash flows for each of the three years
in the period ended December 31, 1998, in conformity with generally accepted
accounting principles in the United States of America. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards in the United States of America which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
PricewaterhouseCoopers
Hamilton, Bermuda
February 26, 1999
F-2
<PAGE>
MEDICONSULT.COM, INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1997 AND 1998
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
<S> <C> <C>
1997 1998
------------- -------------
ASSETS
Current assets:
Cash............................................................................ $ 400,949 $ 135,053
Accounts receivable............................................................. 157,810 135,790
------------- -------------
Total current assets........................................................ 558,759 270,843
------------- -------------
Non-current assets:
Tangible fixed assets........................................................... 193,004 52,790
Intangible fixed assets......................................................... -- 818,750
------------- -------------
Total non-current assets.................................................... 193,004 871,540
------------- -------------
Total assets................................................................ $ 751,763 $ 1,142,383
------------- -------------
------------- -------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities........................................ $ 42,399 $ 243,413
Advances from Stockholder....................................................... 143,838 513,589
Unearned revenue................................................................ -- 107,000
------------- -------------
Total current liabilities................................................... 186,237 864,002
------------- -------------
Stockholders' equity:
Preferred stock 5,000,000 authorized, 1,000,000 shares designated, 250,000 and
430,000 shares issued and outstanding at December 31, 1997 and 1998,
respectively.................................................................. 2,500,000 4,300,000
Common stock, $.001 par value, 50,000,000 shares authorized, 17,291,400 and
18,519,950 shares issued and outstanding at December 31, 1997 and 1998,
respectively.................................................................. 17,291 18,520
Additional paid-in capital...................................................... 1,651,256 5,242,981
Deferred compensation........................................................... (113,277) (884,109)
Retained deficit................................................................ (3,489,744) (8,399,011)
------------- -------------
Total stockholders' equity.................................................. 565,526 278,381
------------- -------------
Total liabilities and stockholders' equity.................................. $ 751,763 $ 1,142,383
------------- -------------
------------- -------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE>
MEDICONSULT.COM, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------
<S> <C> <C> <C>
1996 1997 1998
------------ ------------- -------------
Revenues.............................................................. $ -- $ 256,374 $ 1,030,934
Operating expenses:
Product and content development..................................... -- 765,864 1,316,188
Marketing, sales and client services................................ 435,637 1,130,340 1,811,710
General and administrative.......................................... 403,794 792,213 1,012,719
Depreciation........................................................ -- 132,768 170,439
Fair value of options granted to employees.......................... -- 40,235 275,145
Fair value of options granted to consultants........................ -- -- 1,354,000
------------ ------------- -------------
Total operating expenses........................................ 839,431 2,861,420 5,940,201
------------ ------------- -------------
Loss from operations.................................................. (839,431) (2,605,046) (4,909,267)
Interest income (expense), net........................................ (22,667) (20,000) --
------------ ------------- -------------
Net loss.............................................................. $ (862,098) $ (2,625,046) $ (4,909,267)
------------ ------------- -------------
------------ ------------- -------------
Net loss per share
Basic and diluted..................................................... $ (0.08) $ (0.16) $ (0.27)
Weighted average shares - basic....................................... 11,137,662 16,729,900 17,910,898
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
MEDICONSULT.COM, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
<TABLE>
<CAPTION>
ADDITIONAL
PREFERRED PAID IN DEFERRED
STOCK COMMON STOCK CAPITAL COMPENSATION DEFICIT TOTAL
---------- -------------- ---------- ------------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1996............ $ -- $ 2,700 $ -- $ -- $ (2,600) $ 100
Issuance of common stock............ 13,009 982,976 995,985
Options exercised................... 500 12,000 12,500
Net loss............................ (862,098) (862,098)
---------- -------------- ---------- ------------- ----------- ----------
Balance at December 31, 1996.......... -- 16,209 994,976 -- (864,698) 146,487
Conversion of debentures............ 1,000 499,000 500,000
Options exercised................... 82 3,768 3,850
Stockholder advances converted to
shares............................ 2,500,000 2,500,000
Deferred compensation............... 153,512 (153,512) --
Amortization of deferred
compensation...................... 40,235 40,235
Net loss............................ (2,625,046) (2,625,046)
---------- -------------- ---------- ------------- ----------- ----------
Balance at December 31, 1997.......... 2,500,000 17,291 1,651,256 (113,277) (3,489,744) 565,526
Shares issued in exchange for
services.......................... 100 119,900 120,000
Shares issued for acquisition of
PharmInfoNet...................... 100 818,650 818,750
Stockholder advances converted to
shares............................ 1,800,000 1,800,000
Stock options exercised............. 1,029 253,199 254,228
Compensation to non-employees....... 1,354,000 1,354,000
Deferred compensation to employees.. 1,045,976 (1,045,976) --
Amortization of deferred
compensation...................... 275,144 275,144
Net loss............................ (4,909,267) (4,909,267)
---------- -------------- ---------- ------------- ----------- ----------
Balance at December 31, 1998.......... $4,300,000 $ 18,520 $5,242,981 $ (884,109) $(8,399,011) $ 278,381
---------- -------------- ---------- ------------- ----------- ----------
---------- -------------- ---------- ------------- ----------- ----------
</TABLE>
F-5
<PAGE>
MEDICONSULT.COM, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------
<S> <C> <C> <C>
1996 1997 1998
----------- ------------- -------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss............................................................... $ (862,098) $ (2,625,046) $ (4,909,267)
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation of fixed assets......................................... -- 132,768 170,439
Services received in exchange for common stock....................... -- -- 120,000
Fair value of options granted........................................ -- 40,235 1,629,144
Changes in assets and liabilities:
Accounts receivable................................................ -- (157,810) 22,020
Deferred medical content costs..................................... (161,600) 161,600 --
Accounts payable and accrued liabilities........................... 39,033 3,366 201,014
Unearned revenue................................................... -- -- 107,000
Interest payable................................................... 22,667 (22,667) --
----------- ------------- -------------
Net cash used in operating activities.................................. (961,998) (2,467,554) (2,659,650)
----------- ------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES
Fixed assets purchases............................................... (205,298) (120,474) (30,225)
----------- ------------- -------------
Net cash used in investing activities.................................. (205,298) (120,474) (30,225)
----------- ------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES
Advances from stockholder............................................ 51,841 2,591,997 2,169,751
Issuance of common stock............................................. 1,008,585 3,850 254,228
Issuance of notes payable............................................ 500,000 -- --
----------- ------------- -------------
Net cash provided by financing activities.............................. 1,560,426 2,595,847 2,423,979
----------- ------------- -------------
(Decrease) increase in cash............................................ 393,130 7,819 (265,896)
Cash-Beginning of year................................................. -- 393,130 400,949
----------- ------------- -------------
Cash-End of year....................................................... $ 393,130 $ 400,949 $ 135,053
----------- ------------- -------------
----------- ------------- -------------
Non-cash financing activities (note 3)
</TABLE>
F-6
<PAGE>
MEDICONSULT.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION
Mediconsult.com, Inc. (the "Company") was originally incorporated under the
laws of the State of Colorado in October 1989. In April 1996, the Company
purchased Mediconsult.com Limited, a Bermuda corporation (MCL), through a merger
in which MCL became a wholly-owned subsidiary, resulting in 90% of the
outstanding stock of Mediconsult being held by the former stockholders of
MCL--The Mediconsult Trust, controlled by Mr. Robert Jennings, and Michel
Bazinet. In December 1996, the Company consummated a reincorporation merger
pursuant to which it became a Delaware corporation. Mediconsult conducts its
business primarily through MCL.
