<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 30, 2000
Or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _____________to______________
Commission File Number 0-26390
CELERIS CORPORATION
(Exact name of registrant as specified in its charter)
MINNESOTA 41-1545493
(State or other jurisdiction of
incorporation or organization) (IRS Employer ID No.)
1801 WEST END AVENUE
SUITE 750
NASHVILLE, TN 37203
(615) 341-0223
(Address including zip code, of Registrant's
principal executive offices and telephone
number, including area code)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. [X] Yes [ ] No
As of November 9, 2000 there were 3,278,655 shares of the registrant's common
stock outstanding.
<PAGE> 2
CELERIS CORPORATION
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
<TABLE>
<S> <C>
Condensed Consolidated Balance Sheets as of September 30, 2000
and December 31, 1999....................................................1
Condensed Consolidated Statements of Operations For the Three
and Nine Months Ended September 30, 2000 and 1999........................2
Condensed Consolidated Statements of Cash Flows For the Nine
Months Ended September 30, 2000 and 1999.................................3
Notes to Condensed Consolidated Financial Statements..........................4
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations............................................6
Item 3. Quantitative and Qualitative Disclosures About Market Risks .........9
PART II. OTHER INFORMATION
Item 1. Legal Proceedings ...................................................9
Item 5. Other Information ...................................................10
Item 6. Exhibits and Reports on Form 8-K ....................................10
</TABLE>
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF
1995.
This Quarterly Report on Form 10-Q contains forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933, as amended and Section
21E of the Securities Exchange Act of 1934, as amended. These forward-looking
statements include statements regarding intent, belief or current expectations
of Celeris Corporation (the "Company") and its management. Such forward-looking
statements are not guarantees of future performance and involve risks and
uncertainties that may cause the Company's actual results to differ materially
from the results discussed in the forward-looking statements. Risks and
uncertainties that might cause such differences include, but are not limited to:
(1) the Company's ability to generate sufficient revenue and adequately control
costs to keep increases in expenditures below revenue growth, if any, to achieve
profitability and positive cash flow; (2) fluctuations in quarterly operating
results as a result of commencement or completion of significant contracts
and/or delays in the implementation or termination of particular clinical
trials; (3) the Company's dependence on the amount of research and development
activities, particularly clinical trials, of pharmaceutical, medical device and
biotechnology companies; (4) intense competition in the market for clinical
research services; (5) potential cancellation, delay or change in scope of a
large client contract or multiple client contracts for clinical research
services which may leave the Company with excess capacity; (6) the Company's
reported backlog may not be a meaningful predictor of future revenue due to
potential termination, delay or changes in scope of client contracts; (7) a
material portion of the Company's future revenue is dependent on a single
client; (8) challenges presented by the Company's clinical research operations,
which will require the Company to attract and integrate new key employees and to
develop new operational and financial systems, procedures and controls; (9) the
Company's dependence on regulation of the pharmaceutical, medical device and
biotechnology industries; (10) the possibility of adverse outcomes related to
the Company's shareholder lawsuits or SEC investigation; (11) the timing of the
development of the Company's Internet capabilities, and the related market
acceptance thereof; and (12) risks associated with the Company's discontinued
operations, including the failure to realize the Company's assumptions regarding
estimated remaining liability amounts. The forward-looking statements herein are
qualified in their entirety by the cautionary statement and risk factors set
forth in Item 1, under the caption "Cautionary Statement and Risk Factors," of
the Company's Annual Report on Form 10-K, dated March 24, 2000. A copy of the
Form 10-K may be obtained from the Public Reference Branch of the SEC at 450
Fifth Street NW, Washington, DC at prescribed rates.
