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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_____________________
2000
FORM 10 - Q
For the Fiscal
SECOND QUARTER
Ended July 1, 2000
Quarterly Report Pursuant To Section 13 or 15(d)
of the Securities Exchange Act of 1934
MOORE MEDICAL CORP.
(Exact name of registrant as specified in its charter)
--------------------------------------------------------------------------------
Delaware 1-8903
(State of incorporation) (Commission File Number)
P.O. Box 1500, New Britain, CT 06050 22-1897821
(Address of principal executive offices) (I.R.S. Employer
Identification Number)
860-826-3600
(Registrant's telephone number)
Securities registered pursuant to Section 12(b) of the Act:
Common Stock ($.01 Par Value) American Stock Exchange
Rights to Purchase Series I Junior Preferred Stock American Stock Exchange
(Title of Each Class) (Name of each exchange on which registered)
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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 twelve months, and (2) has been subject to such filing
requirements for the past 90 days. Yes X No _____
-----
Approximately 3,075,002
Number of shares of Common Stock outstanding as of July 29, 2000
Total number of pages in the numbered original (including exhibits) is 21
This is page 1 of 15 pages.
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MOORE MEDICAL CORP.
Index
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
Part I. Financial Information
Item 1. Financial Statements
Balance Sheets at the end of the second quarter of
2000 and at the end of the year 1999..................... 3
Statements of Operations for the second quarters
of 2000 and 1999......................................... 4
Statements of Operations for the first two quarters
of 2000 and 1999......................................... 5
Statements of Cash Flows for the first two quarters
of 2000 and 1999......................................... 6
Notes to Financial Statements............................... 7-8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations....................... 8-12
Item 3. Quantative and Qualitative Disclosures About
Market Risk.............................................. 13
Part II. Other Information
Item 4. Submission of Matters to a Vote of Security Holders......... 13
Item 5. Other Matters............................................... 14
Item 6. Exhibits and Reports on Form 8-K............................ 14-21
Signatures............................................................ 15
</TABLE>
2
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MOORE MEDICAL CORP.
Balance Sheets
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------
(Amounts in thousands, except par value) Second Quarter 2000 Year 1999
(Unaudited)
-------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current Assets
Cash $ 4,838 $ 744
Accounts receivable, less allowances
of $200 and $200................................. 12,620 11,488
Inventories......................................... 10,783 14,242
Prepaid expenses and other current assets........... 2,343 1,852
Deferred income taxes............................... 2,330 2,330
------- -------
Total Current Assets.......................... 32,914 30,656
------- -------
Noncurrent Assets
Equipment and leasehold improvements, net........... 10,659 10,641
Other assets........................................ 2,054 669
------- -------
Total Noncurrent Assets....................... 12,713 11,310
------- -------
$45,627 $41,966
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable.................................... $ 9,522 $ 7,483
Accrued expenses.................................... 4,669 4,665
------- -------
Total Current Liabilities..................... 14,191 12,148
------- -------
Deferred Income Taxes.................................. 2,368 2,368
Long-term Notes Payable................................ 500 --
Shareholders' Equity
Preferred stock - no shares outstanding............. -- --
Common stock - $.01 par value;
10,000 shares in 2000, 5,000 shares in 1999
3,246 shares issued.............................. 34 33
Capital in excess of par value...................... 21,812 21,675
Retained earnings................................... 8,273 8,449
------- -------
30,119 30,157
Less treasury shares, at cost, 171 and 305
shares........................................... (1,551) (2,707)
------- -------
Total Shareholders' Equity.................... 28,568 27,450
------- -------
$45,627 $41,966
======= =======
</TABLE>
The accompanying notes are an integral part of the financial statements.
3
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MOORE MEDICAL CORP.
Statements of Operations
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------
(Amounts in thousands, except per share data) Second Quarter
------------------------------------
2000 1999
(Unaudited)
-------------------------------------------------------------------------------------------------
<S> <C> <C>
Net sales............................................. $30,253 $29,367
Cost of products sold................................. 21,175 20,152
------- -------
Gross profit.......................................... 9,078 9,215
Selling, general & administrative expenses............ 9,023 8,551
------- -------
Operating income...................................... 55 664
Interest income, net.................................. 76 7
------- -------
Income before income taxes............................ 131 671
Income tax provision.................................. 52 243
------- -------
Net income............................................ $ 79 $ 428
======= =======
Basic and diluted net income per share................ $ .03 $ .15
======= =======
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</TABLE>
The accompanying notes are an integral part of the financial statements.
