FORM 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------------
{x} Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended June 30, 1996
OR
{ } Transition Report Pursuant to Section 13 or 15(d) of the
Securities and Exchange Act of 1934
For the transition period from ______________________________
Commission file number 0-17120
-------
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
Number
871-C Grier Drive, Las Vegas, Nevada 89119
- --------------------------------------------------------------------------------
(Address of principal executive offices Zip Code
(702) 361-3119
---------------------------------------------------
Registrant's telephone number, including area code)
________________________________________________________________________________
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. [x] Yes [ ] No
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class of Stock Amount Outstanding
- ---------------------------------------- -----------------------------------
$.001 par value Common Shares 30,630,610 Shares at June 30, 1996
$.01 par value Preferred Shares-Series A 267,500 Shares at June 30, 1996
$.01 par value Preferred Shares-Series D 145,000 Shares at June 30, 1996
$.01 par value Preferred Shares-Series E 125,000 Shares at July 16, 1996
<PAGE>
MEDNET, MPC CORPORATION
TABLE OF CONTENTS
Part I - Financial Information
Item 1. Consolidated Financial Statements
Balance Sheets
Statements of Operations
Statements of Cash Flows
Notes to Financial Statements
Item 2. Management's Discussion and Analysis
of Financial Condition and
Results of Operations
Part II - Other Information
Item 1. Legal Proceedings
Item 2. Changes in Securities
Item 3. Defaults upon Senior Securities
Item 4. Submission of Matters to a Vote
of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
<PAGE>
Mednet, MPC Corporation
Consolidated Balance Sheets
- --------------------------------------------------------------------------------
<TABLE>
June 30, December 31,
1996 1995
------------ ------------
<S> <C> <C>
Assets
Current Assets:
Cash and cash equivalents ........................................ $ 2,194,000 $ 42,000
Accounts receivable, less allowance for doubtful accounts of
$1,051,000 at June 30, 1996 and $1,375,000 at December 31, 1995 21,906,000 17,798,000
Inventories ...................................................... 1,081,000 2,849,000
Other current assets ............................................. 1,876,000 243,000
------------ ------------
Total current assets ........................................ 27,057,000 20,932,000
Property, plant and equipment ....................................... 1,551,000 1,532,000
Intangible assets ................................................... 17,638,000 18,582,000
Other assets ........................................................ 806,000 857,000
------------ ------------
47,052,000 $ 41,903,000
============ ============
Liabilities and Stockholders' Equity
Current Liabilities:
Revolving line of credit ......................................... $ 7,649,000 $ 3,709,000
Accounts payable ................................................. 14,355,000 17,483,000
Accrued expenses ................................................. 1,610,000 2,139,000
Current portion of long-term debt ................................ 5,659,000 2,739,000
------------ ------------
29,273,000 26,070,000
Long term debt ...................................................... 219,000 1,422,000
Redeemable convertible preferred stock - Series A ................... 5,350,000 5,350,000
Convertible preferred stock: $20.00 par value, ( Series D
145,000 shares outstanding at June 30, 1996)
2,900,000 --
Common stock: $.001 par value, (42,000,000 shares authorized,
30,620,610 at June 30, 1996 and 29,149,118 at December 31, 1995
issued and outstanding) ........................................... 31,000 29,000
Additional paid-in capital .......................................... 43,479,000 42,778,000
Accumulated deficit ................................................. (34,200,000) (33,746,000)
------------ ------------
Stockholders' equity ................................................ 12,210,000 9,061,000
------------ ------------
Total liabilities and stockholders' equity .................. $ 47,052,000 $ 41,903,000
============ ============
</TABLE>
<PAGE>
Mednet, MPC Corporation
Consolidated Statements of Operations
- --------------------------------------------------------------------------------
<TABLE>
For the Three
Months Ended
June 30,
1996 1995
------------- ----------
<S> <C> <C>
Sales ....................................................... 25,141,000 27,915,000
Less: cost of sales ......................................... 20,650,000 23,594,000
----------- -----------
Gross profit ................................................ 4,491,000 4,321,000
----------- -----------
Selling, general and administrative expenses ................ 3,623,000 3,388,000
----------- -----------
Operating income before depreciation and amortization 868,000 933,000
Depreciation and amortization ............................... 751,000 947,000
Operating income (loss) ............................. 117,000 (14,000)
Other income (expense):
Interest and dividend income ............................. - 11,000
Interest expense ......................................... (523,000) (185,000)
Less: Subsidiaries net income for period not owned ...... - (578,000)
Other, net ............................................... 68,000 1,000
----------- -----------
Total other income (expense) ............................. (455,000) (751,000)
----------- -----------
Net loss ................................................. (338,000) (765,000)
=========== ===========
Net loss per common share ................................ (0.01) (0.03)
=========== ===========
Weighted average equivalent number of shares ............. 28,781,423 23,662,308
