UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED AUGUST 31, 1996
Commission File No. 0-21816
MEDA, INC.
(Name of small business issuer in its charter)
Delaware
(State or other jurisdiction of
incorporation or organization)
93-1116123
(I.R.S. Employer Identification Number)
15845 SW 72nd Avenue
Portland, Oregon 97224
(Address of principal executive offices, including zip code)
(503) 639-1500
(Issuer's telephone number)
Indicate by check mark whether the issuer (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act during the past
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
As of September 30, 1996 there were 1,776,816 shares of Common Stock with $0.01
par value outstanding, and 211,551 Class B Common Shares with $0.01 par value
outstanding.
<PAGE>
MEDA, INC.
Index
Part I. Financial Information
Item 1. Financial Statements 2
Consolidated Balance Sheets 3
Consolidated Statements of Operations 4
Consolidated Statements of Stockholders' Equity 5
Consolidated Statements of Cash Flows 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussions and Analysis of
Financial Condition and Results of Operations 8
Part II. Other Information
Item 1. Legal Proceedings 11
Item 6. Exhibits and Reports on Form 8-K 11
Signatures 12
<PAGE>
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
----------------
MEDA, INC.
For the First Quarter Ended
August 31, 1996
- 2 -
<PAGE>
MEDA, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
August 31, May 31,
Assets 1996 1996
----------- -----------
Unaudited
<S> <C> <C>
Current Assets:
Cash $ 239,789 $ 9,887
Trade accounts receivable, less allowance for doubtful 1,610,575 1,651,918
accounts of $133,135 and $126,982
Inventories:
Raw Materials 840,198 808,680
Work in Process 5,338 9,167
Finished Goods 573,497 604,902
Deferred Tax Asset 98,000 98,000
Prepaid expenses 42,724 49,583
----------- -----------
Total Current Assets 3,410,121 3,232,137
Property, plant and equipment - net 1,308,538 1,358,854
Intangible assets - net 12,459 10,122
Other assets 71,415 66,623
----------- -----------
Total Assets $ 4,802,533 $ 4,667,736
=========== ===========
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable $ 1,502,044 $ 1,416,515
Accrued salaries and wages 199,408 151,546
Accounts payable - related parties 6,470 6,440
Other accrued liabilities 294,712 291,742
Notes payable - related parties 277,368 280,770
Bank line of credit 1,156,939 1,106,761
Current portion of borrowings - related party 54,776 -
Current portion of borrowings 184,661 231,561
----------- -----------
Total Current Liabilities 3,676,378 3,485,335
----------- -----------
Borrowings, less current portion 877,120 941,964
----------- -----------
Stockholders' Equity
Preferred stock, $.01 par value; authorized 25,000 shares,
no shares issued or outstanding - -
Class A convertible preferred stock, stated and liquidation
value $100 per share; authorized 7,500 shares, issued and
outstanding 4,950 shares, including accreted dividends 605,040 592,974
Common stock, $.01 par value; authorized 2,000,000 shares,
issued and outstanding 1,776,816 shares 17,768 17,768
Class B common stock, $.01 par value; authorized 250,000 shares,
issued and outstanding 211,551 shares. 2,116 2,116
Class D common stock, $.01 par value, authorized 100 shares,
no shares issued or outstanding. - -
Additional Paid In Capital 144,701 144,701
Accumulated Deficit (520,590) (517,122)
----------- -----------
Total Stockholders' Equity 249,035 240,437
----------- -----------
Total Liabilities and Stockholders' Equity $ 4,802,533 $ 4,667,736
=========== ===========
</TABLE>
See notes to consolidated financial statements
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<PAGE>
MEDA, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
For The Three Months Ended
August 31
1996 1995
------------ ------------
Unaudited
Net sales $ 3,240,712 $ 3,539,216
Cost of goods sold 2,024,913 2,491,609
------------ ------------
Gross profit 1,215,799 1,047,607
Selling, general, and
administrative expenses 1,147,213 1,082,454
------------ ------------
Operating income (loss) 68,586 (34,847)
