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, 1996
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.)
425 METRO PLACE NORTH, SUITE 140, DUBLIN, OHIO 43017
(Address of principal executive offices, including zip code)
(614) 793-9356
(Registrant's telephone number, including area code)
PAPNET OF OHIO, INC.
(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 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: 10,938,927 common shares,
without par value
FORM 10-Q
NETMED, INC.
TABLE OF CONTENTS
PAGE NO.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
Balance Sheets December 31, 1995
and September 30, 1996
Income Statements For the Three Months Ended and the
Nine Months Ended September 30, 1996 and 1995
Statements of Cash Flows For the Nine Months Ended
September 30, 1996 and 1995
Notes to Financial Statements - September 30, 1996
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
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. 11
Item 6. Exhibits and Reports on Form 8-K. 15
Signatures
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
PAPNET OF OHIO, INC.
BALANCE SHEET
SEPTEMBER 30, December 31
1996 1995
-------------- --------------
(UNAUDITED)
ASSETS
Current assets
Cash and cash equivalents $ 87,238 $ 811,359
Accounts receivable 173,121 75,993
Due from related entities 335,785 0
Note receivable from stockholder 50,000 50,000
Prepaid assets 1,021 1,021
------------- -------------
Total current assets 647,165 938,373
Notes receivable-NSI 21,443 51,080
Investment in NSI-available for sale 6,929,692 7,696,296
Investment in partnerships 151,055 172,679
Furniture & Equipment (net of
accumulated depreciation) 24,285 17,316
Deferred taxes 237,716 68,715
Deposits and other assets 2,264 1,330
------------- -------------
Total assets $ 8,013,620 $ 8,945,789
------------- -------------
------------- -------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 177,469 $ 49,931
Accrued expenses 60,742 81,630
Other liabilities 0 42,831
Note Payable 85,000 0
------------- -------------
Total current liabilities 323,211 174,392
Deferred taxes 2,217,475 2,517,718
Stockholders' equity:
Common stock 1,783,065 1,779,465
Additional paid in capital 783,077 783,077
Retained deficit (529,194) (208,480)
Unrealized gain on available-for-sale
securities net of deferred taxes 3,435,986 3,899,617
------------- -------------
Total stockholders' equity 5,472,934 6,253,679
------------- -------------
------------- -------------
Total liabilities and stockholders' equity $ 8,013,620 $ 8,945,789
------------- -------------
------------- -------------
PAPNET OF OHIO, INC.
INCOME STATEMENT
(Unaudited)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
---------------------------- ----------------------------
1996 1995 1996 1995
------------ ------------ ------------ ------------
Royalty Revenue $ 16,618 $ 13,960 $ 43,717 $ 35,300
Operating expenses:
Salaries and benefits 91,794 48,691 217,767 149,969
Sales and marketing 35,367 8,888 80,492 32,580
Office and other 17,032 7,964 49,977 35,162
Professional fees 18,835 17,634 39,956 32,420
Payroll & franchise taxes 5,143 7,956 33,986 25,045
Depreciation and amortization 1,500 1,956 4,500 5,425
Merger 101,534 0 235,984 0
------------ ------------ ------------ ------------
Total Operating Expenses 271,205 93,089 662,662 280,601
------------ ------------ ------------ ------------
Operating Loss (254,587) (79,129) (618,945) (245,301)
Other income (expense):
Interest income 903 3,799 11,774 15,039
Interest expense 0 (39) 0 0
NSI common stock transactions 125,812 0 125,812 0
Loss in partnerships (4,263) 0 (8,354) 0
------------ ------------ ------------ ------------
Total other income 122,452 3,760 129,232 15,039
------------ ------------ ------------ ------------
Loss before income tax (132,135) (75,369) (489,713) (230,262)
Income tax benefit (47,000) 0 (169,001) 0
------------ ------------ ------------ ------------
Net loss $ (85,135) $ (75,369) $ (320,712) $ (230,262)
------------ ------------ ------------ ------------
Net loss per share $ (0.01) $ (0.01) $ (0.05) $ (0.04)
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Shares used in computation 6,426,861 5,870,778 6,438,418 5,870,778
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
PAPNET OF OHIO, INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
NINE MONTHS ENDED
SEPTEMBER 30
----------------------------
1996 1995
------------ ------------
OPERATING ACTIVITIES
Net loss $ (320,712) $ (230,262)
Adjustments to reconcile net loss to
net cash provided (used for) operating
activities:
Depreciation and amortization 4,500 5,425
Recognition of deferred tax assets (169,001) -
Equity (income)/loss in partnership 8,354 -
Gain on sale of NSI stock (125,812) -
Changes in operating assets and
libilities:
Accounts receivable (97,128) (27,339)
Prepaid assets - -
Deposits and other assets (934) -
Accounts payable 127,537 6,810
Due from related entities (335,785) -
Accrued expenses and other liabilities (63,719) (7,780)
------------ ------------
Net cash used in operating activities (972,700) (253,146)
INVESTING ACTIVITIES
Sale of NSI stock 141,812 -
Notes receivable-NSI 29,637 47,039
Purchase of furniture and equipment (11,470) (6,600)
------------ ------------
Net cash provided by investing activities 159,979 40,439
FINANCING ACTIVITIES
Issuance of common stock and options
exerecised 3,600 -
Proceeds from note payable 85,000 -
------------ ------------
Net cash provided by financing activities 88,600 -
Net decrease in cash (724,121) (212,707)
Cash and cash equivalents at beginning
of period 811,359 535,545
Cash and cash equivalents at end of
period ------------ ------------
$ 87,238 $ 322,838
------------ ------------
------------ ------------
Papnet of Ohio, Inc.