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MOORE MEDICAL CORP.
Statements of Operations
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------
(Amounts in thousands, except per share data) First Two Quarters
-----------------------------
2000 1999
(Unaudited)
----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net sales.......................................................... $59,770 $58,422
Cost of product sold............................................... 42,019 39,698
------- -------
Gross profit....................................................... 17,751 18,724
Selling, general & administrative expenses........................ 18,128 17,354
------- -------
Operating (loss) income........................................... (377) 1,370
Interest income, net.............................................. 103 52
------- -------
(Loss) income before income taxes.................................. (274) 1,422
Income tax (benefit) provision..................................... (98) 517
------- -------
Net (loss) income.................................................. $ (176) $ 905
======= =======
Basic and diluted net (loss) income per share...................... $ (.06) $ .31
======= =======
----------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
5
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MOORE MEDICAL CORP.
Statements of Cash Flows
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------
(Amounts in thousands) First Two Quarters
--------------------
2000 1999
(Unaudited)
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<S> <C> <C>
Cash Flows From Operating Activities
Net (loss) income........................................ $ (176) $ 905
Adjustments to reconcile net (loss) income to net
cash flows provided by (used in) operating
activities:...........................................
Depreciation and amortization......................... 1,316 754
Changes in operating assets and liabilities
Accounts receivable................................. (1,132) (1,945)
Inventories......................................... 3,459 (575)
Other current assets................................ (491) (428)
Accounts payable.................................... 2,039 2,178
Other current liabilities........................... (130) (886)
------- -------
Net cash flows provided by
operating activities................................ 4,885 3
------- -------
Cash Flows From Investing Activities
Equipment and leasehold improvements..................... (1,331) (3,388)
Acquisition of business................................. (1,254) -
------- -------
Net cash flows used in investing activities........... (2,585) (3,388)
------- -------
Cash Flows From Financing Activities
Sale of treasury stock................................... 1,294 13
Long term notes payable.................................. 500 -
------- -------
Net cash flows provided by financing activities....... 1,794 13
------- -------
Increase (decrease) in cash.................................. 4,094 (3,372)
Cash at beginning of period.................................. 744 3,520
------- -------
Cash At End Of Period........................................ $ 4,838 $ 148
======= =======
</TABLE>
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The accompanying notes are an integral part of the financial statements.
6
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MOORE MEDICAL CORP.
NOTES TO FINANCIAL STATEMENTS
Note 1 - Summary of Significant Accounting Policies
The Company
The Company is a marketer and distributor of medical/surgical products and
pharmaceuticals to nearly 100,000 healthcare professionals in non-hospital
settings nationwide including: physicians, podiatrists, surgeons, emergency
medical technicians, schools, corrections, municipalities, and occupational/
industrial health doctors and nurses; and other specialty practice communities.
It markets and serves its customers through direct mail, industry specialized
telephone support representatives, key opportunity and field sales
respesentatives and through the Internet. The Moore Medical distribution and
fulfillment service has more than fifty years of operating experience.
Basis of Presentation
The Company has prepared the accompanying unaudited financial statements in
accordance with generally accepted accounting principles for interim financial
statements. In the opinion of management, all adjustments necessary for a fair
presentation of the results for the interim period have been made. The results
for the three months ended July 1, 2000 do not necessarily indicate the results
to be expected for the fiscal year ended December 30, 2000 or any other future
period. The fiscal quarters ended on July 1, 2000 and July 3, 1999.
The accompanying unaudited financial statements should be read in conjunction
with the Notes to Financial Statements and Management's Discussion and Analysis
of Financial Condition and Results of Operations included in the Company's 1999
Annual Report filed on Form 10-K and in this Form 10-Q Report.
Certain prior year amounts have been reclassified to conform with the current
year presentation.
