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 NOVEMBER 30, 1996
Commission File No. 0-21816
MEDA, INC.
----------------------------------------------
(Name of small business issuer in its charter)
Delaware 93-1116123
------------------------------- ---------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
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 December 31, 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 4. Submission of Matters to a Vote of Security Holders 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 Second Quarter Ended
November 30, 1996
2
<PAGE>
MEDA, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
November 30, May 31,
Assets 1996 1996
------------ ------------
Unaudited
<S> <C> <C>
Current Assets:
Cash $ 407,417 $ 9,887
Trade accounts receivable, less allowance for doubtful 1,610,199 1,651,918
accounts of $170,465 and $126,982
Inventories:
Raw Materials 790,729 808,680
Work in Process - 9,167
Finished Goods 551,950 604,902
Deferred Tax Asset 98,000 98,000
Prepaid expenses 65,340 49,583
------------ ------------
Total Current Assets 3,523,635 3,232,137
------------ ------------
Property, plant and equipment - net 1,248,805 1,358,854
Intangible assets - net 11,443 10,122
Other assets 84,649 66,623
------------ ------------
Total Assets $ 4,868,532 $ 4,667,736
============ ============
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable $ 1,309,040 $ 1,416,515
Accrued salaries and wages 261,487 151,546
Accounts payable - related parties 4,210 6,440
Other accrued liabilities 313,794 291,742
Notes payable - related parties 273,917 280,770
Bank line of credit 1,276,523 1,106,761
Current portion of borrowings - related parties 54,776 54,776
Current portion of borrowings 176,190 176,785
------------ ------------
Total Current Liabilities 3,669,937 3,485,335
------------ ------------
Borrowings- related parties - less current portion 176,124 127,077
Borrowings - less current portion 662,717 814,887
------------ ------------
Borrowings, less current portion 838,841 941,964
------------ ------------
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 617,106 592,974
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 (421,937) (517,122)
------------ ------------
Total Stockholders' Equity 359,754 240,437
------------ ------------
Total Liabilities and Stockholders' Equity $ 4,868,532 $ 4,667,736
============ ============
</TABLE>
See notes to consolidated financial statements
3
<PAGE>
MEDA, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For The Three Months Ended For The Six Months Ended
November 30 November 30
1996 1995 1996 1995
------------ ------------ ------------ ------------
Unaudited Unaudited
<S> <C> <C> <C> <C>
Net sales $ 3,386,393 $ 3,533,709 $ 6,627,105 $ 7,072,925
Cost of goods sold 2,036,363 2,334,237 4,061,276 4,825,846
------------ ------------ ------------ ------------
Gross profit 1,350,030 1,199,472 2,565,829 2,247,079
Selling, general, and
administrative expenses 1,166,831 1,099,336 2,314,044 2,181,790
------------ ------------ ------------ ------------
Operating income 183,199 100,136 251,785 65,289
Other (income) expense:
Interest expense 69,793 83,424 136,990 152,462
Other (169) 27,072 (11,586) (17,301)
------------ ------------ ------------ ------------
Total other expense 69,624 110,496 125,404 135,161
------------ ------------ ------------ ------------
Income (loss) before income taxes 113,575 (10,360) 126,381 (69,872)
Income tax expense 2,856 1,004 7,064 1,004
------------ ------------ ------------ ------------
Net Income (loss) 110,719 (11,364) 119,317 (70,876)
============ ============ ============ ============
Net Income (loss) per common share after accreted
preferred stock dividends: 0.05 (0.01) 0.05 (0.05)
============ ============ ============ ============
</TABLE>
See notes to consolidated financial statements
4
<PAGE>
MEDA, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Retained
Class A Class B Additional Earnings
Convertible Common Common Paid-in (Accumulated
Preferred 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 24,132 - - - (24,132) -
Net income - - - - 119,317 119,317
---------------- --------- -------- ----------- ------------ ----------
Balance, November 30, 1996 (unaudited) $ 617,106 $ 17,768 $ 2,116 $ 144,701 $ (421,937) $ 359,754
================ ========= ======== =========== ============ ==========
</TABLE>
See notes to consolidated financial statements
5
<PAGE>
MEDA, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For The Six Months Ended
November 30
1996 1995
------------ ------------
Unaudited
<S> <C> <C>
Cash Flows from Operating Activities:
Net income (loss) $ 119,317 $ (70,876)
Adjustments to reconcile net income (loss) to
net cash provided by (used in) operating activities:
Depreciation and amortization 135,225 175,033
Gain on sale of equipment - (4,277)
Changes in:
Accounts receivable 41,719 220,648
Inventories 80,070 98,049
Other assets (37,366) 16,501
Accounts payable and accrued liabilities 28,267 (81,834)
------------ ------------
Total adjustments 247,915 424,120
------------ ------------
Net cash provided by operating activities 367,232 353,244
Cash Flows from Investing Activities:
Proceeds from sale of assets - 12,317
Purchase of property, plant and equipment (22,914) (24,841)
------------ ------------
Net cash used in investing activities (22,914) (12,524)
Cash Flows from Financing Activities:
Proceeds from issuance of notes payable and bank credit line 1,053,247 1,414,000
Repayment of notes payable and bank credit line (890,932) (1,590,966)
Repayment of long-term debt (109,103) (115,484)
------------ ------------
Net cash provided by (used in) financing activities 53,212 (292,450)
------------ ------------
Increase in cash 397,530 48,270
Cash at beginning of period 9,887 30,539
------------ ------------
Cash at end of period $ 407,417 $ 78,809
============ ============
Supplemental Disclosures:
Interest paid 130,731 $ 131,366
Income tax paid 5,626 1,168
Non Cash Items:
Preferred stock dividends accreted 24,132 25,368
Accounts payable exchanged for long-term debt and notes payable 5,979 514,826
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, PML Microbiologicals,
Inc., formally known as 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 November 30, 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 six month period ended November 30, 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. Such
reclassifications did not have any effect on the net income reported in fiscal
1996.
