<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file number: __________
LANDACORP, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 94-3346710
(State or other jurisdiction (I.R.S. Employer
of incorporation of organization) Identification Number)
4151 ASHFORD DUNWOODY RD., SUITE 505, ATLANTA, GA 30319
(Address of principal executive offices) (ZIP Code)
Registrant's telephone number, including area code: (404) 531-9956
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
Number of shares of Common Stock, no par value, outstanding as of March 31,
2000: 13,680,849
<PAGE> 2
LANDACORP, INC.
INDEX FOR FORM 10-Q
MARCH 31, 2000
<TABLE>
<CAPTION>
PAGE
NUMBER
------
<S> <C>
PART I FINANCIAL INFORMATION
Item 1. Financial Statements and Notes
Balance Sheets as of March 31, 2000 and December 31, 1999 3
Statements of Operations for the three months ended
March 31, 2000 and March 31, 1999 4
Statements of Cash Flows for the three months ended
March 31, 2000 and March 31, 1999 5
Notes to Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
Item 3. Quantitative and Qualitative Disclosures about Market Risk 14
PART II OTHER INFORMATION 15
Item 1. Legal Proceedings
Item 2. Changes in Securities
Item 3. Defaults in Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES 16
</TABLE>
-2-
<PAGE> 3
LANDACORP, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, March 31,
1999 2000
------------ ------------
(audited) (unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 1,884,000 $ 35,261,000
Accounts receivable and costs and estimated
earnings in excess of billings on uncompleted
contracts, net 2,090,000 1,885,000
Other current assets 164,000 422,000
------------ ------------
Total current assets 4,138,000 37,568,000
Property and equipment, net 1,057,000 1,425,000
Intangible Assets, net -- 1,133,000
Capitalized software, net 61,000 52,000
Deferred offering costs 595,000 --
Other assets 8,000 11,000
------------ ------------
$ 5,859,000 $ 40,189,000
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 463,000 $ 438,000
Accrued expenses 1,804,000 1,759,000
Deferred revenue and billings in excess of costs
and estimated earnings on uncompleted contracts 2,637,000 2,451,000
Current portion of long-term debt 277,000 1,256,000
------------ ------------
Total current liabilities 5,181,000 5,904,000
Long-term debt, net of current portion 164,000 155,000
------------ ------------
5,345,000 6,059,000
------------ ------------
Stockholders' equity:
Preferred Stock, $0.001 par value, aggregate liquidation
amount $8,160,000 at December 31, 1999; 8,000,000 shares
authorized; 6,800,000 shares issued and outstanding at
December 31, 1999; none at March 31, 2000 7,000 --
Common Stock, $0.001 par value, 15,000,000 shares
authorized; 2,610,000 and 13,681,000
shares issued and outstanding 3,000 14,000
Additional paid-in capital 16,955,000 52,596,000
Notes receivable from officers (189,000) (187,000)
Unearned stock-based compensation (2,645,000) (2,620,000)
Accumulated deficit (13,617,000) (15,673,000)
------------ ------------
Total stockholders' equity 514,000 34,130,000
------------ ------------
$ 5,859,000 $ 40,189,000
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
-3-
<PAGE> 4
LANDACORP, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended March 31,
-----------------------------
1999 2000
----------- -----------
(unaudited)
<S> <C> <C>
Revenues:
System sales $ 1,688,000 $ 1,718,000
Support services 444,000 694,000
----------- -----------
Total revenues 2,132,000 2,412,000
----------- -----------
Cost of revenues:
System sales 755,000 1,047,000
Support services 149,000 185,000
----------- -----------
Total cost of revenues 904,000 1,232,000
----------- -----------
Gross profit 1,228,000 1,180,000
----------- -----------
Operating expenses:
Sales and marketing 752,000 1,684,000
Research and development 390,000 678,000
General and administrative 772,000 1,137,000
----------- -----------
Total operating expenses 1,914,000 3,499,000
----------- -----------
Loss from operations (686,000) (2,319,000)
Interest and other income, net 22,000 271,000
Interest expense -- (8,000)
----------- -----------
Net loss $ (664,000) $(2,056,000)
=========== ===========
Net loss per share:
Basic and diluted $ (0.63) $ (0.26)
=========== ===========
Weighted average shares 1,049,000 7,992,000
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
-4-
<PAGE> 5
LANDACORP, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Three Months Ended March 31,
------------------------------
