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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
FORM 10-QSB
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2001
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.)
1275 KINNEAR ROAD, COLUMBUS, OHIO 43212
(Address of principal executive offices, including zip code)
(614) 675-3722
(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: 13,713,597 common
shares, without par value, on May 4, 2001.
Transitional Small Business Disclosure Format YES NO X
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TABLE OF CONTENTS
PAGE NO.
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
Consolidated Balance Sheet March 31, 2001 1
Consolidated Statements of Operations For the Three
Months Ended Ended March 31, 2001 and 2000 2
Consolidated Statements of Cash Flows For the Three
Months Ended March 31, 2001 and 2000 3
Notes to Consolidated Financial Statements -
March 31, 2001 4
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations. 6
PART II. OTHER INFORMATION
Item 1. Legal Proceedings. 7
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. 8
Signatures 8
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
NETMED, INC.
Consolidated Balance Sheet
March 31, 2001
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 465,861
Prepaid assets 20,167
-----------
Total current assets 486,028
Investments 748,375
Furniture and equipment (net of
accumulated depreciation) 11,545
License (net of accumulated
amortization) 251,447
Deposits and other assets 29,411
-----------
Total assets $ 1,526,806
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 21,187
Accrued expenses 19,779
Other liabilities 5,100
-----------
Total current liabilities 46,066
Negative goodwill 66,800
Preferred stock of subsidiary 368,083
Stockholders' equity:
Common stock 8,062,179
Accumulated other comprehensive income 55,794
Retained deficit (7,072,116)
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Total stockholders' equity 1,045,857
-----------
Total liabilities and stockholders' equity $ 1,526,806
===========
See accompanying notes.
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NETMED, INC.
Consolidated Statements of Operations
(Unaudited)
Three Months Ended
March 31,
2001 2000
-----------------------------
Operating expenses:
Selling, general and administrative $ 98,012 $ 179,380
Business development 33,187 32,184
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Total operating expense 131,199 211,564
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Operating loss (131,199) (211,564)
Other income (expense):
Interest income 5,839 3,992
Settlement of lawsuit (40,000) --
Gain (loss) on available-
for-sale securities 129,422 67,210
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Total other income (expense) 95,261 71,202
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Loss before minority interest (35,938) (140,362)
Minority interest (6,583) (9,667)
-------------------------------
Net loss applicable to
common stockholders $ (42,521) $ (150,029)
==============================
Net loss per share-basic and diluted ($.00) ($0.01)
==============================
Shares used in computation 13,713,597 13,128,842
==============================
See accompanying notes.
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NETMED, INC.
Consolidated Statements of Cash Flows
(Unaudited)
Three Months Ended
March 31,
2001 2000
------------------------
OPERATING ACTIVITIES
Net loss $ (42,521) $(150,029)
Adjustments to reconcile net loss to net
cash used for operating activities:
Depreciation and amortization 4,340 8,768
Minority interest 6,583 --
(Gain) on available-for-sale securities (129,422) (51,759)
Deferred compensation -- 37,812
Changes in operating assets and liabilities:
Prepaid assets 7,562 7,200
Deposits -- (25,000)
Accounts payable 11,008 12,601
Accrued expenses and other liabilities (27,538) 9,804
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Net cash used in operating activities (169,988) (150,603)
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INVESTING ACTIVITIES
Sale of TriPath Stock 269,265 171,759
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Net cash provided by investing activities 269,265 171,759
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FINANCING ACTIVITIES
Repurchase of preferred stock in subsidiary (50,000) --
------------------------
Net cash used in financing activities (50,000) --
------------------------
Net increase in cash 49,277 21,156
Cash and cash equivalents at beginning of period 416,584 416,238
------------------------
Cash and cash equivalents at end of period $ 465,861 $ 437,394
========================
See accompanying notes.
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NETMED, INC.
