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 March 31, 1996
-----------------------
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
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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 27,675,019 Shares at March 31, 1996
$.01 par value Preferred Shares-Series A 267,500 Shares at March 31, 1996
$.01 par value Preferred Shares-Series C 105,000 Shares at March 31, 1996
$.01 par value Preferred Shares-Series D 300,000 Shares at April 10, 1996
<PAGE>
MEDNET, MPC CORPORATION
TABLE OF CONTENTS
Page No.
Part I - Financial Information
Item 1. Consolidated Financial Statements
Balance Sheets
Statements of Operations
Statements of Cash Flows
Notes to Financial Statements
Item 2. Management's Discussion and Analysis
of Financial Condition and
Results of Operations
Part II - Other Information
Item 1. Legal Proceedings
Item 2. Changes in Securities
Item 3. Defaults upon Senior Securities
Item 4. Submission of Matters to a Vote
of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
<PAGE>
Mednet, MPC Corporation
Consolidated Balance Sheet
<TABLE>
March 31, December 31,
1996 1995
----------- ------------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents .............................. $ 415,000 $ 42,000
Accounts receivable, less allowance for doubtful
accounts and return of and $1,375,000 at
December 31, 1995 and $970,000 at March 31, 1996 .... 21,568,000 17,798,000
Inventories ............................................ 2,291,000 2,849,000
Other current assets ................................... 35,000 243,000
Total current assets ................................ 24,309,000 20,932,000
Property, plant and equipment ............................. 1,690,000 1,532,000
Intangible assets ......................................... 18,034,000 18,582,000
Other assets .............................................. 820,000 857,000
------------ ------------
$ 44,853,000 $ 41,903,000
============ ============
Liabilities and Stockholders' Equity
Current liabilities:
Revolving line of credit ............................... $ 7,621,000 $ 3,709,000
Accounts payable ....................................... 16,590,000 17,483,000
Accrued expenses ....................................... 2,038,000 2,139,000
Current portion of long-term debt ...................... 4,593,000 2,739,000
------------ ------------
30,842,000 26,070,000
Long-term debt ............................................ 2,123,000 1,422,000
Redeemable convertible preferred stock-Series A ........... 5,350,000 5,350,000
Preferred stock: $.01 par value, (105,000 shares - Series C
outstanding at March 31, 1996) ........................... 2,100,000 -0-
Common stock: $.001 par value, (42,000,000
shares authorized, 27,625,019 at March 31, 1996
and 29,149,118 at December 31, 1995
issued and outstanding) ................................ 28,000 29,000
Additional paid-in capital ................................ 38,258,000 42,778,000
Accumulated deficit ....................................... (33,848,000) (33,746,000)
------------ ------------
Stockholders' equity ...................................... 6,538,000 9,061,000
------------ ------------
Total liabilities and stockholders' equity .......... $ 44,853,000 $ 41,903,000
============ ============
</TABLE>
<PAGE>
Mednet, MPC Corporation
Consolidated Statement of Operations
<TABLE>
For the Three Months Ended
March 31,
----------------------------
1996 1995
------------ ------------
<S> <C> <C>
Sales ...................................................... $ 25,720,000 $ 28,329,000
Less: cost of sales ........................................ 21,852,000 24,278,000
------------ ------------
Gross profit ............................................... 3,868,000 4,051,000
------------ ------------
Selling, general and administrative expenses ............... 2,672,000 3,311,000
------------ ------------
Operating income before depreciation and amortization 1,196,000 740,000
Depreciation and amortization .............................. 742,000 925,000
Operating income/(loss) ............................. 454,000 (185,000)
Other income (expense):
Interest and dividend income ............................ 14,000 11,000
Interest expense ........................................ (436,000) (244,000)
Subsidiary operations for period not owned .............. -0- (225,000)
Other net ............................................... -0- (94,000)
------------ ------------
Total other income (expense) .......................... (422,000) (552,000)
------------ ------------