1999 2000
----------- ------------
(unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (664,000) $ (2,056,000)
Adjustments to reconcile net loss to net
cash provided by (used in) operating activities:
Depreciation and amortization 80,000 201,000
Recovery of doubtful accounts (20,000) (29,000)
Amortization of unearned stock-based compensation 517,000 522,000
Changes in assets and liabilities,
net of effects of acquistion:
Accounts receivable and costs and
estimated earnings in excess of billing
on uncompleted contracts, net (104,000) 838,000
Other assets (31,000) (261,000)
Accounts payable 67,000 (25,000)
Accrued expenses 211,000 (63,000)
Deferred revenue and billings in excess of costs
and estimated earnings on uncompleted contracts 104,000 (790,000)
----------- ------------
Net cash provided by (used in) operating activities 160,000 (1,663,000)
----------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment, net (84,000) (425,000)
Capitalized software development costs (20,000) --
----------- ------------
Net cash used in investing activities (104,000) (425,000)
----------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on long-term debt -- (280,000)
Collection on notes receivable from officers -- 2,000
Proceeds from issuance of common stock, net 8,000 35,743,000
----------- ------------
Net cash provided by financing activities 8,000 35,465,000
----------- ------------
Increase in cash and cash equivalents 64,000 33,377,000
Cash and cash equivalents, beginning of period 2,032,000 1,884,000
----------- ------------
Cash and cash equivalents, end of period $ 2,096,000 $ 35,261,000
=========== ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
-5-
<PAGE> 6
LANDACORP, INC.
NOTES TO FINANCIAL STATEMENTS
1. THE COMPANY AND BASIS OF PRESENTATION
Landacorp, Inc. (the Company) was established in 1982 for the purpose of
developing health care quality and resource management systems that target
cost containment and quality improvement for hospitals and managed care
organizations. The Company maintains offices in Chico, California, Portland,
Oregon and Atlanta, Georgia and derives all of its revenues from customers
in the United States.
The accompanying unaudited financial statements of the Company have been
prepared pursuant to the rules of the Securities and Exchange Commission
(the "SEC"). Certain information and footnote disclosures normally included
in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such rules
and regulations. These unaudited financial statements should be read in
conjunction with the audited financial statements and notes thereto included
in the Company's Annual Report on Form 10-K for the year ended December 31,
1999. In the opinion of management, the accompanying unaudited financial
statements reflect all adjustments, which are of a normal recurring nature,
necessary for a fair presentation of the results for the periods presented.
The results of operations presented for the three months ended March 31,
2000 are not necessarily indicative of the results to be expected for any
other interim period or any future fiscal year.
2. ASSET ACQUISITION
On January 31, 2000, the Company acquired the net assets of Interactive
Healthcare Division (IHD) of High Technology Solutions, Inc. (HTS). The
acquisition has been accounted for using the purchase method of accounting
and accordingly, the purchase price has been allocated to the tangible and
intangible assets acquired on the basis of their respective fair values on
the acquisition date. The fair value of intangible assets was determined
based upon preliminary valuations and other available information.
Of the total purchase price of $1,268,000, the Company assumed liabilities
of $18,000 and paid $250,000 at closing, with the remaining $1 million paid
in April 2000. Of the purchase price of $1,250,000 plus $18,000 of assumed
liabilities, approximately $63,000 has been allocated to property and
equipment, and the remainder has been allocated to intangible assets,
including intellectual property ($165,000), work force ($160,000), and
goodwill ($880,000). The acquired intangible assets will be amortized over
their estimated useful lives of twenty-four to thirty-six months.
-6-
<PAGE> 7
LANDACORP, INC.
NOTES TO FINANCIAL STATEMENTS
3. NET LOSS PER SHARE
Basic net loss per share is computed using the weighted average number of
common shares outstanding. Diluted net loss per share is computed using the
weighted average number of common and potential common shares outstanding.