The Company is a provider of patient-oriented healthcare information and
services on the World Wide Web. The Company's sites provide a source of medical
information and are designed to empower consumers through increased consumer
education regarding medical conditions and treatment alternatives. The Company's
sites also provide a destination on the Internet where visitors can interact
with others in communities centered around chronic medical conditions and other
health issues. The Company facilitates this environment through an array of
complementary services such as moderated on-line support groups and discussion
forums.
2. NEED FOR FUTURE CAPITAL
The Company has sustained losses and negative cash flows from operations
since inception and expects these conditions to continue for the foreseeable
future. As of December 31, 1998, the Company has an accumulated deficit of
$8,399,011. The implementation of the Company's business plan is dependent on
obtaining additional financing through public or private sources, strategic
relationships or other arrangements. The Company's current cash resources and
anticipated cash flow from operating activities are not expected to be
sufficient to meet its anticipated need for working capital. The Company has a
commitment from its majority stockholder to provide additional funds, as needed,
to cover its working capital needs through February 2000. However, the Company
will require additional funds to implement its business plan and growth plans.
There can be no assurance that such additional financing will be available on
terms attractive to the Company, or at all.
3. SIGNIFICANT ACCOUNTING POLICIES
These consolidated financial statements are prepared in accordance with
accounting principles generally accepted in the United States of America. The
following is a summary of the Company's significant accounting policies:
A) BASIS OF PRESENTATION
The consolidated financial statements have been prepared on a going
concern basis with the assumption that the Company will secure additional
financing through a private or public share offering or from the
principal shareholders to fund cash flow deficiencies and the Company
will ultimately become profitable.
B) USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
F-7
<PAGE>
MEDICONSULT.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
C) BASIS OF CONSOLIDATION
These consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiaries. All intercompany balances and
transactions have been eliminated on consolidation.
D) CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject the Company to significant
concentration of credit risk consist primarily of cash, short and
long-term investments, and accounts receivable. Substantially all of the
Company's cash, short and long-term investments are managed by one
financial institution. Accounts receivable are typically unsecured and
are derived from revenues earned from customers primarily located in the
United States. The Company performs ongoing credit evaluations of its
customers and maintains reserves for potential credit losses;
historically, such losses have been immaterial and within management's
expectations. At December 31, 1998, two customers accounted for 43% and
12% of the accounts receivable balance, respectively. During 1998 and
1997, one customer accounted for 65% and 55% of net revenues,
respectively.
E) REVENUE RECOGNITION
The Company's revenues are derived from the development and
implementation of on-line marketing and advertising programs for
pharmaceutical and other healthcare companies. Such revenues are
recognized ratably over the period that the development work is
performed. Development work could include marketing research, focus-group
testing, on-line testing of visitor preferences, and development of
customized client Web sites.
Revenue from the sale of banner advertisements are recognized ratably in
the period in which the advertisement is displayed, provided that no
significant Company obligations remain and collection of the resulting
receivable is probable. Company obligations typically include guarantees
of minimum number of "impressions", or times that an advertisement
appears in pages viewed by users of the Company's on-line properties. To
the extent minimum guaranteed impressions are not met, the Company defers
recognition of the corresponding revenues until the remaining guaranteed
impression levels are achieved.
Revenues from the licensing of the Company's content are recognized
ratably over the period of the license agreement.
A number of the Company's agreements provide that the Company receive
revenues from electronic commerce transactions. These revenues are
recognized by the Company upon notification of revenues earned by the
Company and, to date, have not been material.
F) TANGIBLE FIXED ASSETS
Property and equipment, mainly comprising purchased computer equipment
and software is recorded at cost and depreciated using the straight-line
method over their estimated useful lifes of two years. The carrying
amounts and accumulated depreciation for fixed assets sold or retired are
eliminated from the respective accounts and gains or losses realized on
disposition are reflected in the accompanying consolidated statements of
operation.
F-8
<PAGE>
MEDICONSULT.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
G) INTANGIBLE FIXED ASSETS
Intangible fixed assets comprise content and design of PHARMINFO.COM
(note 4). Intangible fixed assets are recorded at cost and amortized
using the straight line method over their estimated useful lives of two
years. No amortization was recorded in the year ended December 31, 1998,
as PHARMINFO.COM was acquired on December 31, 1998. The recoverability of
these assets is continually evaluated by comparing the remaining
unamortized cost to the estimated future cash flows of the associated
assets. Provisions for estimated losses are recorded in the period in
which such losses are determined.
