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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] Quarterly Report Under Section 13 or 15(d) of The Securities Exchange
Act of 1934
For the quarterly period ended September 30, 2000
[ ] 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 333-19285
MPR HEALTH SYSTEMS, INC.
(formerly Myo Diagnostics, Inc.)
(Exact Name of Small Business Issuer as Specified in its Charter)
California 95-4089525
(State or Other Jurisdiction of I.R.S. Employer
Incorporation or Organization) Identification No.)
1000 Corporate Pointe, Suite 202
Culver City, California 90230
(Address of Principal Executive Offices)
(310) 410-5300
(Issuer's Telephone Number, Including Area Code)
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 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 past 90 days.
Yes [X] No [ ]
State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date: Common Stock, no par value,
10,098,370 shares issued and outstanding as of September 30, 2000.
Transitional Small Business Disclosure Format (check one):Yes [ ] No [X]
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MPR HEALTH SYSTEMS, INC.
INDEX TO FORM 10-QSB
PART I FINANCIAL INFORMATION Page
Item 1. Financial Statements:
Balance Sheet (unaudited) as of September 30, 2000 3
Statements of Operations (unaudited) for the
Nine months Ended September 30, 2000 and 1999 4
Statements of Cash Flows (unaudited) for the
Nine months Ended September 30, 2000 and 1999 5
Notes to Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 7
PART II OTHER INFORMATION
Item 1. Legal Proceedings 13
Item 2. Changes in Securities 13
Item 3. Defaults Upon Senior Securities 13
Item 4. Submission of Matters to a Vote of Security Holders 13
Item 5. Other Information 13
Item 6. Exhibits and Reports on Form 8-K. 13
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PART I
FINANCIAL INFORMATION
Item 1. Financial Statements
MPR HEALTH SYSTEMS, INC.
BALANCE SHEET (Unaudited)
As of September 30, 2000
<TABLE>
<CAPTION>
Sep 30, 2000
Current Assets ------------
<S> <C>
Cash $ 21,361
Accounts Receivable 468,666
Prepaid Expenses & Other Current Assets 38,492
-----------
Total Current Assets 528,519
Furniture & Equipment, net 156,782
Capitalized Product Development Costs 1,384,648
Other Assets 91,520
-----------
Total Assets $ 2,161,468
Current Liabilities
Accounts Payable & Accrued Expenses 520,230
Current Portion of Leases Payable 4,948
-----------
Total Current Liabilities 525,178
Non Current Liabilities
Convertible Debenture Loans 162,813
Loans from Shareholder 23,300
Capital Leases Payable 14,750
Notes Payable 25,000
-----------
Total Liabilities 751,041
Shareholders' Equity (Deficit)
Preferred Stock, no par value
10,000,000 shares authorized
No shares issued and outstanding --
Common Stock, no par value
50,000,000 shares authorized
10,098,370 shares issued and
outstanding 7,535,309
Paid-In Capital 319,650
Deficit Accumulated During Development Stage (6,506,017)
Current Net Income 61,485
-----------
Total Shareholders' Equity 1,410,427
-----------
Total Liabilities & Shareholders' Equity $ 2,161,469
</TABLE>
The accompanying notes are an integral part of these financial statements.
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MPR HEALTH SYSTEMS, INC.
STATEMENTS OF OPERATIONS (Unaudited)
For the Nine Months Ended September 30, 2000 and 1999
<TABLE>
<CAPTION>
For the
Nine Months Ended
September 30,
-------------------------------
2000 1999
------------ ------------
<S> <C> <C>
Revenues $ 1,405,063 $ 46,401
Operating Expenses
Research & Development 100,125 53,349
Technical Services 154,453 76,478
Sales & Marketing 291,536 85,025
General & Administrative 646,536 314,997
------------ ------------
Total Operating Expenses 1,192,650 529,849
------------ ------------
Income (Loss) from Operations 212,413 (483,448)
Other Income (Expenses)
Interest Expense (9,029) (23,803)
Depreciation & Amortization (140,577) (59,525)
Miscellaneous (1,322) (24,165)
Interest Income -- --
------------ ------------
Total Other Income (Expenses) (150,928) (107,493)
Provision for Taxes -- --
------------ ------------
Income (Loss) Before Extraordinary Item 61,485 (590,941)
------------ ------------
Net Income (Loss) $ 61,485 $ (590,941)
------------ ------------
Basic Earnings/(Loss) Per Share $ 0.01 $ (0.06)
------------ ------------
Diluted Loss Per Share $ 0.01 $ (0.06)
------------ ------------
Weighted Average Common Shares 10,064,120 9,219,870
</TABLE>
The accompanying notes are an integral part of these financial statements.
