SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
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[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1995
[ ] 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 0-17120
MEDNET, MPC CORPORATION
(exact name of registrant as specified in its charter)
Nevada 88-0215949
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
871-C Grier Drive
Las Vegas, Nevada 89119
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:
(702) 361-3119
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Shares (Par Value $.001 Per Share)
(Title of Class)
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 .
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
As of March 22, 1996, 28,254,519 of the Registrant's Common Shares were
outstanding. As of March 22, 1996, the aggregate market value of voting stock
held by nonaffiliates of the Registrant was approximately $79,671,753, based on
the average of the closing bid and asked prices for the Registrant's Common
Shares as quoted by NASDAQ in the over-the-counter market.
DOCUMENTS INCORPORATED BY REFERENCE
Certain portions of the documents of the Registrant listed below have
been incorporated by reference into the indicated parts of the Form 10-K:
Notice of Annual Meeting of Stockholders and Proxy Statement anticipated to be
filed within 120 days after December 31, 1995 ............ Part III, Items 10-13
<PAGE>
PART I
ITEM 1. BUSINESS
General.
Mednet, MPC Corporation (the "Company") was incorporated under the laws of the
State of Nevada in September, 1985. Substantially all of the Company's business
is derived from its activities in the prescription benefits management industry.
The Company, together with its subsidiaries Medi-Mail, Inc. (Medi-Mail"),
Medi-Claim, Inc. ("Medi-Claim"), Medi-Phar, Inc. ("Medi-Phar") and Family
Pharmaceuticals of America, Inc. ("FPA"), acts as an integrated, full service
prescription drug benefits manager serving individual members of retirement
organizations, fraternal organizations, state employee organizations and
commercial organizations ("Affinity Groups"), corporations, self insurance
trusts, insurance companies, and other benefit plan sponsors ("Third-Party
Payors" and collectively with the Affinity Groups, "Payors") throughout the
United States. The Company's benefit programs (the "Programs") offer
prescription drug benefits to approximately two million individuals
("Participants") most of which receive funded benefits through Third Party
Payors and/or are members of an Affinity Group.
The Company's executive offices are located at 871-C Grier Drive, Las Vegas,
Nevada 89119, and its telephone number is (702) 361-3119.
Description of Prescription Benefits Management Business (PBM)
The Company develops and administers client-specific prescription drug benefit
programs ("Programs") on behalf of more than 400 Payors throughout the U.S. The
Company attempts to customize its Programs to meet the Payors' particular
benefits strategy combining a number of managed care features to cost
effectively manage the Payor's entire prescription benefits program. The
Programs combine mail service pharmacy features such as enhanced generic
substitution and the convenience of home delivery, with the feature of retail
network pharmacy such as automated claims adjudication, real time electronic
networking of retail pharmacies and card programs. Payors can choose a Program
which incorporates on-line electronic claims processing, drug utilization
review, and an electronic network linking more than 45,000 retail pharmacies in
the U.S., as well as features of a mail service pharmacy program. In the
alternative, Payors can choose either a mail service pharmacy program or a
network claims processing program.
Mail Service Pharmacy Operations.
Overview.
For 1995, the Company derived approximately 57.6% of the consolidated gross
sales for the Company and its subsidiaries from its mail service pharmacy
operations. The Company's mail service pharmacy program is conducted from its
Las Vegas, Nevada and Chicago, Illinois locations. The Company services
customers throughout the United States. The Company's mail service pharmacy
program is designed for convenience and to reduce prescription medication and
over-the-counter pharmaceutical costs to individuals, corporations, labor
unions, retirement systems, health and welfare trusts, insurance companies,
federal and state employee plans, health maintenance organizations and
third-party administrators. The mail service pharmacy program attracts senior
citizens, home-bound persons, sight or hearing impaired persons and users of
regularly prescribed medications who are interested in the convenience of direct
delivery of medication and/or lowering their medication and pharmaceutical
expenses. The Company believes that it delivers prescription medication and
over-the-counter pharmaceutical products to the homes of customers at lower
costs, on average, than is generally available through retail pharmacies. These
medications are typically maintenance medications which are defined as
medications which must be taken on an ongoing basis for chronic conditions such
as high blood pressure, arthritis and heart and thyroid conditions. The Company
believes that these conditions account for a majority of prescription medication
expenditures in the United States.
The Company directed its initial efforts toward individuals/members of Affinity
Groups. In 1991, the Company began to direct its marketing efforts to
Third-Party Payors in order to make the Company's services available to their
insureds or members.
<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 in its operating
statements for 1995 with a single line item to subtract the profit of the
acquired business for periods prior to acquisition.
Benefit of Mail service pharmacies to Direct Payor.
Individual customers and members of Affinity Groups (collectively, "Direct
Payor") benefit from the Company's mail service pharmacies as follows:
Convenience of pharmacy delivery system that delivers prescription
medication and over-the-counter pharmaceutical products to the home.
Lower out-of-pocket costs for the medications and pharmaceutical products.
Typically, a Direct Payor, with approval of a physician, can receive up to
a 90-day supply of prescription medication under the Company's programs as
compared to lower supplies generally dispensed by retail pharmacies.
A Direct Payor using the 90-day plan can save money due to lower operating
costs, bulk rates provided by the Company and elimination of repetitive
dispensing costs.
Benefit of Mail service Pharmacies to Third-Party Payor.
Managers of corporate funded health benefit plans and other Third Party Payors
have sought ways to contain health care costs, including the costs of
prescription medication benefits. In order to contain the costs of prescription
medication benefits, benefits managers have increasingly used mail service
pharmacy programs for dispensing maintenance prescription medications to plan
participants. The Company's mail service operations provide the following
benefits over traditional indemnity health benefit plans that provide for the
purchase of prescription medications through retail pharmacies:
Under traditional plans, the Third-Party Payor typically incurs a
dispensing fee and administrative charge each time a prescription
medication is dispensed. Under the Company's plan, a plan participant, with
approval of a physician, can typically receive up to a 90-day supply of
prescription medication as compared to a lower supply generally dispensed
under traditional plans utilizing retail pharmacies. The higher supply
limit of maintenance prescription medication generally available under the
Company's programs provides a cost savings to the Third-Party Payor by
reducing repetitive dispensing fees and, in some cases, administrative
charges.
Additional cost savings are often realized through the Company's programs
as a result of a significant emphasis on the use of generic drug
substitution as an alternative to more expensive brand name medications.
The Company has a variety of mail service programs designed to accommodate
client-specific needs. Under a typical funded program, a Third-Party Payor
contracts either directly with the Company or a third-party administrator to
provide prescription medications to plan participants. Plan participants
desiring to use the program mail an order form to the Company, enclosing a
physician's prescription for the ordered prescription medication together with a
nominal payment (the "co-payment"), for each prescription ordered. The
participant may also place an order by calling the Company's toll free telephone
number. The co-payment is fixed by agreement between the Company and the
Third-Party Payor. This type of mail service prescription program is known as a
"funded" plan because the Third-Party Payor provides all of the funding above
the co-payment amount. The Company bills the Third-Party Payor for the cost of
prescriptions less the applicable co-payments already collected.
Medi-Claim Claims Processing
For 1995, the Company derived approximately 36.4% of the consolidated gross
sales for the Company and its subsidiaries from its claims processing
operations.
The Company's prescription claims administration programs ("Programs") are
conducted through Medi-Claim. In November 1994, Medi-Claim acquired
substantially all of the assets of Medical Services Agency, Inc., which operated
under the registered service mark of Mednet(R), in exchange for 1,600,000 shares
of the Company's common stock. The Programs are sponsor-specific benefit
programs through which Medi-Claim processes and adjudicates paper and electronic
prescription drug claims generated through a network of participating retail
pharmacies. The pharmacy network includes approximately 45,000 retail pharmacies
in the U.S., each of which contracts with Medi-Claim to provide prescription
dispensing at contracted rates.
<PAGE>
The Medi-Claim Programs utilize point-of-sale electronic data transmission and
automated claims adjudication to manage claims in Programs covering Participants
nationwide. Claims data is transmitted to Medi-Claim electronically from
pharmacies, or by mail from beneficiaries, for adjudication and payment in
accordance with the Payor's particular plan design specifications.
The Programs are designed to maximize the Payor's control and cost savings
opportunities by combining a number of managed care pharmacy features. The
utilization control mechanisms and claims processing efficiencies of the
Medi-Claim Programs, as well as the price reductions Medi-Claim negotiates from
retail pharmacies, reduce the administrative costs associated with providing
retail pharmacy-based prescription drug benefits coverage. Program design
features also encourage the dispensing of less expensive generic drugs and a
review of pharmaceutical therapy patterns.
The Programs are offered either on a stand-alone basis or are integrated into
major medical plans. In addition, as discussed below, the Programs are offered
in conjunction with the company's mail service pharmacy programs as an integral
part of the combined benefits program.
Description of the Medi-Claim Programs
Medi-Claim currently processes prescription drug claims from its operations
center located in Lemoyne, Pennsylvania. Under the Medi-Claim Programs, Payors
provide Medi-Claim with periodically updated Participant eligibility data, which
is integrated into Medi-Claim's management information system. Medi-Claim is
then able to process prescription claims submitted either directly by eligible
Participants by mail, or through the Medi-Claim nationwide network of retail
pharmacies utilizing point-of-sale electronic data submission.
Once the Medi-Claim system determines the adjudication of the claim,
reimbursement checks and an Explanation of Benefits form are generated and
mailed to the Participant. Medi-Claim strives to process 95% of all claims
within five calendar days of receipt and the remaining claims within ten
calendar days of their receipt, although during many periods of the year the
turnaround time is faster. Over 95% of all claims are electronically
adjudicated.
The process of electronic point-of-sale submissions through the Medi-Claim
network of retail pharmacies is identical to the paper claims process described
above except that claims data is received electronically by Medi-Claim and
processed automatically upon receipt by Medi-Claim's management information
system. The retail pharmacy network can access Medi-Claim's processing system
seven days a week.
For those Programs which provide eligible Participants with a mail service
pharmacy feature through a third party provider, Medi-Claim provides eligibility
data directly to the mail service pharmacy, which then submits claims data to
Medi-Claim.
Medi-Claim provides its Payors with regular management reports describing
overall Program activity and utilization trends. Medi-Claim account executives
regularly analyze Payor utilization data and make recommendations for additional
opportunities for cost containment. In some cases, Medi-Claim produces
management reports which are designed to highlight unusual utilization patterns
which may indicate that clinical intervention or fraud and abuse detection may
be warranted. Medi-Claim's management reports include all Participant
prescription drug utilization resulting from use of both the network retail and
mail service pharmacies.
Medi-Claim Programs are structured to provide Payors with the ability to better
understand and control the cost of their entire pharmaceutical benefits Program.
Features of the Medi-Claim Programs include:
Flexible Plan Design. Program designs are flexible to meet the Payor's
particular benefits strategy, therapeutic effectiveness and cost
containment objectives. The Programs include incentives to encourage
Participants to use the most cost effective network retail or mail- service
dispensing location and to purchase the least expensive drug available,
including an emphasis on generic substitution. Programs are regularly
reviewed with Payors in order to target additional areas of Program
savings.
Comparison of Expected Results to Actual Activity. Medi-Claim regularly
analyzes a Program's projected savings associated with its plan design
features, the use of the Medi-Claim retail pharmacy network, and mail
service pharmacy activity relative to the costs experienced by the Payor.
If deviations from savings expectations are evident, Program modifications
are recommended.
Management Reports. The Medi-Claim database enables Medi-Claim to provide
Payors with regular detailed management reports of Program activity and
costs. The reports are designed to illustrate Program results and
opportunities for additional cost savings.
<PAGE>
Commitment to Service. Although the primary objective of Medi-Claim's
Payors is to increase therapeutic effectiveness and reduce pharmaceutical
benefit costs, Payors also require the accurate and rapid processing of
claims. Medi-Claim produces a variety of service level reports which
provide Payors with an assessment of critical claims processing success
indicators.
Mednet Integrated Prescription Benefits Programs
The Company offers Mednet integrated prescription benefits programs that combine
the cost savings and convenience of the mail service pharmacy Programs with the
Medi-Claim network-based claims administration programs. With the integrated
program, Payors can achieve cost savings compared with traditional prescription
benefits programs which lack managed care cost controls.
The Mednet integrated programs offer a variety of additional benefits which are
designed to provide increased therapeutic effectiveness and maximize cost
savings, control and increase compliance.
Convenient, user-friendly programs with a single point of service and
accountability to ensure rapid problem resolution.
Coordination of dispensing data collection and analysis from all aspects of
the benefits programs, whether generated from retail network pharmacies or
mail service pharmacy. This ensures ready access to all information
necessary to monitor program activity and develop further cost saving
strategies without relying on the coordination among third party benefits
providers.
A drug utilization review system that detects potential adverse drug
interactions, allergies, overuse and abuse in all areas of the prescription
benefits system, whether the drugs are dispensed through mail service or
through a network retail pharmacy.
Prescription dispensing policies that encourage the use of less expensive,
therapeutically equivalent generic or brand name drugs regardless of the
dispensing location.
Automated on-line administration of retail pharmacy prescription claims
that gives immediate and accurate claims review, informative utilization
data and eliminates manual review.
Regular and comprehensive management reports to provide the Payor's
benefits manager with an understanding of usage trends and costs for the
entire prescription benefits program.
Retail Pharmacy Operations.
Through Medi-Phar, the Company in 1995 derived gross sales representing
approximately 6.0% of consolidated gross sales for the Company and its
subsidiaries through the operation of the in-clinic retail pharmacies, located
in San Diego, California and Las Vegas, Nevada. Operation of the retail
pharmacies provided the Company with a working knowledge of the retail pharmacy
business which improved the Company's ability to market and develop its service,
primarily the pharmacy network and claims processing system of its subsidiary,
Medi-Claim. As the Medi-Claim network has developed, this aspect of the retail
pharmacies has become less important. The Company has determined to close five
of the retail locations in 1996.
Financial Information About Industry Segment.
The Company operates in only one industry, the administration of pharmaceutical
benefits, the sale of prescription medication and over-the-counter
pharmaceutical products and related services.
Marketing.
The Company directed its initial marketing efforts toward the Direct Payor
(individuals/members of Affinity Groups). In 1991, the Company began to expand
its marketing efforts to Third-Party Payors in order to make the Company's
services available to their insured or members. The Company has significantly
increased this emphasis by its acquisition of the Mail Rx assets, the FPA mail
pharmacy operations and the Mednet claim processing operations and has expanded
its marketing efforts to reflect the Mednet integrated Programs offered by the
Company.
The Company's mail order and claims processing programs (collectively, the
"Programs") are marketed nationally through the Company's internal sales
organization of pharmacy benefits professionals and their marketing support
staff.
<PAGE>
A significant portion of new accounts are generated by marketing Programs
through existing relationships with Payors. The remainder of new accounts are
generated by direct solicitation of corporate accounts, usually through
telemarketing, direct mail marketing, trade shows and referrals.
Revenues of the Company depend upon the extent to which its Programs are
utilized by the Payors' eligible Participants. Accordingly, the Company's
benefits professionals work with Payors' benefit managers on an ongoing basis
continually to assess utilization levels in the Programs and, where necessary,
to incorporate additional incentives, sometimes in the form of more advantageous
Program terms, to promote increased utilization among Participants.
Direct Pay Accounts.
Affinity Groups offer or endorse the Company's discount mail service pharmacy as
a benefit to their members and include information about the Company and its
services in their promotional materials, newsletters, magazines and membership
drives, but do not engage in active selling on behalf of the Company. Affinity
Group members then deal with and pay the Company directly for prescription
medications and over-the-counter pharmaceutical products and receive special
group discounts.
Third-Party Payor Accounts.
In order to facilitate growth and decrease new account acquisition costs, the
Company began in 1991 to develop a base of accounts in the Third-Party Payor
market. In June, 1991 the Company entered into a consulting agreement
("Agreement") with Irwin Jann, a marketing consultant ("Consultant"), pursuant
to which it agreed to issue warrants ("Warrants") to purchase up to 2,000,000
Common Shares at $3.00 per share. Warrants with respect to 250,000 Common Shares
were vested immediately upon signing of the Agreement. Warrants with respect to
an additional 750,000 common shares vested under the Agreement during 1994. In
addition, the Agreement provided that the Company pay to the Consultant a 1%
commission on gross sales from contracts facilitated by the Consultant. The June
1991 Consulting Agreement expired by its terms on May 31, 1994, with no
obligations by either party other than the payment of ongoing commissions.
Major Customers.
During 1995, National Insurance Services, accounted for approximately 14% of
revenue. This customer had accounted for approximately 13% of 1994 revenue.
Another customer, the City of Chicago, accounted for approximately 13% of 1995
revenue. This customer subsequently terminated its contract with the Company. On
March 8, 1996 the Company executed a contract granted in June 1995 with the
Commonwealth of Pennsylvania which management believes will result in revenues
greater than those received from the City of Chicago. No other single customer
accounted for more than 10% of 1995 revenue.
Government Regulation.
There are extensive state and federal regulations applicable to the dispensing
of prescription medications. Since sanctions may be imposed for violations of
these laws, compliance is a significant operational requirement for the Company.
The mail service prescription medication and over-the-counter pharmaceutical
business of the Company is conducted from two licensed pharmacies located in Las
Vegas, Nevada and Chicago, Illinois. The retail pharmacies are licensed in
California and Nevada. Nevada, California, and Illinois have detailed laws
governing a wide range of matters relating to the operation of pharmacies, and
the Company believes that it is in substantial compliance with these laws. The
laws include, among others, provisions requiring pharmacies and pharmacists to
be licensed, as well as provisions as to who may write and dispense the
prescriptions, how prescriptions must be filled, how prescription drugs and
controlled substances must be stored and safeguarded, and after what period of
time they must be disposed of, record retention, and generic substitution. These
requirements are issued by the California, Nevada, and Illinois Boards of
Pharmacy which are empowered to impose sanctions, including license revocation,
for noncompliance. In addition, each pharmacy and pharmacist employed by the
Company is bound by standards of professional practice.
Each state into which the Company mails pharmaceuticals also has laws and
regulations governing the operation of pharmacies and the dispensing of
prescription drugs in that state. In many cases, these statutes include
provisions which purport to regulate out-of-state mail service pharmacies that
mail drugs into that state. The regulations are administered by an
administrative body in each state (typically, a pharmacy board) which is
empowered to impose sanctions, including license revocation, for noncompliance.
In those states where it exists, state regulation of out-of-state pharmacies
essentially can be divided into three categories: disclosure, licensing and
prohibition.
<PAGE>
States with disclosure statutes generally require that out-of-state pharmacies
register with the local board of pharmacy, follow certain procedures and make
certain disclosures, but generally permit the mail service pharmacy to operate
in accordance with the laws of the state in which it is located. States with
licensing statutes generally impose the same licensing requirements and
compliance with local laws on out-of-state pharmacies as on in-state pharmacies.
The Company understands that several states currently impose licensing
requirements on out-of-state pharmacies. In addition to the Company or its
subsidiaries being duly licensed in Nevada, Illinois and South Carolina, the
Company has complied with the disclosure law and registration requirements or
the licensing law to do business as an out-of-state pharmacy in eight states and
is evaluating whether it will register in others. The Company does not have any
applications for licenses currently pending. The boards of pharmacy of certain
states do not purport to regulate out-of-state mail pharmacy services. The
Company believes that in the most recent completed fiscal year approximately
46% of its mail service sales came from states in which the Company has complied
with the disclosure or licensing laws, and that approximately 34% of its mail
service sales were for the 18 states which the Company believes do not regulate
mail service sales.
Some states have also enacted laws and regulations which, if successfully
enforced, would effectively limit some of the financial incentives available to
benefits plan sponsors that offer mail service pharmacy programs. This so-called
"freedom-of-choice" legislation generally prohibits a benefits plan sponsor from
requiring its participants to purchase prescription drugs from a single source.
The U.S. Department of Labor has opined that certain types of
"freedom-of-choice" laws and regulations are preempted by the Employee
Retirement Income Security Act of 1974 (ERISA). The Attorney General in one
state has reached a similar conclusion and has raised additional constitutional
issues. Finally, the Bureau of Competition of the Federal Trade Commission has
stated that such legislation may reduce competition and raise prices to
consumers, to the extent it impedes or prevents benefit plan sponsors from
offering programs that take advantage of the economies of scale associated with
single sourcing of pharmaceuticals from a mail service pharmacy.
There has been no formal administrative or judicial efforts to enforce any of
these laws against the Company. The Company has received inquiries from boards
of pharmacy in several states questioning whether the Company is engaged in
business in violation of their state laws. While the Company has substantially
complied with the laws in certain states, it has not complied with the laws or
regulations of all states to which it delivers pharmaceuticals. Should
enforcement of these laws be attempted, the Company believes that these laws and
regulations would be subject to challenge under the United States Constitution.
However, if the laws or regulations were to survive such a challenge, the
Company would likely be subject to penalties and, possibly, prohibitions and
additional costs which could have a material adverse effect on its mail service
pharmacy business.
<PAGE>
The Company is aware that some state boards of pharmacy are attempting to
further promote laws and regulations designed to restrict the activities of mail
service pharmacies.