H) MARKETING AND ADVERTISING
Advertising production costs are recorded as expense the first time an
advertisement appears. All other advertising costs are expensed as
incurred. The Company does not incur any direct-response advertising
costs.
I) PRODUCT AND CONTENT DEVELOPMENT COSTS
The cost of development and enhancement of the technology used in the
Company's Web sites are expensed as incurred.
J) EMPLOYEE STOCK OPTION COMPENSATION
Stock options for common stock granted to employees are expensed over
their vesting period based on their fair value at the date of grant under
Statement of Financial Accounting Standards ("SFAS") No. 123 "ACCOUNTING
FOR STOCK-BASED COMPENSATION." The fair value of stock options is
estimated using an option-pricing model that takes into account the
exercise price, expected life of the options, current market price of the
common stock and their expected volatility, expected dividends on the
common stock, and the risk-free interest rate based on zero-coupon U.S.
government issues with a remaining term equal to the expected life of the
options.
K) BASIC AND DILUTED NET LOSS PER SHARE
The Company adopted SFAS 128, "EARNINGS PER SHARE" during the year ended
December 31, 1997 and retroactively restated all prior periods. Basic
earnings per share is computed using the weighted average number of
common shares outstanding during the period. Diluted earnings per share
is computed using the weighted average number of common and common
equivalent shares outstanding during the period. Common equivalent shares
consist of the incremental common shares issuable upon conversion of the
convertible preferred stock (using the if-converted method) and shares
issuable upon the exercise of stock options and warrants (using the
treasury stock method). Common equivalent shares are excluded from the
computation if their effect is anti-dilutive.
L) COMPREHENSIVE INCOME
In June 1997, the Financial Accounting Standards Board ("FASB") issued
SFAS 130, "REPORTING COMPREHENSIVE INCOME." SFAS 130 establishes
standards for reporting comprehensive income and its components in a
financial statement. Comprehensive income as defined includes all changes
in equity (net assets) during a period from non-owner sources. The
disclosure prescribed by SFAS 130 must be made for the Company's year
ended
F-9
<PAGE>
MEDICONSULT.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
December 31, 1998. For the years presented, the Company's comprehensive
income was equal to net income.
M) SEGMENTS
Additionally in June 1997, the FASB issued SFAS 131, "DISCLOSURES ABOUT
SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION." This statement
establishes standards for the way companies report information about
operating segments in annual financial statements. It also establishes
standards for related disclosures about products and services, geographic
areas, and major customers. The disclosures prescribed by SFAS 131 will
be effective for the year ending December 31, 1998 consolidated financial
statements. The Company believes that it does not operate in more than
one segment.
N) FAIR VALUES OF FINANCIAL INSTRUMENTS
SFAS 107 "DISCLOSURE ABOUT THE FAIR VALUE OF FINANCIAL INSTRUMENTS",
requires disclosure about the fair value of certain financial
instruments. The Company's financial instruments, including cash,
accounts receivable, accounts payable and accrued liabilities and
advances from shareholder are carried at cost which approximates their
fair value because of the short-term maturity of these instruments.
O) ORGANIZATION COSTS
All costs associated with start-up activities and organization costs are
expensed as incurred.
P) RECENT PRONOUNCEMENTS
In March 1998, the Accounting Standards Executive Committee ("AcSEC")
issued Statement of Position ("SOP") issued 98-1, "ACCOUNTING FOR THE
COSTS OF COMPUTER SOFTWARE DEVELOPED OR OBTAINED FOR INTERNAL USE". This
SOP provides guidance on accounting for the costs of computer software
developed or obtained for internal use. SOP 98-1 identifies the
characteristics of internal-use software and provides examples to assist
in determining when computer software is for internal use and whether it
should be expensed or capitalized. The SOP is effective for financial
statements for fiscal years beginning after December 15, 1998. Management
believes that the Company currently complies with the provisions of this
standard and, therefore, believes that the adoption of this standard will
not have a significant impact on the Company's business, financial
condition and results of operations.
The AcSEC SOP 98-5, "REPORTING COSTS OF START-UP ACTIVITIES", is
effective for fiscal years beginning after December 15, 1998. This SOP
requires costs of start-up activities and organization costs to be
expensed as incurred. Currently, the Company expenses such costs as
incurred and, consequently, management believes that the adoption of this
SOP will not have an impact on the Company's business, financial
condition and results of operations.
4. ACQUISITION OF PHARMINFO.COM
On December 31, 1998 the Company acquired the content and design of the
PHARMINFO.COM Web site in exchange for 100,000 shares of the Company. The
acquisition of PHARMINFO.COM was completed through the contribution of the
PharmInfo.com Web site, including its content and design, to a company formed
for the purpose of the transaction and the merger of such newly formed company
into
F-10
<PAGE>
MEDICONSULT.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. ACQUISITION OF PHARMINFO.COM (Continued)
PharmInfoNet, Inc., a newly formed subsidiary of the Company. The content and
design of PHARMINFO.COM was recorded for $818,750, equivalent to the quoted
market price of the Company's shares on December 31, 1998. The value will be
amortized over an estimated useful life of two years.
5. NON-CASH FINANCING ACTIVITIES
On June 30, 1997, notes payable of $500,000 were converted to 1,000,000
shares of common stock. On August 1, 1998 the Company issued 100,000 shares of
common stock to Arnhold and S. Bleichroeder, Inc. as a fee for corporate finance
advisory services. On December 31, 1998 the Company issued 100,000 shares of
common stock to acquire PHARMINFO.COM. Also, during the years ended December 31,
1997 and 1998, $2.5 million and $1.8 million of advances from shareholder,
respectively, were converted to 250,000 and 180,000 shares of Preferred Stock.