=========== ===========
</TABLE>
<PAGE>
Mednet, MPC Corporation
Consolidated Statements of Operations
- --------------------------------------------------------------------------------
<TABLE>
For the Six
Months Ended
June 30,
1996 1995
------------ ----------
<S> <C> <C>
Sales ................................................ 50,861,000 56,244,000
Less: cost of sales .................................. 42,502,000 47,872,000
----------- -----------
Gross profit ......................................... 8,359,000 8,372,000
----------- -----------
Selling, general and administrative expenses ......... 6,295,000 6,699,000
----------- -----------
Operating income before depreciation and
amortization ............................... 2,064,000 1,673,000
Depreciation and amortization ........................ 1,493,000 1,872,000
Operating income (loss) ...................... 571,000 (199,000)
Other income (expense):
Interest and dividend income ...................... 14,000 22,000
Interest expense .................................. (959,000) (429,000)
Less: Subsidiaries net income for period not owned - (803,000)
Other, net ........................................ 68,000 (93,000)
----------- -----------
Total other income (expense) ...................... (877,000) (1,303,000)
----------- -----------
Net loss .......................................... (306,000) (1,502,000)
=========== ===========
Net loss per common share ......................... (0.01) (0.06)
=========== ===========
Weighted average equivalent number of shares ...... 28,766,814 23,746,995
=========== ===========
</TABLE>
<PAGE>
Mednet, MPC Corporation
Consolidated Statements of Cash Flows
- --------------------------------------------------------------------------------
<TABLE>
For the Six
Months Ended
June 30,
1996 1995
------------ ------------
<S> <C> <C>
Cash flows from (used for) operating activities:
Cash received from customers ..................................... $ 46,753,000 $ 55,562,000
Cash paid to suppliers and employees ............................. (52,268,000) (55,551,000)
Net interest paid ................................................ (945,000) (407,000)
Other net ........................................................ 68,000 (93,000)
------------ ------------
Net cash (used for) operating activities .................... (6,392,000) (489,000)
------------ ------------
Cash flows from (used for) investing activities:
Purchase of property and equipment ............................... (568,000) (503,000)
Purchase of intangible assets .................................... -- (231,000)
------------ ------------
Net cash (used for) investing activities .................... (568,000) (734,000)
------------ ------------
Cash flows from financing activities
Proceeds from borrowings on revolving line of credit, net ........ 3,940,000 -
Proceeds from borrowings on long term debt ....................... 42,000 1,000,000
Repayment of borrowings .......................................... (2,807,000) (983,000)
Net proceed from issuance of preferred stock ..................... 8,071,000 214,000
Dividends paid ................................................... (134,000) --
------------ ------------
Net cash from financing activities .......................... 9,112,000 231,000
------------ ------------
Net increase (decrease) in cash ..................................... 2,152,000 (992,000)
Cash balance, beginning ............................................. 42,000 1,711,000
------------ ------------
Cash balance, ending ................................................ $ 2,194,000 $ 719,000
============ ============
Reconciliation of net loss to net cash used for operating activities:
Net loss ......................................................... (306,000) (1,502,000)
Net income of subsidiary for period not owned .................... -- (803,000)
Adjustments to reconcile net loss to cash used for
operating activities
Depreciation and amortization ............................... 1,493,000 1,872,000
Provision for doubtful accounts ............................. (324,000) 88,000
Change in assets and liabilities
(Increase) decrease in accounts receivable .................. (3,784,000) (770,000)
(Increase) decrease in inventories .......................... 1,768,000 109,000
(Increase) decrease in other current assets ................. (1,633,000) (347,000)
(Increase) decrease in other assets ......................... 51,000 (333,000)
Increase (decrease) in accounts payable ..................... (3,128,000) 990,000
Increase (decrease) in accrued expenses ..................... (529,000) 207,000
------------ ------------
Net cash used in operating activities ............................... (6,392,000) (489,000)
============ ============
Non-cash investing and financial activity:
Issuance of notes payable to settle FPA shortfall ................ $ 892,000
Converted accounts payable to note payable ....................... $ 1,300,000
Conversion of note payable to common stock ....................... $ 368,000
Conversion of preferred stock to common stock .................... $ 5,200,000
Escrowed common stock returned for notes payable $ 4,833,000
</TABLE>
<PAGE>
MEDNET, MPC CORPORATION
Notes to Consolidated Financial Statements
June 30, 1996
(1) Basis of Presentation
The consolidated financial statements included herein include the accounts of
Mednet, MPC Corporation and its subsidiaries(the "Company"), Medi -Mail, Inc.,
Medi-Phar, Inc., and Medi-Claim, Inc. In the opinion of Management, all
adjustments considered necessary for fair presentation have been reflected in
the consolidated financial statements. These adjustments are of a normal,
recurring nature. Operating results for the quarter ended June 30, 1996 are not
necessarily indicative of those expected for the full year. Certain prior year
amounts have been adjusted and reclassified to conform to the 1996 presentation.