Notes to Financial Statements
(Unaudited)
September 30, 1996
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited financial statements 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. 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-and
nine-month periods ended September 30, 1996 are not necessarily indicative of
the results that may be expected for the year ended December 31, 1996. For
further information, refer to the consolidated financial statements and
footnotes thereto included in the Registration Statement on Form S-4, filed
on July 16, 1996, as amended (the "Registration Statement").
NOTE B
On December 5, 1996 the Company shareholders approved an Agreement and Plan of
Merger with Cytology Indiana, Inc., Indiana Cytology Review Company, ER Group,
Inc., CCWP Partners, Inc., and Carolina Cytology, Inc. On December 16, 1996 the
merger was declared effective and the Company changed its name to NetMed, Inc.
NetMed, Inc. has the rights to market the PAPNET System and PAPNET Service in
Ohio, Kentucky, Missouri, Georgia, North Carolina and the Standard Metropolitan
Statistical Area of Chicago. For further information concerning the Agreement
and Plan of Merger, refer to the description of "The Merger" included in the
Registration Statement.
Unaudited pro forma results of operations, assuming the merger had occurred at
the beginning of 1995, are presented below. The pro forma amounts include
adjustments that the Company believes are reasonable.
Three Months ending Nine Months Ending
September 30 September 30,
1996 1995 1996 1995
---- ---- ---- ----
Royalty Revenue $55,715 $26,297 $106,027 $61,775
Net Loss $(156,793) $(66,748) $(665,751) $(216,175)
Loss per Share $(.01) $(.01) $(.06) $(.02)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND
RESULTS OF OPERATIONS
NETMED, INC. (FKA PAPNET OF OHIO, INC.)
OVERVIEW
NetMed, Inc., fka Papnet of Ohio, Inc. (the "Company"), is an Ohio corporation
engaged in the business of acquiring, developing and marketing medical and
health-related technologies. The principal business activity of the Company is
the marketing of the PAPNET-Registered Trademark- System and PAPNET-Registered
Trademark- Service, which are proprietary products of Neuromedical Systems,
Inc., a Delaware corporation ("NSI").
The PAPNET-Registered Trademark- System is a semi-automated cancer detection
system for the review of cell, tissue or body fluid specimens, including but not
limited to, cervical cytology specimens. The PAPNET-Registered Trademark-
Service permits laboratories to submit slides containing such specimens to one
of NSI's central facilities for image processing employing NSI's patented neural
network technology. NSI returns the slides and digital tape containing
processed images for evaluation by NSI-trained cytotechnologists.
On December 5, 1996, the Company's shareholders approved an Agreement and
Plan of Merger (the "Merger Agreement") whereby Cytology Indiana, Inc.,
Indiana Cytology Review Company, ER Group, Inc., CCWP Partners, Inc., and
Carolina Cytology, Inc. (the "Predecessor Companies") were merged with and
into the Company (the "Merger"). The Merger was effective on December 16,
1996 and the Company will issue, in the aggregate, 4,849,991 shares of its
common stock, without par value, in exchange for the issued and outstanding
shares of the Predecessor Companies. Under terms of the Merger Agreement,
the Company changed its name to NetMed, Inc. NetMed common stock began
trading on the American Stock Exchange on December 18, 1996 under the symbol
NMD.
As a result of the Merger, NetMed has the marketing rights to the
PAPNET-Registered Trademark- System and PAPNET-Registered Trademark- Service in
Ohio, Kentucky, Missouri, Georgia, North Carolina and the Standard Metropolitan
Statistical Area of Chicago. The Company's marketing rights are exclusive
within these territories, subject to the right of NSI to conduct marketing and
sales activities therein. However, because the royalties paid to the Company by
NSI are based on revenues recognized by NSI from activities (including any sales
by NSI) in the licensed territories, NSI's sales activities therein benefit the
Company.