6. FIXED ASSETS
Fixed assets comprise:
<TABLE>
<CAPTION>
DECEMBER 31, 1997
------------------------------------
<S> <C> <C> <C>
ACCUMULATED NET BOOK
COST DEPRECIATION VALUE
---------- ------------ ----------
Computer equipment.......................................................... $ 102,401 $ 44,397 $ 58,004
Computer programming........................................................ 223,371 88,371 135,000
---------- ------------ ----------
Total fixed assets.......................................................... $ 325,772 $ 132,768 $ 193,004
---------- ------------ ----------
---------- ------------ ----------
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1998
------------------------------------
<S> <C> <C> <C>
ACCUMULATED NET BOOK
COST DEPRECIATION VALUE
---------- ------------ ----------
Computer equipment.......................................................... $ 132,626 $ 103,152 $ 29,474
Computer programming........................................................ 223,371 200,055 23,316
---------- ------------ ----------
Total fixed assets.......................................................... $ 355,997 $ 303,207 $ 52,790
---------- ------------ ----------
---------- ------------ ----------
</TABLE>
7. ADVANCES FROM SHAREHOLDER
Advances from shareholder are interest free and repayable on demand.
8. CAPITAL STOCK
A) AUTHORIZED CAPITAL STOCK
During the years ended December 31, 1997 and 1998, 250,000 and 750,000
shares of $.001 par value preferred stock, respectively, were designated
as a series called $10 Non-Cumulative Preferred Stock. The Certificate of
Designation was amended on September 30, 1998 to, among other things,
change the $10 Non-Cumulative Preferred Stock to a cumulative preferred
stock and change the name to "Preferred Stock."
F-11
<PAGE>
MEDICONSULT.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. CAPITAL STOCK (CONTINUED)
As of December 31, 1998 and 1997 authorized capital stock comprises:
<TABLE>
<CAPTION>
DECEMBER 31, 1997 DECEMBER 31, 1998
---------------------------------- ----------------------------------
<S> <C> <C> <C> <C>
LIQUIDATION LIQUIDATION
NUMBER OF SHARES VALUE NUMBER OF SHARES VALUE
---------------- ---------------- ---------------- ----------------
Preferred stock
$.001 par value preferred stock......... 4,750,000 $ 4,750 4,000,000 $ 4,000
Preferred stock......................... 250,000 2,500,000 1,000,000 10,000,000
---------------- ---------------- ---------------- ----------------
Total preferred stock................... 5,000,000 2,504,750 5,000,000 10,004,000
---------------- ---------------- ---------------- ----------------
Common stock, $.001 par value........... 50,000,000 $ 50,000 50,000,000 $ 50,000
---------------- ---------------- ---------------- ----------------
</TABLE>
B) SHARE RIGHTS
I) $.001 PAR VALUE PREFERRED STOCK
The preferred stock may be issued from time to time in series as
determined by the Board of Directors. The Board of Directors is
authorized to fix and determine the variations in the relative rights
and preferences as between series. The preferred stock may have
limited, contingent or no voting powers; may have such designations,
preferences, dividends, and relative, participating, optional or
other special rights; and be subject to such qualifications,
limitations and restrictions as the Board of Directors shall
determine. The preferred stock may be subject to redemption by the
Company or at the options of the holders thereof and may be
convertible into common stock or exchangeable for other securities of
the Company. So long as no shares of any class or series established
by resolution of the Board of Directors have been issued, the voting
rights, designations, preferences and relative, optional,
participating or other rights of these shares may be amended by
resolution of the Board of Directors.
II) PREFERRED STOCK
In September 1998 the Board of Directors and the stockholders,
respectively, approved an amendment (the "Amendment") to the
Certificate of Designation of the Preferred Stock to, among other
things, change the existing $10 Non-Cumulative Preferred Stock to a
cumulative preferred stock and change the name to "Preferred Stock".
Under the amendment each issued and outstanding share of Preferred
Stock entitles the holder of record to receive cumulative dividends
payable in additional shares of Preferred Stock at the rate of 8% per
annum, payable semi-annually. Each share of Preferred Stock is
automatically convertible into 8.33 shares of Common Stock, subject
to an adjustment, upon certain occurrences. The conversion rate of
the Preferred Stock has standard anti-dilution protections in the
event of stock splits, dividends, combinations, mergers and
reorganizations, but is not protected from issuances below the base
conversion rate. No dividends were declared during the years ended
December 31, 1997 or prior to September 30, 1998, when dividends on
such shares became cumulative. In the year ended December 31, 1998
accumulated dividends were 8,600 preferred shares which are
convertible into 71,666 common shares.
F-12
<PAGE>
MEDICONSULT.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. CAPITAL STOCK (CONTINUED)
C) ISSUED CAPITAL STOCK
On April 23, 1996, 55,000 shares of common stock were issued in exchange
for the entire share capital of Mediconsult.com Limited. An additional
5,197 shares of common stock were issued on May 24, 1996 for $25,985. On
August 12, 1996 a 20 for 1 share split took place, which resulted in
issued common stock of 1,473,940 shares. On October 25, 1996 a 10 for 1
share split took place, which resulted in issued common stock of
14,739,400 shares. On November 13, 1996 stock options for 500,000 common
stock were exercised for $12,500. On November 20, 1996, the Company
issued 970,000 common stock for $970,000.
On June 30, 1997 notes payable of $500,000 were converted to 1,000,000
shares of common stock. During the year ended December 31, 1997, stock
options for 82,000 shares of common stock were exercised for $3,850 in
total. During 1998, 100,000 shares of common stock were issued as a
corporate finance advisory fee valued at $120,000 at the date of issuance
and 100,000 shares of common stock were issued to acquire PHARMINFO.COM
including rights to content valued at $818,750 at the date of issuance in
non-cash financing activities (see Note 5). Also during the year ended
December 31, 1998, stock options for 790,000, 16,000, and 222,550 common
stock were exercised for $19,750, $800, and $233,678 in total,
respectively.
During the years ended December 31, 1998 and 1997, 180,000 and 250,000
shares of the Preferred Stock were issued on conversion of advances from
shareholder of $1.8 million and $2.5 million, respectively.
