10QSB 1 0001.txt FORM 10-Q (DATED MARCH 31, 2000) 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-QSB [X] Quarterly Report Under Section 13 or 15(d) of The Securities Exchange Act of 1934 For the quarterly period ended March 31, 2000 [ ] 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 333-19285 MPR HEALTH SYSTEMS, INC. (formerly Myo Diagnostics, Inc.) (Exact Name of Small Business Issuer as Specified in its Charter) California 95-4089525 (State or Other Jurisdiction of (I.R.S. Employer Incorporation or Organization) Identification No.) 3710 South Robertson Boulevard Culver City, California 90232 (Address of Principal Executive Offices) (310) 559-5500 (Issuer's Telephone Number, Including Area Code) Check whether the issuer: (1) filed all reports required to be filed by Section 13 or 15(d) of the 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 past 90 days. Yes [X] No State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date: Common Stock, no par value, 10,023,370 shares issued and outstanding as of March 31, 2000. Transitional Small Business Disclosure Format (check one):Yes [ ] No [X] 2 MPR HEALTH SYSTEMS, INC. INDEX TO FORM 10-QSB
PART I FINANCIAL INFORMATION Page Item 1. Financial Statements: Balance Sheet (unaudited) as of March 31, 2000 and 1999 3 Statements of Operations (unaudited) for the Three months Ended March 31, 2000 and 1999 4 Statements of Cash Flows (unaudited) for the Three months Ended March 31, 2000 and 1999 5 Notes to Financial Statements 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 8 PART II OTHER INFORMATION Item 1. Legal Proceedings 10 Item 2. Changes in Securities 10 Item 3. Defaults Upon Senior Securities 10 Item 4. Submission of Matters to a Vote of Security Holders 10 Item 5. Other Information 10 Item 6. Exhibits and Reports on Form 8-K. 10
3 PART I FINANCIAL INFORMATION Item 1. Financial Statements MPR HEALTH SYSTEMS, INC. BALANCE SHEET (Unaudited) As of March 31, 2000
Mar 31, 1999 ------------ Current Assets Cash $ 6,061 Accounts receivable 328,115 Prepaid expenses & Other Current Assets 23,218 ----------- Total current assets 357,394 Furniture & Equipment, net 150,211 Capitalized Product Development Costs 1,439,636 Other Assets 36,233 ----------- Total assets $ 1,983,474 Current Liabilities Accounts Payable & Accrued Expenses 477,367 Current Portion of Leases Payable 10,715 ----------- Total Current Liabilities 488,082 Non Current Liabilities Convertible Debenture Loans 167,000 Loans from Shareholder 14,000 Capital Leases Payable 14,750 Notes Payable 25,000 ----------- Total liabilities 708,832 Shareholders' Equity (Deficit) Preferred stock, no par value 10,000,000 shares authorized No shares issued and outstanding -- Common stock, no par value 50,000,000 shares authorized 10,023,370 and 8,323,037 issued and outstanding 7,254,309 Paid in capital 145,000 Deficit accumulated during development stage (6,124,668) ----------- Total Shareholders' Equity 1,274,641 ----------- Total Liabilities & Shareholders' Equity $ 1,983,474
The accompanying notes are an integral part of these financial statements. 4 MPR HEALTH SYSTEMS, INC. STATEMENTS OF OPERATIONS (Unaudited) For the Three Months Ended March 31, 2000 and 1999
For the Three Months Ended March 31, 2000 1999 ----------- ----------- Revenues $ 502,546 $ 24,796 Operating Expenses Research & Development 31,237 17,227 Technical Services 68,011 23,890 Sales & Marketing 95,344 15,428 General & Administrative 150,939 100,550 ----------- ----------- Total Operating Expenses 345,531 157,095 ----------- ----------- Loss from Operations 157,015 (132,299) Other Income (Expenses) Interest Expense (8,434) (14,234) Miscellaneous (50,025) (4,138) Interest Income -- -- ----------- ----------- Total Other Income (Expenses) (58,459) (18,372) Provision for Taxes 44,986 7,949 ----------- ----------- Income/(Loss) Before Extraordinary Item 53,568 (158,620) ----------- ----------- Net Income/(Loss) $ 53,568 $ (158,620) ----------- ----------- Basic Earnings/(Loss) Per Share $ 0.01 ($ 0.02) ----------- ----------- Diluted Loss Per Share $ 0.01 ($ 0.02) ----------- ----------- Weighted Average Common Shares 9,873,370 8,994,870
The accompanying notes are an integral part of these financial statements. 5 MPR HEALTH SYSTEMS, INC. STATEMENTS OF CASH FLOWS (Unaudited) For the Three Months Ended March 31, 2000 & 1999
For the Three Months Ended March 31, 2000 1999 --------- --------- CASH FLOWS FROM OPERATING ACTIVITIES: Net Income (Loss) $ 53,568 $(158,620) Adjustments to Net Income (Loss): Depreciation & Amortization 58,458 -- Extraordinary Loss on Debt Restruct Bad Debt Expense -- -- Loss on Disposition of Fixed Assets Stock Options Issued for Services Rendered -- -- Common Stock Issued in Consideration for Extension of Repayment Terms for Notes Payable to Related Parties -- -- Common Stock Issued for Services Rendered -- -- (Increase)/Decrease in: Accounts Receivables (322,130) (4,545) Other Receivables -- -- Prepaid Expenses (3,336) -- Employee Receivables Other Assets (1,350) -- Increase/(Decrease) in: Accounts Payable 52,784 (58,573) Deferred Revenue Other Current Liabilities (43,875) (104,889) --------- --------- Net Cash Provided (Used) by Operating Activities (205,881) (326,627) --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES: Investment in Fixed Assets (69,926) -- Proceeds from Disposition of Fixed Assets Software Development Costs -- -- --------- --------- Net Cash Provided (Used) by Investing Activities (69,926) --