7
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Results of Operations
Six Months Ended November 30, 1996 Compared to November 30, 1995
Net sales for the six months ended November 30, 1996 decreased
approximately 6% to $6,627,107 from 7,072,925 during the same period a year ago.
The 6% decrease in net sales reflects a favorable trend as the decline in the
first quarter was 8% compared to just a 4% decline in the second quarter when
compared to the same periods from a year ago. The Company recorded net income of
$119,317 for the first six months compared to a net loss of $70,876 during the
same period a year ago. The net income was $0.05 per share for the first six
months ended November 30, 1996 compared to a net loss of $0.05 per share during
the same period a year ago. The Company's return to profitability in its
seasonally low first six months 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 group purchasing organizations
(GPOs). For many products, including microbiology disposables, GPOs 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 GPO contracts.
Gross profit improved to 38.7% of net sales in the six months ended
November 30, 1996 compared to 31.8% 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 cost of goods sold 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 34.9% for the six months
ended November 30, 1996 compared to 30.8% 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 cost of goods sold 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, a Vice President of Marketing and a Vice President of
Operations. 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 stayed constant at 1.9% of sales in the first six
months of this year compared to 1.9% in the first six months of last year. Other
expense consists mainly of interest expense and Canadian currency exchange gain
or loss. Exchange gains or losses cannot be forecasted with any degree of
accuracy.
The Company's bank line of credit was extended for six months on September
16, 1996 with a maturity date of March 15, 1997 and the interest rate was
increased from prime plus 2% to prime plus 3%. Due to the increase in the
interest rate, the Company negotiated a larger and more favorable four year
financing agreement with another lender effective December 1, 1996. The new
financing agreement includes interest at prime plus 2.5% (which will decrease
each year if certain financial ratios are met) and also allows the
8
<PAGE>
Company to borrow against both equipment and inventory as well as Accounts
Receivable. Proceeds from the new financing agreement were used to pay off all
outstanding debt from the prior lender and will provide additional funds for
growth. The Company believes the improvement in available cash financing will
allow it to achieve significant manufacturing cost efficiencies and much needed
improvements in MIS systems which were not possible under its previous loan
agreement. Management expects any investments made in these areas will payback
in one to two years.
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 tax 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 November 30,
1996 the Company had negative working capital of $146,302 compared with negative
working capital of $253,198 at May 31, 1996. The ratio of current assets to
current liabilities was .96 at November 30, 1996 compared to .93 at May 31,
1996. Quick liquidity (current assets less inventories to current liabilities)
was .59 at November 30, 1996 and .52 at May 31, 1996.
The twelve-month average collection period for trade receivables was fifty
days at November 30, 1996, compared with fifty-four days at May 31, 1996.
Net cash provided by operating activities was $367,232 in the first six
months of fiscal 1997 compared with net cash used of $353,244 in the same period
a year ago. Net cash used in investing activities was $22,914 in the first six
months of fiscal 1997, compared with $12,524 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 provided cash of $53,212
in the first six months of fiscal 1997 as the net result of draws on the bank
credit line and repayments on notes payable and the bank credit line. This
compares to cash used of $292,450 from financing activities in the same period
of fiscal 1996. The 1996 amount included more repayments of notes payable than
draws on the bank credit line
The Company has negotiated a new bank line of credit effective December 1,
1996 that has a current maturity date of November 30, 2000. Proceeds from the
new line were used to pay off all debt from the previous bank lender and
provides additional funds to finance future growth and cost reductions. This new
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% to 85% of the
eligible accounts receivable and 30% to 40% of eligible inventory at the end of
the reporting period, not to exceed $2.5 million. The Company also borrowed
$400,000 on December 1, 1996, under a new four year term loan secured by
eligible operating equipment. The rate of interest charged on the line is prime
plus 2.5% and can decrease each year if the Company meets certain financial
ratios. This loan is to be repaid primarily out of the Company's receivable
collections and other cash provided by operating activities.