As of December 31, 1997 and 1998 issued capital stock comprises:
<TABLE>
<CAPTION>
DECEMBER 31, 1997 DECEMBER 31, 1998
-------------------------- --------------------------
<S> <C> <C> <C> <C>
NUMBER NUMBER
OF SHARES VALUE OF SHARES VALUE
------------ ------------ ------------ ------------
Preferred stock, $10 liquidation value................... 250,000 $ 2,500,000 430,000 $ 4,300,000
Common stock, $.001 par value............................ 17,291,400 1,512,435 18,519,950 2,854,424
------------ ------------
Total capital stock...................................... $ 4,012,424 $ 7,154,424
------------ ------------
------------ ------------
</TABLE>
9. STOCK OPTIONS
The Company has a 1996 Stock Option Plan (the "Plan") to provide incentives
to employees, directors and consultants. The maximum term of options granted
under the Plan is ten years. The Board of Directors has the exclusive power over
the granting of options and their vesting provisions. During the year ended
December 31, 1998 the number of common stock covered by the Plan was increased
from 1,000,000 to 2,500,000.
During 1998, the Company entered into an agreement with Treacy & Co., LLC
that granted options for 2 million shares to Treacy & Co., LLC for consulting
services provided. The options granted have an exercise price of $0.003 and were
vested immediately upon granting.
F-13
<PAGE>
MEDICONSULT.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. STOCK OPTIONS (CONTINUED)
Stock options for common stock comprise:
<TABLE>
<CAPTION>
1997 1998
------------------------ -------------------------
<S> <C> <C> <C> <C>
WEIGHTED WEIGHTED
AVERAGE AVERAGE
NUMBER OF EXERCISE NUMBER OF EXERCISE
SHARES PRICE SHARES PRICE
------------- --------- ------------- ----------
Outstanding--Beginning of year............................... 980,000 $ 0.03 1,150,000 $ 0.25
Granted during the year...................................... 252,000 1.03 2,605,050 0.38
Exercised during the year.................................... (82,000) 0.05 (1,028,550) 0.23
Cancelled during the year.................................... -- -- (10,500) 0.29
------------- --------- ------------- ----------
Outstanding--End of year..................................... 1,150,000 $ 0.25 2,716,000 $ 0.37
------------- --------- ------------- ----------
Exercisable--End of year..................................... 967,000 $ 0.28 2,318,800 $ 0.12
------------- --------- ------------- ----------
</TABLE>
<TABLE>
<S> <C> <C> <C> <C> <C>
RANGE OF EXERCISE PRICES
-----------------------------------------------------------
Outstanding--December 31, 1998
Stock options for number of common stock............ 2,000,000 96,000 320,000 200,000 100,000
Weighted average exercise price
contractual life (years).......................... $ 0.003 $ 0.05 $ 1.05 $ 1.50 $ 3.50
Average remaining................................... 4.75 0.75 1.75 1.75 2.0
RANGE OF EXERCISE PRICES
-----------------------------------------------------------
Exercisable--December 31, 1998
Stock options for number of common stock............ 2,000,000 96,000 185,800 30,000 10,000
Exercise price...................................... $ 0.003 $ 0.05 $ 1.05 $ 1.50 $ 3.50
</TABLE>
During the years ended December 31, 1997 and 1998 the fair values of the
options granted to employees were $153,572 and $1,045,976, respectively. The
weighted average exercise price and weighted average fair value of options whose
exercise price exceeded the market value at the grant date during 1998 were
$1.24 and $0.23, respectively. The weighted average exercise price and weighted
average fair value of options whose exercise price was less than the market
value at the grant date during 1998 were $0.18 and $1.03, respectively.
The fair values of the options were estimated using an option-pricing model
based on the weighted average risk-free interest rates ranging between 4.231%
and 5.470%, an expected life of the options of two years, an expected volatility
of the common stock ranging between 105.1% and 185.4% and no expected dividends
on the common stock.
10. ADVERTISING
During the years ended December 31, 1996 and 1997, and 1998 the Company
incurred approximately $0, $252,400 and $314,400 in advertising expenses,
respectively.
F-14
<PAGE>
MEDICONSULT.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11. RELATED PARTY TRANSACTIONS
During the years ended December 31, 1997 and 1998, advances from
shareholders of $2,591,997 and $2,169,751, respectively, were made to the
Company, of which $2,500,000 and $1,800,000, respectively, were converted to
common stock and $0 and $30,000, respectively, were repaid.
On October 1, 1998, options to acquire 2 million shares of common stock were
granted to Treacy & Co., LLC. Michael Treacy is both a director in the Company
and a principal in Treacy & Co., LLC.
The Company is headquartered in Hamilton, Bermuda, occupying space in the
office of Robert A. Jennings, Chief Executive Officer and shareholder, at no
cost.
12. TAXATION
The Company's operations are conducted by its Bermuda subsidiary. The
Subsidiary has received an undertaking from the Bermuda Government exempting it
from all local income, profits and capital gains taxes until the year 2016. At
the present time, no such taxes are levied in Bermuda. The Company is a Delaware
holding Company and is currently not subject to taxation in the United States.
13. SUBSEQUENT EVENTS
On February 26, 1999, the Company sold in a private placement an aggregate
of 506,329 shares of the newly designated voting senior preferred stock and
warrants exercisable for five years to purchase 224,000 shares of the senior
preferred stock to Nazem & Company IV, L.P. Transatlantic Venture Fund C.V. (a
joint venture of Nazem & Company and Banque Nationale de Paris) and certain
other individual investors, for an aggregate of $3.2 million. The purchase price
and the conversion price of the senior preferred stock and exercise of the
warrants was $6.32 per share. The shares of the senior preferred stock are
convertible at any time at the option of the holder into an equal number of
shares of common stock, subject to adjustment, and will be automatically
converted into an equal number of shares of common stock upon closing of the
public offering.