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MPR HEALTH SYSTEMS, INC.
STATEMENTS OF CASH FLOWS (Unaudited)
For the Nine Months Ended September 30, 2000 & 1999
<TABLE>
<CAPTION>
For the
Nine Months Ended
September 30,
-------------------------
2000 1999
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (Loss) $ 61,485 $(590,941)
Adjustments to Net Income (Loss):
Depreciation & Amortization 140,577 58,210
Extraordinary Loss on Debt Restruct
Bad Debt Expense -- --
Loss on Disposition of Fixed Assets
Stock Options Issued for
Services Rendered -- --
Common Stock Issued in Consideration for
Extension of Repayment Terms for
Notes Payable to Related Parties -- --
Common Stock Issued for Services
Rendered -- --
(Increase)/Decrease in:
Accounts Receivables (462,681) (7,650)
Other Receivables -- 20
Prepaid Expenses 6,577 (4,058)
Employee Receivables (3,500)
Other Assets (58,750) --
Increase/(Decrease) in:
Accounts Payable 104,784 (62,900)
Deferred Revenue (225,000) --
Other Current Liabilities 57,790 (313,803)
--------- ---------
Net Cash Provided (Used) by
Operating Activities (378,718) (921,121)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in Fixed Assets (118,454) (3,100)
Proceeds from Disposition of
Fixed Assets
Software Development Costs (2,192) 1,315
--------- ---------
Net Cash Provided (Used) by
Investing Activities (120,646) (1,785)
</TABLE>
See accompanying notes and accountant's report.
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MPR HEALTH SYSTEMS, INC.
STATEMENTS OF CASH FLOWS (Unaudited)
For the Nine Months Ended September 30, 2000 & 1999
<TABLE>
<CAPTION>
For the
Nine Months Ended
September 30,
---------------------------
2000 1999
---------- ----------
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from Bank Overdraft (4,187) --
Issuance of Convertible Debentures -- --
Net Increase (Decrease) in Notes
Payables -- --
Net Increase (Decrease) in Notes
Payables to Related Parties 9,300 (25,000)
Repayment (Borrowings) on Obligations
Under Capital Lease -- (34,868)
Net Proceeds from Issuance of
Common Stock 230,000 1,024,874
Increase (Decrease) in Paid-In Capital 3,250 --
---------- ----------
Net Cash Provided (Used) from
Financing Activities 238,363 965,006
---------- ----------
Prior Period Adjustment -- --
Net Increase (Decrease) in Cash (261,001) 42,100
Beginning Cash 281,867 240,861
---------- ----------
Ending Cash $ 20,866 282,961
---------- ----------
</TABLE>
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MPR HEALTH SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
1. Basis of Presentation and Significant Accounting Policies
The financial statements included herein have been prepared by MPR Health
Systems, Inc. (the "Company"), without audit, according to the rules and
regulations of the Securities and Exchange Commission. 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, although the Company believes
the disclosures that are made are adequate to make the information presented not
misleading. Further, the financial statements reflect, in the opinion of
management, all adjustments necessary to state fairly the financial position and
results of operations as of and for the periods indicated. These financial
statements should be read in conjunction with the Company's December 31, 1999
audited financial statements and notes thereto as of and for the year ended
December 31, 1999.
The financial statements have been prepared on the basis of the
continuation of the Company as a going concern. During the nine months ended
September 30, 2000, the Company earned net income of $61,485. As of September
30, 2000 the Company remained in the early stage of bringing its product to
market, and recovery of the Company's assets is still dependent upon future
events, the outcome of which is indeterminable. Successful completion of the
Company's development program and its transition to the attainment of profitable
operations is dependent upon obtaining adequate financing to fulfill its
development activities and achieving a level of sales adequate to support the
Company's cost structure. In view of these matters, realization of a major
portion of the assets in the accompanying balance sheet is dependent upon the
Company's ability to meet its financing requirements and the success of its
plans to sell its products. Further, the results of operations for the nine
months ended September 30, 2000 are not necessarily indicative of results to be
expected for the year ending December 31, 2000.