Other (income) expense:
Interest expense 67,197 69,038
Other (11,417) (44,373)
------------ ------------
Total other expense 55,780 24,665
------------ ------------
Income (loss) before income taxes 12,806 (59,512)
Income tax expense (4,208) -
------------ ------------
Net Income (loss) 8,598 (59,512)
============ ============
Net loss per common share after
accreted preferred stock dividends: (0.00) (0.04)
============ ============
See notes to consolidated financial statements
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<PAGE>
MEDA, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Class A Retained
Convertible Class B Additional Earnings
Preferred Common Common Paid-in (Accumulated
Shares Shares Shares Capital Deficit) Total
---------- ---------- --------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Balance, May 31, 1995 $ 580,820 $ 14,497 $ 2,116 $ - $(673,623) $ (76,190)
Common stock returned and canceled - (27) - 27 - -
Preferred Stock dividends accreted 49,500 - - - (49,500) -
Stock issued to employees - 1,870 - 68,255 - 70,125
1995 401K match - 432 - 40,069 - 40,501
Conversion of accreted dividends to Common Stock (37,346) 996 - 36,350 - -
Net income - - - - 206,001 206,001
---------- ---------- --------- ---------- ----------- ----------
Balance, May 31, 1996 $ 592,974 $ 17,768 $ 2,116 $ 144,701 $ (517,122) $ 240,437
========== ========== ========= ========== =========== ==========
Balance, May 31, 1996 $ 592,974 $ 17,768 $ 2,116 $ 144,701 $ (517,122) $ 240,437
Preferred Stock dividends accreted 12,066 - - - (12,066) -
Net income - - - - 8,598 8,598
---------- ---------- --------- ---------- ----------- ----------
Balance, August 31, 1996 (unaudited) $ 605,040 $ 17,768 $ 2,116 $ 144,701 $ (520,590) $ 249,035
========== ========== ========= ========== =========== ==========
</TABLE>
See notes to consolidated financial statements
- 5 -
<PAGE>
MEDA, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For The Three Months Ended
August 31
1996 1995
----------- ----------
<S> <C> <C>
Unaudited
Cash Flows from Operating Activities:
Net income (loss) $ 8,598 $ (59,512)
Adjustments to reconcile net income (loss) to
net cash provided by (used in) operating activities:
Depreciation and amortization 67,764 89,207
Gain on sale of equipment - (4,277)
Changes in:
Accounts receivable 41,343 206,949
Inventories 3,716 128,731
Other assets (1,394) 56,306
Accounts payable and accrued liabilities 137,712 (191,083)
----------- -----------
Total adjustments 249,141 285,833
----------- -----------
Net cash provided by operating activities 257,739 226,321
Cash Flows from Investing Activities:
Proceeds from sale of assets - 12,317
Purchase of property, plant and equipment (16,324) (16,088)
Net cash used in investing activities (16,324) (3,771)
Cash Flows from Financing Activities:
Proceeds from issuance of notes payable 127,167 6,310
Repayment of demand notes (72,515) (149,611)
Repayment of long-term debt and bank credit line (66,165) (53,113)
----------- -----------
Net cash used in financing activities (11,513) (196,414)
----------- -----------
Increase in cash 229,902 26,136
Cash at beginning of period 9,887 30,539
------------ ----------
Cash at end of period $ 239,789 $ 56,675
============ ==========
Supplemental Disclosures:
Interest paid $ 53,471 $ 59,940
Income tax paid 2,134 1,071
Non Cash Items:
Preferred stock dividends accreted 12,066 12,684
Accounts payable exchanged for long-term debt and notes payable 1,321 -
Accounts payable exchanged for capital stock issued to employees - 69,750
</TABLE>
See notes to consolidated financial statements
- 6 -
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1. Financial Statements
The accompanying unaudited consolidated financial statements include the
accounts of Meda, Inc. and its wholly-owned subsidiary, Prepared Media
Laboratory, Inc. (the "Company"). The Company produces and sells diagnostic
microbiology products to customers in the microbiology testing industry,
principally hospital and healthcare-related laboratories throughout the United
States and Canada.
