<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30,1998
OR
[ ] 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: 1-12529
NETMED, INC.
(Exact name of Registrant as specified in its charter)
OHIO 31-1282391
(State of incorporation (I.R.S. Employer
or organization) Identification No.)
6189 MEMORIAL DRIVE, DUBLIN, OHIO 43017
(Address of principal executive offices, including zip code)
(614) 793-9356
(Registrant's telephone number, including area code)
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 report(s), and (2) has been subject to such
filing requirement for the past 90 days. YES X NO
--- ---
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date: 11,673,422 common
shares, without par value, on October 30, 1998.
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<TABLE>
TABLE OF CONTENTS
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<CAPTION>
PAGE NO.
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<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
Consolidated Balance Sheets at September 30, 1998
and December 31, 1997 1
Consolidated Statements of Operations For the Three Months
Ended and the Nine Months Ended September 30, 1998 and 1997 2
Consolidated Statements of Cash Flows For the Nine
Months Ended September 30, 1998 and 1997 3
Notes to Financial Statements -
September 30, 1998 4
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations. 6
PART II. OTHER INFORMATION
Item 1. Legal Proceedings. N/A
Item 2. Changes in Securities. N/A
Item 3. Defaults Upon Senior Securities. N/A
Item 4. Submission of Matters to a Vote of Security Holders. N/A
Item 5. Other Information. N/A
Item 6. Exhibits and Reports on Form 8-K. 10
Signatures 11
</TABLE>
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
NETMED, INC.
Consolidated Balance Sheets
<CAPTION>
September 30, December 31,
1998 1997
(Unaudited)
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<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 714,317 $ 1,656,370
Accounts receivable 127,910 216,356
Prepaid assets 6,108 25,208
----------- -----------
Total current assets 848,335 1,897,934
Investment in NSI-available for sale 30,753 1,267,343
Notes receivable-NSI 21,443 21,443
Notes receivable-COTI -- 278,499
Furniture and equipment (net of
accumulated depreciation) 31,459 42,263
License (net of accumulated
amortization) 574,591 --
Deferred taxes 260,100 260,100
Deposits and other assets 467 1,467
----------- -----------
Total assets $ 1,767,148 $ 3,769,049
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 35,341 $ 113,176
Accrued expenses 264,839 304,576
Other liabilities 104,194 69,102
----------- -----------
Total current liabilities 404,373 486,854
Deferred taxes 260,100 260,100
Convertible debentures 1,400,000 2,190,000
Minority Interest 14,033 --
Preferred stock of subsidiary 491,000 --
Stockholders' equity (deficit)
Common stock 5,933,614 5,417,151
Unrealized loss on available-for-sale
securities (355,112) (499,478)
Retained deficit (6,380,911) (4,085,578)
----------- -----------
Total stockholders' equity (deficit) (802,409) 832,095
----------- -----------
Total liabilities and stockholders' equity $ 1,767,148 $ 3,769,049
=========== ===========
</TABLE>
See accompanying notes.
1
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<TABLE>
NETMED, INC.
Consolidated Statements of Operations
(Unaudited)
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1998 1997 1998 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Royalty revenue $ 76,000 $ 279,000 $ 341,755 $ 618,608
Operating expenses:
Selling, general and administrative 310,073 728,298 1,373,442 2,218,607
Business development 63,087 116,378 331,461 175,723
----------- ----------- ----------- -----------
Total operating expense 373,160 844,676 1,704,903 2,394,330
----------- ----------- ----------- -----------
Operating loss (297,160) (565,676) (1,363,148) (1,775,722)
Other income (expense):
Interest income 4,802 13,196 34,378 15,295
Interest expense (24,109) (29,076) (83,380) (33,960)
Financing costs -- (1,106,452) -- (1,106,452)
(Loss) gain on available-for-
sale securities -- -- (894,147) 745,056
----------- ----------- ----------- -----------
Total other (expense) (19,307) (1,122,332) (943,149) (380,061)
----------- ----------- ----------- -----------
Loss before income taxes
and minority interest (316,467) (1,688,008) (2,306,297) (2,155,783)
Minority interest (1,495) -- (12,504) --
Income tax expense -- 92,932 -- 210,351
----------- ----------- ----------- -----------
Net loss $ (314,972) $(1,780,940) $(2,293,793) $(2,366,134)
=========== =========== =========== ===========
Net loss per share-basic and diluted $ (0.03) $ (0.16) $ (0.20) $ (0.22)
=========== =========== =========== ===========
Shares used in computation 11,531,866 10,947,114 11,384,239 10,946,585
=========== =========== =========== ===========
</TABLE>
See accompanying notes.