Potential common shares consist of outstanding common shares subject to
repurchase by the Company, the incremental number of common shares issuable
upon conversion of Preferred Stock (using the if-converted method) and
common shares issuable upon the exercise of stock options and warrants
(using the treasury stock method). Potential common shares are excluded from
the computation if there effect is anti-dilutive. Net loss per share
computations are in accordance with SFAS No. 128, "Earnings Per Share," and
the Securities and Exchange Commission Staff Accounting Bulletin ("SAB")
No. 98.
The weighted average potential common shares excluded from the determination
of basic and diluted net loss per share as their effect is anti-dilutive,
are as follows:
Net loss per share is calculated in accordance with Statement of Financial
Accounting Standards ("SFAS") No. 128, "Earnings per Share" and Securities
and Exchange Commission ("SEC") Staff Accounting Bulletin No. 98 ("SAB 98").
Under the provisions of SFAS No. 128 and SAB 98, basic net loss per share is
computed by dividing the net loss available to common stockholders for the
period by the weighted average number of common shares outstanding during
the period. Diluted net loss per share is computed by dividing the net loss
for the period by the weighted average number of common and potential common
shares outstanding during the period if their effect is dilutive. Potential
common shares comprise common stock subject to repurchase and incremental
common shares issuable upon the exercise of stock options. At March 31,
2000, 1,908,000 potential common shares are excluded from the determination
of diluted net loss per share as the effect of such shares on a weighted
average basis is anti-dilutive.
4. UNEARNED STOCK-BASED COMPENSATION
In connection with certain stock option grants during the three months ended
March 31, 2000, the Company recognized unearned compensation totaling
$497,000, which is being amortized over the vesting periods, using the
multiple option approach prescribed by SFAS No. 123.
Amortization expense in connection with unearned stock-based compensation
recognized during the three months ended March 31, 2000, totaled $522,000,
and has been allocated to operating expenses.
5. INITIAL PUBLIC OFFERING
On February 14, 2000, the Company completed its initial public offering of
3,500,000 shares of common stock. In addition, 525,000 shares (375,000
shares sold by the Company and 150,000 shares sold by existing shareholders)
were sold pursuant to the exercise of the underwriters' over-allotment
option. Net proceeds to the Company after commission and offering related
expenses, were approximately $35 million.
-7-
<PAGE> 8
LANDACORP, INC.
NOTES TO FINANCIAL STATEMENTS
In conjunction with the offering, 6,800,000 shares of Preferred Stock were
converted into Common stock on a one-for-one basis. Additionally, the
holders of warrants to purchase 350,000 shares of Common stock exercised the
warrants in a cashless exercise resulting in a net issuance of 308,000
shares of common stock.
-8-
<PAGE> 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
All statements, trend analyses and other information contained in the following
discussion relative to markets for our products and trends in revenues, gross
margins and anticipated expense levels, as well as other statements including
words such as "anticipate," "believe," "could" "estimate," "expect" "intend" and
"plan" and other similar expressions, constitute forward-looking statements.
These forward-looking statements are subject to business and economic risks and
uncertainties, and our actual results of operations may differ materially from
the forward-looking statements. Factors that could cause or contribute to such
differences include, but are not limited to, those discussed in "Risk Factors"
as well as other risks and uncertainties referenced in our S-1 prospectus and
other forms filed periodically with the SEC.
OVERVIEW
We offer business-to-business electronic medical management solutions to
healthcare payers and providers that are designed to help our clients control
the cost and improve the quality of healthcare delivery. Our applications
automate and streamline administrative and business processes and enable
real-time interaction among various healthcare participants. As of March 31,
2000, 7 payers who claim to have a combined membership of eight million
participants were using our maxMC solution, and approximately 175 hospital
providers were using our Maxsys solutions. We recently began offering e-maxMC,
our Internet-based medical management solution for payers. We have successfully
tested e-maxMC internally and expect to complete a customer test of the
application in 2000.
