FORM 10-QSB
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
(Mark One)
[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 0-30899
MEDGRUP CORPORATION
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(Exact name of registrant as specified in its charter)
Colorado 84-1504390
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1824 Woodmoor Drive, Suite 102, Monument, CO 80132
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(Address of principal executive office) (Zip Code)
(719) 481-1500
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(Registrant's 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.
Yes X No
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The number of shares outstanding of each of Issuer's classes of common equity as
of November 3, 2000.
Common Stock, par value $.001 5,541,538
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Title of Class Number of Shares
Transitional Small Business Disclosure Format yes no X
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<PAGE>
MedGrup Corporation
Index
Part I
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Item 1. Financial Statements*
Condensed Balance Sheet as of September 30, 2000 (Unaudited) 1
Condensed Statements of Operations for the Three and Nine Months
Ended September 30, 2000 and 1999 (Unaudited) 2
Condensed Statements of Cash Flows for the Nine Months Ended
September 30, 2000 and 1999 (Unaudited) 3
Notes to Condensed Financial Statements (Unaudited) 4
Item 2. Management's Discussion and Analysis or Plan of Operation 5
Part II
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Items 1-6. Other Information 7
Signatures 8
* The accompanying financial statements are not covered by an Independent
Certified Public Accountant's report.
<PAGE>
Part I. Item 1. Financial Information
-------------------------------------
MEDGRUP CORPORATION
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CONDENSED BALANCE SHEET
(Unaudited)
September 30, 2000
ASSETS
CURRENT ASSETS
Cash and cash equivalents ...................................... $ 284,370
Accounts receivable, net of $54,685 allowance .................. 649,729
Prepaid expenses ............................................... 35,562
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TOTAL CURRENT ASSETS 969,661
PROPERTY, net of $175,874 accumulated depreciation ............... 635,220
DEPOSITS ......................................................... 5,431
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$1,610,312
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LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable ............................................... $ 60,891
Accrued expenses ............................................... 9,470
Current maturities of long-term debt ........................... 72,958
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TOTAL CURRENT LIABILITIES 143,319
LONG-TERM DEBT ................................................... 66,660
DEFERRED INCOME TAXES ............................................ 9,047
SHAREHOLDERS' EQUITY
Common stock, $.001 par value; 50,000,000 shares authorized;
5,541,538 shares issued and outstanding ........................ 5,541
120,000 outstanding common stock warrants ...................... 42,240
22,793 outstanding common stock options ........................ 7,612
Additional paid in capital ..................................... 800,948
Retained earnings .............................................. 534,945
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TOTAL SHAREHOLDERS' EQUITY 1,391,286
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$1,610,312
==========
See accompanying notes to condensed financial statements
1
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<TABLE>
<CAPTION>
MEDGRUP CORPORATION
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CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------------- --------------------------
2000 1999 2000 1999
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
REVENUE .............................................. $ 1,026,184 $ 602,280 $ 2,861,594 $ 1,423,982
COSTS AND EXPENSES
Cost of revenue .................................... 409,445 219,393 1,067,320 602,226
General and administrative ......................... 448,904 216,274 1,161,247 533,911
Loss on disposal of assets ......................... -- -- 553 --
Depreciation ....................................... 37,528 17,346 96,249 37,583
----------- ----------- ----------- -----------
TOTAL COSTS AND EXPENSES 895,877 453,013 2,325,369 1,173,720
NON-OPERATING INCOME (EXPENSE)
Interest expense ................................... (2,822) (4,218) (9,677) (8,600)
Interest income .................................... 4,961 -- 11,575 --
----------- ----------- ----------- -----------
NET INCOME BEFORE TAXES 132,446 145,049 538,123 241,662
INCOME TAXES ......................................... (55,298) -- (157,405) --
----------- ----------- ----------- -----------
NET INCOME $ 77,148 $ 145,049 $ 380,718 $ 241,662
=========== =========== =========== ===========
NET INCOME PER COMMON SHARE:
Basic .............................................. $ 0.01 $ 0.03 $ 0.07 $ 0.06
=========== =========== =========== ===========
Diluted ............................................ $ 0.01 $ 0.03 $ 0.06 $ 0.06
=========== =========== =========== ===========
SHARES USED FOR COMPUTING NET INCOME PER COMMON SHARE:
Basic .............................................. 5,541,538 4,470,000 5,537,179 4,315,556
=========== =========== =========== ===========
Diluted ............................................ 6,174,664 4,470,000 5,993,751 4,315,556
=========== =========== =========== ===========
See accompanying notes to condensed financial statements
2
</TABLE>
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<TABLE>
<CAPTION>
MEDGRUP CORPORATION
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CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended
September 30,
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2000 1999
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<S> <C> <C>
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES $ 298,611 $ 191,646
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298,611 191,646
INVESTING ACTIVITIES
Equipment and leasehold purchases ........................ (328,919) (122,964)