2
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<TABLE>
NETMED, INC.
Consolidated Statements of Cash Flows
(Unaudited)
<CAPTION>
Nine Months Ended
September 30,
-----------------
1998 1997
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<S> <C> <C>
OPERATING ACTIVITIES
Net loss $(2,293,793) $(2,366,134)
Adjustments to reconcile net loss to net
cash provided by (used in) operating activities:
Depreciation and amortization 35,635 10,800
Change in deferred tax assets -- 208,391
Loss (gain) on available-for
sale securities 894,147 (745,056)
Warrants issued for consulting 13,281 --
Minority interest (12,504) --
Deferred compensation 117,254 209,062
Financing costs -- 850,096
Changes in operating assets and liabilities:
Accounts receivable 88,446 (365,073)
Prepaid assets 19,100 18,871
Deposits and other assets 1,000 (2,975)
Accounts payable (77,835) 101,419
Accrued expenses and other liabilities 33,779 84,888
----------- -----------
Net cash used in operating activities (1,181,491) (1,995,711)
----------- -----------
INVESTING ACTIVITIES
Acquisition of OxyNet (200,000) --
Note receivable-COTI (84,931) --
Sale of NSI stock -- 1,148,656
Purchase of furniture and equipment (6,296) (13,652)
----------- -----------
Net cash provided by investing activities (291,227) 1,135,004
----------- -----------
FINANCING ACTIVITIES
Sale of options 39,665 --
Sale of preferred stock by subsidiary 491,000 --
Issuance of convertible debentures -- 3,000,000
Repayments to margin account -- (96,909)
----------- -----------
Net cash provided by financing activities 530,665 2,903,091
----------- -----------
Net (decrease) increase in cash (942,053) 2,042,384
Cash and cash equivalents at beginning of period 1,656,370 142,074
----------- -----------
Cash and cash equivalents at end of period $ 714,317 $ 2,184,458
=========== ===========
</TABLE>
See accompanying notes.
3
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NETMED, INC.
Notes to Financial Statements
(Unaudited)
September 30, 1998
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements of NetMed,
Inc. (the "Company" or "NetMed") have been prepared in accordance with generally
accepted accounting principles for interim financial information and with the
instructions to Form 10-Q and Article 10 of Regulation S-X and include the
results of operations of OxyNet, Inc., a 95% owned subsidiary ("OxyNet")
beginning April 3, 1998. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three month and nine month periods
ended September 30, 1998 are not necessarily indicative of the results that may
be expected for the year ended December 31, 1998. For further information, refer
to the financial statements and footnotes thereto included in the NetMed, Inc.
Form 10-K for the year ended December 31, 1997 as filed with the Securities and
Exchange Commission.
NOTE B - ACQUISITION OF CERAM OXYGEN TECHNOLOGIES, INC.
On April 3, 1998, the Company acquired from Ceram Oxygen Technologies,
Inc. ("COTI") (now known as OxyNet, Inc.) 95 common shares, representing 95
percent of COTI's outstanding common shares immediately following the closing,
in exchange for a cash payment of $50,000 and delivery of a note in the
principal amount of $150,000 (the "Note"). The Note provided for three equal
principal payments of $50,000 on each of June 1, July 1, and August 1, 1998,
together with interest at the rate of 8.5 percent per annum. The remaining 5
percent of COTI's outstanding common equity is owned by CeramPhysics, Inc.