As used in this report, the "Company" is generally used to indicate Papnet of
Ohio, Inc., nka NetMed, Inc., prior to the consummation of the Merger. This
report contains forward-looking statements which involve risks and
uncertainties. NetMed'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 "RISK FACTORS" in
the Company's Registration
Statement on S-4 filed with the Securities and Exchange Commission on July 16,
1996, as amended (Registration No. 333-8199).
The PAPNET-Registered Trademark- System was approved by the FDA for commercial
use in the United States on November 8, 1995. Prior to that time, the
PAPNET-Registered Trademark- System was permitted to be utilized in the United
States on an investigational basis only, and NSI was permitted to derive revenue
with respect thereto only to recover certain of its costs. During the first
eight months of 1996, the Company and NSI spent time and effort building a sales
force and familiarizing doctors and laboratories with the benefits of the
PAPNET-Registered Trademark- System and PAPNET-Registered Trademark- Service.
Beginning in September of 1996, the commercial launch of the product was
initiated with a national advertising campaign.
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1995 AND 1996
Royalty revenue for the three months ended September 30, 1996 was $16,618
compared to $13,960 for the same period in 1995. The increase is a result of
NSI receiving FDA approval for the PAPNET-Registered Trademark- System in
November 1995, increased sales effort by Company sales representatives and the
launch of the consumer marketing campaign by NSI beginning in September 1996.
Revenue for the quarter ending September 30, 1996 has been accrued according to
a formula in the Company's license agreement with NSI which calculates royalties
based upon the number of slides processed in the Company's territory. Revenue
for the quarter ending September 30, 1995 was accrued using an alternative
royalty formula based upon a percentage of NSI's worldwide revenues. Based
upon current information, management anticipates that royalty revenue from slide
volume originating in the Company's territory will exceed the amount of
royalties otherwise payable under the alternative worldwide revenue formula for
the 1996 calendar year. However, if the worldwide revenue formula yields a
higher revenue amount, the Company will make the necessary adjustment in the
quarter ending December 31, 1996.
Slide volume for the quarter ending September 30, 1996 was 2,580 slides
processed compared to 343 slides processed in the quarter ending September 30,
1995. The increase in slide volume is the result of the FDA approval received
in November 1995, which increased the number of laboratories offering
PAPNET-Registered Trademark- testing, and the launch of the consumer marketing
campaign in September 1996.
Total operating expense was $271,205 for the three months ended September 30,
1996 compared to $93,089 for the same period the prior year. The increase is
primarily the result of higher expenses for (i) the addition of sales staff in
certain territories, and (ii) Merger expenses incurred during the three months
ended September 30, 1996.
Interest income for the three months ended September 30, 1996 was $903 compared
to $3,799 for the same period the prior year. The decrease was a result of
lower available cash balances to invest, as cash balances have been utilized to
pay operating expenses.
Income from NSI common stock transactions was $125,812 for the three months
ending September 30, 1996 compared to $0 the quarter ending September 30, 1995.
The increase is due to the gain on
the sale of 8,000 shares of NSI stock held by the Company at net prices ranging
from $15.72 to $19.27 per share.
NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1996
Royalty revenue for the nine months ended September 30, 1996 was $43,717
compared to $35,300 for the same period in 1995. The increase is a result of
increased sales due to NSI receiving FDA approval for the PAPNET-Registered
Trademark- System in November 1995, an increase in the number of laboratories
offering PAPNET-Registered Trademark-testing, increased sales efforts directed
towards doctors, and the launch of the consumer marketing campaign by NSI in
September 1996. Revenue for the nine months ending September 30, 1996 has been
calculated based upon the actual number of slides processed in the Company's
territory. Revenue for the nine months ending September 30, 1995 has been
accrued using the worldwide revenue calculation. Based upon current information
management anticipates that royalty revenue from slide volume originating in the
Company's territory will exceed the amount of royalties payable under the
alternative worldwide revenue calculation for the 1996 calendar year. However,
if the worldwide revenue formula yields a higher revenue amount on an annual
basis, the Company will make the necessary adjustment in the quarter ending
December 31, 1996.
Slide volume for the nine months ending September 30, 1996 was 6,796 slides
processed compared to 671 slides processed for the nine months ending September
30, 1995. The increase in slide volume is the result of the FDA approval
received in November 1995, which increased the number of laboratories offering
PAPNET-Registered Trademark- testing, and the launch of the consumer marketing
campaign in September 1996.
Total operating expense was $662,662 for the nine months ended September 30,
1996 compared to $280,601 for the same period the prior year. The increase is
primarily the result of higher expenses for (i) the addition of sales staff in
certain territories, and (ii) merger expenses incurred during the nine months
ended September 30,1996.
