FORM 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 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, 1995
---------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES AND EXCHANGE ACT OF 1934
For the transition period from
Commission file number 0-17120
----------------------------------
Mednet, MPC Corporation
(Exact name of registrant as specified in its charter)
Nevada 88-0215949
State or other jurisdiction of (I.R.S. Employer
incorporation or organization Identification No.)
871-C Grier Drive, Las Vegas, Nevada 89119
(Address of principal executive offices) (Zip Code)
(702) 361-3119
(Registrant's telephone number, including area code)
(Former name, former address and former fiscal year, if changed since last
report)
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
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Class of Stock Amount Outstanding
- - ------------------------------- ------------------------------------
$.001 par value Common Shares 25,997,643 Common Shares
at September 30, 1995
$.01 par value Preferred Shares 367,500 Shares at
September 30, 1995
<PAGE>
MEDNET, MPC CORPORATION
CONSOLIDATED BALANCE SHEET
<TABLE>
Sept. 30, Dec. 31,
1995 1994
---------- ----------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents ......................... 1,634,000 1,711,000
Accounts receivable, less allowance for doubtful
accounts and return of and $780,000 at
December 31, 1994 and $878,000 at Sept. 30, 1995 12,725,000 8,087,000
Inventories ....................................... 2,866,000 1,334,000
Other current assets .............................. 360,000 104,000
Total current assets ........................... 17,585,000 11,236,000
Property, plant and equipment ........................ 1,583,000 1,184,000
Intangible assets .................................... 19,225,000 9,308,000
Other assets ......................................... 1,195,000 589,000
Total assets ................................... 39,588,000 22,317,000
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable .................................. 10,691,000 6,545,000
Accrued expenses .................................. 953,000 1,013,000
Current portion of long-term debt ................. 3,576,000 2,258,000
Total current liabilities ...................... 15,220,000 9,816,000
Long-term debt ....................................... 3,649,000 595,000
Preferred stock: $.01 par value, (367,500
outstanding at Sept. 30, 1995) ...................... 4,000 -0-
Common stock: $.001 par value, (25,997,643 and
23,797,747 issued and outstanding at Sept. 30, 1995
and Dec. 31, 1994) .................................. 26,000 24,000
Additional paid-in capital ........................... 43,219,000 32,138,000
Accumulated deficit .................................. (22,530,000) (20,256,000)
Stockholders' equity ................................. 20,719,000 11,906,000
Total liabilities and stockholders' equity ..... 39,588,000 22,317,000
</TABLE>
<PAGE>
MEDNET, MPC CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
For the Three Months
Ended September 30,
1995 1994
---------- ----------
<S> <C> <C>
Sales ............................................................. 27,449,000 18,380,000
Less: cost of sales ............................................... 23,390,000 16,681,000
Gross profit ...................................................... 4,059,000 1,699,000
Selling, general and administrative expenses:
Salaries and benefits .......................................... 2,133,000 860,000
Marketing and advertising ...................................... 238,000 318,000
Other administrative expenses .................................. 1,399,000 1,689,000
Total selling, general and administrative expenses ............. 3,770,000 2,867,000
Operating income (loss) before depreciation and amortization 289,000 (1,168,000)
Depreciation and amortization ..................................... 649,000 177,000
Operating profit/(loss) .................................... (360,000) (1,345,000)
Other income (expense):
Interest, dividend and rental income ........................... 11,000 20,000
Interest expense ............................................... (200,000) (91,000)
Subsidiary operations for period not owned ..................... (180,000) 196,000
Other net ...................................................... (41,000) (174,000)
Total other income (expense) ................................ (410,000) (49,000)
Net loss ....................................................... (770,000) (1,394,000)
Net loss per common share ...................................... $ (.03) $
(.07)
Weighted average equivalent number of shares ................... 24,338,791 21,433,191
</TABLE>
<PAGE>
MEDNET, MPC CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
For the Nine Months Ended
September 30,
--------------------------
1995 1994
---------- ----------
<S> <C> <C>
Sales ............................................................. 83,693,000 48,869,000
Less: cost of sales ............................................... 71,262,000 42,519,000
Gross profit ...................................................... 12,431,000 6,350,000
Selling, general and administrative expenses:
Salaries and benefits .......................................... 6,398,000 3,384,000
Marketing and advertising ...................................... 731,000 608,000
Other administrative expenses .................................. 4,008,000 3,784,000
Total selling, general and administrative expenses ............. 11,137,000 7,776,000
Operating income (loss) before depreciation and amortization 1,294,000 (1,426,000)