Cash paid for deposits ................................... -- (1,300)
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NET CASH (USED IN)
INVESTING ACTIVITIES (328,919) (124,264)
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FINANCING ACTIVITIES
Proceeds from sale of common stock ....................... 215,000 --
Cash paid for offering costs ............................. (23,650) --
Repayments to shareholder ................................ (5,551) (10,287)
Proceeds from issuance of notes payable .................. -- 87,000
Payments on long-term debt ............................... (53,564) (28,977)
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NET CASH PROVIDED BY
FINANCING ACTIVITIES 132,235 47,736
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NET CHANGE IN CASH AND CASH EQUIVALENTS .................... 101,927 115,118
Cash and cash equivalents, beginning ....................... 182,443 81,256
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Cash and cash equivalents, ending .......................... $ 284,370 $ 196,374
========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest ..................................... $ 9,677 $ 8,600
========= =========
Cash paid for income taxes ................................. $ 102,000 $ --
========= =========
NON-CASH INVESTING AND FINANCING ACTIVITIES:
Vehicle purchased with issuance of promissory note ......... $ 35,550 $ --
145,000 common shares issued for conversion of note payable $ -- $ 87,000
Equipment acquired under capital lease ..................... $ -- $ 88,919
See accompanying notes to condensed financial statements
3
</TABLE>
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MEDGRUP CORPORATION
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NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
September 30, 2000
Note A: Basis of presentation
-----------------------------
The interim financial statements presented herein have been prepared pursuant 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. The interim
financial statements should be read in conjunction with the Company's annual
financial statements, notes and accounting policies included in the Company's
Registration Statement on Form SB-2 as filed with the SEC.
In the opinion of management, all adjustments (consisting only of normal
recurring adjustments) which are necessary to provide a fair presentation of
operating results for the interim period presented have been made. The results
of operations for the periods presented are not necessarily indicative of the
results to be expected for the year.
Interim financial data presented herein are unaudited.
Note B: Shareholders' equity
----------------------------
During the nine months ended September 30, 2000 the Company sold for $215,000
cash, 215,000 shares of its common stock. Net proceeds to the Company after
deducting $23,650 in costs of the offering were $191,350. In connection with the
offering the Company also issued to the selling agent, 43,000 warrants (to
purchase 43,000 shares of the Company's common stock) valued at $.352 per
warrant for a total cost of $15,136, which has been accordingly charged against
proceeds from the offering.
4
<PAGE>
Item 2. Management's Discussion and Analysis or Plan of Operations.
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General
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The following discussion and analysis covers (i) material changes in the
financial condition of MedGrup Corporation ("Company" or "us") since December
31, 1999 and (ii) material changes in our results of operations for the three
and nine months ended September 30, 2000, as compared to the same periods in
1999. This discussion and analysis should be read in conjunction with
"Management's Discussion and Analysis and Results of Operations" included in the
Company's Registration Statement on Form SB-2 as filed with the Securities and
Exchange Commission.
This report contains statements that plan for or anticipate the future.
Forward-looking statements include statements about our future operations,
statements about our future business plans and strategies, and most other
statements that are not historical in nature. In this report, forward-looking
statements are generally identified by the words "anticipate," "plan,"
"believe," "expect," "estimate," and the like. Because forward-looking
statements involve future risks and uncertainties, there are factors that could
cause actual results to differ materially from those expressed or implied. For
example, a few of the uncertainties that could affect the accuracy of
forward-looking statements, besides the specific factors identified in this
report, include:
(a) changes in general economic and business conditions affecting the
medical services industry;
(b) financial strength of the Medicare, Medicaid and private healthcare
systems;
(c) new regulations which might be adopted by Federal or state
governments;
(d) changes in billing requirements which might be adopted by private
insurance carriers;
(e) our costs and the pricing of our services;
(f) the level of demand for our services; and
(g) changes in our business strategies.
Results of Operations
---------------------
The results of our operations improved substantially for the nine month
period ended September 30, 2000 compared to the same period of 1999. Revenue
doubled, from $1,423,982 for the nine months ended September 30, 1999 to
$2,861,594 for the same period of 2000. Net income increased 57%, from $241,662,
or $.06 per basic share for the nine months ended September 30, 1999, to
$380,718, or $.07 per basic share for the comparable period of 2000. Earnings
per share were calculated on the basis of 4,315,556 shares outstanding for the
period ended September 30, 1999, compared to 5,537,179 for the nine month period
ended September 30, 2000.
5
<PAGE>
During the third quarter of 2000, we continued efforts to build our company
infrastructure and prepare for additional growth. Toward those ends, we hired
additional management personnel and coders. Compensation and related costs
associated with these individuals increased our costs of revenue, general and
administrative expenses. These expenses, in turn, reduced the rate of growth of
our net income from 1999 to 2000. However, we believe that the investments will
result in improved performance in the future.