The Statements of Operations for the three months and six months ended June 30,
1995 and the Statements of Cash Flows for the six months ended June 30, 1995,
have been restated to reflect the Home Pharmacy acquisition.
The accompanying unaudited interim consolidated financial statements have been
prepared in accordance with the instructions to Form 10-Q and the rules and
regulations of the Securities and Exchange Commission. These financial
statements have been prepared under the presumption that users of the interim
financial information have either read or have access to the Company's audited
financial statements for the year ended December 31, 1995. Accordingly, footnote
disclosures which would substantially duplicate the disclosures contained in the
Company's December 31, 1995 audited financial statements have been omitted from
these interim financial statements. Certain information and footnote disclosures
normally included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed of omitted pursuant to such
instruction, rules and regulations. Although the Company believes that the
disclosures are adequate to make the information presented not misleading, it is
suggested that these unaudited interim consolidated financial statements be read
in conjunction with the audited annual consolidated financial statements and the
note thereto included in the Company's Annual Report on Form 10-K for the year
ended December 31, 1995.
(2) Stock Transactions
Stock transactions that occurred during the quarter ended June 30, 1996 were:
Issuance of 300,000 shares of its Series D Preferred Stock convertible
to common stock at the option of the holder and under certain
conditions, the Company.
Convertible note payable converted
to common stock 169,284 shares
105,000 shares of Series C Preferred Stock
converted to common stock 1,058,707 shares
155,000 shares of Series D Preferred Stock
converted to common stock 1,767,600 shares
(3) Subsequent Events
In July, 1996, 35,000 shares of the Company's Series D Preferred Stock were
converted into 427,387 shares of common stock.
In July, 1996, the Company authorized 125,000 Series E Convertible Preferred
Stock with a stated value of $20 per share. The Series E Convertible Preferred
Stock was issued for $2,500,000. The sales of the Series E Convertible Preferred
Stock also provided for the sale, subject to certain conditions, of an
additional 125,000 shares of Series E Convertible Preferred shares.
(4) Commitments and Contingencies
Except as set forth in Part II of this Form 10-Q and in the Notes to the
Financial Statements included in the Company's Form 10-K for the period ended
December 31, 1995. The Company is not a party to any legal proceeding which, in
its belief, could have a material adverse effect on the Company.
<PAGE>
The Company failed to meet certain financial covenants with respect to the
revolving credit line. The Company has had discussions with Foothill Capital
Corporation ("Foothill") regarding these covenants, but has not reached an
agreement. The discussions are not continuing at present, and the Company
believes that the covenants are not likely to be waived or amended. To date,
Foothill has still allowed the Company to borrow up to the full capacity under
the original terms of the Credit Agreement. The Company has not received a
letter of default and has received no indication from Foothill that they intend
to exercise their right to accelerate the maturity of the debt. However, there
can be no assurances that these rights will not be excercised.
The Company is currently exploring other financing options which are available
to it. However, there can be no assurance that the Company will be able to
obtain alternative financing, or that such financing will be on similar or more
favorable terms. In the event the agreement is terminated before its maturity,
certain deferred charges could be charged to the income statement.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
June 30, 1996
Results of Operations
The following table sets forth certain financial data as a percentage of
consolidated net operating revenues of the Company for the periods presented:
Three Months Ended Six Months Ended
June 30, June 30,
------------------ -----------------
1996 1995 1996 1995
------------------------------------
Sales .................................. 100.00 100.00 100.00 100.00
Cost of sales .......................... 82.14 84.52 83.57 85.11
------------------------------------
Gross Margin ........................... 17.86 15.48 16.43 14.89
Selling, general and admin expenses .... 14.41 12.14 12.37 11.91
------------------------------------
Operating income before
depreciation and amortization ........ 3.45 3.34 4.06 2.98
Depreciation and amortization .......... 2.98 3.39 2.94 3.33
------------------------------------
Operating income/(loss) ................ .47 (.05) 1.12 (.35)
Other income (expense):
Interest and dividend income ......... -- .04 .03 .04
Interest expense ..................... (2.08) (.66) (1.88) (.76)
Subsidiary operations for
period not owned .................. -- (2.07) -- (1.43)
Other, net ........................... .27 -- .13 (.17)
------------------------------------
Total other expense .................... (1.81) (2.69) (1.72) (2.32)
Net income/(loss) ...................... (1.34) (2.74) (.60) (2.67)