Interest income for the nine months ended September 30, 1996 was $11,774
compared to $15,039 for the same period the prior year. The decrease was a
result of lower available cash balances to invest as cash has been utilized to
pay the higher operating expenses.
Income from NSI common stock transactions was $125,812 for the nine months
ending September 30, 1996 compared to $0 for the nine months ending September
30, 1995. The increase is due to the gain on the sale of 8,000 shares of NSI
stock held by the Company at net prices ranging from $15.72 to $19.27 per share.
LIQUIDITY AND CAPITAL RESOURCES
The Company has financed its operations primarily by the issuance of equity
securities and the sale of NSI common stock owned by the Company. The Company's
combined cash and cash equivalents totaled $87,238 at September 30, 1996, a
decrease of $724,121 from December 31, 1995. The
decrease was primarily the result of (i) funding the year to date pretax loss of
$489,713, and (ii) an increase in accounts receivable and due from related
entities of $432,913, combined with an increase in current liabilities of
$148,818. In addition, the Company owns 372,064 shares of NSI common stock
which can be liquidated in an orderly fashion to fund future operations. The
market value of the NSI shares was $6,929,692 at September 30, 1996. These
shares are currently unrestricted.
While the Company anticipates that its capital requirements will be substantial
for the foreseeable future, it believes its existing investments will be
adequate to meet those requirements. In particular, the Company anticipates
that expenditures will increase significantly in the remainder of calendar year
1996 and for the years of 1997 and 1998 due to the cost of the commercial
launch of the PAPNET-Registered Trademark- System and the cost of investing in
other technologies. The commercial launch will consist of a sales promotion and
marketing campaign that will be funded by NSI and the Company.
As of September 30, 1996, the Company and the Predecessor Companies owned, in
the aggregate, 732,246 shares of NSI common stock. The market value of the NSI
common stock at September 30, 1996 was $13,638,082. All shares are unrestricted
and can be liquidated to fund future operations of NetMed subsequent to the
Merger and the investment in other medical and health-related technologies in
the future.
ITEM 5. OTHER INFORMATION.
ACQUISITION OR DISPOSITION OF ASSETS
On July 5, 1996, the Company and Cytology Indiana, Inc. ("CIN"), Indiana
Cytology Review Company ("INC", ER Group, Inc. ("ERG"), CCWP Partners, Inc.
("CCWP"), and Carolina Cytology, Inc. ("CCI") (collectively, the "Predecessor
Companies") entered into an Agreement and Plan of Merger whereby the Predecessor
Companies were merged with and into the Company (the "Merger"). The Merger
Agreement was approved by the Predecessor Companies' shareholders on November
20, 1996 and by the Company's shareholders on December 5, 1996. The Merger was
completed on December 16, 1996. The total consideration paid by the Company was
the 4,849,991 shares of its common stock, without par value, issued in exchange
for the issued and outstanding shares of the Predecessor Companies shares.
The merger consideration was determined through negotiation between the Company
and the Predecessor Companies, but the parties developed a starting point for
the negotiations through the application of certain objective criteria,
including the population of each licensed territory and the respective assets of
the companies. Additional information regarding the merger consideration can be
found in the Company's Registration Statement on Form S-4 filed with Securities
and Exchange Commission on July 16, 1996, as amended (Registration No.
333-8199), which is incorporated herein by reference (the "Registration
Statement"). The Company filed the Registration Statement to register the
shares of its common stock, without par value, to be distributed to the
Predecessor Company shareholders.
A discussion of the material relationships among the parties to the Merger and
their respective officers, directors shareholders and affiliates is included in
the Registration Statement under the caption "Certain Related Transactions" and
is incorporated herein by reference.
The Company's press release issued on December 16, 1996 regarding the
consummation of the Merger is attached as an exhibit to this report and is
incorporated herein by reference.
FINANCIAL STATEMENTS OF BUSINESS ACQUIRED.
The required financial statements of the Predecessor Companies are hereby
incorporated by reference to the financial statements for the Predecessor
Companies contained in the Registration Statement.
PRO FORMA FINANCIAL INFORMATION.
The required pro forma financial statements are (i) the following Pro Forma
Combining Balance Sheet as of September 30, 1996 and Combining Statement of
Operations for the period ending September 30, 1996 and (ii) the Combining
Statements of Operations for the period ending December 31, 1995 contained in
the Registration Statement and incorporated herein by reference.