In addition to the above-described laws and regulations, there are federal
statutes and regulations which establish standards for all pharmacies and
pharmacists concerning the labeling, packaging, advertising, and adulteration of
prescription drugs and the dispensing of controlled substances and prescription
drugs. Federal Trade Commission and United States Postal Service regulations
require mail order sellers to engage in truthful advertising, to stock a
reasonably supply of drugs, fill mail orders within thirty days and, if that is
impossible, to inform the consumer of his or her right to a refund. The Company
believes that it is in substantial compliance with the above requirements.
Further, the United States Postal Service has statutory authority to restrict
the transmission through the mails of drugs and medicines to a degree that could
have an adverse effect on the Company's mail service operations. To date, the
United States Postal Service has not exercised this statutory authority.
To the extent that any of the foregoing laws or regulations, existing or
proposed, prohibit or restrict the operation of mail service pharmacies and are
found to be applicable to the Company and enforceable, they could have an
adverse effect on the Company's mail pharmacy service operations as well as on
the operations of all other mail pharmacy service providers. In addition, the
Company would be required to take appropriate steps to effect compliance to
continue doing business in the states where such statutes are enforced and
non-compliance could expose the Company to the imposition of fines and penalties
which, depending upon the number of jurisdictions which impose such fines and
penalties and how they are imposed, could be material. There is no assurance
that the Company would be able to comply with the diverse and possible
contradictory laws of all such states and, consequently, the Company's
operations in such states may be impaired, interrupted or prohibited.
Despite its efforts, the Company may be unable to comply with all existing and
future regulations. Existing and future legislation could increase the Company's
operating expenses, as well as operating expenses for the entire industry. In
addition, several states impose substantial fines, penalties or criminal
sanctions for failure to comply with existing regulations. Such fines could
exceed $2,000 per day or per violation, or misdemeanor criminal charges could be
filed against the Company. The Company is not aware of any state that has
imposed, or presently intends to impose, any such fine, penalty or charge
against the Company. The Company also believes that such fines, penalties or
charges would be subject to challenge under the United States Constitution, but
is not aware of any such challenge being successfully applied to date.
While increased cost would be passed on to the ultimate subscriber, such
increased costs, if significant, would adversely affect the Company's business.
Moreover, existing and future regulations could curtail the scope of the
Company's operations should the Company choose not to conduct business in those
states where regulations have been adopted.
Competition.
The prescription drug benefit business is highly competitive. The Company's mail
pharmacy business competes for the business of Third-Party Payors and Direct
Payors. The Company's principal mail pharmacy business competitors for
Third-Party Payors are America's Pharmacy, a subsidiary of Systemed, Inc.,
National Rx, a division of Medco Containment, Caremark, and Health Care
Services, Inc., a division of Diagnostek, Inc. Third-Party Payors generally look
to service levels, lower health care costs and reputation. The Company's
principal mail pharmacy business competitors for Direct Payors include Express
Pharmacy Services, a division of Thrift Drug which is a subsidiary of J.C.
Penney, A.A.R.P., a number of smaller mail service pharmacy companies and retail
pharmacies. Individual customers generally look to price, convenience and
service. All of the above referenced entities possess substantially greater
financial, marketing and personnel resources than the Company.
The Company's prescription claims processing services compete with other
prescription drug benefit providers/processors and the larger third-party
prescription drug claims processors such as PCS, Inc., and PAID, a division of
Medco Containment. Additionally, there are numerous smaller regional claims
processors and many insurance companies also process claims in conjunction with
their underwriting of medical insurance programs, as well as for self-insured
plan sponsors.
While Management believes that the Company is competitive in its price, quality
and service taken as a whole, there can be no assurances that, as the mail
service pharmaceutical industry evolves, the Company will be able to operate
profitably given the level of competition within the industry. Moreover, the
Company cannot predict, with accuracy, the effect of unspecified, but probable
future changes in the domestic health care system currently being discussed by
the Executive and Legislative branches of the United States Government.
Medi-Phar's retail pharmacies compete with other retail pharmacies in the San
Diego, California and Las Vegas, Nevada areas with competitive factors being
location, price, product selection and service.
<PAGE>
Inventory.
The Company obtains its medications and pharmaceutical products from
approximately 30 manufacturers, distributors and wholesalers. In order to
minimize the potential risks inherent in relying on any particular supplier, the
Company attempts, whenever possible, to establish and maintain relationships
with more than one supplier of any particular product. Thus, in the event that
one source is unable to supply a needed product, or is unable to offer a
competitive price, the Company may turn to an alternative source. For certain
products, particularly brand name products, there may be only one or a limited
number of suppliers. In the event that the supply of these products becomes
limited, or the price is significantly increased, the Company believes that most
pharmacies dispensing this product will be similarly adversely affected.
The Company maintains an inventory control program such that most products in
the Company's inventory of over-the-counter, brand name and generic medications
are on the shelf 45 days or less. The inventory control program also includes a
buying schedule for products with consistent demand. The flexibility achieved as
a result of the Company's network of suppliers enables the Company to promptly
obtain products which are infrequently demanded by the Company's customers,
thereby saving the cost of keeping such products in inventory. Most suppliers
can deliver orders to the Company within 24 hours.
Product Liability.
Product liability is a major concern in the mail pharmacy business. Liabilities
may arise from possible dispensing errors, package tampering and product
defects.
The Company has taken anti-tampering precautions by utilizing layered
tamper-evidence packaging on all products it distributes, and its delivery is
made in unmarked outer packaging. These steps are designed to eliminate the
problem with tampering prior to receipt by the customer. The Company maintains a
toll-free telephone number which facilitates customer contact and enables
customers and the Company to verify prescriptions as ordered by the physician or
supplied by the Company. Additionally, the Company maintains an internal quality
control system, pursuant to which each order is checked and verified by pharmacy
personnel after it is filled and before shipping, in an effort to assure that
customers receive the exact prescribed medication.
The Company carries the type of insurance customary in the mail service and
retail pharmacy industry, including professional and product liability
insurance. The Company believes that its insurance protection is adequate for
its present business operations. However, there can be no assurance that the
amount of insurance coverage would be sufficient to cover any potential
liability claim, or that the finances of the Company could withstand the effect
of a claim in excess of its insurance coverage.
Management intends to continue such policies in effect, and provided the same is
available, may increase coverage as the Company's needs dictate. In addition,
the Company is named as an additional insured by many of its suppliers. Although
wholesale and retail pharmacies in general have not, as yet, experienced any
unusual or extraordinary difficulty in obtaining insurance at an affordable
cost, there can be no assurance that the Company will be able to maintain its
coverage in the future.
<PAGE>
Mail Pharmacy Distribution.
The Company has two mail service pharmacy and fulfillment facilities. One is
located in Las Vegas, Nevada, and the other in Chicago, Illinois. The Las Vegas
facility was designed by the Company to accommodate the Company's corporate
offices in addition to the variety of the Company's distribution operations,
including inventory storage, order processing, shipping, billing, customer
service and certain marketing and administrative functions, with a view toward
maximizing safety and efficiency.
The Company maintains a toll-free number for incoming orders. Initial customer
orders are typically received by mail. New prescriptions and refills may be
ordered by telephone. All orders are reviewed; doctors are contacted for
verification as required and prescriptions are filled on the premises by
licensed pharmacists employed by the Company. Most orders are shipped to the
customer by United States mail, United Parcel Service or other common carriers.
Payments are handled through major credit card accounts or through direct
billings.
Due to the Company's typical order processing time of less than 48 hours, the
Company had no material backlog of orders as of December 31, 1995. The Company's
business is not seasonal to any significant extent.
Employees.
As of December 31, 1995, the Company had 333 full-time employees and 24
part-time employees. Except for its executive officers (see "DIRECTORS AND
EXECUTIVE OFFICERS OF THE REGISTRANT") the Company's employees are clerical,
sales, customer service, claims processing and pharmacy related staff paid
consistent with industry standards. None of the Company's employees are covered
by a collective bargaining agreement. The Company believes that it has a good
relationship with its employees.
Forward Looking Statements.
Statements regarding the Company's expectations as to demand for its products
and services in 1996, the operating efficiencies from operation of the Home
Pharmacy business, and revenue generation from existing or future contracts and
certain other information presented in this report constitute forward looking
statements within the meaning of the Private Securities Litigation Reform Act of
1995. Although the Company believes that its expectations with respect are based
on reasonable assumptions within the bounds of its knowledge of its business and
operations, there can be no assurance that actual results will not differ
materially from its expectations. In addition to matters affecting the economy
and the Company's industry generally, factors which could cause actual results
to differ from expectations include the following:
Loss of one or more significant customers
Reduction in gross profit margins due to competitive pricing pressures
Changes in governmental regulation or failure to comply with existing regulation
Changes in the cost or availability of pharmaceuticals not reflected in
reimbursement rates from third party payors
Inability to obtain needed additional capital on terms acceptable to the Company
Inability to reduce costs while maintaining customer service
Failure to obtain new contracts, due to competitive pressures or otherwise
<PAGE>
ITEM 2. PROPERTIES.
The Company's corporate headquarters are located in Las Vegas, Nevada. The mail
service pharmacy/fulfillment centers are located in Las Vegas, Nevada and
Chicago, Illinois. The Company's claims processing operation is located in
Lemoyne, Pennsylvania. The retail pharmacies are located in San Diego,
California and Las Vegas, Nevada.
On September 15, 1995, the Company sold its building in San Diego, California
and realized a gain of $34,000.
The following chart provides more detailed information concerning the Company's
properties:
<TABLE>
Approximate Size Lease
in Sq. Ft. of Expiration
Location Facility (1) Primary Use
- -------- -------- --- -----------
<S> <C> <C> <C>
Las Vegas, Nevada 17,608 03/98 Mail Order Prescription Pharmacy,
Claims Processing Operations and
Corporate Offices
Chicago, Illinois 13,500 09/00 Mail Order Prescription Pharmacy
Lemoyne, Pennsylvania 3,337 01/02 Claims Processing Operations
Owings Mills, Maryland 6,352 08/96 Subleased
Mount Pleasant, South Carolina 2,790 01/97 Vacant
San Diego County, California (Poway) 1,100 03/99 Pharmacy
San Diego, California (Del Mar) 1,000 08/00 Pharmacy
San Diego, California (3rd Ave.) 1,100 05/00 Pharmacy
San Diego, California (Mira Mesa) 1,200 08/97 Pharmacy
San Diego, California (Plaza
Properties) 800 06/00 Pharmacy
San Diego, California (El Cajon) 1,000 NA(2) Pharmacy
San Diego, California (Gateway) 1,100 03/99 Pharmacy
Las Vegas, Nevada (East Harmon) 540 11/99 Pharmacy
Las Vegas, Nevada (East Sahara) 444 07/99 Pharmacy
<FN>
(1) Includes all renewal terms.
(2) The term of this lease is month-to-month.
</FN>
</TABLE>
For information with respect to obligations for lease rental, see Note 12 to the
Consolidated Financial Statements. The Company considers its properties to be
suitable and adequate for its present needs.
<PAGE>
ITEM 3. LEGAL PROCEEDINGS.
On or about February 23, 1995, Mark Christiansen, a purported shareholder of the
Company, served the Company with a complaint filed on January 12, 1995 in the
United States District Court for the Southern District of California against the
Company and one of its executive officers. The complaint alleged that, during
the period 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 Registrant'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 attorneys' fees.
On March 1, 1996, the parties agreed in principle to a settlement, which is
subject to various conditions including preparation of formal settlement
documents, notice to the class, and Court approval. The broad terms of the
settlement agreement reached on March 1, 1996 are as follows:
a. Without admitting liability, the defendants and the Company's
insurance carrier will pay $800,000 to the plaintiff class, in full
settlement of all claims asserted in the action. The parties will
stipulate, solely for purposes of settlement, to certification of an
appropriate class.
b. Defendants will have the right to terminate the settlement agreement
in the event that valid exclusion requests are received from class members
who, in the aggregate, purchased more than a certain percentage, which has
been agreed between the parties but is confidential, of the total shares
purchased by class members during the class period.
c. The proposed settlement has been approved by management, solely in
order to minimize the burden, inconvenience, distraction and expense of
litigation. If for any reason the settlement is not finally consummated,
management has stated that they intend to vigorously contest this action,
both with respect to the question of whether the action should proceed as a
class action, and on the merits.
The Company is not a party to any other legal proceedings which, in its belief,
could have a material adverse effect on the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the security holders during the fourth
quarter of the calendar year ending 1995.
<PAGE>
PART II
ITEM 5. MARKET FOR COMMON SHARES AND RELATED STOCKHOLDER MATTERS.
The Company's Common Shares are traded in the over-the-counter market and have
been quoted on the National Association of Securities Dealers, Inc. Automated
Quotation System (Nasdaq) since October, 1988. The following table sets forth
the range of high and low bid quotations for the Company's Common Shares as
reported by Nasdaq. The quotations set forth below reflect inter-dealer prices,
do not include retail markup, markdown or commissions, and may not necessarily
represent actual transactions.
Year Ended December 31,
------------------------------------------
1995 1994 1993
------------ ------------ -------------
Period High Low High Low High Low
------ ----- ----- ----- ----- ----- -----
1st Quarter............ $3.13 $2.13 $4.00 $2.13 $2.94 $1.81
(Jan. 1 to Mar. 31)
2nd Quarter............ 3.88 2.19 3.44 2.19 2.94 1.69
(Apr. 1 to Jun. 30)
3rd Quarter............ 3.25 2.88 4.31 2.07 5.81 1.50
(Jul. 1 to Sep. 30)
4th Quarter............ 2.88 1.81 4.00 2.75 5.31 3.00
(Oct. 1 to Dec. 31)
The number of record holders of Common Shares as of March 22, 1996, was 762.
Management estimates that the number of beneficial owners of the Company's
Common Shares is in excess of 5,000.
Holders of Common Shares are entitled to receive such dividends as may be
declared by the Company's Board of Directors after satisfaction of dividend
preferences of outstanding preferred stock. No cash dividends on the Common
Shares have been declared or paid by the Company since inception and the Company
does not anticipate that cash dividends will be paid in the foreseeable future.
The Company's revolving line of credit prohibits the payment of dividends on the
common stock without the consent of the lender. Until 1998, the terms of the
Series A preferred stock prohibit the payment of dividends on the common stock
without the consent of the Series A stockholders; thereafter consent is not
required if certain financial criteria are satisfied.
ITEM 6. SELECTED FINANCIAL DATA.
The following table summarizes certain financial data for the Company for
the years ended December 31, 1995, 1994, 1993, 1992 and 1991 and is qualified in
its entirety by the more detailed financial statements included in this report.
(See "ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.")
<TABLE>
Year Ended December 31,
1995 1994 1993 1992 1991
------------ ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Statement of Operations Data
Net Sales $114,297,000 $67,863,000 $25,224,000 $10,293,000 $ 4,204,000
Cost of Sales (98,253,000) (58,793,000) (19,504,000) (8,082,000) (3,565,000)
Gross Profit 16,044,000 9,070,000 5,720,000 2,211,000 639,000
Operating Expense
(including amortization) (26,859,000) (14,794,000) (13,185,000) (4,433,000) (2,450,000)
Reimbursement of marketing
expense by partnerships -0- -0- -0- -0- 288,000
Net other income (expense) (2,517,000) 225,000 (761,000) 82,000 (8,000)
------------ ----------- ----------- ----------- -----------
Net (loss) $(13,332,000) $(5,499,000) $(8,226,000) $(2,140,000) $(1,530,000)
============ =========== =========== =========== ===========
Net (loss) per share $ (.53) $ (.26) $ (.49) $ (.24) $ (.26)
Weighted average shares
outstanding 25,383,000 21,353,000 16,675,000 8,929,000 5,729,000
Balance Sheet Data
Working Capital $(5,138,000) $1,420,000 $ 1,310,000 $ 2,179,000 $ 1,478,000
Goodwill & other intangible
assets, net 18,582,000 9,308,000 5,406,000 1,803,000 -0-
Total Assets 41,903,000 22,317,000 13,017,000 7,271,000 3,609,000
Long-term debt less current
portion 1,422,000 595,000 952,000 835,000 400,000
Redeemable preferred stock 5,350,000 0 0 0 0
Stockholder's Equity $ 9,061,000 $11,906,000 $ 7,028,000 $ 4,814,000 $ 2,380,000
</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.
In November, 1994 the Company acquired substantially all the assets of Medical
Services Agency, Inc. (doing business as Mednet). The acquisition was accounted
for as a purchase. The Company has elected to consolidate the acquisition of
Mednet retroactively to January, 1994.
In April, 1993, the Company acquired substantially all the assets of Mail Rx.
The acquisition was accounted for as a purchase.
Note that in January and December of 1992, the Company acquired the assets now
owned by Medi-Phar and Medi-Claim, respectively. The Company has elected to
consolidate the operations of the pharmacies retroactively to January 1, 1992;
the pre-acquisition loss of $36,515 has been deducted. Results of Medi-Claim are
included for the last month of 1992.
No cash dividends have been declared or paid since inception.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
General.
The Company is in the business of administration of pharmaceutical benefits, the
sale of prescription medication and over-the-counter pharmaceutical products and
related services. The Company's principal sources of revenue are its mail order
pharmacies (58%), its claims processing operations (36%) and its retail
pharmacies (6%). The Company's primary customers are insurance companies and
other Third Party Payors, as well as individual consumers. The Company believes
that it can increase its revenues through the integration of its mail order
pharmacy and claims processing programs.
On September 15, 1995, the Company acquired substantially all of the assets of
Home Pharmacy. The acquisition was accounted for as a purchase. The Company has
elected to consolidate the operations of Home retroactively to January 1, 1995.
See Note 10 to the Consolidated Financial Statements. The addition of the Home
Pharmacy business substantially increased the Company's revenue from mail
service pharmacy and claims processing. In connection with the Home Pharmacy
acquisition, the Company established a new mail service facility in Chicago,
Illinois which also consolidated mail service fulfillment previously conducted
from Owings Mills, Maryland and Mt. Pleasant, South Carolina. The Company
recorded one time charges during 1995 related to this consolidation.
During 1994, the Company acquired FPA and substantially all of the assets of
MSA, both of which were accounted for as purchases. The Company has elected to
consolidate the operations of FPA and MSA retroactive to January 1, 1994. See
Note 10 to the Notes of the Consolidated Financial Statements.
Liquidity and Capital Resources.
Current assets increased from $11,236,000 at December 31, 1994 to $20,932,000 at
December 31, 1995. Despite this increase, working capital at December 31, 1995
was a deficit of $5,138,000 compared to a positive working capital of $1,420,000
at December 31, 1994. The decrease in working capital reflects both the short
term debt incurred to acquire Home Pharmacy and the need to finance the
increased operations, through trade accounts payable and other short term
sources, through the normal cycle of creating and collecting accounts
receivable. The Company has funded its operations and working capital
expenditures primarily from internally generated cash, proceeds from borrowings
and stock issuances.
Cash consumed in operating activities was $3,547,000 in 1995 compared to
$4,370,000 in 1994. The cash consumed was primarily the result of the Company's
loss from operations. Cash consumed in investing activities in 1995
($11,206,000) was primarily used for the Home Pharmacy acquisition and upgrades
to computer hardware and software to integrate the Home Pharmacy acquisition
with the existing mail order pharmacy business. The cash used in operations and
investing activities was provided principally through sales of common and
preferred stock.
<PAGE>
In connection with the Home Pharmacy acquisition, the Company issued an Interim
Note in the principal amount of $2,500,000 and a Holdback Note in the principal
amount of $4,650,000 to Arc. At December 31, 1995 the notes are reflected net of
the market value of the escrowed shares. See Note 10 to the Consolidated
Financial Statements. The Interim Note was paid in full in the first quarter of
1996. The Holdback Note is due in October, 1996, subject to acceleration in the
event of default. The Holdback Note was modified subsequent to the initial
closing to remove contingencies based on future performance of the acquired
business. Commencing in June, 1996, Arc can sell up to
270,000 of the Collateral Shares each month to prepay the Holdback Note. If the
Company is unable to obtain funds from the issuance of equity or debt or from
operations to pay the balance of the Holdback Note remaining after such
prepayments, management expects Arc will sell all or a portion of the remaining
Collateral Shares to pay the Holdback Note when it comes due. The Company does
not have firm commitments for such financing.
The Company does not currently have any plans for material capital commitments
in 1996. The Company may require additional capital from outside sources (such
as equity offerings) to supplement its working capital position. During the
first quarter of 1996, the Company raised $2,000,000 from the sale of Series C
Preferred Stock to a foreign investor. The Company continues to discuss
potential sources of equity capital with investment bankers and believes it will
obtain additional working capital from these sources if necessary. There is
no assurance that it will be able to do so.
On December 27, 1995 the Company obtained a working capital revolving line of
credit in the maximum principal amount of $20,000,000 from Foothill Capital
Corporation ("Foothill"). The line of credit is secured by inventory, accounts
receivable and substantially all other assets of the Company. The maximum
principal amount of the line was intended to accommodate growth of the Company
over the five year term of the Foothill agreement. The amount of actual advances
received under the line at any point in time is limited by the value of
inventory and accounts which qualify as collateral As of March 15, 1996, the
outstanding balance of the Foothill line was $8,924,000, which management
believes is substantially the maximum which could have been drawn on such date.