Depreciation and amortization ..................................... 1,854,000 1,517,000
Operating profit/(loss) .................................... (560,000) (2,943,000)
Other income (expense):
Interest, dividend and rental income ........................... 31,000 48,000
Interest expense ............................................... (627,000) (314,000)
Subsidiary operations for period not owned ..................... (982,000) 321,000
Other net ...................................................... (134,000) (75,000)
Total other income (expense) ................................ (1,712,000) (20,000)
Net loss ....................................................... (2,272,000) (2,963,000)
Net loss per common share ...................................... $ (.09) $ (.14)
Weighted average equivalent number of shares ................... 24,041,758 21,011,662
</TABLE>
<PAGE>
MEDNET, MPC CORPORATION
STATEMENT OF CASH FLOW
<TABLE>
For the Nine Months Ended
September 30,
--------------------------
1995 1994
----------- -----------
<S> <C> <C>
Cash flows from (used for) operating activities:
Cash received from customers ..................................... 79,055,000 31,655,000
Cash paid to suppliers and employees ............................. (80,707,000) (34,745,000)
Net interest paid ................................................ (596,000) (221,000)
Rental income .................................................... -0- 10,000
Other net ........................................................ (134,000) 25,000
Net cash used for operating activities ........................ (2,382,000) (3,276,000)
Cash flows from (used for) investing activities:
Purchase of property and equipment ............................... (774,000) (630,000)
Purchase of intangible assets .................................... (11,458,000)
Net cash from (used for) investing activities ................. (12,232,000) (630,000)
Cash flows from (used for) financing activities:
Repayment of borrowings .......................................... (1,152,000) (1,374,000)
Net proceeds from issuance of common stock ....................... 4,889,000 5,152,000
Net proceeds from issuance of preferred stock .................... 7,300,000
Net proceeds from borrowings ..................................... 3,500,000
Net cash from (used for) financing activities ................. 14,537,000 3,778,000
Net (decrease) increase in cash ..................................... (77,000) (128,000)
Cash balance, beginning of period ................................... 1,711,000 1,220,000
Cash balance, end of period ......................................... 1,634,000 1,092,000
Reconciliation of net loss to net cash used for operating activities:
Net loss ......................................................... (2,272,000) (2,963,000)
Adjustments to reconcile net loss to net cash
used for operating activities:
Net gain of subsidiaries for period not owned ................. 982,000
Depreciation and amortization ................................. 1,854,000 1,517,000
Change in assets and liabilities:
(Increase) in accounts receivable ............................. (4,638,000) (2,944,000)
(Increase) Decrease in inventories ............................ (1,532,000) 132,000
(Increase) Decrease in other current assets ................... (256,000) 244,000
(Increase) in other assets .................................... (606,000) (10,000)
(Decrease) in accrued expenses ................................ (60,000) (214,000)
Increase in accounts payable .................................. 4,146,000 962,000
Net cash used for operating activities .............................. (2,382,000) (3,276,000)
</TABLE>
<PAGE>
MEDNET, MPC CORPORATION
Notes to Consolidated Financial Statements
September 30, 1995
(1) Basis of Presentation
The consolidated financial statements included herein include the accounts of
Mednet and its subsidiaries (the "Company"), Medi-Mail, Inc., Medi-Phar, Inc.,
Medi-Claim, Inc. and Family Pharmaceutical of America, Inc. In the opinion of
Management, all adjustments considered necessary for fair presentation have been
reflected in the consolidated financial statements. These adjustments are of a
normal, recurring nature. Operating results for the quarter ended September 30,
1995 are not necessarily indicative of those expected for the full year. Certain
prior year amounts have been adjusted and reclassified to conform to the 1995
presentation.
The accompanying unaudited interim consolidated financial statements have been
prepared in accordance with the instructions to Form 10-Q and the rules and
regulations of the Securities and Exchange Commission. These financial
statements have been prepared under the presumption that users of the interim
financial information have either read or have access to the Company's audited
financial statements for the year ended December 31, 1994. Accordingly, footnote
disclosures which would substantially duplicate the disclosures contained in the
Company's December 31, 1994 audited financial statements have been omitted from
these interim financial statements. 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
instructions, rules and regulations. Although the Company believes that the
disclosures are adequate to make information presented not misleading, it is
suggested that these unaudited interim consolidated financial statements be read
in conjunction with the audited consolidated financial statements and the notes
thereto included in the Company's Annual Report on Form 10-K for the year ended
December 31, 1994.