We have historically derived revenues from the installation and licensing of our
maxMC and Maxsys solutions, sublicensing third-party software applications as
part of system implementations and delivery of post-contract customer support,
training and consulting services. We are currently focusing our primary
development, sales and marketing efforts on our e-maxMC, maxMC and Maxsys II
solutions. Although we do not anticipate future system sales or enhancements of
Maxsys I, we continue to provide maintenance services to, and receive
maintenance fees from, customers who purchased this product in the past. We plan
to continue to support Maxsys I for the foreseeable future as a service to such
customers and pursuant to ongoing contractual obligations.
Traditionally, we have recognized system sales revenues and associated costs
using the percentage-of-completion method, with labor hours incurred relative to
total estimated contract hours as the measure of progress towards completion. We
recognize revenues from sublicensing of third-party software upon installation
of such software. We recognize revenues from support services ratably over the
support period. We recognize revenues from training and consulting as such
services are delivered.
We have introduced a new subscription-based fee structure for our e-maxMC and
maxMC solutions that provides for implementation services at a fixed hourly rate
and the licensing of installed systems and post customer contract support
through a monthly subscription fee based upon the number of members covered by
the payer organization. Subscription-based contracts allow us to recognize the
fair value of the implementation services as such services are delivered and
recognize subscription fees on a monthly basis.
We expect to expand our operations and employee base, including our sales,
marketing, research and development, implementation, and support services
resources. In particular, during this first quarter of 2000 we expanded our
sales force significantly. To accelerate the implementation of elements of our
strategy, we intend to target and pursue strategic acquisitions and
relationships, such as marketing alliances with vendors of complementary
products and services and partnerships with Internet providers of healthcare
content, disease management and health-related e-commerce services.
Investigating or entering into any such strategic relationships could lead to
additional expenditures.
On January 31, 2000, we purchased from High Technology Solutions, Inc. assets
related to its business of providing Web site services to healthcare payers. The
purchase price for the assets is $1,268,000 (including
-9-
<PAGE> 10
an estimated $18,000 in assumed liabilities) of which we paid $250,000 at the
closing. We paid the balance of the purchase price of $1,000,000 in April 2000.
The acquired assets include equipment, know how, trademarks and other intangible
rights used by High Technology Solutions, Inc. in the operation of its business
of providing Web site services to healthcare payers, as well as contracts, none
of which are material. In connection with the acquisition we hired a number of
former employees of High Technology Solutions, Inc. who we believe possess
valuable expertise and relationships with potential healthcare payer customers.
We believe the acquisition benefits Landacorp by providing us with valuable
expertise and strategic relationships in the area of providing Web site services
to healthcare payers faster and more cost-effectively than we would have been
able to develop internally. As a result, the acquisition will allow us to
accelerate the implementation of our strategy of providing Web site services to
healthcare payers.
The purchase price of $1,268,000 (including an estimated $18,000 in assumed
liabilities) has been allocated to the various tangible and intangible assets
acquired. The acquired intangible assets will be amortized over their estimated
useful lives of twenty-four to thirty-six months. Factors considered by the
Company in determining estimated useful lives of the intangible assets include,
service life expectancies of the workforce based on anticipated option vesting
schedules of eighteen months and other short-lived incentive compensation
arrangements, effects of obsolescence on intellectual property, and the effects
of competition and other economic factors on goodwill, such as our intention to
assimilate the acquired business into our operations rather than operate it as a
separate business.
During the three months ended March 31, 2000, we recorded unearned stock-based
compensation totaling $497,000 in connection with the grant of stock-based
awards to certain employees. We are amortizing these amounts over the four-year
vesting period of the related options. We issued these options to create
incentives for continued performance. Of the total unearned compensation, we
amortized $522,000 during the three months ended March 31, 2000. We expect to
amortize $1,234,000 during the remainder of 2000, $918,000 in 2001, $374,000 in
2002 and $94,000 in 2003. We will reduce unearned compensation expense for
future periods to the extent that options terminate prior to full vesting.