Advances under the line bear interest at a prime rate plus 1.5%. While the line
of credit is outstanding, the Company is prohibited from paying dividends on its
common stock and from taking certain other extraordinary actions without the
consent of Foothill. In March 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 has also agreed to adjust the covenants for future
periods effective March 31, 1996. If the Company becomes out of covenant in the
future, there can be no assurance that Foothill will again waive compliance. See
Note 2 to the Consolidated Financial Statements.
Commencing at the end of the fourth quarter of 1995, the Company determined to
increase the efficiency of its operations by attempting to sell five of the
Medi-Phar retail outlets and by consolidating the South Carolina distribution
facility with the new Chicago operation. Although the retail outlets have been
contributing approximately $2,300,000 of annual net sales, certain of the
outlets have been operating at a loss and are being sold. The consolidation of
the South Carolina facility is not expected to affect net sales, but should
result in lower costs.
Subsequent to the end of the fiscal year, the Company and its insurance carrier
reached a preliminary settlement on the shareholder class action suit described
at Legal Proceedings. If approved by the court and accepted by the plaintiff
class, the settlement will remove a financial uncertainty and will allow
management to avoid the distractions of fighting litigation. In the fourth
quarter of 1995, the Company reserved its anticipated share of the settlement
amount and related defense costs.
Results of Operations.
<PAGE>
The following table sets forth certain financial data as a percentage of net
sales for the periods presented:
Percent of Sales
---------------------------------------
For the Years Ended December 31,
---------------------------------------
1995 1994 1993
--------- ---------- ---------
Net sales 100.0% 100.0% 100.0%
Cost of sales (86.0) (86.6) (77.3)
Selling, general and
administrative expenses
(excluding amortization,
merger expenses and
restructure provisions) (15.2) (21.8) (52.3)
Earnings (loss) before
income taxes, depreciation
and amortization
(EBITDA) (1.2) (4.9) (12.3)
Operating loss (9.5) 8.4 (29.6)
Other income (expense),
net (2.2) 0.3 (3.0)
------ ----- ------
Net loss (11.7) (8.1) (32.6)
====== ===== ======
- --------------------
On April 1, 1994, Medi-Claim assumed the obligation for payments to members of
Med-Claim's pharmacy network. Prior to April 1, 1994, Medi-Claim was only
obligated to the extent payment was received from the sponsoring organization.
This step was taken to standardize Medi-Claim's procedures with trends in the
industry. As a result of this change, subsequent to April 1, 1994 the Company
presents the sales and cost of sales as well as the related accounts receivable
and accounts payable in its consolidated financial statements for prescriptions
filled at participating network pharmacies by insureds covered under pharmacy
plans offered by Medi-Claim's clients, the sponsoring organizations. The effect
of this change was to increase reported revenue by approximately $16,000,000
compared to previous reporting. If the change had occurred at the beginning of
1994, an additional approximately $4,000,000 of revenue would have been reported
in 1994.
1995 Compared With 1994. On September 15, 1995, the Company acquired the assets
of Home Pharmacy from ArcVentures, Inc. The acquisition was 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 with a single line item to subtract the profit of the
acquired business for periods prior to acquisition.
Primarily as a result of the Home Pharmacy acquisition, consolidated net sales
for the year ended December 31, 1995 increased 68% over the prior year
($114,297,000 in 1995 compared to $67,863,000 in 1994). The increase in sales
includes $30,629,000 from pre-acquisition operations of Home Pharmacy in 1995.
Approximately $4,000,000 of the increase results from the Medi-Claim contract
changes discussed above. The remainder of the increase represents operation of
the Home Pharmacy business by the Company. Although the Company has determined
to reduce its retail pharmacy operations, the impact on future revenues for the
Company as a whole is not expected to be significant. 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.
<PAGE>
Costs of sales for 1995 were approximately 86.0% of sales compared to 86.6% in
1994. As the industry has continued its consolidation to fewer, but larger,
participants, competitive pressures to obtain customers has increased. This has
led to pricing pressures and lowered gross margins for the industry generally.
The slight increase in margin for 1995 compared to 1994 is not considered by
management to be significant, and will likely be offset in the future by pricing
pressures. Gross margins for the retail pharmacy sector have historically been
higher than for the mail service and PBM business. Increased pressure from large
retail chains are eroding margins for in clinic retail pharmacies. Management
therefore does not anticipate that future reductions in retail revenue will
significantly affect the Company's overall gross margin.
The contract with the third-party payor or affinity group for the provision of
mail service pharmacy services typically establishes a formula for determining
the price of prescriptions filled under the contract. Although each contract is
separately negotiated, typically the pricing is based on the published average
wholesale price ("AWP") or other standard cost reference of the drug dispensed,
plus or minus a specified percentage, plus a fixed dispensing fee per
prescription. The Company believes such pricing structure is typical in the
industry. The pricing formula allows the Company to pass onto its customers
increases in the AWP of prescribed drugs. The Company typically could not
renegotiate the contract to increase its dispensing fee or the percentage of AWP
charged except in connection with the annual renewal of the contract.
Expenses for salaries and benefits were 7.5% of sales ($8,617,000) in 1995
compared to 7.7% of sales ($5,214,000) in 1994. The efficiencies expected from
the Company's operation of the Home Pharmacy business which were implemented in
the fourth quarter of 1995 and the first quarter of 1996 will begin to be
reflected in 1996.
Marketing and advertising expenses decreased slightly in dollar amount
($1,064,000 in 1995 from $1,296,000 in 1994) and therefore decreased as a
percentage of sales to 0.9% from 1.9%. The decrease in marketing expenses
reflects the Company's operating efficiencies and the economies of scale
resulting in part from the Home Pharmacy acquisition.
Other administrative expenses including provisions for doubtful accounts were
$7,691,000 or 6.7% of sales in 1995 compared to $5,889,000 or 8.6% of sales in
1994. The decrease in these expenses as a percentage of revenue reflects
efficiencies and cost cutting actions implemented by management as well as
economies of scale. Other administrative expenses for the fourth quarter of 1995
were unusually high due to transition costs of consolidating the Home Pharmacy
operations into the Company, the reserve for the class action litigation
settlement and an increased bad debt reserve.
Depreciation and amortization for 1995 was $8,884,000 or 7.8% of sales compared
to $2,395,000 or 3.5% of sales in 1994. The increase in amortization for in 1995
reflects approximately $2,744,000 of amortization of the Home Pharmacy assets
and intangibles. The Home Pharmacy acquisition allowed the Company to
consolidate the Owings Mills and Mt. Pleasant operations in the new Chicago
facility. This consolidation and the planned reduction in retail operations
resulted in the accelerated amortization in 1995 of approximately $3,663,000 of
intangibles related to the FPA, MailRx and Medi-Phar acquisitions.
Earnings (loss) before income taxes, depreciation and amortization and
restructuring and merger related expenses (EBITDA) were a loss of $1,328,000 in
1995 compared to a loss of $3,329,000 in 1994. During the first nine months of
1995, the Company had earned an EBITDA profit of $1,294,000. The Company
attributes the EBITDA loss for the year principally to the class action
litigation ($350,000) as well as increases in fourth quarter 1995 expenses
including a substantial increase in the bad debt reserve for the approximately
$8,000,000 of the accounts receivable generated since the acquisition by Home
Pharmacy customers with whom the Company had no prior credit history. In
addition, in the fourth quarter the Company incurred non-recurring expenses
related to integrating the new Chicago operations into the Company and
consolidating the Mt. Pleasant operations into Chicago.
<PAGE>
The Company recorded merger related expenses of $250,000 in 1995, primarily
consisting of increased shipping costs incurred to maintain Home Pharmacy
delivery schedules during the transition to the new Chicago facility. The
Company also recorded $353,000 of restructure charges relating to the decision
to phase out the retail stores ($199,000) and consolidate the Mt. Pleasant
facility into Chicago ($154,000). With these items, operating loss for 1995 was
$10,815,000 compared to an operating loss of $5,724,000 in 1994.
Interest on debt incurred in connection with the Home Pharmacy acquisition
contributed to the 1995 interest expenses of $1,273,000 compared to interest
expense of $310,000 for 1994. It should be noted that interest expense does not
include dividends paid on preferred stock issued in connection with the Home
Pharmacy acquisition.
1994 as Compared with 1993. Consolidated net sales for the year ended December
31, 1994 increased 169% over the prior year ($67,863,000 in 1994 compared to
$25,224,000 in 1993) with a consolidated loss of $5,499,000 compared to a loss
of $8,226,000 in the prior year. The increase in sales was attributable to
acquisitions, including the June 1994 acquisition of FPA, the acquisition of MSA
in November 1994. In addition, $16,119,000 of claims processing revenue and
costs of sale in 1994 was attributable to contractual amendments entered into by
Medi-Claim described above.
Costs of sales increased as a percentage of net sales from 77.3% in 1993 to
86.6% in 1994. The increase in cost of sales was primarily due to the changing
mix in the Company's sales and the inclusion of Medi-Claim sales, which had a
lower gross margin in 1994 due to the contractual amendments.
Expenses for salaries and benefits increased to $5,214,000 in 1994 from
$4,401,000 in 1993, but declined as a percentage of sales to 7.7% from 17.4%.
This reflects the addition of the FPA and Mednet operations and addition of
other personnel consistent with increased volume. The 1993 salaries and benefits
include $766,000 of Common Shares and cash paid to the President to obtain the
release of certain potential future severance benefits. Similarly, other
selling, general and administrative expenses rose in dollar amount, but declined
as a percentage of sales.
The $2,395,000 depreciation and amortization expense in 1994 compared to
$4,354,000 in 1993 related to primarily intangible assets acquired in connection
with acquisitions.
During May 1993, the Company entered into an agreement with former owners of the
retail pharmacies purchased during 1992 to induce them to convert the
outstanding balance of the convertible note payable into Common Shares of the
Company. The Agreement provided for the issuance of 249,130 Common Shares having
a market value at the time of $560,542 in satisfaction of the $747,000 balance
of the note payable. In addition, the Company agreed that until such time as the
shares issued on conversion were registered, the Company would continue to make
principal and interest payments to the note holders in accordance with the
original terms of the notes. The conversion terms of the notes had provided that
the note holders, at their option, could convert the outstanding balance of the
notes into Common Shares of the Company at a price of $5.00 per share.
Generally accepted accounting principles as prescribed in Statement of Financial
Accounting Standards No. 84 "Induced Conversions of Convertible Debt" ("SFAS
84") requires recognition of an expense equal to the fair value of the
additional securities or other consideration issued to induce conversion. SFAS
84 is applicable to such transactions regardless of whether, as was the fact
here, the total value of the securities issued on conversion was less than the
balance of the debt. As a result of the transaction and the application of SFAS
84, the Company recorded debt conversion expense of $224,000 in 1993 with an
increase to paid in capital of an equal amount and $203,000 in 1994. The expense
in 1994 represented interest and principal paid on the note in 1994 prior to
registration of the shares issued on conversion.
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The financial statements, supplementary data and report of independent public
accountants are filed as part of this report on pages F-1 through F-27.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL STATEMENT DISCLOSURE.
Effective April 19, 1994, the Company dismissed Price Waterhouse ("Price") as
its certifying accountant. Price's reports on the Company's financial statements
for the years ended December 31, 1993, 1992 and 1991 did not contain an adverse
opinion or a disclaimer of opinion and were not qualified as to uncertainty,
audit scope, or accounting principles.
The Company's audit committee and board of directors unanimously approved
dismissal of Price.
During the Company's three fiscal years ended December 31, 1993, 1992 and 1991
and the interim period subsequent to December 31, 1993, there were no
disagreements, as defined in Regulation S-K Item 304, with Price on any matter
of accounting principles or practices, financial statement disclosure, or
auditing scope or procedure, which disagreements would have caused Price to make
a reference to the subject matter of the disagreement in connection with its
reports.
On April 18, 1994, the company engaged McGladrey & Pullen, L.L.P. to perform its
audits and provide various accounting services thereafter. The Company and
McGladrey & Pullen, L.L.P. did not consult prior to such date regarding any
reportable matter.
There are no other changes in and disagreements on accounting and financial
statement disclosure.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Information regarding executive officers and the directors of the Company and
Management's compliance with Section 16(a) of the Securities Exchange Act of
1934, as amended, appears under the sections "Executive Officers", "Election of
Directors" and "Compliance with Section 16(a) of the Securities Exchange Act of
1934" in the Company's Proxy Statement to be filed within 120 days after
December 31, 1995 with the Securities and Exchange Commission relating to the
Company's Annual Meeting of Stockholders and is incorporated herein by reference
thereto.
ITEM 11. EXECUTIVE COMPENSATION.
Information regarding the compensation of the Company's executives appears under
the section "Management Compensation" in the Company's Proxy Statement to be
filed within 120 days after December 31, 1995 with the Securities and Exchange
Commission relating to the company's Annual Meeting of Stockholders and is
incorporated herein by reference thereto.
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
Information regarding beneficial security ownership of the Company's equity
securities appears under the sections "Options to Purchase Securities" and
"Security Ownership of Directors, Nominees and Principal Security Holders" in
the Company's Proxy Statement to be filed within 120 days after December 31,
1995 with the Securities and Exchange Commission relating to the Company's
Annual Meeting of Stockholders and is incorporated herein by reference thereto.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Information regarding certain relationships and related transactions appears
under the section "Transactions With Related Parties" in the Company's Proxy
Statement to be filed within 120 days after December 31, 1995 with the
Securities and Exchange Commission relating to the Company's Annual Meeting of
Stockholders and is incorporated herein by reference thereto.
[Remainder of page left intentionally blank]
<PAGE>
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) INDEX TO FINANCIAL STATEMENTS AND SUPPLEMENTAL SCHEDULES
Page No.
Title of Documents
Report of Independent Accountants.......................................
Consolidated Balance Sheets at December 31, 1995 and 1994...............
Consolidated Statements of Operations for the years
ended December 31, 1995, 1994 and 1993 ..............................
Consolidated Statements of Stockholders' Equity for
the years ended December 31, 1995, 1994 and 1993.....................
Consolidated Statements of Cash Flows for the years
ended December 31, 1995, 1994 and 1993 ..............................
Notes to Consolidated Financial Statements..............................
Financial Statement Schedules:
For the three years ended December 31, 1995:
Report of Independent Accountants on the Schedule........................
Schedule II - Valuation and Qualifying Accounts........................
All other schedules are omitted because they are not applicable or the required
information is shown in the financial statements or the notes thereto.
(b) Reports on Form 8-K
During the fourth quarter of the fiscal year ended December 31, 1995, the
Company filed an amendment to its Current Report on Form 8-K, dated September
15, 1995. The Form 8-K reported the acquisition of the Home Pharmacy assets
and included financial statements of Home Pharmacy. Subsequent to the fiscal
year end, the Company filed Amendment No. 2 to this Form 8-K. The Company
filed no other report on Form 8-K during the fourth quarter of its fiscal
year ended December 31, 1995.
<PAGE>
(c) Exhibits
The following documents are included as exhibits to this report.
Exhibit
Number Description
3.1 Articles of Incorporation of the Company as filed September 17, 1985
with the Secretary of State of the State of Nevada.(1)
3.1.1 Amendment to the Articles of Incorporation of the Company as filed
April 8, 1988 with the Secretary of State of the State of Nevada.(1)
3.1.2 Amended and Restated Articles of Incorporation of the Company as filed
May 20, 1988 with the Secretary of State of the State of Nevada.(1)
3.1.3 Second Amended and Restated Articles of Incorporation of the Company,
as filed May 19, 1989 with the Secretary of State of the State of
Nevada.(2)
3.1.4 Certificate of Amendment to Articles of Incorporation of the Company
as filed March 2, 1990 with the Secretary of State of the State of
Nevada.(3)
3.1.5 Certificate of Amendment to Articles of Incorporation of the Company
as filed December 15, 1993 with the Secretary of State of the State of
Nevada.(3)
3.1.6 Certificate of Amendment to Articles of Incorporation of the Company
as filed November 9, 1994.(4)
3.1.7 Certificate of Amendment to Articles of Incorporation of the Company
as filed June 29, 1995.(4)
3.2.1 Certificate of Designation of the 10% Series A Convertible
Exchangeable Preferred Stock (13).
3.2.2 Certificate of Designation Series B-1 Preferred Shares.*
3.2.3 Certificate of Designation Series B-2 Preferred Shares.*
3.2.4 Certificate of Designation Series B-3 Preferred Shares.*
3.2.5 Certificate of Designation Series C Preferred Shares.*
3.3.1 By-laws.(1)
3.3.2 Amended and Restated By-laws.(3)
3.3.3 Certificate of Amendment to Amended and Restated By-laws dated January
27, 1992.(3)
3.3.4 Second Amended and Restated By-laws.(4)
4.1 Specimen certificate for Common Shares, $.001 par value per share.(1)
4.2 Form of Underwriter's Warrant.(1)
<PAGE>
Exhibit
Number Description
10.1 1988 Incentive Stock Option Plan.(2)
10.1.1 1992 Amended and Restated Incentive Stock Option Plan.(5)
10.1.2 Amendment No. 1 to 1992 Amended and Restated Incentive Stock Option
Plan.(3)
10.2 1988 Nonqualifying Stock Option Plan.(2)
10.2.1 1992 Amended and Restated Nonqualifying Stock Option Plan.(5)
10.2.2 Amendment No. 1 to 1992 Amended and Restated Nonqualifying Stock
Option Plan.(3)
10.3 Employment Agreement between the Company and M.B. Merryman, dated
May 1, 1992.(5)
10.3.1 First Amendment to Employment Agreement between the Company and M.B.
Merryman, dated as of September 12, 1993.(3)
10.4 Letter Agreement between the Company and Gordon Summer dated
March 13,1992.(5)
10.5 Sublease between the Company and Rocky Mountain Bank Note company
dated March 9, 1992.(5)
10.6 Asset Purchase Agreement between the Company, Medi-Claim, Inc., and
Avesis, Incorporated, dated December 30, 1992.(5)
10.7 Purchase and Sale Agreement between the Company, Medi-Phar, Inc. and
Medco Drugs, dated January 17, 1992.(6)
10.8 Agreement between Avesis, Incorporated and National Insurance
Services, Inc. dated September 1, 1992 acknowledging that the Company
is to provide mail pharmacy services.(5)
10.9 Pharmaceutical Services Agreement between Union Labor Life Insurance
company and the Company, effective March 1, 1992.(5)
10.10 Specimen form of Indemnification Agreement between the Company and all
of its officers and Directors, signed in 1992 (5).
10.11 Asset Purchase Agreement between the Company and G.B.K., Inc. d/b/a
Mail Rx, dated April 15, 1993. (8)
10.12 Consultant Agreement by and between the Company and Irwin G. Jann &
Associates, P.C., dated June 1, 1994. (9)
10.13 Share Exchange Agreement by and among Family Pharmaceuticals of
America, Inc. ("FPA"), the former stockholders of FPA and the Company,
dated June 30, 1994. (10)
10.14 Agreement and Plan of Reorganization by and among Medical Service
Agency, Inc. (doing business as Mednet), Med-Claim, Inc. and the
Company, dated November 19, 1994. (11)
10.15 Employment Agreement between the Company and David L. Dalton, dated
November 9, 1994. (4)
10.16 Asset Purchase Agreement between the Company and ArcVentures, Inc.
(Home Pharmacy) (13)
10.17 Foothill Revolving Loan Agreement (14)
<PAGE>
Exhibit
Number Description
21.1 Subsidiaries of the Registrant.
23.1 Consent of McGladrey & Pullen, L.L.P., independent public accountants
of the Company.*
27.1 Financial Data Schedule*
99.1 Complaint, Mark Christiansen v. Medi-Mail, Inc. et al., Civil No.
940052B(LSP), filed January 12, 1995 (S.D. Calif.).(12)
* Filed herewith
(1) Pursuant to Rule 12b-32, this exhibit is incorporated herein by reference
to the exhibits filed with respect to the Company's Registration Statement
on Form S-18, as amended, originally filed on May 3, 1988, Registration No.
33-21599.
(2) Pursuant to Rule 12b-32, this exhibit is incorporated herein by reference
to the exhibits filed with respect to the Company's Registration Statement
on Form S-1, as amended, originally filed on December 22, 1988,
Registration No.
33-26282.
(3) Pursuant to Rule 12b-32, this exhibit is incorporated herein by reference
to the exhibits filed with respect to the Company's current report on Form
10-K for the period ended December 31, 1993.
(4) Pursuant to Rule 12b-32, this exhibit is incorporated herein by reference
to the exhibits filed with respect to the Company's current report on Form
10-K for the period ended December 31, 1994.
(5) Pursuant to Rule 12b-32, this exhibit is incorporated herein by reference
to the exhibits filed with respect to the Company's annual report on Form
10-K for the period ended December 31, 1992.
(6) Pursuant to Rule 12b-32, this exhibit is incorporated herein by reference
to the exhibits filed pursuant to Item 7(c) of the Company's current report
on Form 8-K dated January 31, 1992.
(7) Pursuant to Rule 12b-32, this exhibit is incorporated herein by reference
to the exhibits filed pursuant to Item 7(c) of the Company's current report
on Form 8-K dated October 14, 1988.