On February 25, 1999, the Company amended its agreement to grant 400,000
warrants to Arnhold and S. Bleichroeder, Inc. As a result, the Company delivered
warrants to purchase 200,000 shares upon initial filing of its offering
prospectus for a public offering of the Company's common stock. The remaining
200,000 warrants are deliverable in 2000 and are subject to continued
performance of financial advisory services by a particular individual on behalf
of Arnhold and S. Bleichroeder, Inc. The warrants have an exercise price of
$1.22, expire on March 1, 2004 and have cash-less exercise provisions and
anti-dilution provisions comparable to the senior preferred stock warrants.
In February 1999, the Company entered into a memorandum of agreement
outlining the principal terms of an exclusive management arrangement with
CyberDiet, LLC, the owner of CYBERDIET.COM, a Web site providing tailored
nutritional information and programs, that granted the Company the sole right to
place advertisements on the Web site, to link traffic, and to manage the content
on the Web site. The Company has an option to purchase CyberDiet, LLC, and
CyberDiet, LLC has, under certain circumstances, the right to cause the Company
to purchase it, in exchange for 400,000 shares of the Company's common stock.
In February 1999, the Company entered into an exclusive sponsorship
agreement with the InterNational Council of Infertility Information
Dissemination, a not-for-profit organization, relating to
F-15
<PAGE>
MEDICONSULT.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
13. SUBSEQUENT EVENTS (CONTINUED)
INCIID.ORG that granted the Company the sole right to place advertisements on
the Web site, to link traffic, and to manage the content on the Web site. In
connection with this agreement, the Company made commitments to pay the
InterNational Council of Infertility Information Dissemination $0.5 million per
year beginning in 1999, for three years in equal quarterly installments, in cash
or common stock, at the option of the Company.
In February 1999, the Company entered into a memorandum of agreement
outlining the principle terms of a 50/50 joint venture with CommonHealth LLP, a
healthcare advertising firm. The Company expects to advance approximately $0.3
million to the joint venture for the initial capitalization. Under the terms of
the agreement, the Company may borrow the initial capitalization amount from
CommonHealth LLP, which would be repaid through 25% of the Company's share of
profits from the joint venture.
F-16
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE MEMBERS OF CYBERDIET, LLC
In our opinion, the accompanying balance sheets and the related statements
of operations and members' equity and of cash flows present fairly, in all
material respects, the financial position of CyberDiet, LLC at December 31,
1996, 1997 and 1998, and the results of its operations and its cash flows for
each of the three years in the period ended December 31, 1998, in conformity
with generally accepted accounting principles in the United States of America.
These financial statements are the responsibility of the Company's management;
our responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards in the United States of America which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
PricewaterhouseCoopers
Hamilton, Bermuda
March 14, 1999
F-17
<PAGE>
CYBERDIET, LLC
BALANCE SHEETS
DECEMBER 31, 1996, 1997 AND 1998
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------
1996 1997 1998
--------- --------- ----------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash........................................................................... $ 3,575 $ 5,124 $ 10,369
Accounts receivable............................................................ 1,000 1,250 5,115
Prepaid services............................................................... -- 250 450
Inventory...................................................................... -- 1,336 --
--------- --------- ----------
Total current assets....................................................... 4,575 7,960 15,934
--------- --------- ----------
Total assets............................................................... $ 4,575 $ 7,960 $ 15,934
--------- --------- ----------
--------- --------- ----------
LIABILITIES AND MEMBERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities....................................... $ 200 $ 3,395 $ 5,517
Notes payable to member........................................................ -- 23,500 53,500
--------- --------- ----------
Total current liabilities.................................................. 200 26,895 59,017
--------- --------- ----------
Members' equity
Contributed capital............................................................ 19,600 49,000 70,500
Retained deficit............................................................... (15,225) (67,935) (113,583)
--------- --------- ----------
Total members' equity (deficit)............................................ 4,375 (18,935) (43,083)
--------- --------- ----------
Total liabilities and members' equity...................................... $ 4,575 $ 7,960 $ 15,934
--------- --------- ----------
--------- --------- ----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-18
<PAGE>
CYBERDIET, LLC
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1996 1997 1998
---------- ---------- ----------
<S> <C> <C> <C>
Revenues...................................................................... $ 3,000 $ 17,294 $ 38,742
---------- ---------- ----------
Operating expenses:
Product and content development............................................. 12,549 43,601 65,109
Marketing, sales and client service......................................... 86 -- 1,000
General and administrative.................................................. 5,590 25,884 13,842
---------- ---------- ----------
Total operating expenses.................................................. 18,225 69,485 79,951
---------- ---------- ----------
Loss from operations.......................................................... (15,225) (52,191) (41,209)
Interest income (expense)..................................................... -- (519) (4,439)
---------- ---------- ----------
Net loss...................................................................... $ (15,225) $ (52,710) $ (45,648)
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
The accompanying notes are an integral part of these financial statements
F-19
<PAGE>
CYBERDIET, LLC
STATEMENTS OF CHANGES IN MEMBERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
<TABLE>
<CAPTION>
CONTRIBUTED
CAPITAL DEFICIT TOTAL
----------- ----------- ----------
<S> <C> <C> <C>
Balance at January 1, 1996.................................................. $ 3,600 -- $ 3,600
Capital contribution...................................................... 16,000 -- 16,000
Net loss.................................................................... -- $ (15,225) (15,225)
----------- ----------- ----------
Balance at December 31, 1996................................................ 19,600 (15,225) 4,375
Capital contribution...................................................... 29,400 -- 29,400
Net loss.................................................................... -- (52,710) (52,710)
----------- ----------- ----------
Balance at December 31, 1997................................................ 49,000 (67,935) (18,935)
Capital contribution...................................................... 21,500 -- 21,500
Net loss.................................................................... -- (45,648) (45,648)
----------- ----------- ----------
Balance at December 31, 1998................................................ $ 70,500 $ (113,583) $ (43,083)
----------- ----------- ----------
----------- ----------- ----------
</TABLE>
The accompanying notes are an integral part of these financial statements
F-20
<PAGE>
CYBERDIET, LLC
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1996 1997 1998
---------- ---------- ----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss...................................................................... $ (15,225) $ (52,710) $ (45,648)
Adjustments to reconcile net loss to net cash used in operating activities:
Changes in assets and liabilities:
Accounts receivable and prepaid services.................................. (1,000) (500) (4,065)
Inventory................................................................. -- (1,336) 1,336
Accounts payable and accrued liabilities.................................. 200 3,195 (2,122)
---------- ---------- ----------
Net cash used in operating activities......................................... (16,025) (51,351) (46,255)
---------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Notes payable to member................................................... -- 23,500 30,000
Contributed capital....................................................... 19,600 29,400 21,500
---------- ---------- ----------
Net cash provided by financing activities..................................... 19,600 52,900 51,500
---------- ---------- ----------
Increase in cash.............................................................. 3,575 1,549 5,245
Cash--Beginning of year....................................................... -- 3,575 5,124
---------- ---------- ----------
Cash--End of year............................................................. $ 3,575 $ 5,124 $ 10,369
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-21
<PAGE>
CYBERDIET, LLC
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1997 AND 1998
1. ORGANIZATION
CyberDiet (the "Company") was formed as a general partnership in Los Altos,
California on August 16, 1995 for the purpose of providing service on the
internet. The general partnership was subsequently dissolved on December 31,
1996 and reorganized as a new limited liability company that was formed on
January 1, 1997 under the Beverly-Killea Limited Liability Company Act of the
California Code. This company was named CyberDiet, LLC. Subsequent to December
31, 1998, the Company was dissolved as a limited liability company and
reorganized as a corporation that was formed on January 5, 1999. This company
was named CyberDiet, Inc.