In fiscal 1995, 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. In the first six months of fiscal 1996 and
fiscal 1997, $514,826 and $5,979 of accounts payable were exchanged for long
term debt and notes payable. The Company has already made the first three
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.
9
<PAGE>
The Company's borrowing structure at November 30, 1996 was as follows:
<TABLE>
<CAPTION>
Third Party Long Term Borrowings:
Long-Term Current-Portion
----------- ------------
<S> <C> <C>
Revolving credit line at prime plus 3%, due March 15, 1997 $ - $ 1,276,523
Note payable at 8%, due March 1998 29,753 71,894
Note payable at prime plus 1.25%, due January 1998 - 13,681
Capital Lease Obligations, due now through July 1999 61,220 37,684
Note payable at 6%, due May 2005 80,000 10,000
Trade A/P converted to notes payable at 6%, due February 2001 491,827 42,931
----------- ------------
Total third party long term borrowings $ 662,800 $ 1,452,713
----------- ------------
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 64,220 22,535
Joanne Johnson Notes at 6% due February 2001 76,000 10,562
----------- ------------
Total related party long term borrowings $ 176,041 $ 54,776
----------- ------------
Related Party Notes Payable Borrowings:
Demand Notes $ - 273,917
----------- ------------
Total long term and notes payable borrowings $ 838,841 $ 1,781,406
----------- ------------
</TABLE>
10
<PAGE>
II. OTHER INFORMATION
Item 1. Legal Proceedings
The Company was awarded a judgment on the only lawsuit it had relating to
amounts owing the Company. However, prior to being able to collect the amount
awarded, the defendant filed for bankruptcy protection. This amount was fully
reserved in prior years and, in the event the Company is not successful in
collecting its account, the current year operating results will not be affected.
There are no material claims pending or threatened against the Company.
Item 4. Submission of Matters to a Vote of Security Holders
During the quarter ended November 30, 1996, the Company held its annual
meeting on November 21, 1996. The following directors were elected at this
meeting.
NAME: VOTES FOR VOTES AGAINST ABSTAIN
Kenneth L. Minton 957,521 0 1,250
Ron Torland 211,551 0 0
Craig Montgomery 211,551 0 0
Doug Johnson 211,551 0 0
Other items voted on at this meeting were the following:
Appoint Price Waterhouse LLP as
independent auditors for year
ended May 31, 1997 1,169,072 125 1,125
Change name from Meda, Inc.
to PML, Inc. 1,170,072 125 125
Increase authorized common shares from
2,000,000 to 2,500,000 1,169,072 1,125 125
Item 6. Exhibits and Reports on Form 8-K
No 8-K filings were made during the quarter ended November 30, 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: January 14, 1997 By: /s/ Kenneth L. Minton
---------------- ---------------------
Kenneth L. Minton
President and Chief Executive Officer
12
<PAGE>
MEDA, INC.
Exhibit 6.1
<TABLE>
<CAPTION>
For The Three Months Ended For The Six Months Ended
November 30 November 30
1996 1995 1996 1995
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net income (loss) $ 110,719 $ (11,364) $ 119,317 $ (70,876)
Preferred stock dividends accreted (12,066) (12,434) (24,132) (25,368)
----------- ----------- ----------- -----------
Net loss after accretion of dividends $ 98,653 $ (23,798) $ 95,185 $ (96,244)
=========== =========== =========== ===========
Average number of common shares outstanding 1,776,816 1,552,432 1,776,816 1,552,432
Average number of Class B common stock outstanding 211,551 211,551 211,551 211,551
Average effect of common stock equivalents 75,000 - 55,518 -
----------- ----------- ----------- -----------
Average number of total shares outstanding 2,063,367 1,763,983 2,043,885 1,763,983
=========== =========== =========== ===========
Net loss per common share $ 0.05 $ (0.01) $ 0.05 $ (0.05)
=========== =========== =========== ===========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAY-31-1996
<PERIOD-END> NOV-30-1996
<CASH> 407,417
<SECURITIES> 0
<RECEIVABLES> 1,780,664
<ALLOWANCES> 170,465
<INVENTORY> 1,342,679
<CURRENT-ASSETS> 3,523,635
<PP&E> 3,605,522
<DEPRECIATION> 2,356,717
<TOTAL-ASSETS> 4,868,532
<CURRENT-LIABILITIES> 3,669,937
<BONDS> 838,841
0
617,106
<COMMON> 19,884
<OTHER-SE> (277,236)
<TOTAL-LIABILITY-AND-EQUITY> 4,868,532
<SALES> 6,627,105
<TOTAL-REVENUES> 6,627,105
<CGS> 4,061,276
<TOTAL-COSTS> 4,061,276
<OTHER-EXPENSES> 2,280,917
<LOSS-PROVISION> 33,127
<INTEREST-EXPENSE> 136,990
<INCOME-PRETAX> 126,831
<INCOME-TAX> 7,064
<INCOME-CONTINUING> 119,317
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 119,317
<EPS-PRIMARY> 0.05
<EPS-DILUTED> 0.05
</TABLE>