See accompanying notes and accountant's report. 6 MPR HEALTH SYSTEMS, INC. STATEMENTS OF CASH FLOWS (Unaudited) For the Three Months Ended March 31, 2000 & 1999
For the Three Months Ended March 31, 2000 1999 --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from Bank Overdraft -- -- Issuance of Convertible Debentures -- -- Net Increase (Decrease) in Notes Payables -- -- Net Increase (Decrease) in Notes Payables to Related Parties -- -- Repayment (Borrowings) on Obligations Under Capital Lease -- (22,366) Net Proceeds from Issuance of Common Stock -- 146,000 Increase (Decrease) in Paid-In Capital -- -- --------- --------- Net Cash Provided (Used) from Financing Activities -- 123,634 --------- --------- Prior Period Adjustment -- -- Net Increase (Decrease) in Cash (275,806) (202,993) Beginning Cash 281,867 240,861 --------- --------- Ending Cash $ 6,061 37,868 --------- ---------
7 MPR HEALTH SYSTEMS, INC. NOTES TO FINANCIAL STATEMENTS (Unaudited) 1. Basis of Presentation and Significant Accounting Policies The financial statements included herein have been prepared by MPR Health Systems, Inc. (the "Company"), without audit, according to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations, although the Company believes the disclosures that are made are adequate to make the information presented not misleading. Further, the financial statements reflect, in the opinion of management, all adjustments necessary to state fairly the financial position and results of operations as of and for the periods indicated. These financial statements should be read in conjunction with the Company's December 31, 1999 audited financial statements and notes thereto as of and for the year ended December 31, 1999. The financial statements have been prepared on the basis of the Continuation of the Company as a going concern. During the three months ended March 31, 2000, the Company earned net income of $53,568. The Company is in the early stage of bringing the product to market at March 31, 2000, and recovery of the Company's assets is still dependent upon future events, the outcome of which is indeterminable. Successful completion of the Company's development program and its transition to the attainment of profitable operations is dependent upon obtaining adequate financing to fulfill its development activities and achieving a level of sales adequate to support the Company's cost structure. In view of these matters, realization of a major portion of the assets in the accompanying balance sheet is dependent upon the Company's ability to meet its financing requirements and the success of its plans to sell its products. Further, the results of operations for the three months ended March 31, 2000 are not necessarily indicative of results to be expected for the full fiscal year ending December 31, 2000. Until January 1, 2000 the Company had been a development stage company as defined in Statement of Financial Accounting Standards ("SFAS") No. 7, "Accounting and Reporting by Development Stage Enterprises." The Company is devoting substantially all of its present efforts to establish its product commercially and its planned principal operations are just commencing. All losses accumulated since inception have been considered as part of the Company's development stage activities. 8 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Until January 1, 2000 the Company had been a development stage company that had yet to realize any material revenues. As of January 1, 2000, the Company is ready to bring its product to market, but needs additional funding to implement its marketing plan. Forward Looking Statements The Company may from time to time make "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. When used in this discussion, the words "estimate", "project", "anticipate" and similar expressions are subject to certain risks and uncertainties, such as changes in general economic conditions, competition, changes in federal regulations, as well as uncertainties relating to raising additional financing and acceptance of the Company's product and services in the marketplace, including those discussed below that could cause actual results to differ materially from those projected. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as to the date hereof. The Company undertakes no obligation to publicly release the results of any revisions to those forward-looking statements which may be made to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events. Results of Operations Three months Ended March 31, 2000 as Compared to Three months Ended March 31, 1999. The Company generated revenues of $502,546 during the three months ended March 31, 2000, as compared to revenues of $24,796 during the three months ended March 31, 1999. This increase was due to sales of $202,546 and $300,000 pursuant to an agreement entered into in the fourth quarter of 1999 for the distribution of the Company's products in the United Kingdom. The Company's operating expenses increased to $345,531 during the three months ended March 31, 2000 from $157,095 during the three months ended March 31, 1999. The primary reason for the higher expenses over the same period in 1999 is an increase in staff from six to ten as a result of the initiation of the Company's sales and marketing plan. Travel expenses associated with the recruitment of independent sales representatives was another significant factor, accounting for $29,518 of the total increase. 