PRO FORMA COMBINING BALANCE SHEET
September 30, 1996
CCI COMBINED
PPNT ERG AND CCWP INC CIN ELIMINATIONS NETMED
-------------------------------------------------------------------------------------- --------------
ASSETS
Current assets:
Cash and cash equivalents $ 87,238 $ 45,232 $ 26,397 $ - $ - $ - $ 158,867
Accounts receivable 173,121 7,500 8,511 1,751 3,250 - 194,133
Due from related entities 335,785 - - - - (335,785)(A) -
Note receivable from stockholder 50,000 - - - - (50,000)(C) -
Prepaid assets 1,021 - - - - - 1,021
-------------------------------------------------------------------------------------- --------------
Total current assets 647,165 52,732 34,908 1,751 3,250 (385,785) 354,021
Notes receivable - NSI 21,443 - - - - - 21,443
Investment in partnerships 151,055 - - - - (151,055)(B) -
Investment in NSI--available
for sale 6,929,692 2,688,761 2,688,761 465,811 865,052 - 13,638,077
Furniture and equipment 24,285 - - - - - 24,285
Other assets 2,264 69 2,065 - - 4,398
Deferred taxes 237,716 - - - - 20,000 257,716
-------------------------------------------------------------------------------------- --------------
Total assets $ 8,013,620 $ 2,741,562 $ 2,725,734 $ 467,562 $ 868,302 $ (516,840) $ 14,299,940
-------------------------------------------------------------------------------------- --------------
-------------------------------------------------------------------------------------- --------------
Pro Forma Combining Balance Sheet
September 30, 1996
CCI COMBINED
PPNT ERG AND CCWP INC CIN ELIMINATIONS NETMED
-------------------------------------------------------------------------------------- --------------
LIABILITIES AND OWNERS' EQUITY
Current liabilities:
Accounts payable $ 177,469 $ - $ 3,555 $ - $ - $ - $ 181,024
Due to related entities - 100,334 125,779 38,114 71,558 (335,785)(A) -
Accrued expenses 60,742 1,391 - - - - 62,133
Other liabilities - - 1,174 97 198 - 1,469
Note payable 85,000 - - - - - 85,000
-------------------------------------------------------------------------------------- --------------
Total liabilities 323,211 101,725 130,508 38,211 71,756 (335,785) 329,626
Deferred tax 2,217,475 862,081 862,081 161,400 277,350 - 4,380,387
Minority interest - - 151,055 - - (151,055)(B) -
Stockholders' equity:
Common stock 1,783,065 610,000 465,000 196,735 365,365 - 3,420,165
Additional paid-in capital 783,077 - - - - - 783,077
Retained earnings (deficit) (529,194) (125,366) (66,262) (152,806) (262,194) (30,000) (1,165,822)
Unrealized gains on
available-for-sale
securities net of
deferred taxes 3,435,986 1,293,122 1,183,352 224,022 416,025 - 6,552,507
-------------------------------------------------------------------------------------- --------------
Total stockholders' equity 5,472,934 1,777,756 1,582,090 267,951 519,196 (30,000) 9,589,927
-------------------------------------------------------------------------------------- --------------
Total liabilities and
owners' equity $ 8,013,620 $ 2,741,562 $ 2,725,734 $ 467,562 $ 868,302 $(516,840) $ 14,299,940
-------------------------------------------------------------------------------------- --------------
-------------------------------------------------------------------------------------- --------------
(A) Reflects accounts receivable and accounts payable between the Company and
the Predecessor Companies that will be eliminated upon the merger.
(B) Reflects PPNT's minority interest in partnerships consolidated into CCI and
CCWP that will be eliminated upon the merger.
(C) Note receivable from stockholder will be forgiven upon the merger.
Combining Statement of Operations
Period ended September 30, 1996
CCI COMBINED
PPNT ERG AND CCWP INC CIN ELIMINATIONS NETMED
--------------------------------------------------------------------------------------- --------------
REVENUE
Royalty revenue $ 43,717 $ 30,096 $ 10,715 $ 7,525 $ 13,974 $ - $ 106,027
OPERATING EXPENSES
Salaries and benefits 217,767 74,806 13,439 15,494 428,775 50,000 (B) 400,281
Sales and marketing 80,492 20,859 7,659 10,545 19,583 - 139,138
Professional fees 39,956 5,452 11,477 995 2,620 - 60,500
Payroll and franchise taxes 33,986 3,239 1,053 1,549 2,878 - 42,705
Depreciation and amortization 4,500 - - - - - 4,500
Office and other 49,977 1,723 - 16,695 - - 68,395
Merger 235,984 65,581 66,173 - 31,026 - 398,764
-------------------------------------------------------------------------------------- ------------
Total operating expense 662,662 171,660 99,801 45,278 84,882 50,000 1,114,283
-------------------------------------------------------------------------------------- ------------
Operating loss (618,945) (141,564) (89,086) (37,753) (70,908) (50,000) (1,008,256)
Other income (expense):
Interest income 11,774 817 - - - - 12,591
Equity income in partnerships (8,354) - - - - 8,354 (A) -
NSI common stock transaction 125,812 - - - - - 125,812
-------------------------------------------------------------------------------------- ------------
Total other income 129,232 817 - - - 8,354 138,403
Minority interest - - 8,354 - - (8,354) (A) -
-------------------------------------------------------------------------------------- ------------
Income (loss) before
income taxes (489,713) (140,747) (80,732) (37,753) (70,908) (50,000) (869,853)
Income taxes (169,001) - - (15,101) - (20,000) (204,102)
-------------------------------------------------------------------------------------- ------------
Net income (loss) $ (320,712) $ (140,747) $ (80,732) $ (22,652) $ (70,908) $ (30,000) $ (665,751)
-------------------------------------------------------------------------------------- ------------
-------------------------------------------------------------------------------------- ------------
(A) Reflects the elimination of PPNT's equity income in its minority interest
in partnerships consolidated into CCI and CCWP.