RESULTS OF OPERATIONS
The following table presents the statement of operations data as a percentage of
total revenues:
-10-
<PAGE> 11
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------------------------------------
As a Percent of
Dollars Total Revenues
------------------------------ --------------------
1999 2000 1999 2000
----------- ----------- ------ ------
(unaudited)
<S> <C> <C> <C> <C>
Revenues:
System sales $ 1,688,000 $ 1,718,000 79.2% 71.2%
Support services 444,000 694,000 20.8% 28.8%
----------- ----------- ------ ------
Total revenues 2,132,000 2,412,000 100.0% 100.0%
----------- ----------- ------ ------
Cost of revenues:
System sales 755,000 1,047,000 35.4% 43.4%
Support services 149,000 185,000 7.0% 7.7%
----------- ----------- ------ ------
Total cost of revenues 904,000 1,232,000 42.4% 51.1%
----------- ----------- ------ ------
Gross profit 1,228,000 1,180,000 57.6% 48.9%
----------- ----------- ------ ------
Operating expenses:
Sales and marketing 752,000 1,684,000 35.3% 69.8%
Research and development 390,000 678,000 18.3% 28.1%
General and administrative 772,000 1,137,000 36.2% 47.1%
----------- ----------- ------ ------
Total operating expenses 1,914,000 3,499,000 89.8% 145.1%
----------- ----------- ------ ------
Loss from operations (686,000) (2,319,000) -32.2% -96.1%
Interest and other income, net 22,000 271,000 1.0% 11.2%
Interest expense - (8,000) 0.0% -0.3%
----------- ----------- ------ ------
Net loss $ (664,000) $(2,056,000) -31.1% -85.2%
----------- ----------- ------ ------
</TABLE>
11
<PAGE> 12
COMPARISON OF QUARTERS ENDED MARCH 31, 1999 AND 2000
Revenues. System sales revenues increased by $30,000 or 2% from $1,688,000
in the first quarter of 1999 to $1,718,000 in the first quarter of 2000. Of the
$30,000 increase in system sales revenues, an increase of $328,000 related to
revenues from the implementation of systems, offset by a decrease of $298,000
related to license fees. This decrease in license fees is related to the changes
we made for contracts beginning 2000 by only selling to health plan customers on
a subscription basis instead of on a perpetual license fee basis. The effect of
this change prevents subscription fee revenues from being recognized during the
course of an implementation until either the customer goes live, or a specific
time after the contract has been signed. Under our historical perpetual license
fee type sale to health plans, the license fee was recognized over the
implementation period by percentage of completion in accordance with SOP 97-1.
During the first quarter of 2000, two customers accounted for 22% and 14% of the
systems sales. One customer accounted for 14% of system sales revenues in the
first quarter of 1999.
Support services revenues increased by $250,000 or 56% from $444,000 in
first quarter of 1999 to $694,000 in first quarter of 2000. The increase in
support services revenue resulted from additional support contracts obtained as
a result of the completion of maxMC and Maxsys II software implementations,
partially offset by a decline in Maxsys I support revenues resulting from a
continued decline in the total number of Maxsys I support customers. One
customer accounted for 10% of the support services revenues in the first quarter
of 2000. No customer accounted for 10% or more of support services revenues in
the first quarter of 1999.
Cost of Revenues. Cost of system sales consists principally of costs
incurred in the implementation of our software products, including personnel
costs, amortization of unearned stock-based compensation, non-reimbursed travel
expenditures, related department overhead, amortization of capitalized software
development costs, costs of third party software products, and depreciation on
equipment. Cost of system sales increased by $292,000 or 39% from $755,000,
representing 45% of system sales revenues, in first quarter 1999 to $1,047,000,
representing 61% of system sales revenues, in first quarter of 2000. This cost
increase resulted from an increase in personnel costs as we added employees to
perform software implementations, stock-based compensation expense further
discussed below, and additional costs associated with iHealthMedia.com's
implementation staff and other associated costs. iHealthMedia.com was acquired
by the company as a new division at the end of January 2000. The decrease in the
gross margin on system sales from 55% in 1999 to 39% in 2000 resulted from an
increase in headcount as we added personnel in anticipation of increases in the
volume of systems contracts, together with a decrease in the revenue recognized
for health plan contracts per implementation day expended on a customer,
resulting from the change in the way we sell systems to health plans, as
outlined above.