Notes to Consolidated Financial Statements
(Unaudited)
March 31, 2001
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-QSB and Item 10(a) of Regulation S-B, and include the
results of operations of OxyNet, Inc. ("OxyNet"), a 89.7% owned subsidiary
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 period ended March 31, 2001
are not necessarily indicative of the results that may be expected for the year
ended December 31, 2001. For further information, refer to the financial
statements and footnotes thereto included in the NetMed, Inc. Form 10-KSB for
the year ended December 31, 2000 as filed with the Securities and Exchange
Commission.
NOTE B - COMPREHENSIVE INCOME
As of January 1, 1998, the Company adopted Statement 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. During the
first quarter of 2001 and 2000, total comprehensive loss amounted to ($333,669)
and ($133,154), respectively.
NOTE C -- NSI CONTINGENCY
On March 26, 1999, NSI announced that it had commenced reorganization
proceedings under Chapter 11 of the U.S. Bankruptcy Code in the United States
Bankruptcy Court for the District of Delaware. On December 3, 1999, the Company
announced that the bankruptcy court had approved a settlement among the Company,
NSI, and the official committee of unsecured creditors. The agreement provided
for the settlement and release of the Company's claims in exchange for 175,000
shares of common stock of Tripath Imaging, Inc. (NasdaqNM: TPTH), and the
allowance in the bankruptcy proceeding of an unsecured claim by the Company in
the amount of $1.5 million. The 175,000 Tripath shares were issued to the
Company in late December, 1999, and the balance of its settled claim has been
included with other allowed claims of unsecured creditors to be paid out of
liquidation proceeds in the bankruptcy proceeding. During 2000, the Company
received an additional 145,020 Tripath shares in respect of its unsecured claim
and $450,000 in cash. During 2000, the Company sold 60,000 of the Tripath shares
in the open market at prices ranging between $6.50 and $9.50 per share. The
Company is unable to predict the amount and timing of any additional payments it
may ultimately receive in respect of the remainder of the unsecured claim
allowed by the settlement, but it expects such amounts, if any, to be
negligible.
NOTE D - LITIGATION
On March 1, 1999, the Company and OxyNet commenced a lawsuit in the Common Pleas
Court of Franklin County, Ohio against Ceram and its principals over Ceram's
purported termination of the license for the ceramic oxygen generation
technology, as well as over other issues, including whether oxygen "scrubbing"
applications are included in the scope of the license and whether minimum
royalties are payable prior to the manufacture or sale of products
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incorporating the technology, and asserting claims for damages for fraud and
negligent misrepresentation. On March 3, 1999, the Company and OxyNet obtained a
temporary restraining order prohibiting Ceram from taking any action to
terminate the license or that otherwise is inconsistent with the rights of the
Company under the license. On March 24, 1999, the court issued a decision
finding that the license had not been terminated and granting a preliminary and
permanent injunction against Ceram from taking any action inconsistent with the
Company's rights under the license. On March 22, 2001, the Company concluded a
settlement with Ceram. Under the terms of the settlement, the Company paid Ceram
$40,000, and Ceram has confirmed the Company's rights under the license,
including the exclusive right to apply the licensed technology in "scrubbing"
applications. Ceram has also agreed that no minimum royalties will be payable
until the Company sells a product incorporating the licensed technology. The
Company has also agreed that, in the event that it assigns or transfers its
interest in the license, it will allow Ceram a small participation in any net
proceeds realized by the Company above a specified minimum amount.
NOTE E - OXYNET PREFERRED STOCK ISSUANCE
In September 1998, OxyNet completed the sale of 500 shares of 8% Cumulative
Convertible Preferred Shares (the "Shares") in a private offering, with net
proceeds to OxyNet of $491,000. 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. The 18 month period expired in March 2000 without a public
offering having occurred, but holders of 350 of the OxyNet shares agreed to
extend the period for an additional 12 months. The extension period expired in
March 2001 with no additional conversions to NetMed common stock. In March 2000,
a holder of 50 preferred shares exchanged those shares for approximately 845,000
common shares of NetMed.