(B) Note receivable from stockholder will be forgiven upon the merger.
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
Except for the historical information contained herein, the matters discussed in
this Form 10-Q include forward-looking statements that involve risks and
uncertainties, including, but not limited to, the Company's 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 operating cash flow, limited marketing and sales
history, the impact of third-party reimbursement decisions, and other risks
detailed in the Registration Statement .
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
Exhibit Exhibit Description
2(a) Agreement and Plan of Merger,
dated as of July 5, 1996,
among the Registrant, Cytology
Indiana, Inc., Indiana
Cytology Review Company, ER
Group, Inc., CCWP Partners,
Inc., and Carolina Cytology,
Inc. (Reference is made to
Exhibit 2(a) to the
Registration Statement on Form
S-4 filed with the Securities
and Exchange Commission on
July
16, 1996 (Registration No. 333-
8199) and incorporated herein by
reference.)
3(a) Articles of Incorporation of
the Registrant. (Reference is
made to Exhibit 3(a) to the
Registration Statement on Form
S-4 filed with the Securities
and Exchange Commission on
July 16, 1996 (Registration
No. 333-8199) and incorporated
herein by reference.)
3(b) Code of Regulations of the
Registrant. (Reference is made
to Exhibit 3(b) to the
Registration Statement on Form
S-4 filed with the Securities
and Exchange Commission on
July 16, 1996 (Registration
No. 333-8199) and incorporated
herein by reference.)
3(c) Proposed Amended and Restated
Articles of Incorporation of
the Registrant, (Reference is
made to Exhibit 3(c) to the
Registration Statement on Form
S-4 filed with the Securities
and Exchange Commission on
July 16, 1996 (Registration
No. 333-8199) and incorporated
herein by reference.)
3(d) Proposed Amended and Restated
Regulations of Registrant,
(Reference is made to Exhibit
3(d) to the Registration
Statement on Form S-4 filed
with the Securities and
Exchange Commission on July
16, 1996 (Registration No.
333-8199) and incorporated
herein by reference.)
4(a) Articles FOURTH, SIXTH,
SEVENTH, EIGHTH, TENTH, and
ELEVENTH, of the Registrant's
Restated Articles of
Incorporation and Articles I,
V, and VII of the Registrant's
Amended and Restated
Regulations (Reference is made
to Exhibit 3(c) and (d) to the
Registration Statement on Form
S-4 filed with the Securities
and Exchange Commission on
July 16, 1996 (Registration
No. 333-8199) and incorporated
herein by reference.)
10(a) Settlement Agreement among
Neuromedical Systems, Inc. and
the Registrant, Cytology
Indiana, Inc., Indiana
Cytology Review Company, ER
Group, Inc., Cytology West,
Inc., Carolina Cytology
Licensing Company, Papnet
Utah, Inc., Carolina Cytology
Warrant Partnership and GRK
Partners dated as of December
5, 1995. (Reference is made
to Exhibit 10(a) to the
Registration Statement on Form
S-4 filed with the Securities and
Exchange Commission on July 16,
1996 (Registration No. 333-8199)
and incorporated herein by
reference.)
10(b) Letter of Intent among the
Registrant and Cytology West,
Inc., Cytology Indiana, Inc.,
Indiana Cytology Review
Company, ER Group, Inc., CCWP
Partners, Inc., Carolina
Cytology, Inc., and Papnet
Utah, Inc., dated February 1,
1995. (Reference is made to
Exhibit 10(b) to the
Registration Statement on Form
S-4 filed with the Securities
and Exchange Commission on
July 16, 1996 (Registration
No. 333-8199) and incorporated
herein by reference.)
