Anchor and its subsidiaries occupy portions of WNAH's executive offices in San Diego, California pursuant to an overhead support and resource sharing agreement with WNA. Spectrum CA leases approximately 3,084 square feet of office space in Livonia, Michigan and 8,251 square feet of office space in Exton, Pennsylvania. In addition, Spectrum CA occupies portions of SMC's offices in San Antonio, Texas for which Spectrum CA pays its proportionate share of the occupancy costs. Dedicated Spectrum CA case management and utilization review units occupy space within five offices located in Illinois, Florida, Pennsylvania, California and Texas of its largest customer for which it pays a monthly all-inclusive fee covering rent, overhead and support services. Harden-AZ remains obligated for approximately 6,992 rentable square feet of office space in Scottsdale, Arizona. WBAIS remains subject to a lease for approximately 17,987 rentable square feet of office space in Portland, Oregon.
The following table sets forth certain historical information for Anchor which is based on continued operations, and should be read in conjunction with Anchor's audited financial statements that are included in this report. The employee benefits plan administration operations conducted by Anchor's subsidiaries were discontinued at the end of 2001 and, accordingly, are not included in the presentation of income statement items (Revenues, Loss from continuing operations, Loss Per common share from continuing operations) for all years. The selected consolidated financial data for each of the five years in the period ended December 31, 2001 have been derived from audited consolidated financial statements of Anchor.
Anchor's financial condition continued to deteriorate during 2001 and it reported a deficiency in assets of $6,182,060 and negative working capital of $6,904,312 as of December 31, 2001. Ongoing operating losses and inadequate working capital led to the wind down and closure of the WBA companies' benefits plan administration business operations by January 2002. The financial statements of the Company have been presented to classify the operations of the WBA companies as discontinued operations. Without the business of the WBA companies, Anchor did not have continuing operations in 2000 and 1999.
Spectrum CA's principal business activity is managing the medical and disability care received by injured employees receiving workers' compensation benefits and employee and dependent participants in group accident and health benefits plans. These services are performed by licensed registered nurses or certified rehabilitation vocational counselors employed by Spectrum CA as case managers. Spectrum CA's client base consists of employers and employer groups that self-insure their workers' compensation risks, workers compensation insurers including Legion, and national and regional third-party workers compensation claims administrators, including WNA.
throughout the United States, with its principal facility located in Exton, Pennsylvania. Spectrum CA shares office space with WNA at three of the locations. Dedicated Spectrum CA case management and utilization review units occupy space within five offices of its largest third-party claims administration client.
Results of Continuing Operations-Years Ended December 31, 2001, 2000 and 1999
Results of continuing operations consist of the operations of Spectrum CA and the general and administrative costs and interest expense of Anchor. Spectrum CA was formed out of the acquisition of the assets of the bankruptcy estate of Novaeon, Inc. in January 2001. Novaeon, Inc. experienced a substantial change in business in 2000 as result of its bankruptcy; therefore, there are no comparable operating results from 2000 and 1999 that would provide relevant comparison to Spectrum CA's operating results in 2001. Except as may be otherwise noted, the differences between 2001 results and prior years are, in all instances attributable to the cessation of the employee benefits administration businesses of the WBA companies at the end of 2001 and the commencement of the managed care service business of Spectrum CA, in January 2001.
Total Operating expenses. Total operating expenses were $4,385,610 for the year ended December 31, 2001. Operating expenses consisted mainly of employee compensation and benefits and general and administrative costs.
Employee compensation and benefits. Total employee compensation and benefits for the year ended December 31, 2001 were $2,738,022. Spectrum CA had on average 56 employees during the 2001 year and 47 employees at December 31, 2001. Salaries were $2,343,000 and benefits were $395,000, approximately 17% of salaries. Benefits consisted of health and life insurance, payroll taxes and 401k contributions.
Interest expense. Total interest expense increased $159,342 or 61%, to $420,036 for the year ended December 31, 2001 from $260,694 for the year ended December 31, 2000. This increase was due to borrowings under the Novaeon Note and the Legion Loan in 2001, in addition to interest on the Convertible Loan and other debentures. Total interest expense increased $74,253 or 40%, to $260,694 for the year ended December 31, 2000 from $186,441 for the year ended December 31, 1999. This increase is attributable to accrued interest under the Series E Debentures and the Convertible Loan.