====================================
Consolidated net sales for the quarter ended June 30, 1996 decreased 9.9%
($2,774,000) to $25,141,000 from $27,915,000 for the quarter ended June 30,
1995. Year to date net sales decreased by 9.6% from $56,244,000 to 50,861,000.
The decrease in sales is attributable to a decrease in the mail order
operations. The decrease for the quarter and year to date were 9.1% ($1,416,000)
and 17.6% (5,571,000), respectively. The decrease in mail-order resulted from
the loss of several former Home Pharmacy customers that did not continue after
the acquisition in part because of the Company's determination not to seek
renewal of contracts with very low profit margins. During the normal course of
business, the Company has acquired and lost customers, with the most significant
acquisition being the Commonwealth of Pennsylvania state hospitals. The Company
anticipates this contract will add additional revenues during the third and
fourth quarters as additional phases are implemented.
Claims processing sales increased during the quarter and year to date by 6.9%,
or $665,000 and 14.5%, or $2,853,000, respectively, as several new contracts
were implemented.
Consolidated cost of sales decreased as a percentage of sales and in total
dollars for both the quarter and year to date, reflecting improved overall
margins achieved primarily by non-renewal of certain accounts. Margins were also
improved with the change in suppliers from Bergen Brunswig to Cardinal Health.
Sales, general, and administrative expenses decreased in total dollars but
increased as a percentage of sales for the quarter and six months ended June 30,
1996 compared to the comparable periods from last year. The increase as a
percentage of sales is attributable to the implementation of several contracts,
most notably the Commonwealth of Pennsylvania.
The Company's results before depreciation and amortization (EBITDA) for the
quarter ended June 30, 1996 decreased by $65,000 from the same period last year.
As a percentage of sales, EBITDA increased slightly to 3.45% from last year's
3.34%. Year to date, EBITDA increased by $391,000 (23.4%) compared to the first
six months of last year. EBITDA increased to 4.06% from 2.98% as a percentage of
net sales.
<PAGE>
Depreciation and amortization expense decreased both in dollars and as a
percentage of sales for both the quarter and six months ended June 30, 1996
compared to the same periods last year. This decrease is attributable to the
write down of intangible assets in late 1995 primarily for the closure of the
South Carolina and Baltimore facilities. Depreciation and amortization on the
1995 acquisitions partially offset that decrease.
The above changes combined to create an operating income for both the quarter
and year to date compared to operating losses for the quarter and year to date
in 1995.
Interest expense increased for the quarter and six months ended June 30, 1996
compared to the same periods last year by 182.7% ($338,000) and 123.5%
($530,000). This increase reflects the interest on the Company's revolving
credit line initiated in December, 1995. Other income is also impacted by the
adjustment for subsidiary operations for the period not owned reflecting the
purchase of Home Pharmacy.
Liquidity and Capital Resources
Liquidity and cash flow remain a major concern to management. Working capital
deficit decreased to $2,216,000 at June 30, 1996 compared to deficit working
capital of $5,138,000 at December 31, 1995. During the first six months,
operating activities used $6,935,000 of cash flows. This is primarily
attributable to an increase in accounts receivable ($3,784,000), mostly from
state and governmental agencies and the pay down of accounts payable
($3,128,000). This was funded by the infusion of $2,100,000 gross proceeds from
the sales of Series C Preferred Stock and $6,000,000 gross proceeds from the
sale of Series D Preferred Stock.
Subsequent to the end of the second quarter, the Company obtained gross proceeds
of $2,500,000 for the sale of 125,000 shares of its Series E Preferred Stock.
These proceeds were used to pay down a note to ArcVentures as part of the Home
Pharmacy acquisition price. As part of the sales of the Series E Convertible
Preferred Stock, the Company has obtained a commitment, subject to certain
conditions, from the purchase of the Series E Convertible Stock to purchase
125,000 shares of the Series E Convertible Stock, to be designated by the
Company, at an aggregate purchase price of $2,500,000. The proceeds are intended
to be used to pay the remaining balance of the note due to ArcVentures, Inc.