(8) Pursuant to Rule 12b-32, this exhibit is incorporated herein by reference
to the exhibits filed pursuant to Item 2 of the Company's current report on
Form 8-K dated April 30, 1993.
(9) Pursuant to Rule 12b-32, this exhibit is incorporated herein by reference
to the exhibits filed pursuant to Item 5 of the Company's current reports
on Form 8-K, dated April 28, 1994.
(10) Pursuant to Rule 12b-32, this exhibit is incorporated herein by reference
to the exhibits filed pursuant to Item 2 of the Company's current report
on Form 8-K and Form 8-K/A, dated June 30, 1994.
(11) Pursuant to Rule 12b-32, this exhibit is incorporated herein by reference
to the exhibits filed pursuant to Item 2 of the Company's current report
on Form 8-K and Form 8-K/A, dated November 19, 1994.
(12) Pursuant to Rule 12b-32, this exhibit is incorporated herein by reference
to the exhibits filed pursuant to Item 2 of the Company's current report
on Form 8-K, dated February 23, 1995.
(13) Pursuant to Rule 12b-32, this exhibit is incorporated herein by reference
to the exhibits filed with the Company's current report on Form 8-K, dated
September 15, 1995.
(14) Pursuant to Rule 12b-32, this exhibit is incorporated herein by reference
to the exhibits filed with respect to the Company's Registration Statement
of Form S-1, as amended, originally filed on January 31, 1996.
<PAGE>
SIGNATURE
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.
MEDNET, MPC CORPORATION
Dated: April 1, 1996 By: /s/ M.B. Merryman
---------------------------
M.B. Merryman, President
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report
has been signed by the following persons on behalf of the Registrant and in the
capacities and on the dates indicated.
Signature Title Date
/s/ M.B. Merryman Principal Executive Officer, April 1, 1996
- --------------------------- President and Director
M.B. Merryman
/s/ Thomas Warren Principal Financial Officer, April 1, 1996
- --------------------------- Principal Accounting Officer
Thomas Warren
/s/ Leo T. McCarthy Director April 1, 1996
- ---------------------------
Leo T. McCarthy
/s/ Byron S. Georgiou Director April 1, 1996
- ---------------------------
Byron S. Georgiou
Director
- ---------------------------
Dr. Sol Lizerbram
Director
- ---------------------------
Edward F. Heil
/s/ Lincoln R. Ward Director April 1, 1996
- ---------------------------
Lincoln R. Ward
Director
- ---------------------------
Edward T. Hanley, Jr.
/s/ Matthew C. Strauss Director April 1, 1996
- ---------------------------
Matthew C. Strauss
/s/ Robert W. Quick Director April 1, 1996
- ---------------------------
Robert W. Quick
Director
- ---------------------------
Steven F. Mayer
<PAGE>
MEDNET, MPC CORPORATION
AND SUBSIDIARIES
CONSOLIDATED FINANCIAL REPORT
DECEMBER 31, 1995
<PAGE>
CONTENTS
INDEPENDENT AUDITOR'S REPORT
- ----------------------------------------------------------------------------
CONSOLIDATED FINANCIAL STATEMENTS
Consolidated balance sheets
Consolidated statements of operations
Consolidated statements of stockholders' equity
Consolidated statements of cash flows
Notes to consolidated financial statements
- ----------------------------------------------------------------------------
INDEPENDENT AUDITOR'S REPORT ON THE SCHEDULE
- ----------------------------------------------------------------------------
Valuation and qualifying accounts - Schedule II
- ----------------------------------------------------------------------------
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
Mednet, MPC Corporation
Las Vegas, Nevada
We have audited the accompanying consolidated balance sheets of Mednet, MPC
Corporation and Subsidiaries as of December 31, 1995 and 1994, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
each of the three years in the period ended December 31, 1995. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Mednet, MPC
Corporation and subsidiaries as of December 31, 1995 and 1994, and the results
of their operations and their cash flows for each of the three years in the
period ended December 31, 1995, in conformity with generally accepted accounting
principles.
/s/ McGladrey & Pullen, LLP
---------------------------
Las Vegas, Nevada
March 8, 1996, except for Note 6
as to which the date is March 27, 1996
<PAGE>
MEDNET, MPC CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 1995 and 1994
<TABLE>
ASSETS 1995 1994
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Current Assets
Cash ......................................................................... $ 42,000 $ 1,711,000
Accounts receivable (Notes 3 and 6) .......................................... 17,798,000 8,087,000
Inventories (Note 6) ......................................................... 2,849,000 1,334,000
Other current assets ......................................................... 243,000 104,000
--------------------------
Total current assets .............................................. 20,932,000 11,236,000
Property and equipment, net (Notes 4 and 6) ..................................... 1,532,000 1,184,000
Intangible assets, net (Note 5) ................................................ 18,582,000 9,308,000
Other assets .................................................................... 857,000 589,000
--------------------------
$41,903,000 $ 22,317,000
==========================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Revolving line of credit (Note 6) ............................................ $ 3,709,000 $ 0
Current portion of long-term debt (Note 6) ................................... 2,739,000 2,258,000
Accounts payable ............................................................. 17,483,000 6,545,000
Accrued expenses ............................................................. 2,139,000 1,013,000
--------------------------
Total current liabilities ......................................... 26,070,000 9,816,000
--------------------------
Long-Term Debt (Note 6) ......................................................... 1,422,000 595,000
--------------------------
Redeemable convertible preferred stock, Series A, $.01 par value, 10% annual
dividends, 2,000,000 shares authorized for all series of preferred stock,
267,500 issued and outstanding,
stated at redemption value (Note 8) .......................................... 5,350,000 0
--------------------------
Commitments and Contingencies (Notes 10 and 12)
Stockholders' Equity (Notes 8, 9, 10, 13 and 15)
Common stock: $.001 par value; 42,000,000 shares authorized,
29,149,118 and 23,797,747 issued and outstanding
at December 31, 1995 and 1994 ............................................. 29,000 24,000
Additional paid-in capital ................................................... 42,778,000 32,138,000
Accumulated deficit .......................................................... (33,746,000) (20,256,000)
--------------------------
Total stockholders' equity ........................................ 9,061,000 11,906,000
--------------------------
$41,903,000 $ 22,317,000
===========================
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
MEDNET, MPC CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Years Ended December 31, 1995, 1994 and 1993
<TABLE>
1995 1994 1993
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Sales (Notes 10, 11 and 16) $ 114,438,000 $ 67,985,000 $ 25,370,000
Less sales discounts and allowances 141,000 122,000 146,000
-----------------------------------------------
Net sales 114,297,000 67,863,000 25,224,000
Cost of sales (Note 11) 98,253,000 58,793,000 19,504,000
-----------------------------------------------
Gross profit 16,044,000 9,070,000 5,720,000
-----------------------------------------------
Selling, general and administrative expenses:
Salaries and benefits 8,617,000 5,214,000 4,401,000
Marketing and advertising 1,064,000 1,296,000 962,000
Provision for doubtful accounts 1,197,000 706,000 290,000
Other administrative expenses 6,494,000 5,183,000 3,178,000
-----------------------------------------------
Total selling, general and
administrative expenses 17,372,000 12,399,000 8,831,000
-----------------------------------------------
Depreciation and amortization (Note 5) 8,884,000 2,395,000 4,354,000
Restructuring expenses (Note 14) 353,000 0 0
Merger related expenses (Note 14) 250,000 0 0
-----------------------------------------------
Operating loss (10,815,000) (5,724,000) (7,465,000)
-----------------------------------------------
Other income (expense):
Interest expense (1,273,000) (310,000) (250,000)
Subsidiary operations for period not owned
(Note 10) (982,000) 517,000 0
Loss on disposal of property and equipment (335,000) 0 (313,000)
Debt conversion expense 0 (203,000) (224,000)
Other, net 73,000 221,000 26,000
-----------------------------------------------
Total other income (expense) (2,517,000) 225,000 (761,000)
-----------------------------------------------
Net loss $ (13,332,000) $ (5,499,000) $ (8,226,000)
==============================================
Net loss per common share $ (0.53) $ (0.26) $ (0.49)
==============================================
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
MEDNET, MPC CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years Ended December 31, 1995, 1994 and 1993
<TABLE>
Class B Class B
Common Stock Common Stock Preferred Stock Additional Stock-
------------------ ------------------ ----------------- Paid-In Accumulated holders'
Shares Amount Shares Amount Shares Amount Capital Deficit Equity
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1992 ....... 9,812,339 $10,000 162,000 $ 0 $ 0 $ 0 $11,335,000 $ (6,531,000) $4,814,000
Conversion of Class B common stock
to common stock ................. 161,501 0 (162,000) 0 0 0 0 0 0
Exercise of warrants and options for
common stock .................... 571,469 1,000 0 0 0 0 717,000 0 718,000
Common stock issued in private
placement 8,610,798 9,000 0 0 0 0 8,251,000 0 8,260,000
Common stock issued as a result of
conversion of note payable to
equity (Note 6) ................. 249,130 0 0 0 0 0 971,000 0 971,000
Common stock issued in exchange for
services and buyout of a
commission agreement (Note 13) .. 219,410 0 0 0 0 0 787,000 0 787,000
Stock issuance costs ............... 0 0 0 0 0 0 (296,000) 0 (296,000)
Net loss ........................... 0 0 0 0 0 0 0 (8,226,000) (8,226,000)
-----------------------------------------------------------------------------------------------
19,624,647 $ 20,000 0 $ 0 0 $ 0 $21,765,000 $(14,757,000) $ 7,028,000
===============================================================================================
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
MEDNET, MPC CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years Ended December 31, 1995, 1994 and 1993
<TABLE>
Class B Series B
Common Stock Common Stock Preferred Stock Additional Stock-
------------------ --------------- --------------- Paid-In Accumulated holders'
Shares Amount Shares Amount Shares Amount Capital Deficit Equity
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1993 .......... 19,624,647 $20,000 0 $ 0 0 $ 0 $21,765,000 $(14,757,000) $ 7,028,000
Common stock issued in exchange for
services, buyout of a commission
agreement, termination of marketing
partnerships and exercise of
warrants and options (Note 13) ..... 273,100 0 0 0 0 0 489,000 0 489,000
Common stock issued in private ......... 1,900,000 2,000 0 0 0 0 5,421,000 0 5,423,000
placements
Stock issuance costs ................... 0 0 0 0 0 0 (235,000) 0 (235,000)
Common stock issued in the acquisition
of FPA (Note 10) ....................... 400,000 0 0 0 0 0 2,000,000 0 2,000,000
Common stock issued in the acquisition
of Mednet (Note 10) ................. 1,600,000 2,000 0 0 0 0 2,698,000 0 2,700,000
Net loss ............................... 0 0 0 0 0 0 0 (5,499,000) (5,499,000)
------------------------------------------------------------------------------------------
23,797,747 $24,000 0 $ 0 0 $ 0 $32,138,000 $(20,256,000 $11,906,000
===========================================================================================
</TABLE>
<PAGE>
MEDNET, MPC CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years Ended December 31, 1995, 1994 and 1993
<TABLE>
Common Stock Common Stock Preferred Stock Additional Stock-
------------------ ------------- ------------------ Paid-In Accumulated holders'
Shares Amount Shares Amount Shares Amount Capital Deficit Equity
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1994 23,797,747 $24,000 0 $ 0 0 $ 0 $32,138,000 $(20,256,000) $11,906,000
Common stock issued in exchange
for services and exercise of
warrants and options (Note 10) 432,623 0 0 0 0 0 327,000 0 327,000
Common stock issued as reduction
of debt 1,774,099 2,000 0 0 0 0 4,833,000 0 4,835,000
Preferred stock issued in private
placements 0 0 0 0 100,000 2,000,000 0 0 2,000,000
Warrants issued in exchange for
services 0 0 0 0 0 0 14,000 0 14,000
Common stock issued in private
placements 2,111,000 2,000 0 0 0 0 4,721,000 0 4,723,000
Series B Preferred stock
conversion to common stock 1,033,649 1,000 0 0 (100,000) (2,000,000) 1,999,000 0 0
Preferred stock dividends 0 0 0 0 0 0 0 (158,000) (158,000)
FPA acquisition shortfall payments
(Note 10) 0 0 0 0 0 0 (957,000) 0 (957,000
Stock issuance costs 0 0 0 0 0 0 (297,000) 0 (297,000)
Net loss 0 0 0 0 0 0 0 (13,332,000) (13,332,000)
------------------------------------------------------------------------------------------------
Balance at December 31, 1995 29,149,118 $29,000 0 $ 0 0 $ 0 $42,778,000 $(33,746,000) $ 9,061,000
================================================================================================
</TABLE>
<PAGE>
MEDNET, MPC CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
1995 1994 1993
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash Flows From Operating Activities
Cash received from customers ................... $103,410,000 $ 62,758,000 $ 24,484,000
Cash paid to suppliers and employees ........... (106,087,000) (66,867,000) (24,513,000)
Interest paid .................................. (870,000) (261,000) (232,000)
--------------------------------------------
Net cash used in operating activities
activities (3,547,000) (4,370,000) (261,000)
--------------------------------------------
Cash Flows From Investing Activities
Proceeds on sale of property and equipment ..... 292,000 0 0
Purchases of property and equipment ............ (1,033,000) (384,000) (235,000)
Payment for purchase of Mail-Rx, net of cash
acquired .................................... 0 0 (7,582,000)
Payment for purchase of Home Pharmacy .......... (8,000,000) 0 0
Sale of short-term investment .................. 0 0 885,000
Costs of acquisitions (Note 10) ................ (2,465,000) (335,000) 0
-------------------------------------------
Net cash used in investing activities (11,206,000) (719,000) (6,932,000)
-------------------------------------------
Cash Flows From Financing Activities
Proceeds from borrowings ....................... 5,925,000 8,000 5,000
Payments on notes payable ...................... (4,115,000) (742,000) (911,000)
Payment of shortfall ........................... (65,000) 0 0
Proceeds from exercise of warrants and options . 285,000 288,000 718,000
Proceeds from issuance of common stock ......... 4,723,000 5,423,000 7,763,000
Proceeds from issuance of preferred stock ...... 7,350,000 0 0
Stock issuance costs ........................... (297,000) (235,000) 0
Debt issuance costs ............................ (722,000) 0 0
Cash acquired in acquisitions (Note 10) ........ 0 838,000 0
--------------------------------------------
Net cash provided by
financing activities ........... 13,084,000 5,580,000 7,575,000
--------------------------------------------
Net increase (decrease) in cash ..... (1,669,000) 491,000 382,000
Cash balance, beginning ........................... 1,711,000 1,220,000 838,000
--------------------------------------------
Cash balance, ending .............................. $ 42,000 $ 1,711,000 $ 1,220,000
============================================
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
MEDNET, MPC CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
1995 1994 1993
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Reconciliation Of Net Loss To Net Cash Used
In Operating Activities
Net loss $ (13,332,000) $ (5,499,000) $ (8,226,000)
Depreciation and amortization (net of $120,000 of
preacquisition depreciation of Home Pharmacy)
(See Note 10) 8,764,000 2,395,000 4,354,000
Loss on disposal of property and equipment 335,000 313,000
Provision for doubtful accounts receivable 1,197,000 706,000 290,000
Expenses paid by issuance of common stock and warrants 56,000 31,000 1,052,000
Change in assets and liabilities, net of
effects of business combinations
(Increase) in accounts receivable (10,960,000) (2,043,000) (1,090,000)
(Increase) decrease in inventories (1,515,000) 461,000 (368,000)
(Increase) decrease in other current assets (139,000) 356,000 105,000
(Increase) decrease in other assets 141,000 (122,000) 164,000
Increase (decrease) in accounts payable 10,938,000 (1,113,000) 2,972,000
Increase in accrued expenses 968,000 458,000 173,000
---------------------------------------------
Net cash used in operating activities $ (3,547,000) $ (4,370,000) $ (261,000)
---------------------------------------------
Supplemental schedule of noncash investing and financing
activities:
Common stock issuances:
Reduction of debt (Note 10) $ 4,835,000 $ 0 $ 0
-------------------------------------------
Conversion of preferred stock 2,000,000 0 0
-------------------------------------------
Purchase of common stock of FPA 0 2,000,000 0
-------------------------------------------
Purchase of assets of MedNet 0 2,700,000 0
-------------------------------------------
Termination of marketing partnerships 0 166,000 0
-------------------------------------------
Services and commissions 0 0 787,000
-------------------------------------------
Purchase of assets of Mail-Rx 0 0 201,000
-------------------------------------------
Conversion of note payable to equity 0 0 971,000
-------------------------------------------
Account payable converted to notes payable 0 0 2,846,000
-------------------------------------------
Notes payable issued to purchase assets of
Home Pharmacy 7,150,000 0 0
-------------------------------------------
Notes payable issued to settle FPA shortfall 892,000 0 0
-------------------------------------------
Liabilities assumed in acquisitions 0 5,811,000 0
-------------------------------------------
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
MEDNET, MPC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Nature of Business and Significant Accounting Policies
Nature of business
Mednet, MPC Corporation (formerly Medi-Mail, Inc.) and Subsidiaries ("Mednet" or
the "Company") are in the managed prescription care industry. The Company acts
as an integrated, full service prescription drug benefits manager serving
individual members of retirement organizations, fraternal organizations, state
employee organizations, commercial organizations, corporations, self-insurance
trusts, insurance companies, and other benefit plan sponsors throughout the
United States. The Company operates mail order pharmacies in Las Vegas, Nevada
and Chicago, Illinois, a claims processing operation located in Lemoyne,
Pennsylvania and retail pharmacies in Las Vegas, Nevada and San Diego,
California.
Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
A summary of the Company's significant accounting policies follows:
Principles of consolidation
The accompanying consolidated financial statements include the accounts of
Mednet, MPC Corporation and its wholly-owned subsidiaries, Medi-Mail, Inc.
("Medi-Mail"), Medi-Claim, Inc. ("Medi-Claim"), Medi-Phar, Inc. ("Medi-Phar"),
and Family Pharmaceuticals of America, Inc. ("FPA"). All significant
intercompany transactions have been eliminated in consolidation.
The Company consolidates the operations of acquired businesses retroactively to
the beginning of the year of acquisition and subtracts the preacquisition net
income or adds the preacquisition net loss of the acquired business for the
period prior to acquisition from/to the consolidated statement of operations.
Cash
The Company maintains cash balances in excess of insured amounts at financial
institutions.
Inventories
Inventories, consisting primarily of prescription drugs, are stated at the lower
of cost or market. Cost is determined using the first-in, first-out method.
Property and equipment
Property and equipment are stated at cost, net of depreciation and amortization.
Depreciation and amortization is computed primarily on the straight-line method
over the following estimated useful lives:
Years
-----
Furniture and fixtures 5
Office equipment 5
Software 3
Leasehold improvements are amortized over the lesser of the lease term or the
estimated useful life of the improvement.
Intangible assets
Intangible assets include the following assets amortized over their estimated
useful lives as follows:
Years
-----
Goodwill 25 years
Tradename 25 years
Customer contracts Length of contracts (primarily 3 years)
Non-compete agreements Length of agreements (primarily 3 years)
Customer lists and other 3 years
Debt issuance costs Length of contracts (primarily 5 years)
<PAGE>
On an annual basis, the Company reviews the recoverability of intangible assets.
The measurement of possible impairment is based primarily on the Company's
ability to recover the carrying value of intangible assets from estimated future
operating cash flows on an undiscounted basis. If an impairment is deemed to
exist, the impairment adjustment is determined based on estimated operating cash
flows on a discounted basis (see Note 5).
Income taxes
Deferred taxes are provided on a liability method whereby deferred tax assets
are recognized for deductible temporary differences and operating loss and tax
credit carryforwards and deferred tax liabilities are recognized for taxable
temporary differences. Temporary differences are the differences between the
reported amounts of assets and liabilities and their tax basis. Deferred tax
assets are reduced by a valuation allowance when, in the opinion of management,
it is more likely than not that some portion or all of the deferred tax assets
will not be realized. Deferred tax assets and liabilities are adjusted for the
effect of changes in tax laws and rates on the date of enactment.
Net loss per common share
Net loss per common share is based on the weighted average number of shares of
common stock outstanding of 25,383,356, 21,352,923 and 16,675,420 during 1995,
1994 and 1993, respectively. The Company has common stock equivalents consisting
of stock options and warrants. The common stock equivalents are antidilutive and
therefore, are not included in the computation of net loss per common share.
Fair value of financial instruments
The Financial Accounting Standards Board issued SFAS No. 107, Disclosures about
Fair Value of Financial Statements, which is effective December 31, 1995. This
statement requires the disclosure of estimated fair values for all financial
instruments for which it is practicable to estimate fair value.
The carrying amounts of financial instruments including cash, trade receivables,
accounts payable and accrued expenses approximate fair value because of their
short maturity.
The carrying amount of long-term debt and the revolving line of credit
approximate fair value because the interest rates on these instruments either
float with market rates or currently approximate market interest rates.