9 As a result of the increase in revenues, the Company has net income of $53,568 during the quarter, as compared to a net loss of $158,620 during the same quarter of the prior fiscal year. Financial Condition The Company has historically funded its operating expenses through loans and sales of debt and equity securities. During the first quarter of fiscal 2000, however, the Company funded its operating expenses through revenues from product sales. The Company presently has funds to continue operations at its present level only through August of 2000. The Company expects very little revenues during this period, and is attempting to raise additional capital. If the Company does not obtain additional capital by the end of August 2000, it will be forced to severely curtail operations and, if additional capital is not obtained shortly thereafter, the Company may be forced to cease operations. Cautionary Statements and Risk Factors Several of the matters discussed in this document contain forward- looking statements that involve risks and uncertainties. Factors associated with the forward looking statements which could cause actual results to differ materially from those projected or forecast in the statements that appear below. In addition to other information contained in this document, readers should carefully consider the following cautionary statements and risks factors: Reliance on a Single Product: The Company has only one product, the MPR System. There is no established market for this product. Accordingly, if for any reason the MPR System cannot be marketed successfully, the Company would not survive. Reliance on License: The Company's entire business is based on an exclusive license of the MPR process and related technology from TRG. See "Business -- Intellectual Property." The license terminates in 2013, but may be terminated earlier upon the occurrence of certain events including (i) the failure by Licensee to observe or perform any of its covenants, conditions or agreements contained within the license. Any termination of the license would have a material adverse effect on the Company and would likely result in the Company not surviving. New and Uncertain Market: Until now, muscle injuries have always been diagnosed and evaluated subjectively by physicians through physical examination. Accordingly, there is no established demand for a computer assisted procedure to assist in the diagnosis of such injuries, and it is difficult to predict if, and when, the procedure will gain wide acceptance by prescribers. A prerequisite to success will be the ability of the Company to establish MPR as a standard medical practice for use in the diagnosis of muscle dysfunction. The Company believes it will take a minimum of three to five years for such awareness to be achieved, if it can be achieved at all. Factors that may affect market acceptance could include resistance to change, concerns over the lack of track record of the procedure, and the risk for insurance companies to use the results of the procedure to challenge or overrule the diagnostic or treatment decisions of a physician. 10 Need for Additional Funding: To create market awareness of its MPR System, the Company will need to devote significant resources to marketing and sales. The Company's plan is to develop market awareness partially through a public relations campaign, including attendance at trade shows and professional conferences, scientific presentations and clinical studies. The Company believes its success may depend, in part, on the Company's ability to conduct additional clinical studies. In addition, and very critical to this process, will be direct contact with payors (primarily insurance companies, HMOs and PPOs) and providers (including physicians, rehabilitation professionals, hospitals and diagnostic clinics) to create awareness of the MPR System and to educate them as to its benefits and clinical applicability. To fully implement its marketing plan in 2000, the Company estimates it will need an additional $1.0 million to $1.5 million of funding. The amount of funding, if any, the Company receives in 2000 will partially determine the degree to which it can implement its marketing plan. The Company may obtain additional funding primarily through private placements of debt and/or equity securities with strategic partners or others. In addition, the Company could obtain funds through development funding from and/or advance sales to strategic partners. To date, the Company has no commitments for these additional funds. The issuance of additional debt or equity securities by the Company could have