("Ceram") of Westerville, Ohio. COTI holds an exclusive worldwide license to
Ceram's patented oxygen generation technology for all applications of the
technology except oxygen sensors and fuel cells. The consideration was applied
by COTI to payment of a $200,000 license fee owed to Ceram, with $50,000 being
paid in cash, and the balance by assignment of the Note. The acquisition has
been accounted for using the purchase method of accounting with the results of
COTI being consolidated with those of NetMed on a prospective basis beginning
April 3, 1998. Unaudited proforma results of operations, assuming the
acquisition had occurred at the beginning of 1997, are presented below. The pro
forma amounts include adjustments that the Company believes are reasonable.
<TABLE>
<CAPTION>
Nine Months Ending
September 30
1998 1997
---- ----
<S> <C> <C>
Revenue $ 341,755 $ 618,608
Net loss $(2,378,764) $(2,572,134)
Loss per share-
basic & diluted $ (.21) $ (.23)
</TABLE>
4
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The acquisition was made pursuant to a February, 1997 agreement among
the Company, COTI and Ceram, whereby the Company agreed to make advances to COTI
to complete the fabrication and testing of a ceramic element incorporating the
licensed technology. Pursuant to the agreement, through April 3, 1998, the
Company had advanced $363,470 to COTI for this purpose which was collateralized
by the patents held by Ceram. The agreement also provided that upon completion
of an acceptance test of the ceramic element satisfactory to the Company, the
Company had the right to acquire 95% of the equity of COTI for $200,000.
NOTE C - CONVERTIBLE DEBENTURES
Pursuant to the convertible debenture purchase agreement dated August
1997, the purchasers of the debentures under certain conditions may elect to
exercise their conversion rights for Neuromedical Systems, Inc. (NSI) common
shares pledged as collateral. For the nine months ended September 30, 1998, the
purchasers converted $475,000 of principal plus accrued interest into a total of
352,200 shares of NSI. This resulted in a loss on available for sale securities
of $894,000 for the nine months ended September 30, 1998.
NOTE D - COMPREHENSIVE INCOME
As of January 1, 1998, the Company adopted Statement of Financial Accounting
Standards No. 130, Reporting Comprehensive Income. Statement 130 establishes new
rules for the reporting and display of comprehensive income and its components;
however, the adoption of this Statement had no impact on the Company's net
income or shareholders' equity. Statement 130 requires unrealized gains or
losses on the Company's available-for-sale securities, which prior to adoption
were reported separately in shareholders' equity to be included in other
comprehensive income. For the quarter ended September 30, 1998 and 1997 total
comprehensive income amounted to ($354,951) and ($2,106,204). For the nine
months ended September 30, 1998 and 1997 total comprehensive income was
($2,150,965) and ($6,093,284), respectively.
NOTE E - PREFERRED STOCK ISSUANCE
In August 1998, OxyNet completed the sale of 500 8% Cumulative
Convertible Preferred Shares (the "Shares") in a private offering, with gross
proceeds to OxyNet of $500,000. The net proceeds of $491,000 has been recorded
as a minority interest in the accompanying financial statements. The Shares are
entitled to cumulative dividends at the rate of 8% per annum payable in
additional shares, and are convertible into common shares of OxyNet, Inc on a
one share for one share basis (subject to adjustments for dilution in certain
events). The Shares were sold with a one time right to exchange them at their
original stated value, plus accrued dividends, for common shares of NetMed, for
a period of 30 days following a date which is 18 months from the date of
issuance, at the then-prevailing market price of NetMed common shares (not to
exceed $3.00 per share), if there has been no initial public offering for common
shares of OxyNet. NetMed is the parent of OxyNet. NetMed would own approximately
89.1% of OxyNet's outstanding common shares on a fully converted basis if the
preferred shares are exchanged for OxyNet common stock.