10(c) Voting Agreement among the
Registrant, Cytology Indiana,
Inc., Indiana Cytology Review
Company, ER Group, Inc., CCWP
Partners, Inc., and Carolina
Cytology, Inc., and certain
shareholders of these entities
dated July 5, 1996.
(Reference is made to Exhibit
10(c) to the Registration
Statement on Form S-4 filed
with the Securities and
Exchange Commission on July
16, 1996 (Registration No.
333-8199) and incorporated
herein by reference.)
10(d) Loan Agreement between the
Registrant, Cytology Indiana,
Inc., Indiana Cytology Review
Company, ER Group, Inc., CCWP
Partners, Inc., and Carolina
Cytology, Inc., dated July 5,
1996, and the Side Letter
thereof, dated July 16, 1996.
(Reference is made to Exhibit
10(d) to the Registration
Statement on Form S-4 filed
with the Securities and
Exchange Commission on July
16, 1996 (Registration No.
333-8199) and incorporated
herein by reference.)
10(e) Loan Agreement between the
Registrant and Cytology West,
Inc. and Papnet Utah, Inc.
dated March 14, 1996.
(Reference is made to Exhibit
10(e) to the Registration
Statement on Form S-4 filed
with the Securities and
Exchange Commission on July
16, 1996 (Registration No.
333-8199) and incorporated
herein by reference.)
10(f) Promissory Note and Security
Agreement among Cytology West,
Inc. and the Registrant dated
April 5, 1996 and April 4,
1996 respectively. (Reference
is made to Exhibit 10(f) to
the Registration Statement on
Form
S-4 filed with the Securities
and Exchange Commission on
July 16, 1996 (Registration
No. 333-8199) and incorporated
herein by reference.)
10(g) Guaranty executed by Carl
Genberg, guaranteeing all
obligations of Cytology West,
Inc., dated April 4, 1996.
(Reference is made to Exhibit
10(g) to the Registration
Statement on Form S-4 filed
with the Securities and
Exchange Commission on July
16, 1996 (Registration No.
333-8199) and incorporated
herein by reference.)
10(h) Security Agreement, granting a
security interest in
Neuromedical Systems, Inc.
stock to the Registrant,
executed by Carl Genberg on
April 4, 1996. (Reference is
made to Exhibit 10(h) to the
Registration Statement on Form
S-4 filed with the Securities
and Exchange Commission on
July 16, 1996 (Registration
No. 333-8199) and incorporated
herein by reference.)
10(i) Amended and Restated 1995
Stock Option Plan of the
Registrant. (Reference is
made to Exhibit 10(i) to the
Registration Statement on Form
S-4 filed with the Securities
and Exchange Commission on
July 16, 1996 (Registration
No. 333-8199) and incorporated
herein by reference.)
23 Consent of Ernst & Young
27 Financial Data Schedule
99 Press Release, dated December
16, 1996
(b) REPORTS ON FORM 8-K.
The Company did not file any reports on Form 8-K during the period for
which this report is filed.
PART II. OTHER INFORMATION
SIGNATURE
Pursuant to the requirements of Section 12 of the Securities Exchange Act
of 1934, the Registrant has duly caused this Registration Statement 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: December 19, 1996
* 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.
EXHIBIT INDEX
EXHIBIT EXHIBIT EXHIBIT INDEX
NUMBER DESCRIPTION PAGE NUMBER
------ ----------- -----------
2(a) Agreement and Plan of Merger,
dated as of July 5, 1996,
among the Registrant, Cytology
Indiana, Inc., Indiana
Cytology Review Company, ER
Group, Inc., CCWP Partners,
Inc., and Carolina Cytology,
Inc. (Reference is made to
Exhibit 2(a) to the
Registration Statement on Form
S-4 filed with the Securities
and Exchange Commission on
July 16, 1996 (Registration
No. 333-8199) and incorporated
herein by reference).
3(a) Articles of Incorporation of
the Registrant. (Reference is
made to Exhibit 3(a) to the
Registration Statement on Form
S-4 filed with the Securities
and Exchange Commission on
July 16, 1996 (Registration
No. 333-8199) and incorporated
herein by reference
3(b) Code of Regulations of the
Registrant. (Reference is made
to Exhibit 3(b) to the
Registration Statement on Form
S-4 filed with the Securities
and Exchange Commission on
July 16, 1996 (Registration
No. 333-8199) and incorporated
herein by reference
3(c) Proposed Amended and Restated
Articles of Incorporation of
the Registrant, (Reference is
made to Exhibit 3(c) to the
Registration Statement on Form
S-4 filed with the Securities
and Exchange Commission on
July 16, 1996 (Registration
No. 333-8199) and incorporated
herein by reference.