Accounting for Stock-Based Compensation
In October 1995, the FASB issued Statement No. 123, Accounting for Stock-Based
Compensation. Statement No. 123 establishes financial accounting and reporting
standards for stock-based employee compensation plans, such as stock options and
stock purchase plans. The statement generally suggests but does not require
stock-based compensation arrangements for employees be accounted for based on
the fair value of the consideration received or the fair value of the equity
instruments issued, whichever is more reliably measurable. Stock-based
compensation for nonemployees is required to be accounted for at the fair value
of the instruments issued. Statement No. 123 will first be required for the
Company's year ending December 31, 1996. Companies that do not elect to change
their accounting for stock-based compensation for employees are required to
disclose the effect on net income and earnings per share as if the provision of
Statement No. 123 were applied. The Company has decided not to adopt the
accounting provisions of this statement for employees' stock-based compensation
arrangements.
Note 2. Results of Operations and Capital Resources
The Company has been built over the past four years through a series of
acquisitions as discussed in Note 10. The Company has been focused on finding
acquisition candidates, financing acquisitions, integrating acquired operations,
building information systems and personnel infrastructures to operate the
Company. In the past three years, the Company has incurred losses of
$13,332,000; $5,499,000 and $8,226,000 for 1995, 1994 and 1993, respectively.
The negative cash flow from operations caused by these losses has placed
significant liquidity strains on the Company, further increasing operating and
financing costs.
<PAGE>
As discussed in Note 6, in December 1995, the Company entered into a
$20,000,000, five-year credit agreement with an asset based lender. Borrowing
available under this arrangement is computed on formulas based on accounts
receivable and inventory levels. In March 1996, the Company has drawn $8,924,000
under this agreement, which was the maximum available under these formulas.
The convenant's under the credit arrangement require the Company to have net
income before interest, taxes, depreciation and amortization per quarter of
$500,000 in 1996 and $1,000,000 in 1997, with corresponding increases in
tangible net worth. The credit arrangement also contains convenants restricting
certain activities without prior approval, including additional borrowings and
additional acquisitions. To achieve the results for 1996 necessary to meet these
convenants, the Company will be required to increase its sales levels, its
corresponding margin, or reduce its operating costs. As compared to the
Company's fourth quarter 1995 operating results, the combination of margin
increases and operating cost decreases needed to achieve these covenant goals
approximates $1,500,000 per quarter. Management's strategies to achieve these
goals involve both internal sales growth at higher rates than previously
achieved, and significant cost reductions.
Management plans to attain sales increases by internal growth include further
increasing revenues through the integration of its mail order pharmacy, claims
processing and retail pharmacy programs in order to provide more services to
existing customers, and through obtaining new contracts in 1996. Although
management believes that the necessary 1996 sales growth goals will be attained,
there can be no assurances that it will.
Subsequent to December 31, 1995, management took certain actions to achieve the
cost reductions necessary to achieve profitable operations in 1996. Management's
actions included restructuring operations to reduce operating costs and increase
efficiencies by consolidating its mail service into two facilities,
restructuring its workforce to achieve greater efficiency, and limiting
nonessential expenditures. Management plans for further reductions include the
planned closing of the five unprofitable retail pharmacies. Although management
believes that the cost reductions put into place will be sufficient, there can
be no assurances that they will.
The Company also has ongoing discussions with investment bankers and lenders
about sources of debt and equity financing. Management currently believes it has
sufficient arrangements in place to meet its operating needs for 1996. However,
no assurances can be made that additional sources of working capital financing
will not be required.
Although the Company expects that its existing contract base and new contracts
signed in 1996, coupled with its planned cost savings, will be sufficient to
allow the Company to generate a profit and provide positive cash flow from
operations in 1996, the Company may require additional capital from outside
sources to supplement its working capital position. The Company has a revolving
line of credit which should substantially fund accounts receivable and inventory
growth. In addition, the Company continues to discuss potential sources of
equity capital with investment bankers and believes it will obtain additional
working capital from these sources if necessary.
<PAGE>
Note 3. Accounts Receivable
1995 1994
- --------------------------------------------------------------------------------
Trade receivables ...................... $ 16,080,000 $ 6,357,000
Rebates receivable ..................... 3,093,000 2,510,000
---------------------------
19,173,000 8,867,000
Less allowance for doubtful accounts ... 1,375,000 780,000
---------------------------
$ 17,798,000 $ 8,087,000
===========================
The Company obtains rebates under various rebate programs from pharmaceutical
companies. Generally, the rebates are based on a per unit rebate amount times
the number of prescriptions filled with products for which rebate programs
exist. The Company has an agreement with a third party processor who files
claims on behalf of the Company for pharmaceutical manufacturer rebates. The
third party processor collects a 10% fee for submitting these claims. Total
rebates reflected in the accompanying income statement of operations were
$4,278,000 in 1995 and $2,501,000 in 1994.
Rebates receivable reflects management's best estimate of rebates, after
collection and claim expenses, the Company will receive in 1996 for
prescriptions filled and claims processed in 1995.
Note 4. Property and Equipment
1995 1994
- --------------------------------------------------------------------------------
Furniture and fixtures $ 360,000 $ 565,000
Office equipment 1,540,000 739,000
Software 694,000 1,234,000
Leasehold improvements 118,000 123,000
---------------------------------
2,712,000 2,661,000
Less accumulated depreciation and amortization 1,180,000 1,477,000
---------------------------------
$ 1,532,000 $ 1,184,000
=================================
Note 5. Intangible Assets and Impairments
Intangible assets arose from the Company's purchase of substantially all of the
assets of Home Pharmacy, Medical Service Agency, Inc. and GBK, Inc. on September
15, 1995, November 16, 1994 and April 30, 1993, respectively and the Company's
purchase of all of the outstanding common stock of Family Pharmaceuticals of
America, Inc. on June 30, 1994. See Note 10 regarding these business
combinations. Intangible assets consist of the following at December 31:
1995 1994
- --------------------------------------------------------------------------------
Goodwill $ 18,229,000 $ 5,900,000
Customer contracts 7,469,000 5,494,000
Non-compete agreements 822,000 722,000
Customer list, tradename and other 1,679,000 2,829,000
---------------------------------
28,199,000 14,945,000
Less accumulated amortization 9,617,000 5,637,000
---------------------------------
Intangible assets, net $ 18,582,000 $ 9,308,000
=================================
<PAGE>
During 1995, the Company closed its Baltimore mail service facilities (GBK, Inc.
acquisition) and consolidated those business operations into the Las Vegas and
South Carolina facilities. At December 31, 1995, the Company had initiated a
plan to close its South Carolina mail service facilities (Family Pharmaceuticals
of America, Inc. acquisition) and consolidate those business operations into its
Las Vegas and Chicago facilities. Also, at December 31, 1995, the Company had
initiated a plan to close five of its retail pharmacy locations (see Note 14).
In addition, certain contracts acquired in the Home Pharmacy acquisition which
were allocated a portion of the purchase price were subsequently cancelled (see
Note 10). As a result, the Company, based on expected remaining discounted cash
flows from these business operations, recorded the following impairments of the
intangible assets acquired:
Net book
value before Impairment
Adjustment Adjustment
-------------------------
Goodwill ............................................ $ 5,181,000 $ 3,384,000
Customer contracts .................................. 5,783,000 2,542,000
Non-compete agreements .............................. 137,000 60,000
Customer lists, trade names and other ............... 1,123,000 85,000
-------------------------
$ 12,224,000 $ 6,071,000
=========================
The impairment adjustment of $6,071,000 is included in depreciation and
amortization in the accompanying consolidated statement of operations.
Note 6. Revolving Line of Credit and Long-Term Debt
Revolving Line of Credit
The Company has a $20,000,000 revolving line of credit with a financing company.
Advances on the line are based on eligible accounts receivable and inventory, as
defined in the agreement. The line bears interest at 1-1/2% over the financing
company's reference rate (8.5% at December 31, 1995) payable monthly, and is
secured by accounts receivable, inventory and equipment. The revolving credit
agreement matures on December 29, 2000. The outstanding balance on the line is
$3,709,000 at December 31, 1995.
The agreement has a prepayment penalty for early termination by the Company or
early termination due to Company defaults, as follows:
First 24 months - Greater of last 6 months interest or $640,000;
Next 24 months - Greater of last 6 months interest or $400,000;
Next 12 months - Greater of last 6 months interest or $200,000.
In addition, the agreement calls for certain other fees, including annual
facility fees and unused commitment fees.
The revolving line of credit has covenants which require the Company, among
other things, to maintain certain financial ratios, including:
Current ratio of at least 1.0 to 1.0
Tangible net worth of at least $500,000 at December 31, 1995,
with the minimum balance increasing $500,000 per quarter
thereafter.
Earnings before interest, taxes, depreciation and amortization
of $500,000 per quarter, cumulatively, in 1996; and $1,000,000
per quarter, cumulatively, in 1997.
In addition, capital expenditures, dividends and increases in officers' salaries
are limited.
The Company was unable to meet the current ratio and the tangible net worth
covenants at December 31, 1995. On March 27, 1996, these covenant violations
were waived by the financing company. In addition, the financing company has
expressed its intention to modify these financial covenants effective March 31,
1996.
<PAGE>
Long-Term Debt
<TABLE>
1995 1994
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Notes payable to the former owner of Home Pharmacy (Note 10):
Bearing interest at 1% above prime, ** secured by common shares
placed in escrow and additional pledged shares. The note matures
on October 15, 1996 ......................................................................... $4,650,000 $ 0
Bearing interest at 15%, secured by common shares placed in escrow
and additional pledged shares due February 29, 1996 ......................................... 2,500,000 0
----------------------------
7,150,000 0
Less advance payment through stock issuance ................................................. 4,835,000 0
----------------------------
2,315,000 0
Convertible notes payable, bearing interest at 11%. Accrued interest and
principal matures in May 1997. These notes may be converted by the Company
into common stock at a conversion price of $3 per
share ....................................................................................... 1,124,000 0
Unsecured notes payable to a supplier bearing interest at 9%,
payable semi-annually. Annual principal payments of $218,750
payable on August 30, 1996 and 1997, respectively ........................................... 438,000 556,000
Unsecured note payable to related party bearing interest at 1% over prime,
annual principal payments of $78,550 plus accrued interest
commencing April 1, 1995 and continuing through April 1, 1997 ............................... 157,000 236,000
Unsecured note payable, interest payable monthly at 10%,
maturing March 10, 1996 ..................................................................... 115,000 400,000
Notes payable to a supplier, bearing interest at 8-1/2% and 5%,
paid in full during 1995 .................................................................... 0 1,627,000
Other .......................................................................................... 12,000 34,000
----------------------------
4,161,000 2,853,000
Less current portion ........................................................................... 2,739,000 2,258,000
----------------------------
$1,422,000 $ 595,000
============================
<FN>
** In the event of default under this note agreement, the interest rate
increases by 7%.
</FN>
</TABLE>
Long-term debt as of December 31, 1995 matures in the amount of $2,739,000 in
1996 and $1,422,000 in 1997.
Note 7. Income Taxes
The Company has federal net operating loss carryforwards of approximately
$20,152,000 which are available to offset future taxable earnings of the Company
and expire at varying times through 2010. There are also state net operating
loss carryforwards of lesser amounts which expire at varying times through 2010.
The federal loss carryforwards as of December 31, 1995 have the following
expiration dates:
Expiration Date Amount
------------------
2002 $ 298,000
2003 664,000
2004 1,039,000
2005 1,189,000
2006 567,000
2007 2,994,000
2008 3,912,000
2009 3,360,000
2010 6,129,000
-----------------
$ 20,152,000
=================
<PAGE>
Section 382 of the Internal Revenue Code of 1986 and the related regulations
impose certain limitations on a corporation's ability to use net operating loss
carryforwards if more than a 50% ownership change occurs. State laws generally
conform to the provisions of Section 382. As a result of stock issuances during
1995 and 1994, it is possible that the Company had an ownership change of more
than 50%; therefore, the Company's ability to utilize the net operating loss
carryforwards may be substantially restricted.
Deferred tax assets at December 31 are summarized as follows:
1995 1994
- --------------------------------------------------------------------------------
Net operating loss carryforwards $ 7,417,000 $ 5,333,000
Amortization of intangibles 4,223,000 1,901,000
Reserve on building held for sale 0 133,000
Bad debts 488,000 286,000
Depreciation and other 229,000 64,000
----------------------------------
12,357,000 7,717,000
Less valuation allowance (12,357,000) (7,717,000)
----------------------------------
$ 0 $ 0
==================================
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes," requires that a valuation allowance be recorded "when it is more likely
than not" that any portion or all of a deferred tax asset will not be realized.
Due to the inherent uncertainty in forecasts of future events and operating
results, the Company has provided for a valuation allowance in an amount equal
to gross deferred tax assets resulting in no net deferred tax assets at December
31, 1995.
No income tax benefit has been recorded in the consolidated statement of
operations due to the valuation allowances on the deferred tax assets. The net
change in the valuation allowance from 1994 to 1995 of $4,640,000 is due
primarily to the 1995 net operating loss and the difference in amortization
periods for intangible assets for book and tax purposes.
Note 8. Stock Transactions
During September 1995, the Company issued 267,500 shares of Series A redeemable
preferred stock for $20 per share or $5,350,000. The Series A redeemable
preferred shares are entitled to an annual dividend of 10%. Each share is
convertible at the option of the holder (or in some circumstances at the option
of the Company) into 6-2/3 shares of the Company's common stock. In addition,
the Company may, at its option, convert all but not less than all, of the Series
A shares into convertible notes bearing the same rights and terms of the Series
A shares. The Company is entitled to prepay the convertible notes without
penalty. If not previously converted, the Company is obligated to redeem those
shares in 2005.
During August 1995, the Company issued 100,000 shares of Series B convertible
preferred stock for $20 per share or $2,000,000. The proceeds from these
issuances were used to consummate the purchase of the assets of Home Pharmacy.
During October and November 1995, 100,000 shares of Series B stock were
converted into 1,033,649 shares of common stock.
During August 1995, the Company issued 2,111,000 shares of common stock in
private placements raising approximately $4,720,000. The proceeds from these
issuances were used to consummate the purchase of assets of Home Pharmacy.
<PAGE>
During each of the three years ended December 31, 1995, 1994, and 1993, the
Company issued shares of common stock upon the exercise of various warrants and
options for common stock. See Note 9 for a summary of common stock option
activity. The following is a summary of warrant activity for each of the three
years ended December 31, 1995, 1994, and 1993:
<TABLE>
Exercise
Warrants Price Expiration
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Outstanding at December 31, 1992 3,854,000 $1.14 - $5.57 June 1993 - Nov. 1996
Issued in a Regulation "S" placement 110,000 $2.50 April 30, 1994
Exercised (299,000) $1.14 - $4.00
Expired (750,000) $4.00
----------------------------------------------------------------
Outstanding at December 31, 1993 2,915,000 $1.14 - $5.57 March 1994 - Nov. 1996
Issued in a Regulation "S" placement 100,000 $2.44 March 1999
Issued for services 1,890,000 $3.00 June 1997-May 1999
Exercised (166,000) $1.31-$2.44
Expired (1,800,000) $4.50
----------------------------------------------------------------
Outstanding at December 31, 1994 2,939,000 $1.14-$5.57 January 1995-March 1999
Issued in a Private placement 849,000 $.01-$2.20 None
Issued to induce extension of debt terms 100,000 $5.00 February 1997
Issued in settlement of lawsuit 115,000 $2.75-$3.00 August 2000
Issued for services 256,000 $2.20-$5.56 February
1997-January 2000
Exercised (383,000) $.01-$2.50 -
Expired (100,000) $4.50 -
---------------------------------------------------------------
Outstanding at December 31, 1995 3,776,000 $.01-$5.56 January
1996-August 2000
===============================================================
</TABLE>
All outstanding warrants are exercisable as of December 31, 1995.
During 1994, the Company issued 400,000 shares of common stock valued at
$2,000,000 in connection with the purchase of FPA. Also during 1994, the Company
issued 1,600,000 shares of common stock valued at $2,700,000 in connection with
its purchase of substantially all of the assets of Medical Service Agency, Inc.
See Note 10.
During 1994, the Company raised approximately $5,423,000 from several private
placements, the proceeds of which were used for general operating purposes. The
Company issued 1,900,000 shares of common stock as a result of the private
placements.
During the years ended December 31, 1994 and 1993, the Company issued 13,333
shares of common stock in connection with the Company's buy-out of a commission
agreement.
During 1993, the Company issued 13,000 shares of stock valued at $30,000 in lieu
of rental payments and 39,001 shares of stock valued at $88,000 to officers and
directors of the Company for services rendered.
During September 1993, the Company renegotiated the President's employment
agreement. In connection therewith, the Company issued 150,000 shares of common
stock to the President with a value of $666,000. This amount was recorded as
compensation expense along with $100,000 paid to the President. In addition, the
Company issued to the President options to purchase 500,000 shares of the
Company's stock at an option price of $4.50 per share. These options were issued
outside of the Company's Incentive Stock Option Plan ("ISOP") and Non-Qualifying
Stock Option Plan ("NQSOP") and expire September 11, 1998.
This renegotiated agreement eliminated the President's right to a severance
arrangement with a specified value of $2,000,000 to be paid in cash and common
stock.
During the year ended December 31, 1993, Class B common stock of 161,501 shares
were converted into common stock pursuant to specified terms. At December 31,
1993, all Class B common stock had been converted into the Company's common
stock.
During 1993, the Company raised approximately $8,260,000 from several private
placements, the proceeds of which were used to consummate the purchase of assets
from GBK, Inc. The Company issued 8,610,798 shares of common stock as a result
of the private placements, including 1,500,000 of the shares sold to a director
of the Company in a separate private placement.
<PAGE>
In conjunction with the conversion of a note payable to shares of the Company's
common stock during 1993, the Company issued 249,130 shares.
Note 9. Stock Option Plans
In March 1988, the Company adopted an Incentive Stock Option Plan (ISOP) which
was approved by the stockholders of the Company. The ISOP provides for the grant
of options for common stock to officers, employee-directors and key employees at
an exercise price equal to the fair market value of the stock on the date of the
grant. Options generally become exercisable one year from the date of the grant
and remain exercisable for four years or until three months after termination of
the relationship with the Company other than upon death or disability. There are
no charges to operations made in connection with the ISOP.
The Company has a Non-Qualifying Stock Option Plan (NQSOP). The Plan includes a
formula pursuant to which each non-employee director receives an automatic grant
of 20,000 shares of common stock upon completion of one year of service to the
Company. The options cannot be exercised until they are held a year and cannot
be exercised after ten years from the date of grant. All non-qualified stock
options have been issued with exercise prices equal to or exceeding fair market
value, thus no compensation expense has been recorded related to the NQSOP.
In addition to the formula grants, eligible directors may be granted an option
to purchase 60,000 common shares upon appointment as a director, 20,000 shares
of which shall vest at each of the next three successive meetings following a
complete year of service. The period for which the director's service shall be
calculated runs from the date of each of the Company's annual shareholders'
meetings, or if elected as a Board member between annual shareholders' meetings,
the period is from the date of appointment until the next annual meeting
following a complete year of service.
The following is a summary of option activity for each of the three years ended
December 31, 1995, 1994 and 1993:
<TABLE>
Granted
Options Available ----------------------------------------------
for grant ISOP NQSOP Option Price
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance at December 31, 1992 300,500 381,450 341,000 $.77 - $2.95
Additional shares reserved 800,000 0 0
Granted (553,000) 93,000 460,000 $1.75 - $2.77
Canceled 219,000 (119,000) (100,000) $1.75 - $2.00
Exercised 0 (152,625) (120,000) $.77 - $1.19
---------------------------------------------------------------------
Balance at December 31, 1993 766,500 202,825 581,000 $.77 - $2.95
Granted (483,500) 183,500 300,000 $2.29 - $3.81
Canceled 25,000 (5,000) (20,000) $1.19 - $1.91
Exercised 0 (33,325) 0 $.77 - $1.19
---------------------------------------------------------------------
Balance at December 31, 1994 308,000 348,000 861,000 $.77 - $3.81
Additional shares reserved 750,000 0 0 -
Granted (411,500) 263,500 148,000 $2.63-$3.31
Exercised 0 (23,000) 0 $.77 - $1.91
---------------------------------------------------------------------
Balance at December 31, 1995 646,500 588,500 1,009,000 $.77 - $3.81
---------------------------------------------------------------------
</TABLE>
At December 31, 1995, 832,000 stock options are exercisable. In addition to the
above stock option plans, the Company has the following stock options, granted
outside of the plans, outstanding as of December 31, 1995:
Options Option Price Expiration
- --------------------------------------------------------------------------------
Granted in 1993 500,000 $4.50 September 1998
Granted in 1994 50,000 $2.85 June 1999
Granted in 1994 150,000 $3.00 June 1997
------------------------------------
Outstanding at December 31, 1995 700,000
=======
<PAGE>
Note 10. Business Combinations
On September 15, 1995, the Company acquired substantially all of the assets of
Home Pharmacy, a division of Arc Ventures, Inc., an Illinois corporation (ARC).
The terms of the purchase agreement have been subsequently amended twice. The
final aggregate purchase price of $15,150,000 (plus $967,000 for purchasing
certain inventories) was comprised of a cash down payment of $8,000,000, and two
promissory notes for $2,500,000 and $4,650,000. The $8,000,000 down payment was
obtained from the proceeds of private placements of common and preferred stock.