Net income/loss ......................................... $ 32,000 $ (737,000)
============ ============
Net income (loss) per common share ...................... .001 (.03)
============ ============
Weighted average equivalent number of shares ............ 28,761,953 23,816,836
============ ============
</TABLE>
<PAGE>
Mednet, MPC Corporation
Consolidated Statements of Cash Flows
<TABLE>
For the Three Months Ended
March 31,
----------------------------
1996 1995
------------ ------------
<S> <C> <C>
Cash flows from (used for) operating activities:
Cash received from customers ..................................... $ 21,950,000 $ 16,960,000
Cash paid to suppliers and employees ............................. (24,715,000) (17,505,000)
Net interest paid ................................................ (422,000) (178,000)
------------ ------------
Net cash used for operating activities ......................... (3,187,000) (723,000)
------------ ------------
Cash flows from investing activities:
Purchase of property and equipment ............................... (352,000) (260,000)
------------ ------------
Net cash (used for) investing activities ....................... (352,000) (260,000)
------------ ------------
Cash flows from (used for) financing activities:
Proceeds from borrowings ......................................... 3,912,000 -0-
Repayment of borrowings .......................................... (1,913,000) (42,000)
Net proceeds from issuance of common stock ....................... 2,047,000 250,000
------------ ------------
Net cash from financing activities ........................... 4,046,000 208,000
------------ ------------
Net increase (decrease) in cash ..................................... 373,000 (775,000)
Cash balance, beginning of period ................................... 42,000 1,711,000
------------ ------------
Cash balance, end of period ......................................... $ 415,000 $ 936,000
============ ============
Reconciliation of net loss to net cash used for operating activities:
Net income (loss) .............................................. $ 32,000 $ (737,000)
Adjustments to reconcile net loss to net cash used
for operating activities:
Depreciation and amortization ............................. 742,000 549,000
Provision for doubtful accounts ........................... (405,000)
Change in assets and liabilities:
(Increase) in accounts receivable ............................ (3,365,000) (623,000)
Decrease (Increase) in inventories ........................... 558,000 (243,000)
Decrease (Increase) in other current assets .................. 208,000 (433,000)
Decrease in other assets ..................................... 37,000 397,000
(Decrease)/Increase in accounts payable ...................... (893,000) 133,000
(Decrease) in accrued expenses ............................... (101,000) 234,000
------------ ------------
Net cash used for operating activities .............................. $ (3,187,000) $ (723,000)
============ ============
</TABLE>
<PAGE>
MEDNET, MPC CORPORATION
Notes to Consolidated Financial Statements
March 31, 1996
(1) Basis of Presentation
The consolidated financial statements included herein include the accounts of
Mednet, MPC Corporation and its subsidiaries (the "Company"), Medi-Mail, Inc.,
Medi-Phar, Inc. and Medi-Claim, 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 March 31, 1996 are not
necessarily indicative of those expected for the full year. Certain prior year
amounts have been adjusted and reclassified to conform to the 1996 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, 1995. Accordingly, footnote
disclosures which would substantially duplicate the disclosures contained in the
Company's December 31, 1995 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 note
thereto included in the Company's Annual Report on Form 10-K for the year ended
December 31, 1995.
(2) Subsequent Event
In April, 1996, the 105,000 shares of the Company's Series C Preferred Stock
were converted into 1,058,707 shares of Common Stock.
In April, 1996, the Company issued 300,000 shares of its Series D Preferred
Stock to a limited number of foreign investors for which it received gross
proceeds of $6,000,000. The Series D preferred Stock is convertible into Common
Stock at the option of the holder and, under certain conditions, the Company.
Prior to conversion, the Series D Preferred Stock votes a class with the Common
Stock except on matters where class voting is mandated be Nevada law. The Series
D preferred Stock does not have preferential dividend rights.