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and pursuant to the rules and regulations of the
Securities and Exchange Commission (the "Commission"). While these financial
statements reflect all necessary, normal and recurring adjustments in the
opinion of management required to present fairly, in all material respects, the
financial position, results of operations and cash flows of the Company and its
subsidiary at August 31, 1996, and for the periods then ended, they do not
include all information and notes required by generally accepted accounting
principles for complete financial statements. Further information is contained
in the annual financial statements of the Company and notes thereto, for the
year ended May 31, 1996, contained in the Company's Form 10-KSB, filed with the
Commission pursuant to the Securities Exchange Act of 1934. Operating results
for the three month period ended August 31, 1996 are not necessarily indicative
of the results that may be expected for the full year.
Reclassifications - Certain reclassifications have been made to the fiscal
1996 financial statements to conform to the fiscal 1997 presentation.
- 7 -
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Results of Operations
Three Months Ended August 31, 1996 Compared to August 31, 1995
Net sales for the three months ended August 31, 1996 decreased approximately
8% to $3,240,712 from $3,539,216 during the same period a year ago. The Company
recorded net income of $8,598 for the first quarter compared to a net loss of
$59,512 during the same period a year ago. The net income was less than $0.01
per share for the three months ended August 31, 1996 compared to a net loss of
$0.04 per share during the same period a year ago. The Company's return to
profitability in its seasonally low first quarter reflects the significant
improvements that have been made in reducing both manufacturing costs and
operating costs as the Company continues the turnaround process started in
January 1995.
The decrease in sales was due in part to a loss of business from hospital
buying groups because of their increased use of national purchasing
organizations (NPOs). For many products, including microbiology disposables,
NPOs contract with a single large manufacturer or distributor, and provide
financial incentives for member hospitals to use only that manufacturer or
distributor as their prime source. The Company has, however, made up for much of
these lost sales in the industrial microbiology market, and with increased sales
of specialty products not included in NPO contracts.
Gross profit improved to 37.5% of net sales in the three months ended August
31, 1996 compared to 29.6% in the prior year. This improvement results from
decreased sales of lower margin commodity-type products and increased sales of
higher margin specialty products, improved operating efficiencies resulting in
lower scrap and outdates, lower material costs, a small price increase effective
January 1996, and a reclassification of corporate quality assurance and product
development from COGS to operating expense. Management believes that there have
been no other changes in its sales or operations that would materially affect
gross profit. The Company continues to experience pricing pressure resulting
from competition and from other cost containment measures in the health care
industry, but it has been working to adjust its product mix and marketing focus
towards less competitive, higher profit, products and markets.
Selling, general and administrative expense increased in absolute dollars and
as a percentage of net sales. These expenses were 35.4% for the three months
ended August 31, 1996 compared to 30.6% in the same period a year ago.
Approximately 40% of this increase was due to the reclassification of corporate
quality assurance and government compliance from COGS to operating expense. The
remaining increase came from the June 1996 reinstatement of two thirds of the
pay cut taken by all employees in January 1995 plus the salaries of a newly
hired CEO as well as a Vice President of Marketing. However, these increases
were partially offset by the termination of the turnaround consultant and a
further reduction in the Company's freight expense resulting from fewer
backorders and negotiation of better freight rates. Most other expense
categories remained relatively consistent both as a percentage of sales and in
total dollars.
Total other expense increased to 1.7% of sales in the first quarter of this
year compared to 0.7% in the first quarter of last year. Interest expense for
the first three months remained nearly constant for both years, while Canadian
exchange fluctuations accounted for nearly the entire increase. In the first
quarter of this year the Company experienced only a $443 Canadian currency
exchange rate gain compared to more than a $50,000 Canadian currency exchange
rate gain in the first three months of last year. Exchange gains or losses
cannot be forecasted with any degree of accuracy.