(2) Subsequent Event
In October 1995, Foothill Capital Corporation conditionally approved a $20
million revolver and is expected to be concluded on or before November 17, 1995.
(3) Commitments and Contingencies
On or about February 23, 1995, a purported shareholder of the Company served the
Company with a complaint filed on January 12, 1995 in the United Stated District
Court for the Southern District of California against the Company and one of its
executive officers. The complaint alleged that, during the period of July 1,
1993 through March 31, 1994, the defendants omitted material information about
the Company and misrepresented information relating to the growth of the Company
in violation of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934.
The complaint seeks to proceed as a class action on behalf of certain persons
who purchased shares of the Company's Common Stock during the period July 1,
1993 through March 31, 1994 and who were allegedly damaged. The complaint seeks
compensatory damages in an unspecified amount and costs and expenses relating to
the complaint, including reasonable attorney's fees. The Company believes these
claims are meritless and is vigorously defending this action.
The Company is not a party to any other legal proceeding which, in its belief,
could have a material adverse effect on the Company.
<PAGE>
(4) Business Combinations
On September 15, 1995, the Company acquired the assets of Home Pharmacy from
ArcVentures, Inc. The acquisition is accounted for as a purchase. Consistent
with its treatment of prior acquisitions, the Company has included the
operations of the acquired business for the entire year to date in its operating
statements for the nine months ended September 30, 1995 with a single line item
to subtract the profit of the acquired business for periods prior to
acquisition.
The amounts included in the statement of operations for Home Pharmacy operations
prior to September 15, 1995 are as follows:
Purchase Price:
Cash paid .......................................... $ 8,000,000
Promissory notes payable ........................... 2,500,000
-----------
10,500,000
Cost of acquisition incurred ....................... 1,587,000
-----------
$12,087,000
===========
The acquisition was accounted for as a purchase whereby the assets acquired were
recorded at their fair market value. The excess of cost over the net
identifiable assets acquired is reflected as goodwill and is being amortized
over 25 years under the straight-line method. The allocation of the purchase
price was as follows:
Inventory ............................................... $ 500,000
Property & equipment .............................. 400,000
Customer contracts ................................ 2,407,000
Covenant-not to compete ........................... 100,000
Goodwill .......................................... $ 8,680,000
-----------
$12,087,000
===========
The Company has elected to consolidate the operations of Home Pharmacy
retroactively to January 1, 1995; therefore, the pre-acquisition gain of
$982,000 has been deducted to the consolidated statements of operations for the
quarter ended September 30, 1995. The effect of this consolidation of operations
prior to acquisition was to increase net sales for the nine months ended
September 30, 1995 by approximately $30,629,000.
(5) Special Item
On September 15, 1995, the Company sold its building in San Diego, California,
and realized a gain of $34,000.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
September 30, 1995
Results of Operations
The following table sets forth certain financial data as a percentage of
consolidated net operating revenues of the Company for the periods presented:
<TABLE>
Three Months Ended Nine Months Ended
Sept 30, Sept 30,
1995 1994 1995 1994
<S> <C> <C> <C> <C>
Sales ...................................................... 100.00 100.00 100.00 100.00
Cost of sales .............................................. 84.80 90.75 85.16 87.01
Selling, general and admin expenses
Salaries and benefits ..................................... 7.39 4.68 7.64 6.93
Marketing and advertising ................................. 0.80 1.73 0.87 1.24
Other admin expenses ...................................... 4.44 9.19 4.79 7.74
------ ------ ------ ------
Total SG&A expenses ....................................... 12.63 15.60 13.30 15.91
Operating gain/(loss) before
depreciation & amortization .............................. 2.57 (6.35) 1.54 (2.92)
Depreciation & amortization ............................... 1.51 0.96 2.21 3.10
Operating gain/(loss) ..................................... 1.06 (7.31) (0.67) (6.02)
Other income (expense)
Interest and dividend income .............................. 0.02 0.11 0.04 0.09
Interest expense .......................................... (0.56) (0.50) (0.75) (0.64)
Subsidiary operations for
period not owned ......................................... (2.02) 1.07 (1.17) 0.66
Rental income ............................................. 0.00 0.00 0.00 0.00
Write-down of building .................................... 0.00 0.00 0.00 0.00
Debt conversion expense ................................... 0.00 0.00 0.00 0.00
Other, net ................................................ (0.08) (0.95) (0.16) (0.15)
------ ------ ------
Total other expense ....................................... (2.64) (0.27) (2.04) (0.04)
Net income/(loss) .......................................... (1.58) (7.58) (2.71) (6.06)
------ ------ ------ ------
</TABLE>
<PAGE>
On September 15, 1995, the Company acquired the assets of Home Pharmacy from
ArcVentures, Inc. The acquisition is accounted for as a purchase. Consistent
with its treatment of prior acquisitions, the Company has included the
operations of the acquired business for the entire year to date in its operating
statements for the nine months ended September 30, 1995 with a single line item
to subtract the profit of the acquired business for periods prior to
acquisition.