(3) Commitments and Contingencies
The Company is not a party to any legal proceeding which, in its belief, could
have a material adverse effect on the Company.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
March 31, 1996
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
March 31
---------------------
1996 1995
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<S> <C> <C>
Sales ............................................ 100.00 100.00
Cost of sales .................................... (84.96) (85.70)
------ ------
Gross Margin .................................... 15.04 14.30
Selling, general and admin expenses .............. (10.38) (11.69)
Operating income/(loss) before
depreciation & amortization .................... 4.66 2.61
Depreciation & amortization ..................... (2.90) (3.26)
Operating gain/(loss) ........................... 1.76 (0.65)
Other income (expense)
Interest and dividend income .................... 0.05 0.03
Interest expense ................................ (1.69) (0.86)
Subsidiary operations for
period not owned ............................... 0.00 0.79
Other, net ...................................... (0.00) (0.33)
------ ------
Total other expense ............................. (1.64) (1.95)
Net income/(loss) ................................ 0.12 (2.60)
====== ======
</TABLE>
Consolidated net sales for the quarter ended March 31, 1996 decreased 9.2% to
$25,720,000 from $28,329,000 in the corresponding quarter last year. The
decrease in sales over the prior year period was primarily attributable to a
decrease in sales of the mail-order operations of 24.1% ($4,040,000). Not all of
Home Pharmacy's major customers have continued with the Company following the
acquisition. As with turn-over of any of the Company's customers, the Company
expects to obtain new customers to replace revenue previously received from
departing customers, subject to the normal sales and implementation cycles of
the industry. Retail operations have decreased 46.8% ($758,000). The reduction
in retail sales reflects the Company's decision to curtail these operations.
These decreases were partially offset by increases in the claims processing
operations 21.9% ($2,189,000).
Consolidated cost of sales as a percentage of sales and as total dollars
decreased for the quarter compared to the same period in the prior year. The
decrease was mainly due to the changing mix in the Company's sales. Mail-order
cost of sales decreased 25.0% ($3,522,000) and retail operations decreased 46.2%
($530,000) compared to the same period in calendar year 1995. Claims processing
operations increased 17.9% ($1,626,000) compared to the first quarter of 1995.
Selling, general and administrative expenses decreased in total dollars and as a
percentage of net sales for the quarter ended as compared to the same period of
the prior year. The decrease in selling, general and administrative expenses is
due in part to the expected synergy in the mail-order operations resulting from
the Home acquisition in September 1995 as well as cost cutting measures taken in
response to reduced sales.
<PAGE>
Operating income before depreciation and amortization increased in total dollars
and as a percentage of net sales for the same period in the prior year.
Operating income before depreciation and amortization increased by 61.6%
($456,000) for the first three months of calendar year 1996 as compared to the
same period in calendar year 1995. Operating income before depreciation and
amortization as a percentage of net sales was 4.66% ($1,196,000) for the first
three months of calendar year 1996 compared to 2.61% ($740,000).
Depreciation and amortization decreased by 19.8% ($183,000) for the first three
months of calendar year 1996 compared to the same period in calendar year 1995.
Depreciation and amortization as a percent of net sales were 2.9% for the period
ended March 31, 1996, compared to 3.26% for the same period in the prior year.
The decrease in amortization and depreciation is primarily attributable to
certain intangibles arising from acquisitions in 1994, which were fully
amortized by the first quarter of 1995 and the write down of assets following
the closure of the South Carolina and Baltimore facilities and closure of retail
pharmacies reflected in fiscal 1995. These were partially offset by the
amortization of intangibles acquired during 1995.
Operating income for the quarter ended March 31, 1996 was $454,000 compared to
an operational loss of $185,000 in March 1995. The reduction in the operating
loss is primarily attributable to the decrease in cost of sales, depreciation
and amortization, and synergism from the Home acquisition reflective in selling,
general and administrative expense.