NOTE F- EMPLOYEE STOCK OPTIONS
During the third quarter of 1998, the Company entered into Replacement
Option Agreements, each dated as of July 21, 1998, with certain Company
employees participating in the NetMed 1995 Stock Option Plan (each such
agreement, a "Replacement Option Agreement"). Pursuant to the terms of the
Replacement Option Agreements, the Company canceled 321,000 employee stock
options at exercise prices ranging from $4.95 to $12.00 per share and issued
230,140 replacement options, each at an exercise price of $.50 per share
representing the fair market value of the common stock on the grant date
(collectively, the "Replacement Options"). Senior management received
Replacement Options covering shares equal only to 66% of their respective
original option grant amounts.
5
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
The Company is an Ohio corporation engaged in the business of
acquiring, developing and marketing medical and health-related technologies. The
principal business activities of the Company are the marketing of the PAPNET(R)
Testing System, which is a proprietary product of Neuromedical Systems, Inc.
("NSI") and the development of an oxygen concentrator. The PAPNET Testing System
is a sophisticated interactive computer assisted system that assists the
laboratory professional in the detection of abnormal cells on cervical cytology
specimens (also known as Pap smears). Slides containing cytology specimens are
processed using the PAPNET Testing System (either by the laboratory at its own
facilities or at one of NSI's central facilities) which produces processed
images for evaluation by the laboratory's NSI-trained cytotechnologists.
In the United States, the PAPNET Testing System is promoted to assist
the cytology professional in the examination of conventionally prepared smears
that have first been assessed by standard manual microscopic review to be
"negative", "within normal limits", or evidencing "benign cellular changes".
Outside of the U.S., some of NSI's laboratory customers use the PAPNET Testing
System in a variety of modes, including to assist in the interpretation of
liquid-based Pap specimens, and Pap smears that have not first been assessed by
manual microscopic review. NSI has stated its intention to pursue FDA approval
of the PAPNET Testing System for primary screening of both conventional and
liquid-based pap smears, with clinical trials anticipated to be completed by the
end of 1998 or early 1999 and with the expectation to begin realizing primary
screening revenues in the U.S. before the end of 1999. As a consequence, NSI has
reduced the resources and effort devoted to marketing the PAPNET Testing System
as an adjunct or supplemental test. The promotion of the PAPNET Testing System
primarily to laboratories was a shift in marketing focus that NSI initiated
early in 1998. As a result, there have been steep reductions in pricing for
laboratories that commit to use the PAPNET system to rescreen 100% of their
negative smears, or a large specified proportion of their negative smears. The
Company currently has two laboratories that have committed to 100% rescreening
and one additional laboratory committing to a large portion of their negative
smears. The new pricing structure has reduced the effective yield per slide for
the Company by approximately 20 percent. Pending primary screening approval by
the FDA, the Company has also significantly reduced its resources devoted to the
sales and marketing efforts of the PAPNET test.
Total revenue decreased approximately 45 percent for the nine months
ended September 30, 1998 compared to the same period last year. The decrease is
directly attributable to the shift in marketing focus described above. While
further decreases in revenue attributable to the rescreening business in the
U.S. are possible, the Company's license agreement with NSI provides for a
minimum royalty of 3.5% of NSI's worldwide revenue.
On April 3, 1998, the Company acquired 95% ownership of Ceram Oxygen
Technologies, Inc. (see Note B to financial statements) and changed the name to
OxyNet, Inc. ("OxyNet"). The development by OxyNet of an oxygen concentrator for
use in the home healthcare market continued during the third quarter. Current
schedules anticipate that a laboratory prototype of the concentrator will be
completed by the end of 1998. Additional testing and design work will be
performed during early1999 in anticipation of a 510(k) filing with the FDA
during the first half of 1999.