<PAGE> 3
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
CELERIS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
2000 1999
------------- ------------
<C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 5,615,653 $ 7,397,220
Restricted funds 502,167 545,126
Short-term investments -- 1,022,847
Accounts receivable, net of allowance of
$316,000 and $343,000, respectively 2,360,332 1,773,678
Other current assets 329,468 1,051,647
------------ ------------
Total current assets 8,807,620 11,790,518
Net furniture, fixtures and equipment 1,453,659 1,387,964
------------ ------------
Total assets $ 10,261,279 $ 13,178,482
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 636,450 $ 1,067,907
Deferred revenue and payables 584,855 446,201
Accrued compensation 444,425 452,621
Current portion of capital lease obligation 120,812 --
Net current liabilities of discontinued operations 994,682 1,195,523
------------ ------------
Total current liabilities 2,781,224 3,162,252
Long-term portion of capital lease obligation 155,101 --
COMMITMENTS AND CONTINGENCIES -- --
SHAREHOLDERS' EQUITY:
Common stock, $.01 par value - 13,511,111 shares
authorized; 3,178,655 and 3,119,646 shares
issued and outstanding, respectively 31,787 31,196
Additional paid-in capital 67,623,349 67,517,873
Accumulated deficit (60,330,182) (57,532,839)
------------ ------------
Total shareholders' equity 7,324,954 10,016,230
------------ ------------
Total liabilities and shareholders' equity $ 10,261,279 $ 13,178,482
============ ============
</TABLE>
The accompanying notes are an integral part of these condensed
consolidated financial statements.
1
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CELERIS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED FOR THE NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
----------------------------- ------------------------------
2000 1999 2000 1999
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenue $ 2,377,121 $ 2,300,558 $ 8,025,375 $ 6,632,149
Cost of sales 1,800,918 1,487,531 5,655,243 4,504,609
----------- ----------- ----------- -----------
Gross profit 576,203 813,027 2,370,132 2,127,540
Selling, general and administrative expenses 1,613,716 1,848,200 5,434,662 5,706,506
----------- ----------- ----------- -----------
Loss from operations (1,037,513) (1,035,173) (3,064,530) (3,578,966)
Interest income, net 79,828 114,845 267,187 423,698
----------- ----------- ----------- -----------
Loss from continuing operations (957,685) (920,328) (2,797,343) (3,155,268)
Discontinued operations:
Loss from discontinued operations -- -- -- --
Gain on disposal of discontinued operations -- 75,000 -- 475,000
----------- ----------- ----------- -----------
Total discontinued operations -- 75,000 -- 475,000
----------- ----------- ----------- -----------
Net loss $ (957,685) $ (845,328) $(2,797,343) $(2,680,268)
=========== =========== =========== ===========
Basic income (loss) per common share:
Continuing operations $ (0.30) $ (0.29) $ (0.89) $ (1.01)
Discontinued operations -- 0.02 -- 0.15
----------- ----------- ----------- -----------
$ (0.30) $ (0.27) $ (0.89) $ (0.86)
=========== =========== =========== ===========
Diluted income (loss) per common share:
Continuing operations $ (0.30) $ (0.29) $ (0.89) $ (1.01)
Discontinued operations -- 0.02 -- 0.15
----------- ----------- ----------- -----------
$ (0.30) $ (0.27) $ (0.89) $ (0.86)
=========== =========== =========== ===========
Weighted average shares outstanding:
Basic 3,178,655 3,092,350 3,144,474 3,122,174
Diluted 3,178,655 3,092,350 3,144,474 3,122,174
</TABLE>
The accompanying notes are an integral part of these condensed
consolidated financial statements.
2
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CELERIS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED
SEPTEMBER 30
------------------------------
2000 1999
----------- -----------
<S> <C> <C>
OPERATING ACTIVITIES:
Net loss $(2,797,343) $(2,680,268)
Adjustments to reconcile net loss to net cash
used in continuing operating activities:
Depreciation 479,127 329,536
Provision for bad debts 160,502 142,200
Loss (gain) on disposal of discontinued operations -- (475,000)
Value of options issued for consulting services -- 26,938
Changes in operating assets and liabilities:
Accounts receivable (747,156) (590,254)
Other current assets 735,727 7,015
Accounts payable and accrued expenses (431,457) 71,238
Deferred revenue and payables 138,654 133,403
Accrued compensation (8,196) 88,359
----------- -----------
Net cash used in continuing operating activities (2,470,142) (2,946,833)
INVESTING ACTIVITIES:
Decrease in restricted funds 42,959 --
Sales and maturities of short-term investments 1,022,847 4,032,208
Purchases of furniture, fixtures and equipment (198,590) (701,618)
----------- -----------
Net cash provided by investing activities 867,216 3,330,590
FINANCING ACTIVITIES:
Principal payments on capital lease obligation (83,866) --
Repurchase of common stock -- (196,913)
Net proceeds from issuance of common stock 106,066 36,343
----------- -----------
Net cash provided by (used in) financing activities 22,200 (160,570)
Cash used in discontinued operations (200,841) (1,989,469)
----------- -----------
Decrease in cash and cash equivalents (1,781,567) (1,766,282)
Cash and cash equivalents at beginning of period 7,397,220 8,138,542
----------- -----------
Cash and cash equivalents at end of period $ 5,615,653 $ 6,372,260
=========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for interest $ 21,448 $ --
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING
ACTIVITIES:
Assets acquired under capital lease obligation $ 383,182 $ --
</TABLE>
The accompanying notes are an integral part of these condensed
consolidated financial statements.