Until January 1, 2000 the Company had been a development stage company as
defined in Statement of Financial Accounting Standards ("SFAS") No. 7,
"Accounting and Reporting by Development Stage Enterprises." The Company is
devoting substantially all of its present efforts to establish its product
commercially and its planned principal operations are just commencing. All
losses accumulated since inception have been considered as part of the Company's
development stage activities.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Until January 1, 2000 the Company had been a development stage company that
had yet to realize any material revenues. As of January 1, 2000, the Company is
ready to bring its product to market, but needs additional funding to implement
its marketing plan.
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The Company is a healthcare information technology company that has
developed a new medical diagnostic test called Muscle Pattern Recognition (MPR).
MPR produces objective evidence about muscle impairment in the back and neck,
and presents the results in comprehensive report that is generated at the
Company's central processing facility. The Company believes that the information
gathered and reported is not currently available from any other procedure, and
it assists physicians in establishing their diagnoses, form treatment plans, and
assess the effectiveness of treatment. MPR supports the cost containment and
risk management drive of managed care providers and health care insurers by
helping to eliminate unnecessary care, prevent fraud, measure treatment
outcomes, and promote overall patient satisfaction.
The Company has developed a four-part strategy for marketing MPR in the
domestic market. The Company intends to:
o Form relationships with key reference sites.
o Build a delivery system of these providers to assure availability of MPR
as, and where needed.
o Develop a new source of revenue for these providers while offering savings
to the insurers.
o Enhance the MPR research record to firmly establish the MPR technology as
safe and effective.
This strategy was developed to establish market presence in key
reference accounts as the platform for growth while maintaining a
strong scientific base. The Company does not intend to sell MPR
directly into foreign markets, but rather to pursue these markets with
exclusive foreign distribution partners.
Forward Looking Statements
The Company may from time to time make "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. When used in
this discussion, the words "estimate", "project", "anticipate" and similar
expressions are subject to certain risks and uncertainties, such as changes in
general economic conditions, competition, changes in federal regulations, as
well as uncertainties relating to raising additional financing and acceptance of
the Company's product and services in the marketplace, including those discussed
below that could cause actual results to differ materially from those projected.
Readers are cautioned not to place undue reliance on these forward-looking
statements, which speak only as to the date hereof. The Company undertakes no
obligation to publicly release the results of any revisions to those forward-
looking statements which may be made to reflect events or circumstances after
the date hereof or to reflect the occurrence of unanticipated events.
Results of Operations
The Company generated revenues of $1,405,063 during the nine months ended
September 30, 2000, as compared to revenues of $46,401 during the nine months
ended September 30, 1999. This increase was largely due to sales of $1,358,662
pursuant to an agreement entered into in the fourth quarter of 1999 for the
distribution of the Company's MPR System in the United Kingdom.
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The Company's operating expenses increased to $1,192,650 during the nine
months ended September 30, 2000 from $529,849 during the nine months ended
September 30, 1999. The primary reason for this increase was an increase in
staff from six to twelve and an increase in the costs associated with the
initiation of the Company's sales and marketing plan. Travel expenses associated
with the recruitment of the Company's 21 independent sales representatives was
another significant factor, accounting for $44,100 of the total increase. The
Company also paid its first royalty payment to the Toomim Research Group (TRG)
in the amount of $40,300. This royalty payment relates to income generated from
the sales of MPR and MPR-related equipment under the license agreement between
MPR Health Systems and TRG.
Despite the higher expenses during the nine months ended September 30,
2000, the Company had net income of $61,485 during the quarter, as compared to a
net loss of $590,941 during the same quarter of the prior fiscal year.
Financial Condition
The Company has historically funded its operating expenses through loans
and sales of debt and equity securities. During the nine months ended September
30, 2000 the Company funded its operating expenses through revenues from product
sales and sales of securities.