The $2,500,000 promissory note is secured by 1,774,000 shares of the Company,
issued to ARC and held in escrow. The $4,650,000 promissory note is secured by a
pledge of 3,265,000 shares of the Company's common stock.
Under the agreement, ARC was to sell the escrow and pledge shares and apply the
proceeds to pay the notes. None of the escrow shares are to be returned to the
Company, however, proceeds or shares of the pledged shares in excess of the
amount needed to pay the notes is returned to the Company. Accordingly, the fair
value of the escrowed shares of $4,835,000 has been reflected as an advance
payment against the notes.
Subsequent to December 31, 1995, the terms of the agreement were modified again
and the balance on the $2,500,000 note, plus accrued interest, was paid in full
in March, 1996. The 1,774,000 shares held in escrow which collateralized the
note were returned to the Company, and were placed in the Company treasury. The
due date on the $4,650,000 note was extended to October 15, 1996. In the event
the note is not paid on June 1, 1996, ARC has the right to sell 277,000 shares
per month of the pledged shares, and apply the proceeds to the note and accrued
interest until it is paid in full, or the remaining is paid on October 15, 1996.
The acquisition was accounted for as a purchase, whereby the assets acquired
were recorded at their fair market value. The excess of cost over net
identifiable assets acquired is reflected as goodwill and is being amortized
over twenty-five years using the straight-line method. The preliminary
allocation of the purchase price was as follows:
Inventory ...................................................... $ 967,000
Fixed assets ................................................... 238,000
Non-compete agreement .......................................... 100,000
Customer contracts ............................................. 5,000,000
Goodwill ....................................................... 12,249,000
-----------
Total (including direct acquisition costs of $2,437,000) ....... $18,554,000
===========
The Company has consolidated operations of Home Pharmacy retroactively to
January 1, 1995; therefore, the preacquisition income of Home Pharmacy of
$982,000 has been deducted from the consolidated statement of operations for the
year ended December 31, 1995. The effect of this consolidation of operations
prior to acquisition was to increase net sales by approximately $30,629,000.
On November 19, 1994, the Company acquired substantially all of the assets of
Medical Service Agency, Inc., a Pennsylvania corporation d/b/a MedNet, a
privately-owned prescription benefits claims processing company. The cost of the
acquisition is as follows:
Purchase price:
Liabilities assumed ............................................ $5,710,000
Issuance of 1,600,000 restricted shares of common stock ........ 2,700,000
----------
$8,410,000
Costs of acquisition incurred .................................. 33,000
----------
$8,443,000
==========
The acquisition was accounted for as a purchase, whereby the assets acquired
were recorded at their fair market value. The excess of cost over net
identifiable assets acquired is reflected as goodwill and is being amortized
over twenty-five years under the straight-line method. The allocation of the
purchase price was as follows:
Cash ............................................................ $ 836,000
Accounts receivable, net of allowance for doubtful accounts ..... 3,627,000
Other current assets ............................................ 205,000
Property and equipment .......................................... 91,000
Customer contracts .............................................. 1,616,000
Customer list ................................................... 320,000
Non-compete agreement ........................................... 134,000
Tradename ....................................................... 750,000
Goodwill ........................................................ 864,000
----------
$8,443,000
==========
<PAGE>
The assets acquired and liabilities assumed were transferred to the Company's
wholly-owned subsidiary, Medi-Claim, concurrent with the acquisition.
The Company has consolidated the operations of MedNet retroactively to January
1, 1994; therefore, the preacquisition loss of $577,000 has been added to the
consolidated statement of operations for the year ended December 31, 1994. The
effect of this consolidation of operations prior to acquisition was to increase
net sales for the year ended December 31, 1994 by approximately $17,835,000.
On June 30, 1994 the Company acquired all of the outstanding common stock of
Family Pharmaceuticals of America, Inc. (FPA), a South Carolina corporation. FPA
was a privately-owned mail-order pharmacy. The cost of the acquisition is as
follows:
Purchase price:
Issuance of 400,000 restricted shares of common stock .......... $2,000,000
Liabilities assumed ............................................ 101,000
Cash paid ...................................................... 57,000
----------
$2,158,000
Costs of acquisition incurred .................................. 46,000
----------
$2,204,000
==========
The acquisition was accounted for as a purchase, whereby the assets acquired
were recorded at their fair market value. The excess of cost over net
identifiable assets acquired is reflected as goodwill and is being amortized
over twenty-five years under the straight-line method. The allocation of the
purchase price was as follows:
Cash ............................................................ $ 2,000
Accounts receivable, net of allowance for doubtful accounts ..... 140,000
Inventory ....................................................... 103,000
Other current assets ............................................ 7,000
Property and equipment .......................................... 7,000
Customer contracts .............................................. 853,000
Customer list ................................................... 169,000
Non-compete agreements .......................................... 71,000
Tradename ....................................................... 70,000
Goodwill ........................................................ 782,000
----------
$2,204,000
==========
The Company guaranteed the value of the common stock issued to acquire FPA at
$5.00 per share. During 1995, the Company, the selling shareholders of FPA
$957,000 representing the shortfall in this guarantee.
The Company has consolidated the operations of FPA retroactively to January 1,
1994; therefore, the preacquisition net income of $60,000 has been deducted from
the consolidated statement of operations for the year ended December 31, 1994.
The effect of this consolidation of operations prior to acquisition was to
increase net sales by approximately $1,031,000.
On April 30, 1993, the Company acquired substantially all of the assets of GBK,
Inc., a Maryland corporation d/b/a Mail-Rx ("Mail Rx"), a privately-owned
mail-order pharmacy. The aggregate purchase price of $10,250,000 was comprised
of cash payments totaling $6,600,000 (moneys raised from the net proceeds of
several private placements), the execution of a note payable for $1,500,000,
assumed liabilities of $1,949,000, and the issuance of 201,052 shares of the
Company's common stock valued at approximately $201,000.
The $1,500,000 promissory note payable to the seller was paid in full within 30
days of the closing. The $1,500,000 was also obtained from the proceeds of the
private placements.
The acquisition was accounted for as a purchase, whereby the assets acquired
were recorded at their fair market value. The excess of cost over net
identifiable assets acquired is reflected as goodwill and is being amortized
over twenty-five years using the straight-line method. The allocation of the
purchase price was as follows:
Cash and short-term investments ................................. $ 518,000
Accounts receivable, net of allowance for doubtful accounts ..... 1,471,000
Inventories ..................................................... 414,000
Other current assets ............................................ 26,000
Fixed assets, including software ................................ 911,000
Other long-term assets .......................................... 14,000
Non-compete agreement ........................................... 250,000
Tradename ....................................................... 250,000
Customer list ................................................... 600,000
Custom contracts ................................................ 3,025,000
Goodwill ........................................................ 2,771,000
-----------
Total ............................................. $10,250,000
===========
<PAGE>
Unaudited pro forma results of operations of the Company, assuming the Home
Pharmacy, MedNet and FPA acquisitions occurred on January 1, 1994, are presented
below. Adjustments are made to reflect the accounting bases recognized in
recording the combination. These adjustments to net loss consist principally of
amortization of intangible assets ($2,146,000 in 1995 and $3,624,000 in 1994),
interest expense on acquisition debt ($497,000 in 1995 and $628,000 in 1994),
and the elimination of the results of the acquired business' operations for the
period not owned ($982,000 in 1995 and ($517,000) in 1994).
Year Ended December 31,
(Unaudited)
------------------------------------
1995 1994
- --------------------------------------------------------------------------------
Net sales .............................. $ 114,297,000 $ 119,143,000
===================================
Net loss ............................... $ (14,993,000) $ (8,724,000)
===================================
Net loss per common share .............. $ (0.56) $ (0.35)
===================================
Weighted average shares outstanding .... 26,838,858 24,729,214
===================================
Pro forma information does not purport to be indicative of the results that
actually would have been obtained if the combined operations had been conducted
during the periods presented and is not intended to be projection of future
results.
Note 11. Claims Processing Revenues
On April 1, 1994, Medi-Claim assumed the obligation for payments to members of
Medi-Claim's pharmacy network. Prior to April 1, 1994, Medi-Claim was only
obligated to the extent payment was received from the sponsoring organization.
This step was taken to standardize Medi-Claim's procedures with trends in the
industry. As a result of this change, subsequent to April 1, 1994 the Company
presents the sales and cost of sales as well as the related accounts receivable
and accounts payable in its consolidated financial statements for prescriptions
filled at participating network pharmacies by insureds covered under pharmacy
plans offered by Medi-Claim's clients, the sponsoring organizations. Management
estimates that sales and cost of sales are $4,000,000 lower for the year ended
December 31, 1994 than if this change had been implemented at January 1, 1994.
Note 12. Commitments
The Company leases certain facilities under noncancelable operating leases with
terms ranging from two to fifteen years. Rental expense under these leases
amounted to $1,240,730, $432,000 and $466,000 in 1995, 1994 and 1993,
respectively.
As of December 31, 1995, approximate future minimum lease payments are as
follows:
- --------------------------------------------------------------------------------
1996 $ 431,000
1997 366,000
1998 215,000
1999 211,000
2000 218,000
Thereafter 816,000
----------
$2,257,000
==========
The Company has entered into an employment agreement ("Agreement") with its
President through April 1998 with additional one-year extensions. The Agreement
stipulates the annual salary and bonus to be paid to the President. The bonus is
payable in cash and options and is calculated on the increase in consolidated
gross sales or as a percentage of pretax profits.
<PAGE>
Note 13. Warrants Issued for Marketing Services
On April 27, 1994, the Company entered into a Consulting Agreement with a
Consultant, with whom the Company has had previous similar arrangements, and a
group of associated individuals (one of which is a director of the Company) (the
"Consultants") to retain the services of the Consultants in obtaining contacts
with potential accounts for managed prescription care services. Pursuant to the
agreement with the Consultants, the Company issued 1,000,000 five-year warrants
to purchase the Company's common stock at $3.00 per share. The warrants vested
upon issuance and expire in June 1999. The exercise price of the warrants
exceeded the market price of the Company's common stock on the date of the
agreement. The Consultants may earn additional three-year warrants in the future
based upon purchases by new customers introduced by the Consultants if total
sales from these customers exceeds $50,000,000 in any twelve month period. The
exercise price of the three-year warrants shall exceed the market price of the
Company's common stock on the date of issuance by $0.17 per share. The Company
will also pay the Consultants commissions on gross collected billings from sales
generated to these customers. The commissions paid under this agreement have not
been significant.
Note 14. Restructuring and Merger Related Expenses
Restructuring Expenses
Prior to December 31, 1995, the Company began to implement a plan to close its
South Carolina mail service facility in early 1996 and consolidate those
business operations into its Las Vegas and Chicago facilities. The Company also
began to implement a plan to close five of its retail pharmacy locations in
early 1996. The Company has accrued $128,000 of incremental expenses,
principally the costs of lease cancellation and severance expenses, at December
31, 1995.
Also, during 1995, the Company closed its Baltimore mail service facility and
consolidated those business operations into its Las Vegas and South Carolina
facilities. The Company incurred incremental expenses of $225,000 in connection
with this closure. These restructuring expenses, totaling $353,000 for the year
ended December 31, 1995, have been reflected as Restructuring Expenses in the
accompanying consolidated statement of operations.
Merger Related Expenses
Incremental cost associated with the purchase of Home Pharmacy (See Note 10)
during 1995 were incurred to modify its operations and fulfillment systems to be
compatible with the Company. Incremental costs totaling $250,000 are reflected
as Merger Related Expenses in the accompanying consolidated statement of
operations.
Note 15. Subsequent Events
On February 21, 1996, the Company closed a private placement under Regulation S
to sell 105,000 shares of the Company's Series C Preferred stock for a total
gross proceeds of $2,100,000 ($20 per share). Each of the Series C Preferred
shares carries no annual dividend rate, and is convertible at the option of the
holder, and in certain circumstances at the option of the Company, into shares
of the Company's common stock based on 80% of the market value at the date of
conversion. If the Series C Preferred shares are not previously converted, the
Company is obligated to redeem them in the year 1998.
On or about February 23, 1995, the Company was served with a complaint against
the Company and one of its executive officers alleging the omission of material
public information. The complaint sought compensation damages in an unspecified
amount for the class of certain purchases of the Company's stock who were
allegedly damaged. On March 1, 1996, the parties agreed in principle to a
settlement, which is subject to various conditions including preparation of
formal settlement documents, notice to the class, and court approval. The
Company has reflected as an expense in the accompanying 1995 statement of
operations for the portion of the $800,000 settlement amount which will not be
paid by its insurance carrier, which approximates $410,000.
Note 16. Major Customers
Net sales include sales to one major customer which accounted for approximately
14% of total net sales in 1995 and 13% of total net sales in 1994. Net sales
include sales to another major customer which accounted for approximately 13% of
total net sales in 1995.
<PAGE>
INDEPENDENT AUDITOR'S REPORT
ON THE SCHEDULE
To the Board of Directors
Mednet, MPC Corporation
Las Vegas, Nevada
Our audit of the financial statements of Mednet, MPC Corporation and
subsidiaries included schedule II contained herein, for each of the three years
in the period ended December 31, 1995.
In our opinion, the schedule presents fairly the information required to be set
forth therein in conformity with generally accepted accounting principles.
/s/ McGladrey & Pullen, LLP
---------------------------
Las Vegas, Nevada
March 8, 1996, except for Note 6
as to which the date is March 27, 1996
<PAGE>
MEDNET, MPC CORPORATION
VALUATION AND QUALIFYING ACCOUNTS
SCHEDULE II
<TABLE>
Additions
Balance at Charged to Balance at
Beginning Cost and Deductions End of
Description of Period Expenses (A) Period
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Allowance for doubtful accounts:
Year ended December 31, 1995 $ 780,000 $ 1,197,000 $ 602,000 $ 1,375,000
Year ended December 31, 1994 350,000 706,000 276,000 780,000
Year ended December 31, 1993 60,000 290,000 0 350,000
<FN>
(A) Uncollectible accounts written off by charge to the allowance.
</FN>
</TABLE>
Exhibit 3.2.2
REPLACEMENT CERTIFICATE OF DESIGNATION, PREFERENCES AND RIGHTS OF
PREFERENCE SHARES BY RESOLUTION OF THE BOARD OF DIRECTORS
PROVIDING FOR AN ISSUE OF 50,000 PREFERRED SHARES DESIGNATED
AS SERIES B-1 PREFERRED SHARES
MEDNET, MPC CORPORATION (hereinafter referred to as the "Company"), a
corporation organized and existing under the laws of the state of Nevada, does
hereby file this Replacement Certificate to replace in its entirety the
Certificate filed on August 18, 1995 and in accordance with Title 7 Section
78.195 of the Private Corporations Law of the State of Nevada, does certify:
THAT the Board of Directors of the Company, by unanimous consent dated
August __, 1995, adopted a resolution providing for the issuance of a series of
preferred shares to be designated "Series B-1 Preferred Shares" with a
resolution as follows:
RESOLVED, that the Board of Directors does hereby provide for the
issuance of a series of preferred shares of the Company, of a par value
$.01 per share, to be designated "Series B-1 Preferred Shares"
(hereinafter "Preferred Stock") consisting of 50,000 shares which
number of shares may be increased or decreased (but not below the
number of shares thereof outstanding) from time to time by the Board of
Directors; and to the extent that the designations, powers, preferences
and relative and other special rights and the qualifications,
limitations and restrictions of the Preferred Stock are not stated and
expressed in the Articles of Incorporation, does hereby fix and herein
state and express such designations, powers, preferences and relative
and other special rights and the qualifications, limitations and
restrictions thereof as follows:
1. Designation of Series.
Series B-1 Preferred Shares
2. Number of Shares Constituting Such Series.
50,000 Shares
3. Series B Preferred Shares as a Class.
Series B-1 shall be part of the same class as all other
Series B Preferred Shares. All issuances of Series B
Preferred Shares, except for the Determination Date as
detailed in Section 9, are identical in all designations,
powers, preferences and relative and other special rights
and qualification, limitations and restrictions.
4. Series A Preferred Shares.
The issuance of Preferred Stock shall in no way affect the
Company's right to issue a senior series of preferred shares
designated in the Articles of Incorporation as "Series A
Preferred Shares."
5. Dividends.
The Preferred Stock shall be entitled to a dividend of $1.60
per year (8% of the purchase price) payable in four
quarterly installments per year commencing January 1, 1996,
as declared by the Board of Directors. The Company may pay
the dividends in Common Stock instead of cash. The amount of
any Common Stock issued in payment of dividends will be
based upon the Common Bid Price, as defined below, for the
Common Stock over the five trading days preceding the
dividend payment date.
6. Preference on Liquidation.
In the event of any voluntary or involuntary dissolution,
liquidation or winding up of the affairs of the Company, the
holders of the Preferred Stock shall share in the
distribution of any net assets available for distribution to
equity holders as a class with the Common Stock on the same
basis as if the Preferred Stock had been converted at the
Company's election one business day prior to liquidation. No
payment could be made to the Preferred Stock on liquidation
prior to the satisfaction of claims of creditors and other
senior classes.
<PAGE>
Neither the merger nor consolidation of the Company into or
with any other corporation, nor the merger or consolidation
of any other corporation into or with the Company, nor a
sale, transfer or lease of all or any part of the assets of
the Company, shall be deemed to be a dissolution,
liquidation or winding up of the Company within the meaning
of this Paragraph 4.
Written notice of any voluntary or involuntary dissolution,
liquidation or winding up of the affairs of the Company,
stating a payment date and the place where the distributable
amounts shall be payable, shall be given, either personally
or by mail to each holder of Preferred Stock, not less than
30 days prior to the payment date stated therein. If mailed,
such notice shall be deemed to be delivered when deposited
in the United States mail addressed to the holder at the
holder's address as it appears on the share transfer books
of the Company, with postage thereon prepaid.
7. Conversion at the Option of the Company.
The Company shall have the right, at its option, any time
commencing on August 9, 1996 to cause the Preferred Stock to
be converted into Common Stock. Each share of Preferred
Stock is convertible into that number of shares of Common
Stock determined by dividing (i) the sum of $20.00 per share
of Preferred Stock plus any outstanding dividends accrued
but not yet paid by (ii) the "Conversion Price" as defined
below. For purposes of conversion only, dividends will be
deemed to accrue daily based on a 360 day year.
Notwithstanding the above, the Company is not entitled to
require conversion if the Company makes any planned press
release either a) on the day it provides notice of such
mandatory conversion to the holder or b) prior to the close
of trading on the following business day.
The Conversion Price for conversion at the option of the
Company shall be the lower of (i) the Closing Bid Price on
the Determination Date, or (ii) 75% of the Market Price, as
defined below.
8. Conversion at the Option of the Holder.
The Holder of shares of Preferred Stock shall have the right
to convert at any time in their discretion the Preferred
Stock held by him to be converted into Common Stock. Each
share of Preferred Stock is convertible into that number of
shares of Common Stock determined by dividing (i) the sum of
$20.00 per share of Preferred Stock plus any outstanding
dividends accrued but not yet paid by (ii) the "Conversion
Price" as defined below. For purposes of conversion only,
dividends will be deemed to accrue daily based on a 360 day
year.
Such conversion shall be effectuated by surrendering the
Preferred Stock to be converted by overnight courier to the
Company's registrar and transfer agent, ("Transfer Agent"),
with a conversion notice (with an advance copy of the Stock
and the conversion notice to the Transfer Agent and the
Company by facsimile), executed by the Holder evidencing
such Holder's intention to convert the Preferred Stock, and
accompanied, in the event the Holder desires to register the
shares of Common Stock in a name other than that of Holder,
by proper assignment hereof. The Company and the Transfer
Agent shall make a reasonable effort to deliver the
converted shares to the Holder within three business days
from date of receipt of the conversion notice and the
original of the Preferred Stock certificate.
<PAGE>
In all cases the conversion of the Preferred Stock in full
shall represent payment of all dividend and principal
payable to the Holder hereunder. No fractions of shares or
scrip representing fractions of shares will be issued on
conversion, but the number of shares issuable shall be
rounded up to the nearest whole share. The date on which
notice of conversion is given (the "Date of Conversion")
shall be deemed to be the date set forth in such notice of
conversion if the original of the Preferred Stock
certificate is received by the Transfer Agent within five
business days thereafter. If the original Preferred Stock
certificate is not received by the Transfer Agent within
five business days after the Date of Conversion, the notice
of conversion shall become null and void. In the event of
any stock split, stock dividend payable in securities of the
Company, or other reclassification of the Common Stock, the
conversion price shall be equitably adjusted so that the
Holder shall receive, in exchange for the conversion price,
such securities or other property which it would have
received had it converted the Preferred Stock immediately
prior to such stock split, dividend or other
reclassification. No service charge will be made for any
such conversion.
9. Conversion Price.
Until 41 days after the Determination Date, as defined
below, the Conversion Price for conversion at the option of
the holder shall be equal to the Closing Bid Price, as
defined below, on the Determination Date. The Conversion
Price for conversion at the option of the holder on and
after 41 days after the Determination Date shall be the
lower of (i) the Closing Bid Price on the Determination
Date, or (ii) 82 1/2% of the Market Price.
"Determination Date" shall be August 18, 1995--the day that
the Company has received from the purchaser both (i) an
original or facsimile Regulation S Subscription Agreement,
and (ii) payment in full for the subscribed shares.