In August 1998, OxyNet completed the sale of 500 convertible preferred
shares with gross proceeds to OxyNet of $500,000. Proceeds of the offering are
to be used as further funding of the oxygen development project (see Note E to
financial statements).
6
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This report contains forward-looking statements that involve risks and
uncertainties. The Company's actual results may differ materially from the
results discussed in the forward-looking statements. Factors that might cause
such a difference include, but are not limited to, those discussed in Item I of
the Company's 1997 Annual Report on Form 10-K as filed with the United States
Securities and Exchange Commission, File No. 1-12529, in the section titled
"Business Risks."
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
Royalty revenue decreased from $279,000 for the three months ended
September 30, 1997 to $76,000 for the three months ended September 30, 1998. The
decrease was due to a volume decrease of 55% and by a lower average price due to
the special pricing offered to laboratories for 100% rescreening.
Total operating expenses decreased by 56% from $845,000 for the three
months ended September 30, 1997 to $373,000 for the same period in 1998.
Business development expenses decreased from $116,000 for the three months ended
September 30, 1997 to $63,000 for the same period in 1998. Selling, general and
administrative expense decreased from $728,000 to $310,000 primarily due to a
decrease in sales and marketing expenses of $284,000 caused by a reduction in
the sales force and by the elimination of recruiting fees and lower supplies
cost as the Company transitioned its marketing focus to the laboratory from the
clinician office. General and administrative expense decreased $134,000
primarily as the result of a decrease in employee cost of $147,000.
Interest income decreased from $13,000 for the three months ended
September 30, 1997 to $5,000 for the three months ended September 30, 1998. The
decrease is due to lower cash balances to invest as a result of funding the
development of the oxygen concentrator and funding the negative cash flow from
operations.
Interest expense decreased from $29,000 for the three months ended
September 30, 1997 to $24,000 for the same period in 1998. The decrease in
interest expense is the result of the lower outstanding balance of the
convertible debentures as a result of conversions.
NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
Royalty revenue decreased from $619,000 for the nine months ended
September 30, 1997 to $342,000 for the nine months ended September 30, 1998. The
decrease was due to a volume decrease of 23% for the nine month period and by a
lower average price per test due to the special pricing offered to laboratories
for 100% rescreening.
Total operating expenses decreased by 29% from $2,394,000 for the nine
months ended September 30, 1997 to $1,705,000 for the same period in 1998.
Business development expenses increased $155,000 as the Company continued the
development and testing of the OxyNet(R) ceramic oxygen generator. Selling,
general and administrative expense decreased from $2,219,000 to $1,373,000
primarily due to a decrease in sales and marketing expenses of $648,000 caused
by a reduction in the sales force and by the elimination of recruiting fees and
lower supplies cost as the Company transitioned its marketing focus to the
laboratory from the clinician office. In addition, advertising expense decreased
by $118,000. General and administrative expense decreased $198,000 primarily as
the result of a decrease in employee cost and professional fees.
7
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In August 1997, the Company completed a $3,000,000 convertible
debenture financing. As security for the debentures, the Company pledged shares
of NSI common stock owned by the Company, and under certain conditions the
holders had the right to convert outstanding principle and interest on the
debentures into the right to receive pledged shares. For the nine months ended
September 30, 1998, the purchasers converted $475,000 of principal plus accrued
interest into a total of 352,200 shares of NSI. This resulted in a loss on
available for sale securities of $894,000 for the nine months ended September
30, 1998. For the nine months ended September 30, 1997 the Company sold 125,000
shares of available for sale securities in order to fund operations and
recognized a gain of $745,000. On October 27, 1998, the holders of the
outstanding debentures agreed to exchange them for 100,000 shares of Series A 6%
Convertible Preferred Stock of the Company. The Company expects the exchange
will be completed in December, 1998.