(thus further reducing the current portion of long-term debt).
The Company failed to meet certain financial covenants with respect to the
revolving credit line. The Company has had discussions with Foothill Capital
Corporation ("Foothill") regarding these covenants, but has not reached an
agreement. The discussions are not continuing at present, and the Company
believes that the covenants are not likely to be waived or amended. To date,
Foothill has still allowed the Company to borrow up to the full capacity under
the original terms of the Credit Agreement. The Company has not received a
letter of default and has received no indication from Foothill that they intend
to exercise their right to accelerate the maturity of the debt. However, there
can be no assurances that these rights will not be exercised.
The Company is currently exploring other financing options which are available
to it. However, there can be no assurance that the Company will be able to
obtain alternative financing, or that such financing will be on similar or more
favorable terms. In the event the agreement is terminated before its maturity,
certain deferred charges could be charged to the income statement.
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
On June 10, 1996, the Company filed a complaint in the United States
District Court for the District of New Jersey against Bergen Brunswig
Drug Company and its parent corporation, Bergen Brunswig (collectively
"Bergen"). Prior to June 10, 1996, the Company had been purchasing a
substantial portion of its prescription drug requirements through
Bergen. The complaint alleges, among other things, that Bergen breached
its agreements to supply drugs to the Company by failing to deliver
ordered drugs, by attempting to coerce the Company into changing agreed
upon payment terms and by attempting to collect payment for delivered
drugs directly from the Company's customers. The complaint further
alleges that Bergen improperly disparaged the Company to its customers.
On June 11, 1996, Bergen Brunswig Drug Company filed a compliant in the
United States District Court for the District of Nevada against the
Company, its subsidiaries, Dr. Merryman, Dennis Smith, and Tom Warren.
Bergen's complaint seeks to recover $7,500,000 from the corporate
defendants alleged to be owing for products purchased by the Company.
The complaint also seeks to recover an unspecified amount of punitive
damages from all of the defendants on theories of breach of an implied
covenant of good faith and fair dealing, intentional misrepresentation
and negligent misrepresentation in the course of the Company's dealings
with Bergen. The parties have agreed to not require responsive pleading
to be filed in either action while settlement negotiations are
proceeding. If a settlement cannot be reached, management of the
Company intends to vigorously defend against the claims in Bergen's
complaint.
ITEM 2. CHANGES IN SECURITIES.
None.
ITEM 3. DEFAULTS ON SENIOR SECURITES.
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The Company held its annual meeting of Stockholders on May 20, 1996.
The proposals before the meeting, as described in the Company's proxy
statement, were (i) to elect four directors to serve through the annual
meeting to be held in 1999; and (ii) to ratify McGladrey & Pullen, LLP,
as the Company's auditor. Management's nominees for director set forth
in the proxy statement, Byron S. Gergiou, Edward F. Heil, Dr. Sol
Lizerbram and Steven F. Mayer, were all elected. The appointment of
McGladrey & Pullen, LLP, as auditors was ratified by a vote of
22,985,119 shares in favor, 54,175 against and 20,750 abstaining.
ITME 5. OTHER INFORMATION.
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
Those exhibits previously filed with the Securities and Exchange
Commission as required by Item 601 of Regulation S-K, are incorporated
by reference in accordance with the provisions of Rule 12b-32.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MEDNET, MPC CORPORATION
Dated: August 19, 1996 By: /s/ M.B. Merryman
-----------------------------------
M.B. Merryman, President and
Principal Executive Officer
By: /s/ Kyle Tingle
-----------------------------------
Kyle Tingle, Principal Accounting
Officer
By: /s/ Thomas C. Warren
-----------------------------------
Thomas C. Warren, Principal
Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the June 30,
1996 Form 10-Q of Mednet, MPC Corporation and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 2194
<SECURITIES> 0
<RECEIVABLES> 22957
<ALLOWANCES> 1051
<INVENTORY> 1081
<CURRENT-ASSETS> 27057
<PP&E> 1551
<DEPRECIATION> 0
<TOTAL-ASSETS> 47052
<CURRENT-LIABILITIES> 29273
<BONDS> 219
5350
2900
<COMMON> 31
<OTHER-SE> 9279
<TOTAL-LIABILITY-AND-EQUITY> 47052
<SALES> 50861
<TOTAL-REVENUES> 50861
<CGS> 42502
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 959
<INCOME-PRETAX> (306)
<INCOME-TAX> 0
<INCOME-CONTINUING> (306)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (306)
<EPS-PRIMARY> (.01)
<EPS-DILUTED> (.01)
</TABLE>