In November 2000, NetMed agreed to offer the holders of the remaining 450 Shares
$500 per share in cash for their shares. During December 2000 two holders agreed
to sell 37.5 shares to NetMed for a total of $18,750, and in January 2001 three
holders agreed to sell 100 Shares to NetMed for a total of $50,000, leaving a
balance of 312.5 Shares outstanding. The extended period in which these Shares
could have been exchanged for NetMed common shares expired in March 2001, so the
outstanding Shares are no longer exchangeable for NetMed common shares. The
difference in the amount of the recorded liability for the Shares and their cost
of redemption has been recorded on the accompanying balance sheet as negative
goodwill.
NetMed is the parent of OxyNet. NetMed would own approximately 86.4% of OxyNet's
outstanding common shares on a fully converted basis if the remaining 312.5
Shares are exchanged for OxyNet common stock.
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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 sole
current business activity of the Company, through its majority owned subsidiary
OxyNet, Inc., is the development of products incorporating a new ceramic-based
technology for separation of oxygen from ambient air and other gases. The first
such product targeted for commercialization is an oxygen concentrator for use in
the home health industry.
Prior to March 26, 1999, the Company was also in the business of marketing of
the PAPNET(TM) Testing System, an automated cervical cancer screening product of
Neuromedical Systems, Inc. ("NSI"). The Company marketed the PAPNET(TM) Testing
System in a five state area under license from NSI. On March 26, 1999, NSI
announced that it had commenced reorganization proceedings under Chapter 11 of
the U.S. Bankruptcy Code. In connection with its Chapter 11 filing, NSI
terminated the majority of its U.S. workforce and agreed to sell its
intellectual property and related assets to AutoCyte, Inc. (now Tripath Imaging,
Inc.), for $4,000,000 in cash and 1.4 million shares of AutoCyte common stock.
As of May 6, 1999, NSI, as debtor in possession, rejected the Company's license
and the Bankruptcy Court confirmed the rejection over the Company's objection.
As a result, the Company became an unsecured creditor of NSI with a breach of
contract claim for the termination of the license.
On December 3, 1999, the Company announced that the bankruptcy court had
approved a settlement among the Company, NSI, and the official committee of
unsecured creditors. The agreement provided for the settlement and release of
the Company's claims in exchange for 175,000 shares of common stock of Tripath
Imaging, Inc. (NasdaqNM: TPTH), and the allowance in the bankruptcy proceeding
of an unsecured claim by the Company in the amount of $1.5 million. The 175,000
Tripath shares were issued to the Company in late December, 1999, and the
balance of its settled claim has been included with other allowed claims of
unsecured creditors to be paid out of liquidation proceeds in the bankruptcy
proceeding. During 2000, the Company received an additional 145,020 Tripath
shares in respect of its unsecured claim in addition to $450,000 in cash. During
2000, the Company sold 60,000 of the Tripath shares in the open market at prices
ranging between $6.50 and $9.50 per share. The Company is unable to predict the
amount and timing of any additional payments it may ultimately receive in
respect of the remainder of the unsecured claim allowed by the settlement, but
it expects such amounts, if any, to be negligible.
This report contains forward-looking statements which 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 2000 Form 10-KSB as filed with the United States Securities and
Exchange Commission, File No. 1-12529, in the section titled "Business Risks."
PLAN OF OPERATION
The Company plans to continue the development of an oxygen concentrator for the
home health care market. The Company may also seek a partner or partners for
joint development, manufacturing, distribution, or marketing of the oxygen
concentrator. The Company does not plan to incur more than $400,000 in
development expenses for this product in the next year.
The Company also plans to continue its joint effort with MG Generon, Inc. to
develop a device that will use the Company's oxygen separation technology to
produce highly concentrated nitrogen from gas mixtures through the removal of
oxygen from such mixtures. The terms of the joint development agreement call for
the Company to work as a consultant to MG Generon in this effort. The Company
does not expect to make significant expenditures in the coming year to support
this project.
The Company is also evaluating other technologies to joint venture, acquire or
develop. If the Company decides to pursue any of these technologies, it may need
to raise additional capital to support the development, manufacturing,
distribution, or marketing of these technologies.