Note 2 - Contingencies
Beginning in 1991, the Company entered into various supply contracts with the
U.S. Department of Veterans Affairs and the Defense Department. In April 1997,
the Company completed a review of its compliance with various pricing provisions
of these contracts and, with the assistance of special legal counsel, concluded
that adjustments may be due to the federal agencies for potential asserted
claims against the Company relating to pricing deficiencies under product supply
contracts subject to General Services Administration and Department of Defense
regulations. In the fourth quarter
7
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of 1996 the Company established a $3.8 million reserve for estimated pricing
deficiency liabilities and associated costs. As of the end of 1999 and second
quarter end of 2000, the reserve balance was $3.1 million and $3.0 million
respectively. The final amount of the pricing deficiency adjustment is subject
to the outcome of contract settlement discussions with the governmental agencies
or to an adjudicated disposition. Although management believes that the reserve
is sufficient, it is possible that the final resolution could exceed such
reserve and have a material impact on the statement of operations and cash flow.
Note 3 - Acquisition
On June 15, 2000, the Company completed the acquisition of 51% of the
outstanding shares of capital stock of Podiatry Online, a Florida-based Internet
magazine serving 4,200 podiatrists, for $500,000 and 29,826 shares of the
Company's common stock valued at $254,000. The Company agreed to acquire the 49%
balance of Podiatry Online's shares in 2002 for a payment, not less than
$500,000, to be computed by reference to the growth in its net revenues. The
acquisition was recorded as a purchase, and $500,000 was recorded as a
subscription in an investment and $754,000 as goodwill, which is being amortized
over 15 years.
Note 4 - Subsequent Event
On July 14, 2000 the Company acquired MERGInet Medical Resources, an Internet
publication serving emergency medical services and professionals, for $450,000.
MOORE MEDICAL CORP.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
-----------------------------------------------------------------------
OF OPERATIONS
-------------
OVERVIEW
--------
In 1999, the Company committed to transforming itself from a catalog-based
distributor of medical and surgical supplies into an electronic commerce
enterprise. It is also committed to enlarging its customer-base in the practice
communities it serves on a business-to-business (b2b) basis through Internet
marketing and by web site affiliate linkages and selective acquisitions. The
transformation strategy entails substantial expenditures for technology, talent
and infrastructure to benefit all customer communities; as a result, the Company
sustained losses for the first half of 2000 and it expects that to continue into
2001. It also entails the risks and uncertainties attendant to the
transformation from "brick and mortar" distribution to an e-business.
As its initial step toward web-powered marketing, the Company spent heavily
during 1999 and in the first quarter 2000 to develop a full-featured b2b web
site. It
8
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successfully launched its site (mooremedical.com) in May, 2000. The Company
acquired a controlling interest in Podiatry Online, in June, 2000 and in July,
2000 it acquired MERGInet Medical Resources, both premier online information
sources for their respective practice communities, as further implementations of
its strategic plan.
Podiatry Online, an established e-zine serving podiatry offices, enables the
Company with a significant electronic sales channel to professionals in that
market. MERGInet, the Internet's most heavily trafficked resource center for
emergency medical services and professionals (EMS), features the only online
publication in its market. Podiatry and EMS were already among the largest b2b
customer practice communities of the Company.
The following table sets forth items included in the Statements of Operations as
a percentage of sales for the second quarter, and the first two quarters of 2000
and 1999. The table also shows, for each line item, the percentage change of the
amount in the 2000 period from the comparable 1999 period.
<TABLE>
<CAPTION>
Second Quarter First Two Quarters
------------------------------------------ ------------------------------------------
% of Sales % % of Sales %
------------------------ ------------ ------------------------- -----------
2000 1999 Change 2000 1999 Change
------- ------ ------------ -------- -------- -----------
<S> <C> <C> <C> <C> <C> <C>
Net sales............................. 100.0% 100.0% 3% 100.0% 100.0% 2%
Cost of products sold................. 70.0 68.6 (5) 70.3 68.0 (6)
----- ----- ----- -----
Gross profit.......................... 30.0 31.4 (1) 29.7 32.0 (5)
Selling, general & admin. exp......... 29.8 29.1 (6) 30.3 29.7 (4)
----- ----- ----- -----
Operating income (loss)............... 0.2 2.3 (92) (0.6) 2.3 (128)
Interest income, net.................. 0.2 - 986 0.2 0.1 98
----- ----- ----- -----
Income (loss) before income taxes..... 0.4 2.3 (80) (0.4) 2.4 (119)
Income tax provision (benefit)........ 0.2 0.8 79 (0.1) 0.9 119
----- ----- ----- -----
Net income (loss)..................... 0.2% 1.5% (82)% (0.3)% 1.5% (119)%
===== ===== ===== ===== ===== =====
</TABLE>
9
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RESULTS OF OPERATIONS
---------------------
Second Quarter
2000 Compared with 1999
-----------------------
The second quarter net revenues of $30.3 million, increased 3% over the same
period a year ago. This revenue growth resulted primarily from increased web
site traffic and growth from the Company's specialty practice communities.