Consolidated net sales for the quarter ended September 30, 1995 increased by
49.3% or $9,069,000 from $18,380,000 for the prior year's quarter to
$27,449,000. The sales increase is primarily attributable to $9,453,000 from
pre-acquisition operations of Home Pharmacy. Net sales for the Company excluding
Home Pharmacy decreased by $384,000 or 2% compared to the prior year's quarter.
Year to date net sales increased by 71.3% or $34,824,000 over the first nine
months of 1994. The sales increase is primarily attributable to $30,629,000 from
pre-acquisition operations of Home Pharmacy.
Costs of sales decreased as a percentage of net sales but increased in total
dollars for the quarter ended September 30, 1995 and the nine months ending
September 30, 1995 compared to the same periods in the prior year. The
fluctuation in cost of sales as a percentage and in dollar amount is primarily
attributable to increased gross margin from Medi-Claim sales resulting from
changes in product mix, increased higher margin mail service sales from Home
Pharmacy and unusually high inventory expenses in the prior year's quarter. The
increase in the absolute dollar value is mainly due to the inclusion of the
operations of Home Pharmacy.
Selling, general and administrative decreased as a percentage of net sales but
increased in total dollars for the quarter ended September 30, 1995 and the nine
months ending in September 30, 1995 compared to the same periods in the prior
year. The increase in total dollars is primarily due to the inclusion of Home
Pharmacy operations.
The Company's results from operations before depreciation and amortization
(EBITDA) for both the quarter and the nine months increased as a percentage of
net sales and in total dollars. The Company had EBITDA profit of $289,000 and
$1,294,000 for the three and nine months ended September 30, 1995, respectively,
compared to EBITDA losses of $1,168,000 and $1,426,000 for the three and nine
month periods of the prior year.
The Company's depreciation and amortization expense consists of the depreciation
of property and equipment and the amortization of intangibles arising from
acquisitions and internally developed software.
Depreciation and amortization increased by 266.7% or $472,000 for the quarter
ended September 30, 1995 compared to the same period in calendar year 1994.
Depreciation and amortization as a percent of net sales were 1.51% for the
quarter ended September 30, 1995, compared to .96% for the same period in the
prior year. The increase in depreciation and amortization is primarily
attributable to the intangibles acquired in the fourth quarter of 1994.
Depreciation and amortization increased by 22% or $337,000 for the nine months
ended September 30, 1995 compared to the same period in calendar year 1994.
Depreciation and amortization as a percent of net sales were 2.21% for the nine
months ended September 30, 1995 compared to 3.10% for the same period of 1994.
Amortization of Home Pharmacy intangibles will cause increase in these expenses.
The operating loss of $360,000 for the quarter ended September 30, 1995
decreased by 73.2% or $985,000 over the comparable prior year's quarter. The
operating loss of $560,000 decreased by 81% or $2,383,000 for the nine months
ended in September 30, 1995 compared to the same period in 1994.
Other income (expense) increased for both the quarter and the nine months
compared to the same periods in the prior year, primarily due to the effect for
the adjustment for subsidiary operations for the period not owned of ($982,000)
in 1995 and $321,000 in 1994. In addition, interest expense increased in 1995.
The net loss for the third quarter of 1995 was $770,000 or (.03) per share on
weighted average shares of 24,338,791 compared with a loss of $1,394,000 or
(.07) per share on 21,433,191 weighted shares outstanding in the prior year's
third quarter.