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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 TriPath common stock, the sale of
common shares, the sale of the convertible debentures and the joint development
agreement with MG Generon. The Company's combined cash and cash equivalents
totaled $466,000 at March 31, 2001, an increase of $49,000 from December 31,
2000. Also, the Company owns 85,020 TriPath common shares that had a market
value of $531,000 at March 31, 2001, and investments in certificates of deposit
valued at $217,000.
Cash used in the Company's operations was $170,000 for the three months ended
March 31, 2001 versus $151,000 used in the same period of 2000. The Company is a
development company and anticipates that its cash requirements will be
substantial for the immediate future and believes that it will 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.
The Company's future liquidity and capital requirements will depend upon
numerous factors, including the resources required to further develop the OxyNet
oxygen 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 financial condition and results of operations.
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
Statements in this release 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 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 ability to successfully commercialize any products
using the ceramic oxygen technology, continuing losses from operations and
negative cash flow, the challenges of research and development of new products,
and other risks detailed in the Company's most recent Annual Report on Form
10-KSB and other Securities and Exchange Commission filings. The Company
undertakes no obligation to publicly update or revise any forward-looking
statements.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On March 1, 1999, the Company and OxyNet commenced a lawsuit in the Common Pleas
Court of Franklin County, Ohio against Ceram and its principals over Ceram's
purported termination of the license for the ceramic oxygen generation
technology, as well as over other issues, including whether oxygen "scrubbing"
applications are included in the scope of the license and whether minimum
royalties are payable prior to the manufacture or sale of products incorporating
the technology, and asserting claims for damages for fraud and negligent
misrepresentation. On March 3, 1999, the Company and OxyNet obtained a temporary
restraining order prohibiting Ceram from taking any action to terminate the
license or that otherwise is inconsistent with the rights of the Company under
the license. On March 24, 1999, the court issued a decision finding that the
license had not been terminated and granting a preliminary and permanent
injunction against Ceram from taking any action inconsistent with the Company's
rights under the license. On March 22, 2001, the Company concluded a settlement
with Ceram. Under the terms of the settlement, the Company paid Ceram $40,000,
and Ceram has confirmed the Company's rights under the license, including the
exclusive right to apply the licensed technology in "scrubbing" applications.
Ceram has also agreed that no minimum royalties will be payable until the
Company sells a product incorporating the licensed technology.
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The Company has also agreed that, in the event that it assigns or transfers its
interest in the license, it will allow Ceram a small participation in any net
proceeds realized by the Company above a specified minimum amount.
On December 3, 1999, the Company announced that the bankruptcy court had
approved a settlement among the Company, NSI, and the official committee of
unsecured creditors. The agreement provided for the settlement and release of
the Company's claims in exchange for 175,000 shares of common stock of Tripath
Imaging, Inc. (NasdaqNM: TPTH), and the allowance in the bankruptcy proceeding
of an unsecured claim by the Company in the amount of $1.5 million. The 175,000
Tripath shares were issued to the Company in late December, 1999, and the
balance of its settled claim has been included with other allowed claims of
unsecured creditors to be paid out of liquidation proceeds in the bankruptcy
proceeding. During 2000, the Company received an additional 145,020 Tripath
shares in respect of its unsecured claim and $450,000 in cash. During 2000, the
Company sold 60,000 of the Tripath shares in the open market at prices ranging
between $6.50 and $9.50 per share. The Company is unable to predict the amount
and timing of any additional payments it may ultimately receive in respect of
the remainder of the unsecured claim allowed by the settlement, but it expects
such amounts, if any, to be negligible.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
Exhibit Exhibit Description
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None
(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.
SIGNATURE
Pursuant to the requirements of Section 12 of the Securities Exchange
Act of 1934, the Registrant has duly caused this Form 10-QSB for the quarterly
period ended March 31, 2001 to be signed on its behalf by the undersigned,
thereto duly authorized.
By: \s\Kenneth B. Leachman
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Kenneth B. Leachman,
Vice President of Finance*
Dated: May 4, 2001
* In his capacity as Vice President of Finance, Mr. Leachman is the Registrant's
principal financial officer.
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