The Company presently has funds to continue operations at its present level
only through December of 2000. The Company expects limited cash flow from
operations during this period, and is attempting to raise additional capital. If
the Company does not obtain additional capital by the end of December 2000, it
will be forced to severely curtail operations and, if additional capital is not
obtained shortly thereafter, the Company may be forced to cease operations.
Cautionary Statements and Risk Factors
Several of the matters discussed in this document contain forward-looking
statements that involve risks and uncertainties. Factors associated with the
forward looking statements which could cause actual results to differ materially
from those projected or forecast in the statements that appear below. In
addition to other information contained in this document, readers should
carefully consider the following cautionary statements and risks factors:
Reliance on a Single Product: The Company has only one product, the MPR System.
There is no established market for this product. Accordingly, if for any reason
the MPR System cannot be marketed successfully, the Company would not survive.
Reliance on License: The Company's entire business is based on an exclusive
license of the MPR process and related technology from TRG. The license
terminates in 2013, but may be terminated earlier upon the occurrence of certain
events including (i) the failure by Licensee to observe or perform any of its
covenants, conditions or agreements contained within the license. Any
termination of the license would have a material adverse effect on the Company
and would likely result in the Company not surviving.
New and Uncertain Market: Until now, muscle injuries have been diagnosed and
evaluated subjectively by physicians through physical examination. Accordingly,
there is no established demand for a computer-assisted procedure to assist in
the diagnosis of such injuries, and it is difficult to predict if, and when, the
procedure will gain wide acceptance by prescribers. A prerequisite to
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success will be the ability of the Company to establish MPR as a standard
medical practice for use in the diagnosis of muscle dysfunction. The Company
believes it will take a minimum of three to five years for such awareness to be
achieved, if it can be achieved at all. Factors that may affect market
acceptance could include resistance to change, concerns over the lack of track
record of the procedure, and the risk for insurance companies to use the results
of the procedure to challenge or overrule the diagnostic or treatment decisions
of a physician.
Need for Additional Funding: To create market awareness of its MPR System, the
Company will need to devote significant resources to marketing and sales. The
Company's plan is to develop market awareness partially through a public
relations campaign, including attendance at trade shows and professional
conferences, scientific presentations and clinical studies. The Company believes
its success may depend, in part, on its ability to conduct additional clinical
studies. In addition, and very critical to this process, will be direct contact
with payors (primarily insurance companies, HMOs and PPOs) and providers
(including physicians, rehabilitation professionals, hospitals and diagnostic
clinics) to create awareness of the MPR System and to educate them as to its
benefits and clinical applicability. To fully implement its marketing plan in
2000, the Company estimates it will need an additional $2.0 million to $3.0
million of funding. The amount of funding, if any, the Company receives in 2000
will partially determine the degree to which it can implement its marketing
plan.
The Company may obtain additional funding primarily through private placements
of debt and/or equity securities with strategic partners or others. In addition,
the Company could obtain funds through development funding from and/or advance
sales to strategic partners. To date, the Company has no commitments for these
additional funds. The issuance of additional debt or equity securities by the
Company could have the effect of impairing the rights of existing shareholders.
For example, the Company could issue securities senior to the Common Stock in
liquidation (such as debt securities or preferred stock), with preferential
voting rights, or which limit or restrict the payment of dividends. In addition,
the Company could issue securities at prices that are dilutive to the existing
shareholders.
Intellectual Property: TRG holds a United States patent on the MPR technology,
and the Company is the exclusive licensee of the rights under the patent. The
Company believes that its ability to be successful will be contingent on its
ability to protect the MPR technology, its future developments and its know how.
There can be no assurance, however, that this patent will provide substantial
protection of the MPR technology or that its validity will not be challenged.
Pursuant to its license agreement with TRG, the Company has the right to protect
the MPR technology.
The Company presently has no patent protection of the MPR technology outside the
United States. The Company has the right to file patent applications and attempt
to obtain patents in other jurisdictions. To date, the Company has not done so,
in part because of lack of funds. TRG is under no obligation to patent the MPR
technology in any jurisdiction and the Company's determination as to whether or
not to seek patent protection will depend upon a number of factors, including
the likelihood of the issuance of the patent, the Company's financial resources
and marketing plans.