Interest income increased from $15,000 for the nine months ended
September 30, 1997 to $34,000 for the nine months ended September 30, 1998. The
increase is due to higher cash balances to invest as a result of a convertible
debenture financing completed in August 1997.
Interest expense increased from $34,000 for the nine months ended
September 30, 1997 to $83,000 for the same period in 1998. The increase in
interest expense is the result of the convertible debenture financing mentioned
above.
LIQUIDITY AND CAPITAL RESOURCES
The Company has financed its operations to date primarily by the sale
of NSI common stock owned by the Company, the sale of common shares, and the
sale of the convertible debentures. The Company's combined cash and cash
equivalents totaled $714,000 at September 30, 1998, a decrease of $942,000 from
December 31, 1997. As of September 30, 1998, the Company owned 98,411 shares of
NSI common stock, of which 82,246 shares were unrestricted and can be liquidated
in an orderly fashion to fund future operations. The remaining 16,165 are
pledged as additional security for the convertible debentures. NSI common stock
closed trading at $.31 per share on September 30, 1998, and at $.53 per share on
October 28, 1998.
Cash used in the Company's operations was $1,181,000 for the nine
months ended September 30, 1998 versus $1,996,000 used in the same period of
1997. The Company anticipates that its cash requirements will be substantial for
the immediate future and believes that it may be necessary to raise additional
capital in order to complete the development of the OxyNet device and continue
funding the negative cash flow from operations. In April 1998, the Company
completed the previously announced transaction with CeramPhysics ("Ceram") to
acquire 95% ownership of a Ceram subsidiary (now known as OxyNet, Inc.) that
holds an exclusive world-wide license to Ceram's patented oxygen generation
technology for all applications except oxygen sensors and fuel cells. The
purchase price for the stock was $200,000 with $50,000 paid at closing and the
balance payable in three equal payments of $50,000 in June, July and August of
1998. The Company anticipates incurring significant expenses to complete the
development of an oxygen device with an anticipated commercial product launch to
the home healthcare market during the second half of 1999. In addition to
funding the development of the oxygen device, the Company must continue funding
the negative cash flow from the remaining operations.
In August 1998, OxyNet completed the sale of 500 8% Cumulative
Convertible Preferred shares (the "Shares") in a private placement, with gross
proceeds to OxyNet of $500,000. The Shares are entitled to cumulative dividends
at the rate of 8% per annum, and are convertible into common shares of OxyNet on
a one share for one share basis (subject to adjustments for dilution in certain
events). The Shares were sold with a one time right to exchange them at their
original stated value, plus accrued dividends, for common shares of NetMed for a
period of 30 days following a date which is 18 months from the date of issuance,
at the then-prevailing market price of NetMed common shares (not to exceed $3.00
per share), if there has been no initial public offering for common shares of
OxyNet. NetMed is the parent of OxyNet and would own approximately 89.1% of
OxyNet's outstanding common stock on a fully
8
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converted basis if the preferred shares are exchanged for OxyNet common shares.
The Company believes that the gross proceeds of $500,000 from the private
placement will be sufficient for the development of a prototype oxygen device,
but that additional financing will be required to obtain the necessary U.S.
regulatory approvals and to complete the commercial launch of the product.
The Company has reduced expenses as a result of focusing the sales and
marketing efforts of the PAPNET test towards the laboratory and away form the
clinician, by reducing other general and administrative headcount and by
substantially reducing the cash compensation paid to certain officers. Certain
officers beginning in the third quarter of 1998 will receive no cash
compensation until such time as the Company's Board of Directors is satisfied
that the Company has the ability to fund operations from either internal or
external sources.
The Company's future liquidity and capital requirements will depend
upon numerous factors, including the resources required to further develop the
OxyNet oxygen device, the success of laboratory marketing plans and the
Company's ability to increase the sales of the PAPNET Testing System, the timing
of NSI's receipt of FDA approval for the PAPNET Testing System as a primary
screener of all cytological specimens and the resources required to manufacture
and market the OxyNet device. Additional funding may not be available when
needed or on terms acceptable to the Company, which would have a material
adverse effect on the Company's business financial conditional and results of
operations.