- 8 -
<PAGE>
The Company's current line of credit has a maturity date of March 15, 1997 and
the interest rate has been increased from prime plus 2% to prime plus 3%
effective September 16, 1996. To offset increased interest expense, the Company
is currently seeking alternative financing sources. However, there is no
assurance that the Company can obtain other financing or financing with terms
acceptable to the Company.
Due to the Company's unused net operating loss from prior years, the Company
will not experience any significant income tax expense for an indeterminate
time. The income tax expense shown on the Consolidated Statements of Operations
reflects minimum tax expense in those States and Provinces which require minimum
tax even when a net loss occurs.
Liquidity and Capital Resources
The Company has financed its operations over the years principally through
funds generated from operations and bank and stockholder loans. At August 31,
1996 the Company had negative working capital of $266,257 compared with negative
working capital of $253,198 at May 31, 1996. The ratio of current assets to
current liabilities was .93 at August 31, 1996 compared to .93 at May 31, 1996.
Quick liquidity (current assets less inventories to current liabilities) was .54
at August 31, 1996 and .52 at May 31, 1996.
The twelve-month average collection period for trade receivables was fifty
days at August 31, 1996, compared with fifty-four days at May 31, 1996.
Net cash provided by operating activities was $257,739 in the first three
months of fiscal 1997 compared with $226,321 in the same period a year ago. Net
cash used in investing activities was $16,324 in the first three months of
fiscal 1997, compared with $3,771 used by the Company in investing activities in
the same period of 1996. These expenditures were all for purchases of property,
plant and equipment. Financing activities used cash of $11,513 as the result of
repayment of debt in the first three months of fiscal 1997. This was a $184,901
decrease from the $196,414 used in financing activities in the same period of
fiscal 1996.
The Company has negotiated with its bank a line of credit that has a current
maturity date of March 15, 1997. The line of credit was recently extended for a
six month term. The line of credit is secured by substantially all of the assets
of the Company. The available amount under the line of credit is based upon 80%
of the eligible accounts receivable at the end of the reporting period, not to
exceed $1.6 million. The rate of interest charged on the line is prime plus 3%.
The repayment of the loan is primarily out of the Company's receivable
collections. Although the Company is actively seeking a bank to replace its
current bank, there is no assurance that the Company can obtain other financing
or financing with terms acceptable to the Company.
Because the Company was in arrears with many vendors and had insufficient cash
available to bring vendor accounts current, on May 1, 1995 the Company sent a
Vendor Repayment Plan to all suppliers who had unpaid invoices over 60 days.
This letter asked vendors to accept one of three payment options, two of which
involved converting their accounts to a term note. Vendor response has been
good, with the majority of the vendors (both in dollars and numbers) having
accepted an option. The Company has already made the first two scheduled
payments with interest and continues to communicate with vendors who have not
yet made a selection in hopes of convincing them to accept a repayment plan.
The Company may require additional capital to finance current operations, make
enhancements to or expansions of its manufacturing capacity, in accordance with
its business strategy, or for additional working capital, for inventory and
accounts receivable. The Company may also seek additional funds through public
or private debt or through bank borrowings. No assurances can be given that
future financings will be available with terms acceptable to the Company.
Without such future financing, the Company's ability to finance its growth will
be severely limited.
