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 June 30, 2002
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.)
41 SOUTH HIGH STREET, SUITE 2800
COLUMBUS, OHIO 43215
(Address of principal executive offices, including zip code)
(614) 227-2136
(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 August 12, 2002.
Transitional Small Business Disclosure Format YES NO X
-- --
TABLE OF CONTENTS
PAGE NO.
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
Consolidated Balance Sheet June 30, 2002 1
Consolidated Statements of Operations For the Three Months Ended
and the Six Months Ended June 30, 2002 and 2001 2
Consolidated Statements of Cash Flows For
the Six Months Ended June 30, 2002 and 2001 3
Notes to Consolidated Financial Statements -
June 30, 2002 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. 7
Signatures 7
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
NETMED, INC.
Consolidated Balance Sheet
June 30, 2002
(Unaudited)
-----------
ASSETS
Current assets:
Cash and cash equivalents $ 293,592
Prepaid assets 13,250
-----------
Total current assets 306,842
Investments 378,264
Furniture and equipment (net of
accumulated depreciation) 1,718
License (net of accumulated
amortization) 224,641
-----------
Total assets $ 911,465
===========
LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities:
Accounts payable $ 11,577
Accrued expenses 2,000
Other liabilities 3,061
-----------
Total current liabilities 16,638
Preferred stock of subsidiary 399,333
Stockholders' equity:
Common stock 8,062,179
Accumulated other comprehensive loss (103,242)
Retained deficit (7,463,443)
-----------
Total stockholders' equity 495,494
-----------
Total liabilities and stockholders' equity $ 911,465
===========
See accompanying notes.
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NETMED, INC.
Consolidated Statements of Operations
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
2002 2001 2002 2001
---------------------------- --------------------------------
Operating expenses:
Selling, general and administrative $ 71,580 $ 77,167 $ 168,033 $ 175,182
Business development -- 46,355 -- 79,542
---------------------------------------------------------------------
Total operating expense 71,580 123,522 168,033 254,724
---------------------------------------------------------------------
Operating loss (71,580) (126,522) (168,033) (254,724)
Other income (expense):
Interest income 1,045 8,489 2,853 14,325
Settlement of lawsuit -- -- -- (40,000)
Gain from NSI bankruptcy 21,105 -- 21,105 --
Gain on available-for-
sale securities -- -- -- 129,422
---------------------------------------------------------------------
Total other income 22,150 8,489 23,958 103,750
---------------------------------------------------------------------
Loss before minority interest,
cumulative effect of a change
in accounting principle and taxes (40,453) (115,033) (144,075) (150,974)
Minority interest (6,250) (6,250) (12,500) (12,833)
---------------------------------------------------------------------
Net loss before cumulative effect
a change in accounting principle
and taxes (55,680) (121,283) (156,575) (163,807)
Cumulative effect of a change in
accounting principle -- -- 62,100 --
---------------------------------------------------------------------
Net loss before taxes (55,680) (121,283) (94,475) (163,807)
Income tax expense -- 4,731 -- 4,731
---------------------------------------------------------------------
Net (loss) income applicable to
common stockholders $ (55,680) $ (126,014) $ (94,475) $ (168,538)
=====================================================================
Net loss per share-basic and diluted
before cumulative effect of a
change in accounting principle $ 0.00 $ (0.01) $ (0.02) $ (0.01)
Cumulative effect of a change in
accounting principle -- -- 0.01 --
---------------------------------------------------------------------
Net loss per share - basic and diluted $ 0.00 $ (0.01) $ (0.01) $ (0.01).
=====================================================================
Shares used in computation 13,713,597 13,713,597 13,713,597 13,713,597
=====================================================================
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NETMED, INC.
Consolidated Statements of Cash Flows
(Unaudited)
Six Months Ended
June 30,
--------
2002 2001
--------- ---------
OPERATING ACTIVITIES
Net loss $ (94,475) $(168,538)
Adjustments to reconcile net loss to net
cash used for operating activities:
Depreciation and amortization 10,780 10,880
Minority interest 12,500 12,833
(Gain) on available-for-sale securities -- (129,422)
(Gain) on stock received from bankruptcy (5,925) --
Cumulative effect of change in
accounting principle (62,100) --
Changes in operating assets and liabilities:
Prepaid assets 15,900 15,125
Deposits -- 25,000
Accounts payable 6,934 3,200
Accrued expenses and other liabilities (3352) (37,753)
--------- ---------
Net cash used in operating activities (118,838) (268,675)
--------- ---------
INVESTING ACTIVITIES
Proceeds at maturity of investment -- 109,000
Sale of TriPath Stock -- 269,265
--------- ---------
Net cash provided by investing activities -- 378,265
--------- ---------
FINANCING ACTIVITIES
Repurchase of preferred stock in subsidiary -- (50,000)
--------- ---------
Net cash used in financing activities -- (50,000)
--------- ---------
Net (decrease) increase in cash (118,838) 59,590
Cash and cash equivalents at beginning of period 412,430 416,584
--------- ---------
Cash and cash equivalents at end of period $ 293,592 $ 476,174
========= =========
See accompanying notes.
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NETMED, INC.
Notes to Consolidated Financial Statements
(Unaudited)
June 30, 2002
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 and six month periods ended June
30, 2002 are not necessarily indicative of the results that may be expected for
the year ended December 31, 2002. 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, 2001 as filed with the Securities and
Exchange Commission.