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Competition: The Company believes that there is no competitive diagnostic
technology in use today capable of detecting, locating and evaluating soft
tissue muscle injuries in a manner similar to the MPR System. However, there are
many companies, both public and private, which are active in the field of
medical diagnostic imaging. Some of these companies have substantially greater
financial, technical and human resources, have a well-established name and enjoy
a strong market presence. There is no assurance that one or several such
companies are not currently developing, or will not start developing, technology
that will prove more effective or desirable than the Company's technology. Such
occurrence could severely affect the Company's ability to establish and develop
a market presence and to maintain its competitive position.
Dependence on Third Parties: The success of the Company will depend, in part, on
insurance companies and managed care organizations paying for or reimbursing for
MPR evaluations. To date, over 60 insurance companies have reimbursed patients
who have been diagnosed using the MPR System. However, this has been a limited
sample in that the Company's experience is based solely on clinical tests and
test marketing. No assurance can be given as to what extent, if at all,
insurance companies will continue to reimburse for MPR evaluations.
Dependence on Key Management Personnel: The Company is substantially dependent
upon the experience of Gerald D. Appel, President, Chief Executive Officer and
founder of the Company. The loss of the services of Mr. Appel could have a
material adverse impact on the Company and its business unless a suitable
replacement for the individual is found promptly, but there is no assurance that
such replacement can be found.
Product Liability: The Company may be subject to substantial product liability
costs if claims arise out of problems associated with the use of the Company's
MPR System. While the Company maintains insurance against such potential
liabilities, there can be no assurance that such product liability insurance
will adequately insure against such risk.
Control by Management: Gerald D. Appel owns beneficially 3,685,519 shares of the
Common Stock (which includes voting rights with respect to 111,900 shares),
representing 36.5% of the outstanding voting power of the Company as of October
31, 2000. As of October 31, 2000, all directors and officers of the Company
(including Mr. Appel) currently had voting power with respect to 40.5% of the
outstanding Common Stock. Accordingly, Mr. Appel, individually, and all
directors and officers as a group, effectively have the power to control the
election of directors, and therefore the business and affairs of the Company.
See "Principal Shareholders." This concentration of stock ownership may have the
effect of delaying or preventing a change in the management or control of the
Company.
Preferred Stock: The Company is authorized to issue up to 10,000,000 shares of
Preferred Stock, issuable in one or more series, the rights, preferences,
privileges and restrictions of which may be established by the Company's Board
of Directors without stockholder approval. As a result, in the future, the
Company could issue Preferred Stock with voting and conversion rights that could
adversely affect the voting power and other rights of the holders of the Common
Stock. No shares of Preferred Stock are presently outstanding and the Company
has no present plans to issue shares of Preferred Stock.
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Absence of a Public Market: Presently, there is no public market for any
securities of the Company. No assurance can be given that any public market will
ever develop for any of the Company's securities. The Company does not presently
meet the requirements for listing securities on any national securities exchange
or the NASDAQ Stock Market. The absence of a public market for the Company's
securities makes an investment in such securities highly illiquid. In addition,
the absence of a public market results in there being no true "market price" for
the Company's securities which would enable investors to determine the value of
their investment.
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PART II
OTHER INFORMATION
Item 1. Legal Proceedings
Not applicable.
Item 2. Changes in Securities
In June 2000, the Company issued 42,000 shares of Common Stock at a
price of $2.50 per share to Hershel Toomim, a director of the Company. The
issuance of these securities was exempt from registration pursuant to Section
4(2) of the Securities Act of 1933, as amended, as a transaction not involving
any public offering.
In August 2000, the Company issued 20,000 shares of Common Stock at a
price of $2.50 per share to Murphy Venture Partners, an existing shareholder of
the Company. The issuance of these securities was exempt from registration
pursuant to Section 4(2) of the Securities Act of 1933, as amended, as a
transaction not involving any public offering.
Item 3. Defaults Upon Senior Securities
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
Item 5. Other Information
Inapplicable
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits:
Exhibit 27.1 Financial Data Schedule
(b) Reports on Form 8-K.
None.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the Registrant caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
MPR HEALTH SYSTEMS, INC.
Date: November 14, 2000 By: /s/ GERALD D. APPEL
----------------------------------------
Gerald D. Appel, President, Chief Executive
Officer and Chairman of the Board
[Principal Financial and
Accounting Officer]
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