Results for the three months ended September 30, 2000 compared to the same
period ended in 1999 were distorted by the unusual third quarter of 1999 and the
additional expenses incurred in the third quarter of 2000, discussed above.
While revenue increased approximately 70% from the third quarter of 1999 to the
comparable period of 2000, net income fell 47%. Management believes that the
decrease in profitability from the third quarter of 1999 to 2000 was an
aberration based on unusually strong sales during the third quarter of 1999 and
the shifting of certain expenses to the fourth quarter of that year. As a
result, we believe that the third quarter of 1999 showed unusually high net
income. Management believes that a comparison of the results of the nine month
periods ended September 30, 1999 and 2000 are a more accurate comparison of the
Company's operating results.
The increase in revenues during 2000 was generated strictly by internal
growth in the Company's core business. The gross margin also increased for the
nine months of 1999 compared to 2000, from $821,756, or 58% for the nine months
ended September 30, 1999 to $1,794,274, or 63% for the comparable period of
2000. However, the Company accrued additional tax expenses in 2000, thereby
reducing net income by approximately $157,000.
The Company announced the development of its Code@HomeTM coding system in
October, 2000. Code@HomeTM is a proprietary, Web-based system of computer
hardware and software designed to facilitate off-site coding. We expect to begin
beta testing of the system at a client location during the forth quarter of
2000, with complete implementation anticipated during 2001.
We believe that the Code@HomeTM system represents a significant advance in
coding technology which will improve our operation and create the potential for
a new source of revenue. Code@HomeTM is designed to replace our existing system
of faxing medical records between healthcare providers and our coders. By
facilitating the transfer, receipt and tracking of medical records with our
clients, we hope to increase the productivity of our coders. It is anticipated
that this increase in productivity will result in improved margins and
therefore, increased profitability.
The Code@HomeTM system may also provide the opportunity for additional
sources of revenue. It is currently anticipated that this system will be offered
on a fee basis to healthcare providers that desire to hire off-site coders
themselves. Licensing of the system to third parties may provide revenues to
supplement our coding revenue. Availability of the Code@HomeTM system may also
increase the opportunity for coding revenue, as independent healthcare providers
become aware of the capability of our business.
6
<PAGE>
Management believes that the Company is properly positioned to realize
continued improvement in operations during 2001 and beyond. The market for the
Company's coding services is such that we believe our revenues will continue to
grow during that time. Our general and administrative expenses should remain
generally constant, as we believe we have built a sufficient foundation for the
foreseeable future. Successful implementation of the Code@HomeTM system, of
which there is no assurance, when coupled with these other factors, should allow
for continued improvement in the future.
Liquidity and Capital Resources
-------------------------------
The Company's financial condition improved from year-end 1999, while
remaining generally constant from the end of the prior quarter, June 30, 2000.
Working capital at September 30, 2000 was $826,342, representing an increase of
$265,141 from December 31, 1999. Current assets increased $109,259 from December
31, 1999, while current liabilities decreased $155,882. Shareholders' equity at
September 30, 2000 was $1,391,286, representing an increase of $580,198 from
fiscal year end.
Cash from operations has been sufficient to fund capital requirements
during the nine months ended September 30, 2000. In addition to cash for
operating, general and administrative expenses, the Company spent approximately
$330,000 during the nine months on equipment and leasehold improvements. The
vast majority of that amount was spent on equipment acquisition, including faxes
and computers for our coding business. Cash flow during this nine month period
was supplemented by private placement of our common stock completed during the
first quarter.
Capital requirements for the balance of this fiscal year are primarily for
acquisition of computer hardware and software for the Code@HomeTM system.
Capital required for 2001 includes cash for continued expansion of our business.
We estimate spending approximately $750,000 for development, purchase and
implementation of the Code@HomeTM system, which we expect to fund substantially
with the proceeds of a private placement of our equity securities. Remaining
amounts, together with capital requirements for 2001, will be paid with cash
generated by operations or future debt or equity financing.
Part II: Other Information
Item 1: Legal Proceedings
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No report required.
Item 2: Changes in Securities
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No report required.
Item 3: Defaults Upon Senior Securities
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No report required.
7
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Item 4: Submission of Matters to a Vote of Security Holders
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No report required.
Item 5: Other information
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No report required.
Item 6: Exhibits and Reports on Form 8-K
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(a). No exhibits are required to be filed with this report.
(b). We did not file any reports on Form 8-K during the period covered by
this report.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Company has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MEDGRUP CORPORATION
Date: November 7, 2000 By: /s/ James S. Wantman
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James S. Wantman, Vice-President of
Finance
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