For the 2000 second quarter, gross profit dollars decreased by 1% to $9.1
million. The decrease was primarily attributable to price erosion of
pharmaceutical products, resulting in lower margins.
Selling, general and administrative expenses, expressed as a percentage of
revenue, were 30% for the second quarter, as compared to 29% for the same period
a year ago. This increase reflected higher depreciation charges associated with
investments in technology, as well as additional media and advertising costs
associated with the launch of the Company's web site (mooremedical.com) and
specialty practice community e-business acquisition efforts.
Net income for the second quarter was $0.1 million, or $0.03 per share, as
compared with net income of $0.4 million, or $0.15 per share, for last year's
second quarter.
First Two Quarters
2000 Compared with 1999
-----------------------
Overall, net revenue of $59.8 million for the first half of 2000 increased 2%
over the comparable period in 1999. The increase was primarily attributable to
revenue growth in the Company's web site traffic and from its specialty practice
communities and to increased core dealer account penetration. The revenue
reflects strong revenue growth for the Company's Internet-based revenue, which
increased $1.1 million, or over 200%, to $1.5 million for the first half of the
fiscal year, compared to $0.4 million for the same period a year ago.
For the first half of 2000, gross profit dollars decreased approximately $1.0
million to $17.8 million, compared to $18.7 million for the same period a year
ago, as price erosion of pharmaceutical products continued to negatively impact
the gross profit.
Selling, general and administrative expenses during the first half of 2000
increased 4% compared to the first half of 1999 as a result of higher
depreciation and amortization charges associated with investments in technology
and e-business initiatives. Additionally, the Company's more aggressive
marketing strategies contributed to the year-over-year increase in selling,
general and administrative expenses.
10
<PAGE>
Results for the first half of 2000 showed a net loss of ($0.2) million, or
($0.06) per share, compared with net income of $0.9 million, or $0.31 per
share, in the first half of 1999.
LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
The Company ended the second quarter with $4.8 million in cash and short-term
investments, a $4.1 million increase from January 1, 2000. Liquidity
improvement was the result of net cash provided by operating and financing
activities.
The Company's operations provided $4.9 million in cash during the first half of
2000. The primary sources of cash included a $3.5 million decrease in inventory
levels and a $2.0 million increase in accounts payable attributable to supply
chain management. Non-cash sources included $1.3 million related to
depreciation and amortization mainly associated with increased technology
investments. The primary uses of cash included $0.2 million of net loss, an
increase in accounts receivable of $1.1 million attributable to an increase in
net sales, and $0.6 million in other assets and liabilities.
Investing activities used $2.6 million in the first half of the year 2000 and
included $1.25 million in connection with the Company's acquisition of a
controlling interest in Podiatry Online (see note 3 to financial statements)
and technology purchases of $1.3 million.
Financing activities provided $1.8 million for the six months ended July 1,
2000, primarily from sales of common stock and for the minimum purchase cost for
the remaining minority interests in Podiatry Online.
The Company's previous line of credit expired on March 31, 2000, and management
is currently negotiating a proposed loan commitment. Management believes that
the proposed loan commitment, once consummated by a definitive loan agreement,
will provide adequate funds for the Company's operations. In the interim, until
the commitment letter is negotiated and a definitive loan agreement is executed,
the Company had, as of July 1, 2000, $4.8 million in cash and cash equivalents
to fund its operations in the short term.