The Company is a provider of tailored nutritional information and programs
on the World Wide Web. The Company has a Web site located at
hhtp://www.cyberdiet.com, which is designed to serve the consumer demand for
information to assist in decisions about diet and exercise. The Web site offers
its visitors a means of achieving their specific goals through extensive use of
interactive modules and detailed nutritional information and motivation.
2. NEED FOR FUTURE CAPITAL
The Company has sustained losses and negative cash flows from operations
since inception and expects these conditions to continue for the foreseeable
future. As of December 31, 1998, the Company has an accumulated deficit of
$111,233. The implementation of the Company's business plan is dependent on
obtaining additional financing through strategic relationships or other
arrangements. The Company's current cash resources and anticipated cash flow
from operating activities are not expected to be sufficient to meet its
anticipated need for working capital. There can be no assurance that such
additional financing will be available on terms attractive to the Company, or at
all. As described in note 8, in February 1999, the Company entered into an
agreement with Mediconsult.com, Inc. The Company has a commitment from the Chief
Executive Officer of Mediconsult.com, Inc. to provide additional funds as needed
to cover its working capital needs through March 2000.
3. SIGNIFICANT ACCOUNTING POLICIES
These financial statements are prepared in accordance with accounting
principles generally accepted in the United States of America. The following is
a summary of the Company's significant accounting policies:
(A) BASIS OF PRESENTATION
The financial statements have been prepared on a going concern basis with
the assumption that the Company will secure additional financing from the
principal members to fund cash flow deficiencies and the Company will
ultimately become profitable.
F-22
<PAGE>
CYBERDIET, LLC
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996, 1997 AND 1998
(B) USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
(C) CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject the Company to significant
concentration of credit risk consist primarily of cash and cash
equivalents and accounts receivable. Substantially all of the Company's
cash, cash equivalents are managed by one financial institution. Accounts
receivable are typically unsecured and are derived from revenues earned
from customers primarily located in the United States.
(D) REVENUE RECOGNITION
The Company's revenues are derived from the development and
implementation of on-line marketing and advertising programs for
nutritional and diet information and media products and services. Such
revenues are recognized over the period that the development work is
performed.
Revenues provided by the licensing of the Company's content are
recognized ratably over the period of the license agreement.
The Company sells products on-line and receives revenues from electronic
commerce transactions. These revenues are recognized by the Company upon
notification of revenues earned by CyberDiet, LLC and, to date, have not
been material.
(E) MARKETING AND ADVERTISING
Advertising production costs are recorded as expense the first time an
advertisement appears. All other advertising costs are expensed as
incurred. The Company does not incur any direct-response advertising
costs.
(F) PRODUCT AND CONTENT DEVELOPMENT COSTS
The cost of development and enhancement of the technology used in the
Company's Web sites are expensed as incurred.
(G) COMPREHENSIVE INCOME
In June 1997, the Financial Accounting Standards Board ("FASB") issued
SFAS 130, "REPORTING COMPREHENSIVE INCOME." SFAS 130 establishes
standards for reporting comprehensive income and its components in a
financial statement. Comprehensive income as defined includes all changes
in equity (net assets) during a period from non-owner sources. The
disclosure prescribed by SFAS 130 must be made for the Company's year
ended December 31, 1998. For the years presented, the Company's
comprehensive income was equal to net income.
F-23
<PAGE>
CYBERDIET, LLC
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996, 1997 AND 1998
(H) SEGMENTS
Additionally in June 1997, the FASB issued SFAS 131, "DISCLOSURES ABOUT
SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION." This statement
establishes standards for the way companies report information about
operating segments in annual financial statements. It also establishes
standards for related disclosures about products and services, geographic
areas, and major customers. The disclosures prescribed by SFAS 131 will
be effective for the year ending December 31, 1998 consolidated financial
statements. The Company believes that it does not operate in more than
one segment.
(I) FAIR VALUES OF FINANCIAL INSTRUMENTS
SFAS 107 "DISCLOSURE ABOUT THE FAIR VALUE OF FINANCIAL INSTRUMENTS",
requires disclosure about the fair value of certain financial
instruments. The Company's financial instruments, including cash,
accounts receivable, accounts payable and accrued liabilities and notes
payable to member are carried at cost which approximates their fair value
because of the short-term maturity of these instruments.
(J) ORGANIZATION COSTS
All costs associated with start-up activities and organization costs are
expensed as incurred.