3
<PAGE> 6
CELERIS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements of
Celeris Corporation (the "Company") have been prepared in accordance with
generally accepted accounting principles for interim financial information and
with the instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments (including normal recurring
accruals) considered necessary for a fair presentation have been included.
Certain prior period amounts have been reclassified to conform with current
presentation. Operating results for the three and nine month periods are not
necessarily indicative of the results that may be expected for the year ended
December 31, 2000. For further information, refer to the consolidated financial
statements and footnotes thereto for the year ended December 31, 1999 in the
Company's Annual Report to Shareholders as incorporated in the Company's Form
10-K for the year ended December 31, 1999.
2. INCOME (LOSS) PER COMMON SHARE
Basic income (loss) per common share is computed by dividing income (loss) for
the period by the weighted average number of shares of common stock outstanding
during the period. The computation of diluted income (loss) per common share
requires that the number of weighted average shares outstanding be increased for
the assumed exercise of dilutive options using the treasury stock method.
Diluted loss per share for the three months and nine months ended September 30,
2000 and 1999 does not include common stock equivalents of 1,113,518 and
604,136, respectively, as their effect would be anti-dilutive.
3. DISCONTINUED OPERATIONS
On June 10, 1998, the Company announced its intention to transition out of the
healthcare provider software market and focus its resources on its clinical
research services segment. The financial position and results of operations of
the healthcare provider software segment are reported as discontinued operations
and all prior period amounts have been restated to reflect the discontinued
operations. On December 24, 1998, the Company completed the sale of its
healthcare provider software business. As consideration for the sale, the
Company received $1.5 million, including $200,000 during the first quarter of
1999, $200,000 during the second quarter of 1999 and $75,000 during the third
quarter of 1999, all of which was recorded as gain on disposal of discontinued
operations. The Company has retained certain liabilities related to the software
segment including certain amounts due under customer contracts and other
liabilities related to the disposal of the segment, which totaled approximately
$995,000 at September 30, 2000.
4. ONE-FOR-THREE REVERSE STOCK SPLIT
On July 26, 1999, the Board of Directors declared a one-for-three reverse stock
split applicable to shareholders of record July 29, 1999. The stated par value
of the Company's common stock was not changed from $0.01. As a result, a total
of $61,646 was reclassified from the Company's common stock account to the
Company's additional paid-in capital account. Income (loss) per share, common
stock outstanding and stock option data referred to in the financial statements
and notes hereto have been adjusted retroactively to give effect to the reverse
stock split.
5. CONTINGENCIES
The Company is a defendant in IN RE SUMMIT MEDICAL SYSTEMS, INC. SECURITIES
LITIGATION, a consolidated federal court securities action venued in the United
States District Court, District of Minnesota. The putative class action was
filed on March 10, 1997 and alleges violations of Section 10(b) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act") and Rule 10b-5,
Section 20(a) of the Exchange Act, Section 11 of the Securities Act of 1933, as
amended (the "Securities Act"), and Section 15 of the Securities Act. The
Company is also a defendant in a federal court securities action captioned
TEACHERS' RETIREMENT SYSTEM OF
4
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LOUISIANA V. SUMMIT MEDICAL SYSTEMS, INC. ET AL. The Teachers' Retirement action
was filed on April 16, 1997 in the United States District Court, District of
Minnesota and is not a class action. In addition to the claims alleged in the
consolidated action, the Teachers' Retirement complaint alleges a claim under
Section 18(a) of the Exchange Act, common law fraud, and negligent
misrepresentation. Each action alleges, in essence, that the Company made
misleading public disclosures relating to its financial statements and seeks
compensatory damages for losses incurred as a result of each alleged misleading
public disclosure. As to federal securities law claims, both actions are subject
to the Private Securities Litigation Reform Act of 1995 (the "Reform Act"). The
actions do not state the monetary damages that are being sought at this time. On
October 4, 2000, the Company announced it agreed to fully settle its outstanding
securities litigation, including both IN RE SUMMIT MEDICAL SYSTEMS, INC.