FORWARD-LOOKING INFORMATION
---------------------------
From time to time, the Company may make forward-looking statements, that is
statements not of past or present fact but of beliefs, expectations or plans for
the future. The words "expects," "anticipates", "believes", "seeks", "plans,"
"estimates," "projects," "intends," and similar expressions identify forward-
looking statements. Such statements are qualified by the following discussion
of certain factors, which could possibly cause actual results to differ
materially from the forward-looking statements:
. pressures on revenues resulting, for example, from customer consolidations or
changes in customer buying patterns;
11
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. reductions in healthcare funding affecting its customers' services or
revenues, resulting, for example, from changes in legislation or regulations
or in HMO, managed care or other insurance programs;
. intensified competition resulting, for example, from distributor
consolidations or pricing pressures from larger distributors able to benefit
from economies of scale or other operating efficiencies;
. adjustments under exited government contracts in excess of amounts reserved,
or unfavorable outcomes of litigation;
. disruptions in or cost increases for services or systems on which the Company
is dependent, such as by truckers in deliveries from its suppliers, by UPS or
other common carriers in deliveries to its customers, by its catalog printers
or in telecommunication services, or relating to its computer systems;
. changes in supply chain management relationships or availabilities that could
adversely effect the market, supply and flow of products;
. rapidly changing technology and customer expectations;
. decreasing reliance on distributors as manufacturers establish direct Internet
sales channels to end-users;
. further Internet and infrastructure developments (for example, in high speed
data lines and modems);
. difficulties in attracting and retaining qualified technical and marketing
talent in an economy in which such talent is in short supply and in high
demand;
. new laws or regulations affecting e-commerce, which could increase the cost of
doing business or customers' purchase costs (for example, by the introduction
of sales taxes to Internet transactions); and
. security breaches that could significantly disrupt the Internet network, halt
sales, or discourage customers.
These factors are not presently all-inclusive. In addition, new factors may
emerge from time to time, and it is not possible to predict all factors, nor can
management necessarily identify or assess all factors. The factors identified
should therefore not be relied on as comprehensive. Moreover, the Company does
not necessarily update its forward looking statements. Accordingly, they should
not be relied upon as a prediction of actual results.
12
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
----------------------------------------------------------
The Company has no material market risk exposure associated with activities in
derivative financial instruments, other financial instruments, or derivative
commodity instruments.
PART II. OTHER INFORMATION
-----------------
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
---------------------------------------------------
(a) The 2000 Annual Meeting of Shareholders of the Company was held
June 21, 2000.
(b) At the Annual Meeting, the Company's shareholders voted on the
following:
1. Election of directors
Name of Nominee For Withheld
--------------- --- --------
Linda M. Autore 2,618,847 32,032
Christopher Brody 2,618,847 32,032
Steven Kotler 2,618,847 32,032
Robert H. Steele 2,618,847 32,032
Peter C. Sutro 2,617,847 33,032
Wilmer J. Thomas, Jr. 2,618,847 32,032
Dan K. Wassong 2,478,147 172,732
2. Proposal to approve the adoption of the 2000 Incentive
Compensation Program.
For 1,028,974
Against 291,980
Abstain 6,693
Present, not entitled to vote 1,323,232
3. Proposal to amend the Certificate of Incorporation to increase
the authorized common stock.
For 2,568,184
Against 68,797
Abstain 13,898
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ITEM 5. OTHER MATTERS
-------------
As of July 1, 2000, the members of the Board of Directors of the
Company and of its Committees, were:
Director Committees
-------- ----------
Linda M. Autore --
Christopher Brody --
Steven Kotler Executive Committee (Chairman);
Audit; Compensation; Nominating.
Robert H. Steele (Chairman) Executive.
Peter C. Sutro --
Wilmer J. Thomas, Jr. Executive; Audit; Compensation;
Nominating.
Dan K. Wassong --
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
--------------------------------
(a) Exhibits
--------
Certificate of Amendment of Certificate Exhibit 3.4
of Incorporation
2000 Incentive Compensation Program Incorporated by
reference to
Exhibit A to the
Company's 2000
Proxy Statement
2000 Executive Officers' Bonus Plan Exhibit 10.23
Financial Data Schedule Exhibit 27
(b) Reports on Form 8-K
-------------------
No report on Form 8-K was filed during the quarter.
14
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SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15(d) 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.
MOORE MEDICAL CORP.
(REGISTRANT)
By: /s/ Linda M. Autore By: /s/ Susan G. D'Amato
-------------------------------- --------------------------------
Linda M. Autore, President Susan G. D'Amato, Vice
(Chief Executive Officer) President of Finance and
August 15, 2000 Controller
(Chief Accounting Officer)
August 15, 2000
15