Cost of support services revenues increased by $36,000 or 24% from
$149,000, representing 34% of support services revenues, in first quarter 1999
to $185,000, representing 27% of support services revenues, in first quarter
2000. This increase in dollars resulted from an increase in salaries, benefits,
stock-based compensation expense further discussed below, and other
personnel-related expenses as we increased the size of the support services
staff due to the increased volume of customers purchasing support contracts. The
increase in the gross margin on support services from 66% during first quarter
1999 to 73% for the first quarter 2000 resulted from efficiencies realized from
additional support contracts sold for completed Maxsys II and maxMC contracts.
We expect that cost of support services revenues will continue to increase in
dollar amount as we continue to expand our customer support department to meet
anticipated customer demand. We cannot yet determine the impact of these
increased costs on our gross margins.
-12-
<PAGE> 13
Research and Development. Research and development expenses consist of
personnel costs, amortization of unearned stock-based compensation, related
department overhead and depreciation on equipment. Research and development
expenses increased by $288,000 or 73% from $390,000, representing 18% of total
revenues, in the first quarter 1999 to $678,000, representing 28% of total
revenues, in the first quarter 2000. This increase in dollars resulted from the
inclusion of the iHealthMedia.com division for two months together with an
increase in headcount, salaries, benefits and other personnel-related expenses,
including stock-based compensation expense further discussed below, as we
increased the size of the research and development staff. We anticipate that we
will continue to devote substantial resources to research and development and
that such expenses will increase in dollar amounts. We cannot yet determine the
impact of these increased costs on our total operating expenses.
Sales and Marketing. Sales and marketing expenses consist principally of
compensation for our sales and marketing personnel, amortization of unearned
stock-based compensation, advertising, trade show and other promotional costs,
and departmental overhead. Sales and marketing expenses increased by $932,000 or
124% from $752,000, representing 35% of total revenues, in first quarter 1999 to
$1,684,000, representing 70% of total revenues, in first quarter 2000. This
increase resulted from increased salaries, benefits and other personnel-related
expenses due to growth in the number of sales and marketing personnel,
stock-based compensation expense further discussed below, increases in sales
commissions due to an increase in the volume of customer contracts, increases in
travel costs due to the increased headcount, and increases in trade shows and
other marketing expenses incurred to build additional product awareness. There
was also a one time bonus of $335,000 paid to the Chief Marketing Officer in
connection with deferred compensation that became payable in the event the
company went public. As a result of the company completing its Initial Public
Offering in the first quarter of 2000, this amount was booked to Sales and
Marketing expenses in this period. Further disclosure of this exceptional item
can be found in our S-1 prospectus filed with the SEC. Other than this
exceptional item, we expect that sales and marketing expenses will continue to
increase in dollar amounts as we continue to expand our sales and marketing
efforts, continue to add personnel and increase promotional activities. We
cannot yet determine the impact of these increase expenses on our total
operating expenses.
General and Administrative. General and administrative expenses consist of
compensation for personnel, fees for outside professional services, costs
associated with maintaining the company as a public corporation, amortization of
unearned stock-based compensation, and allocated occupancy and overhead costs.
General and administrative expenses increased by $365,000 or 47% from $772,000,
representing 36% of total revenues, in the first quarter of 1999 to $1,137,000,
representing 47% of total revenues, in the first quarter of 2000. The increase
was due to an increase in the number of employees due to the inclusion of
iHealthMedia.com as a division for two months, higher professional service fees,
stock-based compensation expense further discussed below, together with costs
associated with operating as a public company. Also, we had increased occupancy
costs due to our expanded facility in Chico that started in September 1999 and
the commencement of our Portland office lease from February 2000 in connection
with our iHealthMedia.com acquisition. Finally, we incurred a goodwill
amortization expense arising from the acquisition of iHealthMedia.com of $51,000
for the first quarter of 2000. We believe that our general and administrative
expenses will continue to increase in dollar amounts as a result of our growing
operations and the expenses associated with operating as a public company. We
cannot yet determine the impact of these increased expenses on our total
operating expenses.