SECURITIES LITIGATION and TEACHERS' RETIREMENT SYSTEM OF LOUISIANA V. SUMMIT
MEDICAL SYSTEMS, INC. ET AL. (the "settlement"). The settlement terms include
$750,000 cash, 100,000 shares of common stock, and warrants to purchase 500,000
shares of common stock at $4.00 per share over the next five years. Based on the
price of the Company's common stock and the fair value of the warrants on
October 4, 2000, the settlement is valued at approximately $1.83 million. The
Company anticipates recording a loss on disposal of discontinued operations in
the quarter ended December 31, 2000 related to the settlement. The settlement
has been preliminarily approved by the United States District Court in Minnesota
and, following notice to class members, the settlement is subject to final
approval by the United States District Court and a fairness hearing scheduled
for January 5, 2001. There can be no assurance the settlement will receive final
approval. If the settlement does not receive final approval, there can be no
assurance that any judgment, order or decree against the Company arising out of
these actions will not have a material adverse effect on the Company or its
business.
The Division of Enforcement of the Securities and Exchange Commission (the
"Commission") began an investigation of the Company on March 27, 1997, relating
to the Company's restatement of certain financial statements. The Company is
cooperating fully with the Commission and its investigation. There can be no
assurance that any order, decree or other action issued or taken by the
Commission arising out of its investigation will not result in sanctions against
the Company or certain individuals that could have a material adverse effect on
the Company or its business.
The Company and certain of the Company's directors and former officers were
defendants in the declaratory relief action, DAVID FOSTER ET AL. V. SUMMIT
MEDICAL SYSTEMS, INC. ET AL., venued in the District Court of Hennepin County,
Minnesota. The action was initiated on August 7, 1998 and sought a declaration
that no coverage was available under the Company's directors' and officers'
insurance policies for the Company's pending federal securities actions or the
investigation by the Commission. The plaintiffs, the insurance underwriters of
the Company's directors' and officers' insurance policies, alleged that the
claims the Company submitted for coverage involved matters commenced before the
period covered by the policies. Additionally, the plaintiffs alleged that the
Commission's investigation did not constitute a proper claim under the policies.
On July 22, 1999, the District Court of Hennepin County, Minnesota ruled in
favor of the Company's motion for summary judgment in the declaratory relief
action, DAVID FOSTER ET AL. V. SUMMIT MEDICAL SYSTEMS, INC. ET AL. The District
Court held that the Company's directors' and officers' insurance policies
covered claims related to the Company's pending federal securities actions and
the investigation by the Commission. On October 6, 1999, the insurance
underwriters filed a notice of appeal of the District Court's order with the
Minnesota Court of Appeals. On May 16, 2000, the Minnesota Court of Appeals
issued an opinion reversing the District Court's decision, concluding that the
coverage under the policies is barred by the policies' retroactive date
exclusion. The Company promptly petitioned the Minnesota Supreme Court for a
review of the appellate court decision, but on July 25, 2000, the Supreme Court
denied the Company's petition. There are no further appeals available to the
Company in seeking coverage under the Company's directors' and officers'
insurance policies. There can be no assurance that any judgment, order or decree
against the Company arising out of the pending federal securities actions or the
investigation by the Commission will not have a material adverse effect on the
Company or its business.
6. SEGMENT REPORTING INFORMATION
The Company has adopted Statement of Financial Accounting Standards ("SFAS") No.
131, "Disclosures About Segments of an Enterprise and Related Information." SFAS
No. 131 established standards for disclosure of financial information related to
operating segments of the Company. SFAS No. 131 defines an operating segment as
a component of a company for which operating results are reviewed regularly by
the chief operating decision maker to determine resource allocation and assess
performance. The Company has four segments reportable under the
5
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guidelines of SFAS No. 131: the Company's clinical monitoring services group, a
start-up operation formed in the second quarter of 1998; data management and
biostatistical services group, a start-up operation formed in the fourth quarter
of 1998; regulatory consulting services group; and the Company's corporate
operating function.