"Closing Bid Price" of the Common Stock for each day shall
be the closing bid price of the Common Stock on such day as
reported on the New York Stock Exchange composite tape, or,
if the Common Stock is not listed or admitted for trading on
such Exchange, on the principal national securities exchange
on which is the Common Stock is listed or admitted for
trading, or if not listed or admitted for trading on any
national securities exchange, the closing bid price of the
Common Stock as reported by the National Association of
Securities Dealers Automated Quotation System ("Nasdaq")
(or, if not so reported, the closing price).
"Market Price" shall mean the average of the Closing Bid
Price for the five trading days prior to the Date of
Conversion (as herein defined).
10. Redemption Requirement.
The Company is required to redeem any outstanding and
unconverted Preferred Stock on October 1, 1997. The
redemption price is $20.00 per share of Preferred Stock,
plus any accrued but unpaid dividends.
11. Premium for Early Redemption.
If any Preferred Stock is tendered for conversion at the
option of the holder, the Company shall have the right, at
its option, to redeem such Preferred Stock for cash by
giving notice (the "Early Redemption Notice") to the holder
by facsimile, original to follow by two-day courier, within
one business day from the date facsimile notice of
conversion is received by the Company. The redemption price
shall be paid to the holder within seven calendar days after
such facsimile has been given. The redemption price per
share of Preferred Stock (the "Redemption Price") shall be
calculated by multiplying $20.00 plus all accrued but unpaid
dividends on one share of Preferred Stock by the greater of
a) 115%, or b) a fraction, the numerator of which shall be
the Closing Bid Price on the proposed Date of Conversion,
and the denominator of which shall be Conversion Price, as
defined above, applicable to holder's notice of conversion.
Upon the giving of the Early Redemption Notice, all
conversion rights of the affected Preferred Stock
(notwithstanding the furnishing by the holder hereof of a
notice of conversion to the Company), shall forthwith
terminate, except only the right of the holder to receive
the Redemption Price.
<PAGE>
12. Adjustment for Certain Recapitalizations
In the event of a split, reverse split or similar adjustment
to the outstanding Common Stock other than stock dividends,
an appropriate adjustment shall be made to the Conversion
Price.
13. Voting Rights.
The Preferred Stock shall have one vote per share and,
except as to matters for which Nevada law requires class
voting, shall vote as a single class with the Common Stock.
14. Registration Rights.
The Company has granted a one-time demand registration right
to the holders of the Class B Preferred Stock, on the Common
Stock issuable on conversion, exercisable by the written
demand of holders of more than 50% of such securities. The
Company will provide any holder of such registration rights,
upon request, a list of all such holders to facilitate
organization of the registration demand. As soon as
practicable after receipt of such demand the Company will
file a registration statement relating to the resale of the
Common Stock issuable on conversion of the Preferred Stock
and any Common Stock issued in payment of dividends. There
is also a one-time "piggyback" registration right for such
securities.
AND THAT the issuance of 50,000 shares of Preferred Stock has been
authorized by the Board of Director of the Company.
IN WITNESS WHEREOF, the Company has caused this Certificate to be
executed in its corporate name by its President and its corporate seal to be
hereunto affixed and attached by its Secretary this __ day of 3/28/96.
MEDNET, MPC CORPORATION
/s/ M.B. Merryman
------------------------------
M.B. Merryman
President and Chief Executive
Officer
ATTEST:
/s/ Julie Ledbetter
- --------------------------
Julie Ledbetter, Secretary
<PAGE>
STATE OF NEVADA )
:ss.
COUNTY OF CLARK )
I, ________________, a notary public, hereby certify that on this __ day of
3/28/96, personally appeared before me _______________________, an officer of
Mednet, MPC Corporation, who being by me first duly sworn, severally declared
that he is the person who signed the foregoing document, and that the statements
therein contained are true.
---------------------------
My Commission Expires: Notary Public
Residing at:
---------------------------
Exhibit 3.2.3
CERTIFICATE OF DESIGNATION, PREFERENCES AND RIGHTS OF
PREFERENCE SHARES BY RESOLUTION OF THE BOARD OF DIRECTORS
PROVIDING FOR AN ISSUE OF 25,000 PREFERRED SHARES DESIGNATED
AS SERIES B-2 PREFERRED SHARES
MEDNET, MPC CORPORATION (hereinafter referred to as the "Company"), a
corporation organized and existing under the laws of the state of Nevada, in
accordance with Title 7 Section 78.195 of the Private Corporations Law of the
State of Nevada, does certify:
THAT the Board of Directors of the Company, by unanimous consent dated
August __, 1995, adopted a resolution providing for the issuance of a series of
preferred shares to be designated "Series B-2 Preferred Shares" with a
resolution as follows:
RESOLVED, that the Board of Directors does hereby provide for the
issuance of a series of preferred shares of the Company, of a par value
$.01 per share, to be designated "Series B-2 Preferred Shares"
(hereinafter "Preferred Stock") consisting of 25,000 shares which
number of shares may be increased or decreased (but not below the
number of shares thereof outstanding) from time to time by the Board of
Directors; and to the extent that the designations, powers, preferences
and relative and other special rights and the qualifications,
limitations and restrictions of the Preferred Stock are not stated and
expressed in the Articles of Incorporation, does hereby fix and herein
state and express such designations, powers, preferences and relative
and other special rights and the qualifications, limitations and
restrictions thereof as follows:
1. Designation of Series.
Series B-2 Preferred Shares
2. Number of Shares Constituting Such Series.
25,000 Shares
3. Series B Preferred Shares as a Class. Series B-2 shall be
part of the same class as all other Series B Preferred
Shares. All issuances of Series B Preferred Shares, except
for the Determination Date as detailed in Section 9, are
identical in all designations, powers, preferences and
relative and other special rights and qualification,
limitations and restrictions.
4. Series A Preferred Shares.
The issuance of Preferred Stock shall in no way affect the
Company's right to issue a senior series of preferred shares
designated in the Articles of Incorporation as "Series A
Preferred Shares."
5. Dividends.
The Preferred Stock shall be entitled to a dividend of $1.60
per year (8% of the purchase price) payable in four
quarterly installments per year commencing January 1, 1996,
as declared by the Board of Directors. The Company may pay
the dividends in Common Stock instead of cash. The amount of
any Common Stock issued in payment of dividends will be
based upon the Common Bid Price, as defined below, for the
Common Stock over the five trading days preceding the
dividend payment date.
6. Preference on Liquidation.
In the event of any voluntary or involuntary dissolution,
liquidation or winding up of the affairs of the Company, the
holders of the Preferred Stock shall share in the
distribution of any net assets available for distribution to
equity holders as a class with the Common Stock on the same
basis as if the Preferred Stock had been converted at the
Company's election one business day prior to liquidation. No
payment could be made to the Preferred Stock on liquidation
prior to the satisfaction of claims of creditors and other
senior classes.
<PAGE>
Neither the merger nor consolidation of the Company into or
with any other corporation, nor the merger or consolidation
of any other corporation into or with the Company, nor a
sale, transfer or lease of all or any part of the assets of
the Company, shall be deemed to be a dissolution,
liquidation or winding up of the Company within the meaning
of this Paragraph 4.
Written notice of any voluntary or involuntary dissolution,
liquidation or winding up of the affairs of the Company,
stating a payment date and the place where the distributable
amounts shall be payable, shall be given, either personally
or by mail to each holder of Preferred Stock, not less than
30 days prior to the payment date stated therein. If mailed,
such notice shall be deemed to be delivered when deposited
in the United States mail addressed to the holder at the
holder's address as it appears on the share transfer books
of the Company, with postage thereon prepaid.
7. Conversion at the Option of the Company.
The Company shall have the right, at its option, any time
commencing on August 9, 1996 to cause the Preferred Stock to
be converted into Common Stock. Each share of Preferred
Stock is convertible into that number of shares of Common
Stock determined by dividing (i) the sum of $20.00 per share
of Preferred Stock plus any outstanding dividends accrued
but not yet paid by (ii) the "Conversion Price" as defined
below. For purposes of conversion only, dividends will be
deemed to accrue daily based on a 360 day year.
Notwithstanding the above, the Company is not entitled to
require conversion if the Company makes any planned press
release either a) on the day it provides notice of such
mandatory conversion to the holder or b) prior to the close
of trading on the following business day.
The Conversion Price for conversion at the option of the
Company shall be the lower of (i) the Closing Bid Price on
the Determination Date, or (ii) 75% of the Market Price, as
defined below.
8. Conversion at the Option of the Holder.
The Holder of shares of Preferred Stock shall have the right
to convert at any time in their discretion the Preferred
Stock held by him to be converted into Common Stock. Each
share of Preferred Stock is convertible into that number of
shares of Common Stock determined by dividing (i) the sum of
$20.00 per share of Preferred Stock plus any outstanding
dividends accrued but not yet paid by (ii) the "Conversion
Price" as defined below. For purposes of conversion only,
dividends will be deemed to accrue daily based on a 360 day
year.
Such conversion shall be effectuated by surrendering the
Preferred Stock to be converted by overnight courier to the
Company's registrar and transfer agent, ("Transfer Agent"),
with a conversion notice (with an advance copy of the Stock
and the conversion notice to the Transfer Agent and the
Company by facsimile), executed by the Holder evidencing
such Holder's intention to convert the Preferred Stock, and
accompanied, in the event the Holder desires to register the
shares of Common Stock in a name other than that of Holder,
by proper assignment hereof. The Company and the Transfer
Agent shall make a reasonable effort to deliver the
converted shares to the Holder within three business days
from date of receipt of the conversion notice and the
original of the Preferred Stock certificate.
<PAGE>
In all cases the conversion of the Preferred Stock in full
shall represent payment of all dividend and principal
payable to the Holder hereunder. No fractions of shares or
scrip representing fractions of shares will be issued on
conversion, but the number of shares issuable shall be
rounded up to the nearest whole share. The date on which
notice of conversion is given (the "Date of Conversion")
shall be deemed to be the date set forth in such notice of
conversion if the original of the Preferred Stock
certificate is received by the Transfer Agent within five
business days thereafter. If the original Preferred Stock
certificate is not received by the Transfer Agent within
five business days after the Date of Conversion, the notice
of conversion shall become null and void. In the event of
any stock split, stock dividend payable in securities of the
Company, or other reclassification of the Common Stock, the
conversion price shall be equitably adjusted so that the
Holder shall receive, in exchange for the conversion price,
such securities or other property which it would have
received had it converted the Preferred Stock immediately
prior to such stock split, dividend or other
reclassification. No service charge will be made for any
such conversion.
9. Conversion Price.
Until 41 days after the Determination Date, as defined
below, the Conversion Price for conversion at the option of
the holder shall be equal to the Closing Bid Price, as
defined below, on the Determination Date. The Conversion
Price for conversion at the option of the holder on and
after 41 days after the Determination Date shall be the
lower of (i) the Closing Bid Price on the Determination
Date, or (ii) 80% of the Market Price.
"Determination Date" shall be August 23, 1995--the day that
the Company has received from the purchaser both (i) an
original or facsimile Regulation S Subscription Agreement,
and (ii) payment in full for the subscribed shares.
"Closing Bid Price" of the Common Stock for each day shall
be the closing bid price of the Common Stock on such day as
reported on the New York Stock Exchange composite tape, or,
if the Common Stock is not listed or admitted for trading on
such Exchange, on the principal national securities exchange
on which is the Common Stock is listed or admitted for
trading, or if not listed or admitted for trading on any
national securities exchange, the closing bid price of the
Common Stock as reported by the National Association of
Securities Dealers Automated Quotation System ("Nasdaq")
(or, if not so reported, the closing price).
"Market Price" shall mean the average of the Closing Bid
Price for the five trading days prior to the Date of
Conversion (as herein defined).
10. Redemption Requirement.
The Company is required to redeem any outstanding and
unconverted Preferred Stock on October 1, 1997. The
redemption price is $20.00 per share of Preferred Stock,
plus any accrued but unpaid dividends.
11. Premium for Early Redemption.
If any Preferred Stock is tendered for conversion at the
option of the holder, the Company shall have the right, at
its option, to redeem such Preferred Stock for cash by
giving notice (the "Early Redemption Notice") to the holder
by facsimile, original to follow by two-day courier, within
one business day from the date facsimile notice of
conversion is received by the Company. The redemption price
shall be paid to the holder within seven calendar days after
such facsimile has been given. The redemption price per
share of Preferred Stock (the "Redemption Price") shall be
calculated by multiplying $20.00 plus all accrued but unpaid
dividends on one share of Preferred Stock by the greater of
a) 115%, or b) a fraction, the numerator of which shall be
the Closing Bid Price on the proposed Date of Conversion,
and the denominator of which shall be Conversion Price, as
defined above, applicable to holder's notice of conversion.
Upon the giving of the Early Redemption Notice, all
conversion rights of the affected Preferred Stock
(notwithstanding the furnishing by the holder hereof of a
notice of conversion to the Company), shall forthwith
terminate, except only the right of the holder to receive
the Redemption Price.
<PAGE>
12. Adjustment for Certain Recapitalizations
In the event of a split, reverse split or similar adjustment
to the outstanding Common Stock other than stock dividends,
an appropriate adjustment shall be made to the Conversion
Price.
13. Voting Rights.
The Preferred Stock shall have one vote per share and,
except as to matters for which Nevada law requires class
voting, shall vote as a single class with the Common Stock.
14. Registration Rights.
The Company has granted a one-time demand registration right
to the holders of the Class B Preferred Stock, on the Common
Stock issuable on conversion, exercisable by the written
demand of holders of more than 50% of such securities. The
Company will provide any holder of such registration rights,
upon request, a list of all such holders to facilitate
organization of the registration demand. As soon as
practicable after receipt of such demand the Company will
file a registration statement relating to the resale of the
Common Stock issuable on conversion of the Preferred Stock
and any Common Stock issued in payment of dividends. There
is also a one-time "piggyback" registration right for such
securities.
AND THAT the issuance of 25,000 shares of Preferred Stock has been
authorized by the Board of Director of the Company.
IN WITNESS WHEREOF, the Company has caused this Certificate to be
executed in its corporate name by its President and its corporate seal to be
hereunto affixed and attached by its Secretary this __ day of 3/28/96.
MEDNET, MPC CORPORATION
/s/ M.B. Merryman
------------------------------
M.B. Merryman
President and Chief Executive
Officer
ATTEST:
/s/ Julie Ledbetter
- --------------------------
Julie Ledbetter, Secretary
<PAGE>
STATE OF NEVADA )
:ss.
COUNTY OF CLARK )
I, ________________, a notary public, hereby certify that on this __ day of
3/28/96, personally appeared before me _______________________, an officer of
Mednet, MPC Corporation, who being by me first duly sworn, severally declared
that he is the person who signed the foregoing document, and that the statements
therein contained are true.
---------------------------
My Commission Expires: Notary Public
Residing at:
---------------------------
Exhibit 3.2.4
CERTIFICATE OF DESIGNATION, PREFERENCES AND RIGHTS OF
PREFERENCE SHARES BY RESOLUTION OF THE BOARD OF DIRECTORS
PROVIDING FOR AN ISSUE OF 25,000 PREFERRED SHARES DESIGNATED
AS SERIES B-3 PREFERRED SHARES
MEDNET, MPC CORPORATION (hereinafter referred to as the "Company"), a
corporation organized and existing under the laws of the state of Nevada, in
accordance with Title 7 Section 78.195 of the Private Corporations Law of the
State of Nevada, does certify:
THAT the Board of Directors of the Company, by unanimous consent dated
August __, 1995, adopted a resolution providing for the issuance of a series of
preferred shares to be designated "Series B-3 Preferred Shares" with a
resolution as follows:
RESOLVED, that the Board of Directors does hereby provide for the
issuance of a series of preferred shares of the Company, of a par value
$.01 per share, to be designated "Series B-3 Preferred Shares"
(hereinafter "Preferred Stock") consisting of 25,000 shares which
number of shares may be increased or decreased (but not below the
number of shares thereof outstanding) from time to time by the Board of
Directors; and to the extent that the designations, powers, preferences
and relative and other special rights and the qualifications,
limitations and restrictions of the Preferred Stock are not stated and
expressed in the Articles of Incorporation, does hereby fix and herein
state and express such designations, powers, preferences and relative
and other special rights and the qualifications, limitations and
restrictions thereof as follows:
1. Designation of Series.
Series B-3 Preferred Shares
2. Number of Shares Constituting Such Series.
25,000 Shares
3. Series B Preferred Shares as a Class.
Series B-3 shall be part of the same class as all other
Series B Preferred Shares. All issuances of Series B
Preferred Shares, except for the Determination Date as
detailed in Section 9, are identical in all designations,
powers, preferences and relative and other special rights
and qualification, limitations and restrictions.
4. Series A Preferred Shares.
The issuance of Preferred Stock shall in no way affect the
Company's right to issue a senior series of preferred shares
designated in the Articles of Incorporation as "Series A
Preferred Shares."
5. Dividends.
The Preferred Stock shall be entitled to a dividend of $1.60
per year (8% of the purchase price) payable in four
quarterly installments per year commencing January 1, 1996,
as declared by the Board of Directors. The Company may pay
the dividends in Common Stock instead of cash. The amount of
any Common Stock issued in payment of dividends will be
based upon the Common Bid Price, as defined below, for the
Common Stock over the five trading days preceding the
dividend payment date.
6. Preference on Liquidation.
In the event of any voluntary or involuntary dissolution,
liquidation or winding up of the affairs of the Company, the
holders of the Preferred Stock shall share in the
distribution of any net assets available for distribution to
equity holders as a class with the Common Stock on the same
basis as if the Preferred Stock had been converted at the
Company's election one business day prior to liquidation. No
payment could be made to the Preferred Stock on liquidation
prior to the satisfaction of claims of creditors and other
senior classes.
<PAGE>
Neither the merger nor consolidation of the Company into or
with any other corporation, nor the merger or consolidation
of any other corporation into or with the Company, nor a
sale, transfer or lease of all or any part of the assets of
the Company, shall be deemed to be a dissolution,
liquidation or winding up of the Company within the meaning
of this Paragraph 4.
Written notice of any voluntary or involuntary dissolution,
liquidation or winding up of the affairs of the Company,
stating a payment date and the place where the distributable
amounts shall be payable, shall be given, either personally
or by mail to each holder of Preferred Stock, not less than
30 days prior to the payment date stated therein. If mailed,
such notice shall be deemed to be delivered when deposited
in the United States mail addressed to the holder at the
holder's address as it appears on the share transfer books
of the Company, with postage thereon prepaid.
7. Conversion at the Option of the Company.
The Company shall have the right, at its option, any time
commencing on August 9, 1996 to cause the Preferred Stock to
be converted into Common Stock. Each share of Preferred
Stock is convertible into that number of shares of Common
Stock determined by dividing (i) the sum of $20.00 per share
of Preferred Stock plus any outstanding dividends accrued
but not yet paid by (ii) the "Conversion Price" as defined
below. For purposes of conversion only, dividends will be
deemed to accrue daily based on a 360 day year.
Notwithstanding the above, the Company is not entitled to
require conversion if the Company makes any planned press
release either a) on the day it provides notice of such
mandatory conversion to the holder or b) prior to the close
of trading on the following business day.
The Conversion Price for conversion at the option of the
Company shall be the lower of (i) the Closing Bid Price on
the Determination Date, or (ii) 75% of the Market Price, as
defined below.
8. Conversion at the Option of the Holder.
The Holder of shares of Preferred Stock shall have the right
to convert at any time in their discretion the Preferred
Stock held by him to be converted into Common Stock. Each
share of Preferred Stock is convertible into that number of
shares of Common Stock determined by dividing (i) the sum of
$20.00 per share of Preferred Stock plus any outstanding
dividends accrued but not yet paid by (ii) the "Conversion
Price" as defined below. For purposes of conversion only,
dividends will be deemed to accrue daily based on a 360 day
year.
Such conversion shall be effectuated by surrendering the
Preferred Stock to be converted by overnight courier to the
Company's registrar and transfer agent, ("Transfer Agent"),
with a conversion notice (with an advance copy of the Stock
and the conversion notice to the Transfer Agent and the
Company by facsimile), executed by the Holder evidencing
such Holder's intention to convert the Preferred Stock, and
accompanied, in the event the Holder desires to register the
shares of Common Stock in a name other than that of Holder,
by proper assignment hereof. The Company and the Transfer
Agent shall make a reasonable effort to deliver the
converted shares to the Holder within three business days
from date of receipt of the conversion notice and the
original of the Preferred Stock certificate.
<PAGE>
In all cases the conversion of the Preferred Stock in full
shall represent payment of all dividend and principal
payable to the Holder hereunder. No fractions of shares or
scrip representing fractions of shares will be issued on
conversion, but the number of shares issuable shall be
rounded up to the nearest whole share. The date on which
notice of conversion is given (the "Date of Conversion")
shall be deemed to be the date set forth in such notice of
conversion if the original of the Preferred Stock
certificate is received by the Transfer Agent within five
business days thereafter. If the original Preferred Stock
certificate is not received by the Transfer Agent within
five business days after the Date of Conversion, the notice
of conversion shall become null and void. In the event of
any stock split, stock dividend payable in securities of the
Company, or other reclassification of the Common Stock, the
conversion price shall be equitably adjusted so that the
Holder shall receive, in exchange for the conversion price,
such securities or other property which it would have
received had it converted the Preferred Stock immediately
prior to such stock split, dividend or other
reclassification. No service charge will be made for any
such conversion.