The net loss for the nine months ended September 30, 1995 was $2,272,000 or
(.09) per share on weighted average shares of 24,041,758 compared with a loss of
$2,963,000 on (.14) per share on21,011,662 weighted share outstanding in the
same period of 1994.
Liquidity and Capital Resources
During the three-month period ended September 30, 1995, the Company's working
capital increased $945,000 from $1,420,000 at December 31, 1994 to $2,365,000 at
September 30, 1995. The increase in working capital resulted from a substantial
increase in accounts receivable and inventory from December 31, 1994, which was
partially offset by an increase in current liabilities.
Current assets increased from $11,236,000 at December 31, 1994 to $17,585,000 at
September 31, 1995. The increase in working capital consists of an increase in
accounts receivable, inventory and other current assets of $4,638,000,
$1,532,000 and $250,000, respectively, which was partially offset by an increase
in accounts payable and current portion of long-term debt of $4,146,000 and
$1,318,000 respectively.
The Company has funded its operations and working capital expenditures primarily
from internally generated cash proceeds borrowings and of stock issuances.
Working capital at September 30, 1995 was $2,365,000 compared to $1,420,000 at
December 31, 1994. The increase in working capital of 66.5% or $945,000,
resulted primarily from the extension of a note payable ($1,245,974, maturity
date February 1, 1995, 5% interest) into a five-year note at a variable interest
rate of prime plus 2% and the sales of convertible debentures ($1,000,000) less
working capital used to fund the Company's operations plus the Home Pharmacy
assets.
The Company believes that it has cash and financing arrangements may not be
adequate to satisfy working capital and it may have to secure additional working
capital. Given the Company's current capital structure and past performance in
raising capital, management believes it has sufficient ability to obtain
additional funds, as required for operations. The Company has received a
commitment for a working capital revolving line of credit but the line is not in
place as of the date of this report.
Current assets increased from $11,230,000 on December 31, 1994 to $17,585,000 on
September 30, 1995. The increase in working capital consists of a reduction in
cash and accrued expenses of $77,000 and $60,000 respectively, which was
partially offset by an increase in account receivable, inventories, other
current assets, accounts payable and current portion of long-term debt of
$4,638,000, $1,532,000, $256,000, $4,140,000, and $1,318,000 respectively.
Current liabilities increased from $9,816,000 on December 31, 1994 to
$15,220,000 on September 30, 1995. The increase is primarily attributable to the
inclusion of payables from operation of the new facilities in Chicago and
inclusion of the short term portion of debt incurred to acquire Home Pharmacy.
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
None.
ITEM 2. CHANGES IN SECURITIES.
As disclosed in the Form 8-K dated September 15, 1995, during the
quarter the Company issued preferred shares in connection with the
Home Pharmacy acquisition.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
ITEM 5. OTHER INFORMATION.
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
Those exhibits previously filed with the Securities and
Exchange Commission as required by Item 601 of Regulation S-K,
are incorporated herein by reference in accordance with the
provisions of Rule 12b-32.
(b) Reports on Form 8-K.
(i) Form 8-K dated September 15, 1995, wherein
the Company reported the acquisition of Home
Pharmacy, a division of ArcVentures, Inc.
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Resistrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MEDI-MAIL, INC.
Date: November 14, 1995 By:/s/ M. B. Merryman
M. B. Merryman, President and
Principal Executive Officer
By:/s/ Pedro Perez
Pedro Perez, Principal Financial
Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE THIRD
QUARTER 10-Q OF MEDNET, MPC CORPORATION AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> SEP-30-1995
<CASH> 1,634
<SECURITIES> 0
<RECEIVABLES> 13,603
<ALLOWANCES> 878
<INVENTORY> 2,866
<CURRENT-ASSETS> 17,585
<PP&E> 1,583
<DEPRECIATION> 0
<TOTAL-ASSETS> 39,588
<CURRENT-LIABILITIES> 15,220
<BONDS> 3,649
<COMMON> 26
0
4
<OTHER-SE> 20,689
<TOTAL-LIABILITY-AND-EQUITY> 39,588
<SALES> 83,693
<TOTAL-REVENUES> 83,693
<CGS> 71,262
<TOTAL-COSTS> 71,262
<OTHER-EXPENSES> 12,991
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 627
<INCOME-PRETAX> (2,272)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,272)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,272)
<EPS-PRIMARY> (.09)
<EPS-DILUTED> (.09)
</TABLE>