Stock-based Expenses. In connection with certain stock option grants and
common stock issuance during the years ended December 31, 1998 and 1999, and for
the quarter ended March 31, 2000, the Company recognized unearned compensation
totaling $4,166,000, $1,610,000 and $497,000 respectively, which is being
amortized over the vesting periods or as the Company's repurchase rights lapse
(See Note 8 of Notes to Financial Statements for year ended December 31, 1999),
as applicable, using the multiple option approach prescribed by SFAS No. 123.
Amortization expense recognized during the first quarter of 1999 and 2000
totaled $517,000 and $522,000, respectively, and has been allocated to the
various operating expenses based on the associated personnel.
-13-
<PAGE> 14
Interest and Other Income and Interest Expense. Interest and other income
consists primarily of earnings on our cash and cash equivalents. Interest and
other income amounted to $22,000 and $271,000 for the first quarter of 1999 and
2000, respectively. The substantial increase in income for first quarter 2000 is
due to the higher levels of cash and cash equivalents held during the period
arising from funds generated from the initial public offering in February 2000.
Interest expense of $8,000 for first quarter 2000 arises from financing certain
fixed assets through a finance lease program. This program was not in operation
for the first quarter of 1999, therefore there is no interest expense for this
period.
Income Taxes. We recorded no current provision or benefit for federal or
state income taxes for the either the first quarter of 1999 or 2000, as the
Company had incurred net operating losses and had no carry-back potential. As of
March 31, 2000, we had net operating loss carry-forwards for federal tax
purposes in excess of $7,000,000 and for state tax purposes, in excess of
$1,800,000. These federal and state tax loss carry-forwards are available to
reduce future taxable income. Utilization of such carry-forwards may be limited
in certain circumstances including, but not limited to, cumulative stock
ownership changes of more than 50 percent over a three-year period and will
expire at varying amounts during the period from December 31, 2000 to 2014. The
Company believes that there were cumulative changes of ownership of greater than
50 percent in February 1998. Accordingly, the amount of loss carry-forwards that
may be utilized to reduce future taxable income for federal and state income tax
purposes may be limited. The amount of the limitation has not yet been
calculated. We have not recognized a deferred tax asset on our balance sheet.
LIQUIDITY AND CAPITAL RESOURCES
Historically, we have financed our operations through net cash
generated from operating activities, and private sales of common and preferred
stock, with net proceeds totaling $11.1 million. During February 2000, we
completed our initial public offering through which we raised net proceeds of
approximately $35 million. As of March 31, 2000, we had $35.3 million in cash
and cash equivalents and $31.7 million in working capital with outstanding debt
totaling $1.4 million.
Net cash provided by (used in) operating activities was $160,000 and
($1,663,000) during the three months ended March 31, 1999 and 2000,
respectively. Net cash used to fund operating activities in 2000 reflects net
losses before non-cash charges for depreciation and amortization and decreases
in deferred revenue, offset in part by decreases in accounts payable, accrued
expenses and accounts receivable. Net cash provided by operating activities in
1999 consists of net losses before non-cash charges for depreciation and
amortization, and increases to accounts payable, accrued expenses and deferred
revenue.
Net cash used in investing activities was $104,000 in 1999 and $425,000
in 2000. Investing activities consist primarily of purchases of computer
equipment, office furniture and leasehold improvements, and additions to
capitalized software development costs.
Net cash generated from financing activities was $8,000 in 1999 and
$35.7 million in 2000. Net cash generated from financing activities in 1999
resulted from the issuance of common stock. Net cash generated from financing
activities in 2000 resulted from the issuance of common stock in connection with
the Company's initial public offering that was completed during February 2000.
We purchased assets from High Technology Solutions, Inc. on January 31,
2000. At the closing, we paid High Technology Solutions, Inc. $250,000 and
delivered a promissory note in the principal amount of $1,000,000. We paid the
remaining balance of the promissory note in April 2000. The promissory note was
secured by the assets we purchased.