NOTE B - COMPREHENSIVE INCOME
Financial Accounting Standards Board's Statement No. 130, Reporting
Comprehensive Income ("SFAS 130") establishes new rules for the reporting and
display of comprehensive income (loss). SFAS 130 requires unrealized gains or
losses on the Company's available-for-sale securities to be included in other
comprehensive income (loss) and accumulated comprehensive income (loss). For the
quarter ended June 30, 2002 and 2001, total comprehensive (loss) income amounted
to $(170,507) and $142,635 respectively. For the six months ended June 30, 2002
and 2001 total comprehensive (loss) was ($362,335) and ($191,034), respectively.
NOTE C - LITIGATION
On March 22, 2001, the Company concluded a settlement with CeramPhysics, Inc. of
Westerville, Ohio ("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 D - 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. In March 2000, a holder of 50 preferred shares exchanged those
shares for
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approximately 844,645 common shares of NetMed. The 18 month period expired in
March 2000 without a public offering having occurred, but the Company agreed
with holders of 350 of the OxyNet shares to extend the period for an additional
12 months.
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 and January 2001
holders of 137.5 shares sold their shares to the Company for $68,750. The
extended period for exercise of the exchange right of the remaining OxyNet
shares expired in March 2001 without any other holder exercising the exchange
right. The difference in the amount of the recorded liability for the Shares and
their cost of redemption was recorded as negative goodwill. (See Note E).
NOTE E - BUSINESS COMBINATIONS AND GOODWILL
In July 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 141 ("SFAS 141"), Business Combinations and
Statement Of Financial Accounting Standards No. 142 ("SFAS 142"), Goodwill and
Other Intangible Assets. SFAS 141 requires that the purchase method of
accounting be used for all business combinations initiated after June 30, 2001
and prohibits the use of the pooling-of-interests method. SFAS 142 changes the
accounting for goodwill from an amortization method to an impairment-only
approach. The transition provision of SFAS 141 requires that upon adoption of
the new accounting rules, any existing negative goodwill should be adjusted as a
cumulative effect of a change in accounting principle in the statement of
operations. Effective January 1, 2002, the Company recorded a cumulative effect
of a change in accounting principle adjustment of $62,100 for its remaining
unamortized negative goodwill.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OVERVIEW
The Company is an Ohio corporation whose sole business activity during 2001,
through its majority owned subsidiary OxyNet, Inc., involved research and
development activities associated with a proprietary ceramic-based technology
for separation of oxygen from ambient air and other gases. These activities were
suspended effective December 31, 2001, pending efforts to locate a prospective
licensee or development partner.
The Company is evaluating other businesses to joint venture, acquire or develop.
If the Company decides to pursue any of these businesses, it may need to raise
additional capital to support the associated development, manufacturing,
distribution, or marketing activities.
This report contains forward-looking statements that involve risks and
uncertainties. The Company's actual results may differ materially from the
results discussed in the forward-looking statements. Factors that might cause
such a difference include, but are not limited to, those discussed in Item I of
the Company's 2001 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 is continuing efforts begun in 2001 to evaluate other business
opportunities, which include preliminary investigation and due diligence. While
the Company is not limiting its search for business opportunities to one
industry group or sector, management believes that a viable merger or
acquisition candidate should provide the possibility for short and long term
stockholder value. The Company is presently seeking a candidate with a
proprietary product or service, which may be in the development stage that
offers the Company the opportunity to realize these objectives. The Company has
identified one potential candidate and is in the process of due diligence and
negotiation of possible terms. At this point, discussions are preliminary, and
there can be no assurance that a definitive acquisition agreement will be
reached, nor if so, that a transaction will be concluded.
LIQUIDITY AND CAPITAL RESOURCES
The Company has financed its operations in the past two years primarily by the
sale of marketable securities owned by the Company funds received MG Generon,
Inc under a joint development agreement, and proceeds from settlement of the
claims by the Company in the asserted bankruptcy proceedings of Neuromedical
Systems, Inc. The Company's combined cash and cash equivalents totaled $294,000
at June 30, 2002, which is a decline of $119,000 from December 31, 2001. Also,
the Company owns 86,569 TriPath common shares that had a market value of
$378,000 at June 30, 2002.
Cash used in the Company's operations was $119,000 for the six months ended June
30, 2002 versus $269,000 used in the same period of 2001.
The Company's future liquidity and capital requirements will depend upon the
results of its search for business opportunities. 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, and its ability to consummate a merger or acquisition.
CAUTION REGARDING FORWARD-LOOKING STATEMENTS
Statements in this document which relate to other than strictly
historical facts, including statements about the Company's plans and strategies,
as well as management's expectations about new and existing products,
technologies and opportunities, demand for and acceptance of new and existing
products (including the OxyNet oxygen concentration device), are forward looking
statements. The words "believe," "expect," "anticipate,"
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"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 lack of revenues, continuing
losses from operations and negative cash flow, the dependence on proprietary
technology, government regulation, absence of marketing and sales history,
suspension of business operations, and other risks detailed in this report 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 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.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
Exhibit Exhibit Description
------- -------------------
99. ADDITIONAL EXHIBITS
Exhibit 99.1 Certification Under Section 906 of Sarbanes-Oxley
Act of 2002
Exhibit 99.2 Certification Under Section 906 of Sarbanes-Oxley
Act of 2002
(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 June 30, 2002 to be signed on its behalf by the undersigned,
thereto duly authorized.
NETMED, INC.
By: \s\Kenneth B. Leachman
-------------------------
Kenneth B. Leachman, Vice President of Finance*
Dated: August 12, 2002
* In his capacity as Vice President of Finance, Mr. Leachman is the
Registrant's principal financial officer.
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