- 9 -
<PAGE>
The Company's borrowing structure at August 31, 1996 was as follows:
<TABLE>
Third Party Long Term Borrowings:
<CAPTION>
Long-Term Current-Portion
<S> <C> <C>
Wells Fargo Revolving credit at prime plus 3%, due March 15, 1997 $ - $1,156,939
Wells Fargo 8% note, due March 1998 49,025 71,894
Wells Fargo Note payable at prime plus 1.25%, due January 1998 - 21,021
Capital Lease Obligations, due now through July 1999 69,938 38,850
6% Note, due May 2005 80,000 10,000
Trade A/P converted to notes payable at 6%, due February 2001 495,272 42,896
--------- ------------
Total third party long term borrowings $ 694,235 $ 1,341,600
Related Party Long Term Borrowings:
Ron Torland Note payable at 10% due January 1997 - 10,000
Ron Torland Note payable at prime plus 1%due December 1999 35,821 11,679
Mary Brown 8% Note due May 2000 69,662 22,535
Joanne Johnson Notes at 6% due February 2001 77,402 10,562
--------- -----------
Total related party long term borrowings $ 182,885 $ 54,776
Related Party Notes Payable Borrowings:
Demand Notes $ - $ 277,368
--------- -----------
Total long term and notes payable borrowings $ 877,120 $ 1,673,744
========= ===========
</TABLE>
- 10 -
<PAGE>
II. OTHER INFORMATION
Item 1. Legal Proceedings
The Company has filed one lawsuit relating to amounts owing the Company. In
the event the Company is not successful in its action, the operating results
will not be affected.
Item 4. Submission of Matters to a Vote of Security Holders
During the quarter ended August 31, 1996, no matters were submitted to a vote
of the shareholders of the Company.
Item 6. Exhibits and Reports on Form 8-K
As mentioned in the Company's Form 10 KSB for the fiscal year ended May 31,
1996, the Company dismissed its former accountant, Deloitte & Touche LLP, on May
15, 1996, and retained its new accountant Price Waterhouse LLP on May 21, 1996.
Subsequent to the paper filing of Form 8-K, the company was requested to file
the same information via the EDGAR system during the first quarter ended August
31, 1996.
6.1 Exhibit 6.1 is a statement on computation of per share income (loss).
- 11 -
<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.
MEDA, INC.
(Registrant)
Date: October 15, 1996 By: /s/ Kenneth L. Minton
-------------------- -------------------------------
Kenneth L. Minton
President and Chief Executive Officer
- 12 -
<PAGE>
MEDA, INC.
Exhibit 6.1
For The Three Months Ended
August 31
1996 1995
----------- ------------
Net income (loss) $ 8,598 $ (59,512)
Preferred stock dividends accreted (12,066) (12,934)
=========== ==============
Net loss after accretion of dividends $ (3,468) $ (72,446)
=========== ==============
Average number of common shares outstanding 1,776,816 1,469,993
Average number of Class B common stock outstanding 211,551 211,551
Average effect of common stock equivalents 36,035 -
----------- --------------
Average number of total shares outstanding 2,024,402 1,681,544
=========== ==============
Net loss per common share $ (0.00) $ (0.04)
=========== ==============
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAY-31-1996
<PERIOD-END> AUG-31-1996
<CASH> 239,789
<SECURITIES> 0
<RECEIVABLES> 1,743,710
<ALLOWANCES> 133,135
<INVENTORY> 1,419,033
<CURRENT-ASSETS> 3,410,121
<PP&E> 3,598,932
<DEPRECIATION> 2,290,394
<TOTAL-ASSETS> 4,802,533
<CURRENT-LIABILITIES> 3,676,378
<BONDS> 877,120
0
605,040
<COMMON> 19,884
<OTHER-SE> (375,889)
<TOTAL-LIABILITY-AND-EQUITY> 4,802,533
<SALES> 3,240,712
<TOTAL-REVENUES> 3,240,712
<CGS> 2,024,913
<TOTAL-COSTS> 2,024,913
<OTHER-EXPENSES> 1,141,060
<LOSS-PROVISION> 6,153
<INTEREST-EXPENSE> 67,197
<INCOME-PRETAX> 12,806
<INCOME-TAX> 4,208
<INCOME-CONTINUING> 8,598
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,598
<EPS-PRIMARY> 0.00
<EPS-DILUTED> 0.00
</TABLE>