Results of Discontinued Operations--Years Ended December 31, 2001, 2000 and 1999
The Company's reported net cash from operating activities for the twelve months ended December 31, 2001 consists of a net loss from operations of $2,041,733 reduced by non-cash items including: (i) depreciation and amortization of $305,392; (ii) amortization of goodwill of $54,748; (iii) a write down of internal use software and other equipment of $399,948; (iv) a net increase in accounts payable and accrued expenses of $1,026,469; and (v) and a net decrease in accounts receivables and other assets of $966,319. The increase in accounts payable and accrued liabilities is the result of the lack of working capital and the accrual of disposal costs related to the
Capital and certain acquisition related expenditures were $2,050,265, $821,628 and $323,607 for the twelve months ended December 2001, 2000 and 1999 respectively. The 2001 expenditures primarily related to the purchase of the Novaeon Assets, and software development, implementation and hardware costs incurred by the WBA companies in their attempt to convert to a modern benefits plan administration computer system.
At December 31, 2001, Anchor had no long-term debt as all indebtedness was due within twelve months as compared to long-term capital lease obligations of $232,453 at December 31, 2000.
At December 31, 2001 the aggregate principal immediately due and payable under the Company's Series B, D, and E Debentures was $810,000.
Legion Note: Anchor financed the purchase of the Novaeon Assets with a $2,000,000 loan provided by Legion evidenced by a promissory note in favor of Legion. The Legion Note was automatically convertible into Anchor securities in the event Anchor completed an equity offering resulting in gross proceeds of at least $3,000,000 by June 30, 2001. In conjunction with the making of the Legion Loan, WNAH and Legion executed a Note Purchase Agreement dated January 12, 2001 granting Legion the right to cause WNAH to purchase the Legion Note in exchange for the issuance of WNAH common stock to Legion in the event Anchor failed to repay the Note or complete a minimum $3,000,000 equity offering by June 30, 2001. Anchor and WNAH also entered into that certain Assignment and Assumption Agreement for Novaeon Transaction dated January 12, 2001 providing that if WNAH purchased the Legion Note under the Note Purchase Agreement, WNAH would cancel Anchor's obligations under the Legion Note and assume its obligations under the Novaeon Note in exchange for 100% of Spectrum CA's capital stock owned by Anchor.
Since mid-2000, Anchor has unsuccessfully attempted to raise additional equity and/or debt capital. One financing alternative under consideration by Anchor contemplates funds to be provided by WNAH. WNAH, however, is currently prohibited under its Securities Purchase Agreement with Anchor from acquiring additional Anchor equity unless it first makes a tender offer to buy all of the shares of Anchor's common stock not then owned by WNAH, or its affiliates, at a purchase price equal to the greater of: (i) $0.80 per share (as adjusted for stock
In June 2001, the Financial Accounting Standards Board ("FASB") issued SFAS No. 141, "Business Combinations," and SFAS No. 142, "Goodwill and Other Intangible Assets." These Statements change the accounting for business combinations and goodwill. SFAS No. 141 requires that the purchase method of accounting be used for all business combinations initiated after June 30, 2001. SFAS No. 141 did not have a material impact on the Company's consolidated results of operations, financial position, or cash flows. The amortization of goodwill, including goodwill recorded in past business combinations, will cease when the Company adopts SFAS No. 142 on January 1, 2002. The Company estimates the impact on the consolidated statement of operations for the year ended December 31, 2002 for the elimination of goodwill amortization will be a reduction in operating expenses of approximately $55,000. The Company has not performed a valuation analysis under SFAS No. 142 on the goodwill from the Spectrum CA acquisition and has not determined the impact of any impairment adjustment on its consolidated results of operations, financial position or cash flows.
In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." SFAS No. 144 addresses financial accounting and reporting for the impairment or disposal of long-lived assets. SFAS No. 144 supersedes SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of," and the accounting and reporting provisions of APB Opinion No. 30, "Reporting the Results of Operations - Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual, and Infrequently Occurring Events and Transactions," for the disposal of a segment of a business (as previously defined in that opinion). SFAS No. 144 will be adopted by the Company as of January 1, 2002. The Company has not yet determined the impact of its adoption on its consolidated results of operations, financial position or cash flows.