The Company's operating segment disclosures are as follows:
<TABLE>
<CAPTION>
CLINICAL DATA
MONITORING MANAGEMENT REGULATORY
SERVICES SERVICES CONSULTING CORPORATE CONSOLIDATED
-------- -------- ---------- --------- ------------
<S> <C> <C> <C> <C> <C>
THREE MONTHS ENDED SEPTEMBER 30, 2000
Revenue $ 625,506 $ 741,142 $ 1,010,473 $ -- $ 2,377,121
Loss from continuing operations (23,499) (139,248) (246,412) (548,526) (957,685)
Segment assets 716,926 1,276,055 2,010,651 6,257,647 10,261,279
THREE MONTHS ENDED SEPTEMBER 30, 1999
Revenue $ 125,615 $ 596,642 $ 1,578,301 $ -- $ 2,300,558
Income (loss) from continuing operations (362,343) (60,690) 10,341 (507,636) (920,328)
Segment assets 337,801 967,413 2,462,873 9,363,977 13,132,064
NINE MONTHS ENDED SEPTEMBER 30, 2000
Revenue $ 1,690,251 $ 2,072,474 $ 4,262,650 $ -- $ 8,025,375
Income (loss) from continuing operations (195,213) (765,782) 198,251 (2,034,599) (2,797,343)
Segment assets 716,926 1,276,055 2,010,651 6,257,647 10,261,279
NINE MONTHS ENDED SEPTEMBER 30, 1999
Revenue $ 303,586 $ 1,216,228 $ 5,112,335 $ -- $ 6,632,149
Loss from continuing operations (1,010,652) (554,717) (120,845) (1,469,054) (3,155,268)
Segment assets 337,801 967,413 2,462,873 9,363,977 13,132,064
</TABLE>
7. NEWLY ISSUED ACCOUNTING STANDARD
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities", effective, as
amended, for fiscal years beginning after June 15, 2000. SFAS No. 133
establishes accounting and reporting standards for derivative instruments and
hedging activities. SFAS No. 133 requires all derivatives to be recognized in
the statement of financial position and to be measured at fair value. The
Company will adopt the provisions of SFAS No. 133 effective January 1, 2001 and
anticipates the effects of SFAS No. 133 will not be material to the Company's
financial statements.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
The Company is a provider of specialty clinical research and information
technology services that expedite and streamline the clinical trial and
regulatory submission process for pharmaceutical, medical device and
biotechnology manufacturers.
On June 10, 1998, the Company announced its intention to transition out of the
healthcare provider software market and focus its resources on its clinical
research services segment. The financial position and results of operations of
the healthcare provider software segment are reported as discontinued operations
and all prior period amounts have been restated to reflect the discontinued
operations. On December 24, 1998, the Company completed the sale of its
healthcare provider software business. As consideration for the sale, the
Company received $1.5 million, including $200,000 during the first quarter of
1999, $200,000 during the second quarter of 1999 and $75,000 during the third
quarter of 1999, all of which was recorded as gain on disposal of discontinued
operations. The Company has retained certain liabilities related to the software
segment including certain amounts due under customer contracts and other
liabilities related to the disposal of the segment, which totaled approximately
$995,000 at September 30, 2000.
6
<PAGE> 9
Effective January 29, 1999 the Company changed its name from Summit Medical
Systems, Inc. to Celeris Corporation.
On July 26, 1999, the Company's Board of Directors approved a one-for-three
reverse stock split of its common stock, applicable to shareholders of record at
the close of trading July 29, 1999. Income (loss) per share, common stock
outstanding and stock option data included in this Form have been adjusted
retroactively to give effect to the reverse stock split.
As of September 30, 2000, the Company had a backlog of projects for clinical
studies management, clinical monitoring staffing and data management with an
aggregate contract value of approximately $4.16 million. Potential cancellation,
delay or change in the scope of projects may affect the value of the Company's
backlog.
RESULTS OF OPERATIONS
Three Months Ended September 30, 2000 Compared to Three Months Ended September
30, 1999
The Company incurred a net loss of $958,000, or $0.30 per diluted share, for the
three months ended September 30, 2000 as compared to a net loss of $845,000, or
$0.27 per diluted share, for the year earlier period. The 2000 results consist
solely of a loss from continuing operations of $958,000, or $0.30 per diluted
share. The 1999 results include a loss from continuing operations of $920,000,
or $0.29 per diluted share and a gain on disposal of discontinued operations of
$75,000 or $0.02 per diluted share.
Continuing Operations. Revenue from continuing operations for the three months
ended September 30, 2000 was $2.38 million compared to $2.30 million for the
year earlier period, an increase of 3.3%. Given the Company's current size,
management believes that fluctuations in the timing of new business may impact
revenue growth rates on a quarterly basis.