Other Income (expense) decreased in total amount expended and as a percentage on
sales for the quarter ended in March 31, 1996 and for the same period in 1995,
principally caused by the adjustment in the first quarter of 1995 ($225,000) of
subsidiary operations for the period not owned. This increase in interest
expense reflects the inclusion of the cost associated with the Company's
revolving credit line initiated in December 1995.
The net income for the first quarter of 1996 was $32,000 or $(.001) per share on
weighted average shares of 28,761,953 compared with a loss of $737,000 or $(.03)
per share on 23,816,836 weighted shares outstanding in the prior year's first
quarter.
Liquidity and Capital Resources
Despite the Company's achievement of bottom line profitability in the quarter,
liquidity is of major concern to management. During the quarter, operating
activities consumed negative cash flow of $3,187,000 and at March 31, 1996 the
Company had a deficit in working capital of $6,533,000 (compared to a deficit in
working capital of $5,138,000 at December 31, 1995). Factors contributing to the
negative cash flow from operations include an increase in accounts receivable of
$3,770,000 during the first quarter despite the reduce level of sales. This was
caused by maturing obligations of certain state and other governmental clients
with history of slow payment. Other factors are accounts payable reduction
consumed cash as the Company paid down its trade payables.
In the fourth quarter of 1995, the Company began taking aggressive steps to
improve the bottom line and cash flow, including the reduction in retail
operations and the consolidation of the South Carolina mail order facility into
the Chicago facility. Management believes that the results of such steps are
beginning to be reflected in the income statement for the first quarter of 1996.
Subsequent to the end of the first quarter, the Company obtained gross proceeds
of approximately $6,000,000 from the sale of its Series D Preferred Stock to
foreign investors. The equity capital alleviated but did not eliminate the
overall liquidity problem.
In May, 1996, the Company obtained a waiver by Foothill of the Company's failure
to meet certain financial covenants with respect to the line of credit. Foothill
is reviewing a possible adjustment to the covenants for future periods. If the
Company becomes out of covenant in the future, there can be no assurance that
Foothill will again waive compliance.
In February, 1996 the Company paid in full the short term Interim Note given to
ArcVentures as part of the Home Pharmacy acquisition price. The common shares
securing the Interim Note were returned to the Company and cancelled, resulting
in a reduction in the number of outstanding shares at the end of the quarter.
The 3,216,178 common shares securing the Holdback Note to ArcVentures are not
treated as outstanding, as discussed in the Company's Form 10-K. The hold back
note to ArcVentures is due in October 1996 unless accelerated on default.
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
None.
ITEM 2. CHANGES IN SECURITIES.
None.
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.
None.
<PAGE>
SIGNATURE
Pursuant to the requirements 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.
MEDNET, MPC CORPORATION
Date: May 15, 1996 By: /s/ M.B. Merryman
---------------------------------
M.B. Merryman, President and
Principal Executive Officer
By: /s/ Pedro Perez
---------------------------------
Pedro Perez, Principal Accounting
Officer
By: /s/ Thomas C. Warren
---------------------------------
Thomas C. Warren, Principal
Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE MARCH
31, 1996 10-Q FOR MEDNET, MPC CORPORATION AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 415
<SECURITIES> 0
<RECEIVABLES> 22,538
<ALLOWANCES> 970
<INVENTORY> 2,291
<CURRENT-ASSETS> 24,309
<PP&E> 1,690
<DEPRECIATION> 0
<TOTAL-ASSETS> 44,853
<CURRENT-LIABILITIES> 30,842
<BONDS> 2,123
5,350
2,100
<COMMON> 28
<OTHER-SE> 4,410
<TOTAL-LIABILITY-AND-EQUITY> 44,853
<SALES> 25,720
<TOTAL-REVENUES> 25,720
<CGS> 21,852
<TOTAL-COSTS> 21,852
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 436
<INCOME-PRETAX> 32
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<EPS-PRIMARY> .001
<EPS-DILUTED> .001
</TABLE>