In February 1998, the Company entered into an agreement with Brian Lang
whereby the Company agreed to pay a bonus of $335,000 to Mr. Lang upon the
successful completion of an initial public offering. This amount was paid on
March 1, 2000 following our Initial Public Offering and the expense was recorded
as operating expense for that period.
In February 1999, we obtained a line of credit that allows maximum
borrowings of $2.0 million. The agreement allows us to designate up to $300,000
of the maximum borrowings as a term note. Advances on the line of credit and the
term note are secured by all of our tangible and intangible personal property.
At December 31, 1999, we had not drawn against the line of credit, and $233,000
was outstanding on the term note, which we used to finance the purchase of
certain fixed assets. The line of credit and term note contain various
restrictive covenants, one of which the Company was not in compliance with at
December 31, 1999. In January 2000, the Company obtained waivers for all
financial covenants for the period beginning September 30, 1999 through March
31, 2000, the expiration date of the line of credit and term note. In March
2000, the Company obtained a further waiver and extension through April 30,
2000.
We signed a lease for a new principal facility in March 1999. We began
making lease payments in September 1999 and we will continue to make such
payments for eighty-four months, resulting in aggregate lease expenses of
approximately $34,000 per quarter.
We expect to experience significant growth in our operating expenses
for the foreseeable future in order to execute our business plan. As a result,
we anticipate that operating expenses and planned capital expenditures will
constitute a material use of our cash resources. In addition, we may utilize
cash resources to fund acquisitions or investments in other businesses,
technologies or product lines. We believe that available cash and cash
equivalents and the net proceeds from the sale of the common stock in our recent
offering will be sufficient to meet our working capital and operating expense
requirements for at least the next twelve months. Thereafter, we may require
additional funds to support our working capital and operating expense
requirements or for other purposes and may seek to raise such additional funds
through public or private debt or equity financings. Such additional financing
may be unavailable, or if it is available, it may only be available on
unreasonable terms and may be dilutive to our stockholders.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The primary objective of our investment activities is to preserve
principal while, at the same time, maximizing the yields without significantly
increasing risk. To achieve this objective, we invest in highly liquid and
high-quality money market accounts that invest in debt securities. Our
investments in debt securities are subject to interest rate risk. To minimize
the exposure due to adverse shifts in interest rates, we invest in money market
accounts that invest only in short-term securities that maintain an average
maturity of less than one year. As a result, we do not believe we are subject
to risk.
-14-
<PAGE> 15
PART II OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 2. Changes in Securities
None.
Item 3. Defaults in Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
In February 2000, prior to the Company's initial public offering, the
shareholders of the Company, acting by written consent approved the
amended and restated Certificate of Incorporation of the Company to be
in effect upon the closing of the initial public offering
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
(a) The following exhibits have been filed with this report:
27.1 Financial Data Schedule
(b) Reports on Form 8-K.
No reports on Form 8-K were filed during the quarter ended March 31,
2000.
-15-
<PAGE> 16
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Dated: May 15, 2000
LANDACORP, INC.
(Registrant)
/s/ Eugene Santa Cattarina
--------------------------------------------
President, Chief Executive Officer,
(principal executive officer)
/s/ Stephen P. Kay
--------------------------------------------
Chief Operating Officer and
Chief Financial Officer
(principal financial officer)
-18-
<PAGE> 17
INDEX TO EXHIBITS
27.1 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 35,261
<SECURITIES> 0
<RECEIVABLES> 2,038
<ALLOWANCES> (153)
<INVENTORY> 0
<CURRENT-ASSETS> 37,579
<PP&E> 3,979
<DEPRECIATION> (1,396)
<TOTAL-ASSETS> 40,189
<CURRENT-LIABILITIES> 5,904
<BONDS> 0
0
0
<COMMON> 14
<OTHER-SE> 34,116
<TOTAL-LIABILITY-AND-EQUITY> 40,189
<SALES> 2,412
<TOTAL-REVENUES> 2,412
<CGS> 1,232
<TOTAL-COSTS> 1,232
<OTHER-EXPENSES> 3,499
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 263
<INCOME-PRETAX> (2,056)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,056)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,056)
<EPS-BASIC> (0.26)
<EPS-DILUTED> (0.26)
</TABLE>