Cost of sales were $1.80 million for the 2000 period, or 75.8% of revenue,
compared to $1.49 million for the 1999 period, or 64.7% of revenue. This
increase in cost of sales as a percentage of revenue is primarily the result of
decreased utilization of client service personnel. Improvement in cost of sales
as a percentage of revenue will be dependent upon keeping client service
personnel utilized as billable resources.
General and administrative expenses were $1.61 million, or 67.9% of revenue, for
the 2000 period compared to $1.85 million, or 80.3% of revenue, for the 1999
period. While the Company's general and administrative costs have generally
declined over the last several quarters, both in real dollars and as a
percentage of revenue, management believes costs are likely to remain in this
range in the near future.
Interest income net of interest expense for the 2000 period was $80,000 compared
to $115,000 for the 1999 period. The decrease is due to the Company's cash and
cash equivalents balance, including restricted funds and short-term investments,
which decreased to $6.12 million at September 30, 2000 from $9.42 million at
September 30, 1999, due to losses incurred related to the Company's continuing
operations, as well as capital expenditures and cash used in discontinued
operations.
Discontinued Operations. The gain on disposal of discontinued operations of
$75,000 in the 1999 period represents cash received from the sale of the assets
of the discontinued healthcare provider software segment.
Nine Months Ended September 30, 2000 Compared to Nine Months Ended September 30,
1999
The Company incurred a net loss of $2.80 million, or $0.89 per diluted share,
for the nine months ended September 30, 2000 as compared to a net loss of $2.68
million, or $0.86 per diluted share, for the year earlier period. The 2000
results consist solely of a loss from continuing operations of $2.80 million, or
$0.89 per diluted share. The 1999 results include a loss from continuing
operations of $3.16 million, or $1.01 per diluted share and a gain on disposal
of discontinued operations of $475,000 or $0.15 per diluted share.
Continuing Operations. Revenue from continuing operations for the nine months
ended September 30, 2000 was $8.03 million compared to $6.63 million for the
year earlier period, an increase of 21.0%. This increase in revenue is
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attributed primarily to increased volume of services performed related to the
Company's expanded service capabilities. However, given the Company's current
size, management believes that fluctuations in the timing of new business may
impact revenue growth rates on a quarterly basis.
Cost of sales were $5.66 million for the 2000 period, or 70.5% of revenue,
compared to $4.50 million for the 1999 period, or 67.9% of revenue. This
increase in cost of sales as a percentage of revenue is primarily the result of
decreased utilization of client service personnel. Improvement in cost of sales
as a percentage of revenue will be dependent upon keeping client service
personnel utilized as billable resources.
General and administrative expenses were $5.43 million, or 67.7% of revenue, for
the 2000 period compared to $5.71 million, or 86.0% of revenue, for the 1999
period. This decrease in general and administrative expenses as a percentage of
revenue is primarily due to a higher volume of business during the 2000 period.
Interest income net of interest expense for the 2000 period was $267,000
compared to $424,000 for the 1999 period. The decrease is due to the Company's
cash and cash equivalents balance, including restricted funds and short-term
investments, which decreased to $6.12 million at September 30, 2000 from $9.42
million at September 30, 1999, due to losses incurred related to the Company's
continuing operations, as well as capital expenditures and cash used in
discontinued operations.
Discontinued Operations. The gain on disposal of discontinued operations of
$475,000 in the 1999 period represents cash received from the sale of the assets
of the discontinued healthcare provider software segment.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash and cash equivalents, including restricted funds and
short-term investments, totaled $6.12 million as of September 30, 2000, a
decrease of $2.85 million from December 31, 1999. As of September 30, 2000, the
Company had net working capital of $6.03 million, compared to $8.63 million at
December 31, 1999. This decrease resulted primarily from net losses of $2.80
million incurred during the nine months ended September 30, 2000. Management
anticipates the Company will continue to experience operating losses through
2000, and as a result, it believes working capital will continue to decline.
As of September 30, 2000, the Company had $2.36 million in accounts receivable,
net of bad debt allowance, compared to $1.77 million as of December 31, 1999.
The Company believes its current allowance of $316,000 for bad debts is
adequate. The Company's days sales outstanding in accounts receivable was 91
days at September 30, 2000 compared to 62 days at December 31, 1999. Days sales
outstanding in accounts receivable may fluctuate in future periods as the
Company's mix of business related to the expanded service offerings continues to
evolve.