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
Statements in this document which relate to other than strictly
historical facts, including statements about the Company's plans and strategies,
as well as management's expectations about new and existing products,
technologies and opportunities, market growth, demand for and acceptance of new
and existing products (including the PAPNET Testing System and the OxyNet oxygen
concentration device), are forward looking statements. The words "believe,"
"expect," "anticipate," "estimate," "project," and similar expressions identify
forward-looking statements that speak only as of the date hereof. Investors are
cautioned that such statements involve risks and uncertainties that could cause
actual results to differ materially from historical or anticipated results due
to many factors including, but are not limited to, the Company's current
reliance on a single product marketed under license from NSI, the corresponding
dependence on NSI's patents and proprietary technology, government regulation,
continuing losses from operations and negative cash flow, limited marketing and
sales history, the impact of third party reimbursement decisions, the challenges
of research and development of new products, and other risks detailed in the
Company's most recent Annual Report on Form 10-K and other Securities and
Exchange Commission filings. The Company undertakes no obligation to publicly
update or revise any forward-looking statements.
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PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
Exhibit Exhibit Description
------- -------------------
27 Financial Data Schedule.
(b) REPORTS ON FORM 8-K.
On July 21, 1998, the Company filed a report on Form 8-K
announcing that it had been notified by the American Stock Exchange that its
continuing listing eligibility was under review, and that it would meet with
representatives of the Exchange in August to present reasons why its common
shares should continue to be listed on the Exchange.
On September 9, 1998, the Company filed a report on Form 8-K
announcing that it had received all payments and now will close escrow for the
$500,000 private placement in its 95 percent owned OxyNet subsidiary.
On September 9, 1998, the Company filed a report on Form 8-K
announcing that it had reached agreement with the holders of its 6 percent
convertible debentures ($1,400,000 principal) to exchange them for a new issue
of 6 percent convertible preferred stock.
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SIGNATURE
Pursuant to the requirements of Section 12 of the Securities Exchange
Act of 1934, the Registrant has duly caused this Form 10-Q for the quarterly
period ended September 30, 1998 to be signed on its behalf by the undersigned,
thereto duly authorized.
NETMED, INC.
By: /s/David J. Richards
-----------------------------------
David J. Richards, President*
By: /s/Kenneth B. Leachman
-----------------------------------
Kenneth B. Leachman, Vice President of Finance*
Dated: November 12, 1998
* In his capacity as President of the Registrant, Mr. Richards is duly
authorized to sign this Report on behalf of the Registrant. In his
capacity as Vice President of Finance, Mr. Leachman is the Registrant's
principal financial officer.
11
<PAGE> 14
EXHIBIT INDEX
EXHIBIT EXHIBIT EXHIBIT INDEX
NUMBER DESCRIPTION PAGE NUMBER
------ ----------- -----------
27 Financial Data Schedule.
12
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JUL-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 714,317
<SECURITIES> 30,753
<RECEIVABLES> 149,353
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 848,335
<PP&E> 94,654
<DEPRECIATION> 63,195
<TOTAL-ASSETS> 1,767,148
<CURRENT-LIABILITIES> 404,373
<BONDS> 1,400,000
0
0
<COMMON> 5,933,614
<OTHER-SE> (6,736,023)
<TOTAL-LIABILITY-AND-EQUITY> 1,767,148
<SALES> 76,000
<TOTAL-REVENUES> 76,000
<CGS> 0
<TOTAL-COSTS> 373,160
<OTHER-EXPENSES> (4,802)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 24,109
<INCOME-PRETAX> (314,972)
<INCOME-TAX> 0
<INCOME-CONTINUING> (314,972)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (314,972)
<EPS-PRIMARY> (.03)
<EPS-DILUTED> (.03)
</TABLE>