3(d) Proposed Amended and Restated
Regulations of Registrant,
(Reference is made to Exhibit
3(d) to the Registration
Statement on Form S-4 filed
with the Securities and
Exchange Commission on July
16, 1996 (Registration No.
333-8199) and incorporated
herein by reference.
4(a) Articles FOURTH, SIXTH,
SEVENTH, EIGHTH, TENTH, and
ELEVENTH, of the Registrant's
Restated Articles of
Incorporation and Articles I,
V, and VII of the Registrant's
Amended and Restated
Regulations (Reference is made
to Exhibit 3(c) and (d) to
the Registration Statement on
Form S-4 filed with the
Securities and Exchange
Commission on July 16, 1996
(Registration No. 333-8199)
and incorporated herein by
reference
10(a) Settlement Agreement among
Neuromedical Systems, Inc. and
the Registrant, Cytology
Indiana, Inc., Indiana
Cytology Review Company, ER
Group, Inc., Cytology West,
Inc., Carolina Cytology
Licensing Company, Papnet
Utah, Inc., Carolina Cytology
Warrant Partnership and GRK
Partners dated as of December
5, 1995. (Reference is made
to Exhibit 10(a) to the
Registration Statement on Form
S-4 filed with the Securities
and Exchange Commission on
July 16, 1996 (Registration
No. 333-8199) and incorporated
herein by reference
10(b) Letter of Intent among the
Registrant and Cytology West,
Inc., Cytology Indiana, Inc.,
Indiana Cytology Review
Company, ER Group, Inc., CCWP
Partners, Inc., Carolina
Cytology, Inc., and Papnet
Utah, Inc., dated February 1,
1995. (Reference is made to
Exhibit 10(b) to the
Registration Statement on Form
S-4 filed with the Securities
and Exchange Commission on
July 16, 1996 (Registration
No. 333-8199) and incorporated
herein by reference
10(c) Voting Agreement among the
Registrant, Cytology Indiana,
Inc., Indiana Cytology Review
Company, ER Group, Inc., CCWP
Partners, Inc., and Carolina
Cytology, Inc., and certain
shareholders of these entities
dated July 5, 1996.
(Reference is made to Exhibit
10(c) to the Registration
Statement on Form S-4 filed
with the Securities and
Exchange Commission on July
16, 1996 (Registration No.
333-8199) and incorporated
herein by reference
10(d) Loan Agreement between the
Registrant, Cytology Indiana,
Inc., Indiana Cytology Review
Company, ER Group, Inc., CCWP
Partners, Inc., and Carolina
Cytology, Inc., dated July 5,
1996, and the Side Letter
thereof, dated July 16, 1996.
(Reference is made to Exhibit
10(d) to the Registration
Statement on Form S-4 filed
with the Securities and
Exchange Commission on July
16, 1996 (Registration No.
333-08199) and incorporated
herein by reference
10(e) Loan Agreement between the
Registrant and Cytology West,
Inc. and Papnet Utah, Inc.
dated March 14, 1996.
(Reference is made to Exhibit
10(e) to the Registration
Statement on Form S-4 filed
with the Securities and
Exchange Commission on July
16, 1996 (Registration No.
333-8199) and incorporated
herein by reference
10(f) Promissory Note and Security
Agreement among Cytology West,
Inc. and the Registrant dated
April 5, 1996 and April 4,
1996 respectively. (Reference
is made to Exhibit 10(f) to
the Registration Statement on
Form S-4 filed with the
Securities and Exchange
Commission on July 16, 1996
(Registration No. 333-8199)
and incorporated herein by
reference
10(g) Guaranty executed by Carl
Genberg, guaranteeing all
obligations of Cytology West,
Inc., dated April 4, 1996.
(Reference is made to Exhibit
10(g) to the Registration
Statement on Form S-4 filed
with the Securities and
Exchange Commission on July
16, 1996 (Registration No.
333-8199) and incorporated
herein by reference
10(h) Security Agreement, granting a
security interest in
Neuromedical Systems, Inc.
stock to the Registrant,
executed by Carl Genberg on
April 4, 1996. (Reference is
made to Exhibit 10(h) to the
Registration Statement on Form
S-4 filed with the Securities
and Exchange Commission on
July 16, 1996 (Registration
No. 333-8199) and incorporated
herein by reference
10(i) Amended and Restated 1995
Stock Option Plan of the
Registrant. (Reference is
made to Exhibit 10(i) to the
Registration Statement on Form
S-4 filed with the Securities
and Exchange Commission on
July 16, 1996 (Registration
No. 333-8199) and incorporated
herein by reference.
23 Consent of Ernst & Young
27 Financial Data Schedule
99 Press Release, dated December
16, 1996