The Company sold its healthcare provider software business effective December
24, 1998 and has collected $1.5 million in related proceeds. The Company
received the final payment of $600,000 on January 31, 2000. Also related to the
sale of the software business, the Company has retained certain liabilities of
$995,000 as of September 30, 2000, including certain amounts due under customer
contracts and other liabilities related to the disposal of the segment.
The Company's Board of Directors has authorized a stock repurchase program under
which up to 666,667 shares of the Company's common stock may be repurchased.
From inception of the stock repurchase program in August 1997 through September
30, 2000, the Company has repurchased 439,867 shares of common stock for
approximately $3.05 million. As of September 30, 2000, there were 3,178,655
shares of the Company's common stock issued and outstanding.
As of September 30, 2000, the Company had approximately $502,000 subject to
withdrawal restrictions as a condition of certain lease agreements for office
space and equipment. The amount of cash restricted under the lease agreements
decreases over the term of the leases, which extend to December 2002.
The Company believes that continued expenditure of funds will be necessary to
support its future operations, and that cash and cash equivalents, including
restricted funds, of $6.12 million on hand at September 30, 2000 will be
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sufficient to fund its operations, capital requirements, and expansion goals
through 2000. However, there can be no assurances that the Company will generate
sufficient revenue, or adequately control costs, to achieve profitability or
positive cash flow for periods beyond 2000. If the Company cannot achieve
profitability or positive cash flow or its contingencies result in material
expenditures, the Company may require additional external financing in the
future. There can be no assurances that such financing will be available on
terms acceptable to the Company.
The Company has experienced operating losses for each of the past five years.
Net losses for the year ended December 31, 1999 were $2.11 million and for the
nine months ended September 30, 2000 were $2.80 million. The Company had an
accumulated deficit of $60.33 million as of September 30, 2000. The Company's
ability to increase revenue, and to achieve profitability and positive cash flow
will depend on a number of factors as summarized above under "Safe Harbor
Statement under the Private Securities Litigation Reform Act of 1995" and under
"Cautionary Statement and Risk Factors" included in Item 1 of the Company's
Annual Report on Form 10-K, dated March 24, 2000.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company has no derivative financial instruments or derivative commodity
instruments in its cash and cash equivalents and restricted funds. The Company
invests its cash and cash equivalents and restricted funds in investment grade,
highly liquid investments and does not believe these investments are subject to
material market risks. In addition, all of the Company's transactions are
conducted and accounts are denominated in U.S. dollars. Accordingly, the Company
is not exposed to foreign currency risks.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is a defendant in IN RE SUMMIT MEDICAL SYSTEMS, INC. SECURITIES
LITIGATION, a consolidated federal court securities action venued in the United
States District Court, District of Minnesota. The putative class action was
filed on March 10, 1997 and alleges violations of Section 10(b) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act") and Rule 10b-5,
Section 20(a) of the Exchange Act, Section 11 of the Securities Act of 1933, as
amended (the "Securities Act"), and Section 15 of the Securities Act. The
Company is also a defendant in a federal court securities action captioned
TEACHERS' RETIREMENT SYSTEM OF LOUISIANA V. SUMMIT MEDICAL SYSTEMS, INC. ET AL.
The Teachers' Retirement action was filed on April 16, 1997 in the United States
District Court, District of Minnesota and is not a class action. In addition to
the claims alleged in the consolidated action, the Teachers' Retirement
complaint alleges a claim under Section 18(a) of the Exchange Act, common law
fraud, and negligent misrepresentation. Each action alleges, in essence, that
the Company made misleading public disclosures relating to its financial
statements and seeks compensatory damages for losses incurred as a result of
each alleged misleading public disclosure. As to federal securities law claims,
both actions are subject to the Private Securities Litigation Reform Act of 1995
(the "Reform Act"). The actions do not state the monetary damages that are being
sought at this time. On October 4, 2000, the Company announced it agreed to
fully settle its outstanding securities litigation, including IN RE SUMMIT
MEDICAL SYSTEMS, INC. SECURITIES LITIGATION and TEACHERS' RETIREMENT SYSTEM OF
LOUISIANA V. SUMMIT MEDICAL SYSTEMS, INC. ET AL. The settlement terms include
$750,000 cash, 100,000 shares of common stock, and warrants to purchase 500,000
shares of common stock at $4.00 per share over the next five years. Based on the
price of the Company's common stock and the fair value of the warrants on
October 4, 2000, the settlement is valued at approximately $1.83 million. The
Company anticipates recording a loss on disposal of discontinued operations in
the quarter ended December 31, 2000 related to the settlement. The settlement
has been preliminarily approved by the United States District Court in Minnesota
and following notice to class members, the settlement is subject to final
approval by the United States District Court and a fairness hearing scheduled
for January 5, 2001. There can be no assurance the settlement will receive final
approval. If the settlement does not receive final approval, there can be no
assurance that any judgment, order or decree against the Company arising out of
these actions will not have a material adverse effect on the Company or its
business.