9. Conversion Price.
Until 41 days after the Determination Date, as defined
below, the Conversion Price for conversion at the option of
the holder shall be equal to the Closing Bid Price, as
defined below, on the Determination Date. The Conversion
Price for conversion at the option of the holder on and
after 41 days after the Determination Date shall be the
lower of (i) the Closing Bid Price on the Determination
Date, or (ii) 85% of the Market Price.
"Determination Date" shall be August 23, 1995--the day that
the Company has received from the purchaser both (i) an
original or facsimile Regulation S Subscription Agreement,
and (ii) payment in full for the subscribed shares.
"Closing Bid Price" of the Common Stock for each day shall
be the closing bid price of the Common Stock on such day as
reported on the New York Stock Exchange composite tape, or,
if the Common Stock is not listed or admitted for trading on
such Exchange, on the principal national securities exchange
on which is the Common Stock is listed or admitted for
trading, or if not listed or admitted for trading on any
national securities exchange, the closing bid price of the
Common Stock as reported by the National Association of
Securities Dealers Automated Quotation System ("Nasdaq")
(or, if not so reported, the closing price).
"Market Price" shall mean the average of the Closing Bid
Price for the five trading days prior to the Date of
Conversion (as herein defined).
10. Redemption Requirement.
The Company is required to redeem any outstanding and
unconverted Preferred Stock on October 1, 1997. The
redemption price is $20.00 per share of Preferred Stock,
plus any accrued but unpaid dividends.
11. Premium for Early Redemption.
If any Preferred Stock is tendered for conversion at the
option of the holder, the Company shall have the right, at
its option, to redeem such Preferred Stock for cash by
giving notice (the "Early Redemption Notice") to the holder
by facsimile, original to follow by two-day courier, within
one business day from the date facsimile notice of
conversion is received by the Company. The redemption price
shall be paid to the holder within seven calendar days after
such facsimile has been given. The redemption price per
share of Preferred Stock (the "Redemption Price") shall be
calculated by multiplying $20.00 plus all accrued but unpaid
dividends on one share of Preferred Stock by the greater of
a) 115%, or b) a fraction, the numerator of which shall be
the Closing Bid Price on the proposed Date of Conversion,
and the denominator of which shall be Conversion Price, as
defined above, applicable to holder's notice of conversion.
Upon the giving of the Early Redemption Notice, all
conversion rights of the affected Preferred Stock
(notwithstanding the furnishing by the holder hereof of a
notice of conversion to the Company), shall forthwith
terminate, except only the right of the holder to receive
the Redemption Price.
<PAGE>
12. Adjustment for Certain Recapitalizations
In the event of a split, reverse split or similar adjustment
to the outstanding Common Stock other than stock dividends,
an appropriate adjustment shall be made to the Conversion
Price.
13. Voting Rights.
The Preferred Stock shall have one vote per share and,
except as to matters for which Nevada law requires class
voting, shall vote as a single class with the Common Stock.
14. Registration Rights.
The Company has granted a one-time demand registration right
to the holders of the Class B Preferred Stock, on the Common
Stock issuable on conversion, exercisable by the written
demand of holders of more than 50% of such securities. The
Company will provide any holder of such registration rights,
upon request, a list of all such holders to facilitate
organization of the registration demand. As soon as
practicable after receipt of such demand the Company will
file a registration statement relating to the resale of the
Common Stock issuable on conversion of the Preferred Stock
and any Common Stock issued in payment of dividends. There
is also a one-time "piggyback" registration right for such
securities.
AND THAT the issuance of 25,000 shares of Preferred Stock has been
authorized by the Board of Director of the Company.
IN WITNESS WHEREOF, the Company has caused this Certificate to be
executed in its corporate name by its President and its corporate seal to be
hereunto affixed and attached by its Secretary this __ day of 3/28/96.
MEDNET, MPC CORPORATION
/s/ M.B. Merryman
------------------------------
M.B. Merryman
President and Chief Executive
Officer
ATTEST:
/s/ Julie Ledbetter
- --------------------------
Julie Ledbetter, Secretary
<PAGE>
STATE OF NEVADA )
:ss.
COUNTY OF CLARK )
I, ________________, a notary public, hereby certify that on this __ day of
3/28/96, personally appeared before me _______________________, an officer of
Mednet, MPC Corporation, who being by me first duly sworn, severally declared
that he is the person who signed the foregoing document, and that the statements
therein contained are true.
---------------------------
My Commission Expires: Notary Public
Residing at:
---------------------------
Exhibit 3.2.5
CERTIFICATE OF DESIGNATION, PREFERENCES AND RIGHTS OF
PREFERENCE SHARES BY RESOLUTION OF THE BOARD OF DIRECTORS
PROVIDING FOR AN ISSUE OF 150,000 PREFERRED SHARES DESIGNATED
AS SERIES C PREFERRED SHARES
MEDNET, MPC CORPORATION (hereinafter referred to as the "Company"), a
corporation organized and existing under the laws of the state of Nevada, in
accordance with Title 7 Section 78.195 of the Private Corporations Law of the
State of Nevada, does certify:
THAT the Board of Directors of the Company, by unanimous consent dated
February 16, 1996, adopted a resolution providing for the issuance of a series
of preferred shares to be designated "Series C Preferred Shares" with a
resolution as follows:
RESOLVED, that the Board of Directors does hereby provide for the
issuance of a series of preferred shares of the Company, of a par value
$.01 per share, to be designated "Series C Preferred Shares"
(hereinafter "Preferred Stock") consisting of 150,000 shares which
number of shares may be increased or decreased (but not below the
number of shares thereof outstanding) from time to time by the Board of
Directors; and to the extent that the designations, powers, preferences
and relative and other special rights and the qualifications,
limitations and restrictions of the Preferred Stock are not stated and
expressed in the Articles of Incorporation, does hereby fix and herein
state and express such designations, powers, preferences and relative
and other special rights and the qualifications, limitations and
restrictions thereof as follows:
1. Designation of Series.
Series C Preferred Shares
2. Number of Shares Constituting Such Series.
150,000 Shares
3. Relationship to Series A Preferred Shares.
The Company's preferred shares designated as the "10% Series
A Convertible Exchangeable Preferred Stock" ("Series A
Preferred") shall be senior to the Preferred Stock
designated hereby with respect to payment of dividends and
distributions on liquidation. Without the consent of the
holders of the Preferred Stock designated hereby, the
Company shall not issue any additional shares of Series A
Preferred not outstanding on the date hereof.
4. Dividends.
The Preferred Stock shall not be entitled to receive
dividends, other than distributions on liquidation as
provided herein.
5. Definition of Adjusted Face Amount.
As used herein, the term "Adjusted Face Amount" on any date
of one share of the Preferred Stock shall mean the sum of
(i) $20.00, plus (ii) an amount equal to 4% per annum simple
interest on such $20.00 calculated on the basis of a 360 day
year of 12 thirty day months, which interest shall accrue
daily commencing the original issue date for the Preferred
Stock and which shall continue to accrue until all amounts
in respect of the Preferred Stock shall have been paid in
full to the holders thereof.
6. Preference on Liquidation.
In the event of any voluntary or involuntary dissolution,
liquidation or winding up of the affairs of the Company, the
holders of the Preferred Stock shall be entitled to receive
from the Company out of the assets legally available for
distribution upon such dissolution, liquidation or winding
up, the Adjusted Face Amount in respect of each share of
Preferred Stock, calculated at the date of payment to such
holders. No payment could be made to the Preferred Stock on
liquidation prior to the satisfaction of claims of creditors
and payment in full of the liquidation preference of the
Series A Preferred.
<PAGE>
A sale, conveyance or disposition of all or substantially
all of the assets of the Company shall be deemed a
liquidation under this Paragraph 6; however, neither the
merger nor consolidation of the Company into or with any
other corporation, nor the merger or consolidation of any
other corporation into or with the Company, shall be deemed
to be a dissolution, liquidation or winding up of the
Company within the meaning of this Paragraph , but shall be
instead subject to Paragraph 13 hereof.
Written notice of any voluntary or involuntary dissolution,
liquidation or winding up of the affairs of the Company,
stating a payment date and the place where the distributable
amounts shall be payable, shall be given, either personally
or by mail to each holder of Preferred Stock, not less than
30 days prior to the payment date stated therein. If mailed,
such notice shall be deemed to be delivered when deposited
in the United States mail addressed to the holder at the
holder's address as it appears on the share transfer books
of the Company, with postage thereon prepaid.
7. Conversion at the Option of the Company.
The Company shall have the right, at its option, any time
commencing one calendar year from the date hereof to cause
the Preferred Stock to be converted into the Common Shares,
$.001 par value of the Company ("Common Stock"). Each share
of Preferred Stock is convertible into that number of shares
of Common Stock determined by dividing (i) the Adjusted Face
Amount on the date of conversion by (ii) the "Company
Conversion Price" as defined below. Notwithstanding the
above, the Company is not entitled to require conversion if
the Company makes any planned press release either a) on the
day it provides notice of such mandatory conversion to the
holder or b) prior to the close of trading on the following
business day.
The Company Conversion Price for conversion at the option of
the Company shall be the lower of (i) the Closing Bid Price
as defined below on the Determination Date, or (ii) 80% of
the Market Price, as defined below.
8. Conversion at the Option of the Holder.
The holders of shares of Preferred Stock shall have the
right in their discretion at any time on or after the date
41 days following the issuance of the original Preferred
Stock certificates to convert any whole number of shares of
the Preferred Stock held by them into Common Stock. Each
share of Preferred Stock is convertible into that number of
shares of Common Stock determined by dividing (i) the
Adjusted Face Amount on the date of conversion by (ii) the
"Conversion Price" as defined below.
Such conversion shall be effectuated by surrendering the
Preferred Stock to be converted by overnight courier to the
Company's registrar and transfer agent ("Transfer Agent")
with a conversion notice (with an advance copy of the
conversion notice to the Transfer Agent and the Company by
facsimile), executed by the holder evidencing such holder's
intention to convert the number of shares of Preferred Stock
subject to such notice, and accompanied, in the event the
holder desires to register the shares of Common Stock in a
name other than that of holder, by proper assignment hereof.
The Company and the Transfer Agent shall deliver the shares
of Common Stock subject to such notice (free of restrictive
legend as provided in the Convertible Preferred Stock
Purchase Agreement between the Company and the original
holders of the Preferred Stock) to the holder within three
business days from date of receipt of the conversion notice
and the original of the Preferred Stock certificate (or a
lost certificate affidavit and bond in form reasonably
satisfactory to the Company if the original certificate has
been lost, mutilated or destroyed). If the holder is
converting less than all shares of Preferred Stock
represented by the certificate or certificates tendered by
the holder with the above mentioned conversion notice, the
Company shall promptly deliver to the holder a certificate
for such number of shares of Preferred Stock as have not
been converted.
<PAGE>
In all cases the conversion of the Preferred Stock in full
on the terms and at the applicable price contemplated hereby
shall represent payment of the entire Adjusted Face Amount
payable to the Holder hereunder. No fractions of shares or
scrip representing fractions of shares will be issued on
conversion, but the number of shares issuable shall be
rounded up to the nearest whole share. The date on which
notice of conversion is given (the "Date of Conversion")
shall be deemed to be the date set forth in such notice of
conversion if the original of the Preferred Stock
certificate (or lost certificate affidavit and bond as
described above) is received by the Transfer Agent within
five business days thereafter. If the original Preferred
Stock certificate (or a lost certificate affidavit and bond
in form reasonably satisfactory to the Company if the
original certificate has been lost, mutilated or destroyed)
is not received by the Transfer Agent within five business
days after the Date of Conversion, the notice of conversion
shall become null and void. No service charge will be made
for any such conversion.
9. Conversion Price.
Until 41 days after the Determination Date, as defined
below, the "Conversion Price" for conversion at the option
of the holder shall be equal to the Closing Bid Price on the
Determination Date. The Conversion Price for conversion at
the option of the holder on and after 41 days after the
Determination Date shall be the lower of (i) the Closing Bid
Price on the Determination Date, or (ii) 80% of the Market
Price.
"Determination Date" shall be February 22, 1996.
"Closing Bid Price" of the Common Stock for each day shall
be the closing bid price of the Common Stock on such day as
reported on the New York Stock Exchange composite tape, or,
if the Common Stock is not listed or admitted for trading on
such Exchange, on the principal national securities exchange
or market on which the Common Stock is listed or admitted
for trading, or if not listed or admitted for trading on any
national securities exchange, the closing bid price of the
Common Stock on the over-the-counter market as reported by
the National Association of Securities Dealers Automated
Quotation System ("Nasdaq") or if the Common Stock is no
longer publicly traded, the fair market value of the Common
Stock as determined by a nationally recognized or major
regional investment banking firm or firm of independent
certified public accountants of recognized standing (which
may be the firm that regularly examines the financial
statements of the Company)(an "Appraiser") selected in good
faith by the holders of a majority of the shares of
Preferred Stock then outstanding; provided, that the
Company, no later than the fifth calendar day after receipt
of the determination by such Appraiser shall have the right
to select an additional Appraiser, in which case the fair
market value shall be equal to the average of the
determinations by each such Appraiser.
<PAGE>
"Market Price" shall mean the Closing Bid Price for the
trading day immediately prior to the Date of Conversion (as
herein defined).
10. Redemption Requirement.
The Company is required to redeem any outstanding and
unconverted Preferred Stock on March 31, 1998 (the
"Mandatory Redemption Date"). The redemption price per share
of Preferred Stock (the "Mandatory Redemption Price") shall
equal the Adjusted Face Amount on the Mandatory Redemption
Date. The Mandatory Redemption Price shall be paid by the
Company to the holders of such unconverted Preferred Stock
on the Mandatory Redemption Date. If any portion of the
Mandatory Redemption Price shall not be paid by the Company
within 7 calendar days after the Mandatory Redemption Date,
such Mandatory Redemption Price shall be increased by an
amount accruing from the 7th day to the 21st day after the
Mandatory Redemption Date at the rate of 5% per annum, from
the 22nd day to the 60th day at 8% per annum and from the
61st day until paid at the rate of 12% per annum.
11. Premium for Early Redemption.
If any Preferred Stock is tendered for conversion at the
option of the holder, the Company shall have the right, at
its option, to redeem such Preferred Stock for cash by
giving notice (the "Early Redemption Notice") to the holder
by facsimile, original to follow by two-day courier, within
one business day from the date facsimile notice of
conversion is received by the Company. The redemption price
shall be paid to the holder within seven calendar days after
such facsimile has been given (the "Early Redemption Date").
The redemption price per share of Preferred Stock (the
"Early Redemption Price") shall be calculated by multiplying
the Adjusted Face Amount as of the proposed Conversion Date
by the greater of a) 120%, or b) a fraction, the numerator
of which shall be the Closing Bid Price on the proposed Date
of Conversion, and the denominator of which shall be
Conversion Price, as defined above, applicable to holder's
notice of conversion. Upon the giving of the Early
Redemption Notice, all conversion rights of the affected
Preferred Stock (notwithstanding the furnishing by the
holder hereof of a notice of conversion to the Company),
shall forthwith terminate, except only the right of the
holder to receive the Redemption Price. If any portion of
the Early Redemption Price shall not be paid by the Company
within 7 calendar days after the Early Redemption Date, such
Early Redemption Price shall be increased by an amount
accruing from the 7th day to the 21st day after the Early
Redemption Date at the rate of 5% per annum, from the 22nd
day to the 60th day at 8% per annum and from the 61st day
until paid at the rate of 12% per annum.
12. Adjustment for Certain Recapitalizations
In the event of any (i) stock split, stock dividend or other
distribution on the Common Stock payable in securities of
the Company, or (ii) other reclassification of the Common
Stock, or (iii) issuance by the Company of rights or
warrants to all holders of Common Stock entitling them to
subscribe for or purchase shares of Common Stock at a price
per share less than the Closing Bid Price of Common Stock on
the date of such issuance, or (iv) distribution to all
holders of Common Stock (and not to holders of Preferred
Stock) of evidences of its indebtedness or assets, the
conversion price shall be equitably adjusted so that the
holders shall receive, in exchange for the conversion price,
such securities or other property which they would have
received had they converted the Preferred Stock immediately
prior to such event. The Company shall notify the holders of
the Preferred Stock at least 20 days prior to the record
date of any event which would so require an adjustment to
the Conversion Price including such information as may be
necessary for the holders to determine or estimate the
anticipated adjustments to the Conversion Price.
<PAGE>
13. Consolidations or Merger
In case of any consolidation or merger of the Company with
or into another person, or any sale or transfer of all or
substantially all of the assets of the Company or any
compulsory share exchange pursuant to which share exchange
the Common Stock is converted into other securities, cash or
property, then the holders of the Preferred Stock then
outstanding shall have the right thereafter to convert such
shares only into the kind and amount of shares of stock and
other securities and property receivable upon or deemed to
be held following such reclassification, consolidation,
merger, sale, transfer or share exchange by a holder of a
number of shares of the Common Stock of the Company into
which such shares of Preferred Stock could have been
converted immediately prior to such reclassification,
consolidation, merger, sale, transfer or share exchange. The
terms of any such consolidation, merger, sale, transfer or
share exchange shall include such terms so as to continue to
give to the holders of Preferred Stock the right to receive
the securities or property set forth in this Paragraph upon
any conversion following such consolidation, merger, sale,
transfer or share exchange. This provision shall similarly
apply to successive consolidations, mergers, sales,
transfers or share exchanges.
14. Voting Rights.
The Preferred Stock shall have one vote per share and,
except as to matters for which Nevada law requires class
voting, shall vote as a single class with the Common Stock.
15. Registration Rights.
The Company has granted a one-time demand registration right
and certain piggyback registration rights to the holders of
the Preferred Stock, on the Common Stock issuable on
conversion, on the terms and conditions set forth in the
Convertible Preferred Stock Purchase Agreement between the
Company and the original purchaser of the Preferred Stock.
The Company will provide any holder of such registration
rights, upon request, a list of all such holders to
facilitate organization of any registration demand.
AND THAT the issuance of 150,000 shares of Preferred Stock has been
authorized by the Board of Directors of the Company.
IN WITNESS WHEREOF, the Company has caused this Certificate to be
executed in its corporate name by its President and its corporate seal to be
hereunto affixed and attached by its Secretary this __ day of 3/28/96.
MEDNET, MPC CORPORATION
/s/ Dennis Smith
------------------------------
Dennis Smith
Vice-President
ATTEST:
/s/ Julie Ledbetter
- --------------------------
Julie Ledbetter, Secretary
<PAGE>
STATE OF NEVADA )
:ss.
COUNTY OF CLARK )
I, ________________, a notary public, hereby certify that on this __ day of
3/28/96, personally appeared before me _______________________, an officer of
Mednet, MPC Corporation, who being by me first duly sworn, severally declared
that he is the person who signed the foregoing document, and that the statements
therein contained are true.
---------------------------
My Commission Expires: Notary Public
Residing at:
---------------------------
Subsidiaries of the Registrant
<TABLE>
<S> <C> <C>
Medi-Mail, Inc.
Incorporated in Nevada
Medi-Phar, Inc. Medi-Claim, Inc. Family Pharmaceuticals of America, Inc.
Incorporated in Nevada Incorporated in Nevada Incorporated in South Carolina
Doing business as: Doing business as: Doing business as:
Medi-Phar Medi-Claim Medi-Mail
Medco Drugs Avesis
Mednet
</TABLE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus
constituting part of the Registration Statements on Form S-3 (Numbers 33-42326,
33-46585 and 33-80828) and in the Prospectus constituting part of the
Registration Statements on Form S-8 (Numbers 33-43906, 33-89444, 33-89422 and
33-89420) of our report dated March 8, 1996, except for Note 6 as to which the
date is March 27, 1996, appearing on Page F-1 of this Form 10-K.
/s/ McGLADREY & PULLEN, LLP
---------------------------
Las Vegas, Nevada
March 29, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE DECEMBER
31, 1995 10-K OF MEDNET, MPC CORPORATION AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 42
<SECURITIES> 0
<RECEIVABLES> 19,173
<ALLOWANCES> 1,375
<INVENTORY> 2,849
<CURRENT-ASSETS> 20,932
<PP&E> 2,712
<DEPRECIATION> 1,180
<TOTAL-ASSETS> 41,903
<CURRENT-LIABILITIES> 26,070
<BONDS> 1,422
5,350
0
<COMMON> 29
<OTHER-SE> 9,032
<TOTAL-LIABILITY-AND-EQUITY> 41,903
<SALES> 114,297
<TOTAL-REVENUES> 114,297
<CGS> 98,253
<TOTAL-COSTS> 98,253
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 1,197
<INTEREST-EXPENSE> 1,273
<INCOME-PRETAX> (13,332)
<INCOME-TAX> 0
<INCOME-CONTINUING> (13,332)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (13,332)
<EPS-PRIMARY> (.53)
<EPS-DILUTED> (.53)
</TABLE>