(K) RECENT PRONOUNCEMENTS
In March 1998, the Accounting Standards Executive Committee ("AcSEC")
issued Statement of Position ("SOP") issued 98-1, "ACCOUNTING FOR THE
COSTS OF COMPUTER SOFTWARE DEVELOPED OR OBTAINED FOR INTERNAL USE". This
SOP provides guidance on accounting for the costs of computer software
developed or obtained for internal use. SOP 98-1 identifies the
characteristics of internal-use software and provides examples to assist
in determining when computer software is for internal use and whether it
should be expensed or capitalized. The SOP is effective for financial
statements for fiscal years beginning after December 15, 1998. Management
believes that the Company currently complies with the provisions of this
standard and, therefore, believes that the adoption of this standard will
not have a significant impact on the Company's results of operations,
financial position or cash flows.
The AcSEC SOP 98-5, "REPORTING COSTS OF START-UP ACTIVITIES", is
effective for fiscal years beginning after December 15, 1998. This SOP
requires costs of start-up activities and organization costs to be
expensed as incurred. Currently, the Company expenses such costs as
incurred and, consequently, management believes that the adoption of this
SOP will not have an impact on the Company's results of operations,
financial position or cash flows.
4. NOTES PAYABLE TO MEMBER
The Company has received loans amounting to $0, $23,500, and $53,500 at the
years ended December 31, 1996, 1997, and 1998, respectively. These notes bear
interest at a rate of 10% per annum and are repayable on demand. Accrued
interest to December 31, 1996, 1997 and 1998 of $0, $519, and $2,607,
respectively, remain unpaid at December 31, 1998.
F-24
<PAGE>
CYBERDIET, LLC
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996, 1997 AND 1998
5. MEMBERS' EQUITY
<TABLE>
<CAPTION>
TIMI GUSTAFSON CINDI FINK MARK GUSTAFSON TOTAL
-------------- ----------- --------------- ---------
<S> <C> <C> <C> <C>
MEMBERS' EQUITY-1995....................... 1,800 1,800 0 3,600
Capital Contributed
During the Year............................ $ 8,000 $ 8,000 0 16,000
MEMBERS' EQUITY-1996....................... $ 9,800 $ 9,800 0 19,600
Capital Contributed
During the Year............................ $ 14,100 $ 14,100 $ 1,200 29,400
MEMBERS' EQUITY-1997....................... $ 23,900 $ 23,900 $ 1,200 49,000
Capital Contributed
During the Year............................ $ 10,000 $ 10,000 $ 1,500 21,500
MEMBERS' EQUITY-1998....................... $ 33,900 $ 33,900 $ 2,700 70,500
</TABLE>
- ------------------------
a) The Company was formed in 1995 as a general partnership with an initial
capital contribution of $300 by each of its two partners, Timi Gustafson and
Cindi Fink for 50% ownership, respectively.
b) During 1995, each partner contributed $1,500 during the year for a total
contributed capital of $3,600 at the end of 1995.
c) During 1996, each partner contributed amounts of $8,000 each, for a total of
$19,600 at the end of 1996.
d) During 1997, Mark Gustafson entered into the partnership as a 15% partner
with an initial contribution of $1,050 and contributed $150 during the year.
The other partners, Timi Gustafson and Cindi Fink maintained a 47.5%
interest in the partnership and each contributed a total of $14,100 during
the year.
e) During 1998, Timi Gustafson and Cindi Fink contributed $10,000 each during
the year and Mark Gustafson contributed a total of $1,500 during the year.
6. TAXATION
As a limited liability company (LLC), the Company has not been subject to
income taxes because its income has been taxed directly to its owners. There are
no material differences between the tax basis and the amounts reports on the
Company's Balance Sheets.
7. SUBSEQUENT EVENTS
Subsequent to December 31, 1998, the Company dissolved its limited liability
corporation and was incorporated on January 5, 1999. On February 25, 1999, the
Company entered into a Memorandum of Agreement with Mediconsult.com, Inc.,
granting Mediconsult.com, Inc. the sole right to place advertisments on the
Company's Web site, to link traffic and to manage the content of the Web site.
The Company granted Mediconsult.com, Inc. an option to purchase the Company and
the Company has under certain circumstances the right to cause Mediconsult.com,
Inc. to purchase it in exchange for 400,000 shares of Mediconsult.com, Inc.
common stock.
F-25
<PAGE>
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NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS, AND,
IF GIVEN OR MADE, THIS INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY US OR THE UNDERWRITERS. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER OF ANY SECURITIES OTHER THAN THOSE TO WHICH IT RELATED OR AN
OFFER TO SELL, OR A SOLICITATION OR AN OFFER TO BUY, TO ANY PERSON IN ANY
JURISDICTION WHERE SUCH AN OFFER OR SOLICITATION WOULD BE UNLAWFUL. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS
CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary........................................................ 1
Risk Factors.............................................................. 6
Forward Looking Statements; Market Data................................... 16
Use of Proceeds........................................................... 17
Price Range of Common Stock and Dividend Policy........................... 17
Capitalization............................................................ 18
Dilution.................................................................. 19
Unaudited Pro Forma Consolidated Financial Information.................... 20
Selected Consolidated Financial Data...................................... 23
Management's Discussion and Analysis of Financial Condition and Results of
Operations.............................................................. 24
Description of Business................................................... 34
Management................................................................ 47
Certain Transactions...................................................... 52
Principal and Selling Stockholders........................................ 53
Description of Securities................................................. 54
Underwriting.............................................................. 59
Legal Matters............................................................. 60
Experts................................................................... 60
Additional Information.................................................... 61
Index to Financial Statements............................................. F-1
</TABLE>
UNTIL MAY 1, 1999 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS
EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPATING IN THIS
DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS DELIVERY REQUIREMENT
IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING
AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
5,000,000 SHARES
[LOGO]
MEDICONSULT.COM, INC.
COMMON STOCK
---------------------
PROSPECTUS
---------------------
ING BARING FURMAN SELZ LLC
VOLPE BROWN WHELAN & COMPANY
APRIL 6, 1999
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