The Division of Enforcement of the Securities and Exchange Commission (the
"Commission") is conducting an investigation of the Company, relating to the
Company's restatement of certain financial statements. The Company is
cooperating fully with the Commission and its investigation. There can be no
assurance that any order, decree or
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other action issued or taken by the Commission arising out of its investigation
will not result in sanctions against the Company or certain individuals that
could have a material adverse effect on the Company or its business.
The Company and certain of the Company's directors and former officers were
defendants in the declaratory relief action, DAVID FOSTER ET AL. V. SUMMIT
MEDICAL SYSTEMS, INC. ET AL., venued in the District Court of Hennepin County,
Minnesota. The action was initiated on August 7, 1998 and sought a declaration
that no coverage was available under the Company's directors' and officers'
insurance policies for the Company's pending federal securities actions or the
investigation by the Commission. The plaintiffs, the insurance underwriters of
the Company's directors' and officers' insurance policies, alleged that the
claims the Company submitted for coverage involved matters commenced before the
period covered by the policies. Additionally, the plaintiffs alleged that the
Commission's investigation did not constitute a proper claim under the policies.
On July 22, 1999, the District Court of Hennepin County, Minnesota ruled in
favor of the Company's motion for summary judgment in the declaratory relief
action, DAVID FOSTER ET AL. V. SUMMIT MEDICAL SYSTEMS, INC. ET AL. The District
Court held that the Company's directors' and officers' insurance policies
covered claims related to the Company's pending federal securities actions and
the investigation by the Commission. On October 6, 1999, the insurance
underwriters filed a notice of appeal of the District Court's order with the
Minnesota Court of Appeals. On May 16, 2000, the Minnesota Court of Appeals
issued an opinion reversing the District Court's decision, concluding that the
coverage under the policies is barred by the policies' retroactive date
exclusion. The Company promptly petitioned the Minnesota Supreme Court for a
review of the appellate court decision, but on July 25, 2000, the Supreme Court
denied the Company's petition. There are no further appeals available to the
Company in seeking coverage under the Company's directors' and officers'
insurance policies. There can be no assurance that any judgment, order or decree
against the Company arising out of the pending federal securities actions or the
investigation by the Commission will not have a material adverse effect on the
Company or its business.
ITEM 5. OTHER INFORMATION
The Company has attached as Exhibits 99.1 and 99.2 its press releases dated
October 4, 2000 and October 25, 2000, respectively.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
3.1 Articles of Incorporation of the Company (incorporated by
reference to Exhibits 3.1 and 3.2 of the Company's Annual
Report on Form 10-K for the year ended December 31, 1998)
3.2 Bylaws of the Company (incorporated by reference to Exhibit
3.3 of the Company's Annual Report on Form 10-K for the year
ended December 31, 1998)
3.2 Amendment to Amended Articles of Incorporation of the Company
(incorporated by reference to Exhibit 3.3 of the Company's
Quarterly Report on Form 10-Q for the quarter ended September
30, 1999)
4.1 Stock Purchase Warrant
10.1 Stipulation of Settlement
27.1 Financial Data Schedule (for SEC use only) Nine Months Ended
September 30, 2000
99.1 Press Release dated October 4, 2000
99.2 Press Release dated October 25, 2000
(b) Reports on Form 8-K
None.
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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.
Celeris Corporation
Date: November 13, 2000 By: /s/ Barbara A. Cannon
------------------------------------------
Barbara A. Cannon
President and Chief Executive Officer
Date: November 13, 2000 By: /s/ Paul R. Johnson
------------------------------------------
Paul R. Johnson
Vice President and Chief Financial Officer
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