the effect of impairing the rights of existing shareholders. For example, the Company could issue securities senior to the Common Stock in liquidation (such as debt securities or preferred stock), with preferential voting rights, or which limit or restrict the payment of dividends. In addition, the Company could issue securities at prices that are dilutive to the existing shareholders. Intellectual Property: TRG holds a United States patent on the MPR technology, and the Company is the exclusive licensee of the rights under the patent. The Company believes that its ability to be successful will be contingent on its ability to protect the MPR technology, its future developments and its know how. There can be no assurance, however, that this patent will provide substantial protection of the MPR technology or that its validity will not be challenged. Pursuant to its license agreement with TRG, the Company has the right to protect the MPR technology. The Company presently has no patent protection of the MPR technology outside the United States. The Company has the right to file patent applications and attempt to obtain patents in other jurisdictions. To date, the Company has not done so, in part because of lack of funds. TRG is under no obligation to patent the MPR technology in any jurisdiction and the Company's determination as to whether or not to seek patent protection will depend upon a number of factors, including the likelihood of the issuance of the patent, the Company's financial resources and marketing plans. 11 Competition: The Company believes that there is no competitive diagnostic technology in use today capable of detecting, locating and evaluating soft tissue muscle injuries in a manner similar to the MPR System. However, there are many companies, both public and private, which are active in the field of medical diagnostic imaging. Some of these companies have substantially greater financial, technical and human resources, have a well-established name and enjoy a strong market presence. There is no assurance that one or several such companies are not currently developing, or will not start developing, technology that will prove more effective or desirable than the Company's technology. Such occurrence could severely affect the Company's ability to establish and develop a market presence and to maintain its competitive position. Dependence on Third Parties: The success of the Company will depend, in part, on insurance companies and managed care organizations paying for or reimbursing for MPR evaluations. To date, over 60 insurance companies have reimbursed patients who have been diagnosed using the MPR System. However, this has been a limited sample in that the Company's experience is based solely on clinical tests and test marketing. No assurance can be given as to what extent, if at all, insurance companies will continue to reimburse for MPR evaluations. Dependence on Key Management Personnel: The Company is substantially dependent upon the experience of Gerald D. Appel, President, Chief Executive Officer and founder of the Company. The loss of the services of Mr. Appel could have a material adverse impact on the Company and its business unless a suitable replacement for the individual is found promptly, but there is no assurance that such replacement can be found. Product Liability: The Company may be subject to substantial product liability costs if claims arise out of problems associated with the use of the Company's MPR System. While the Company maintains insurance against such potential liabilities, there can be no assurance that such product liability insurance will adequately insure against such risk. Control by Management: Gerald D. Appel owns beneficially 3,621,019 shares of the Common Stock (which includes voting rights with respect to 111,900 shares), representing 36.1% of the outstanding voting power of the Company as of April 30, 2000. As of April 30, 2000, all directors and officers of the Company (including Mr. Appel) currently had voting power with respect to 40.5% of the outstanding Common Stock. Accordingly, Mr. Appel, individually, and all directors and officers as a group, have the power to control the election of directors, and therefore the business and affairs of the Company. See "Principal Shareholders." This concentration of stock ownership may have the effect of delaying or preventing a change in the management or control of the Company. Preferred Stock: The Company is authorized to issue up to 10,000,000 shares of Preferred Stock, issuable in one or more series, the rights, preferences, privileges and restrictions of which may be established by the Company's Board of Directors without stockholder approval. As a result, in the future, the Company could issue Preferred Stock with voting and conversion rights that could adversely affect the voting power and other rights of the holders of the Common Stock. No shares of Preferred Stock are presently outstanding and the Company has no present plans to issue shares of Preferred Stock. 12 Absence of a Public Market: Presently, there is no public market for any securities of the Company. No assurance can be given that any public market will ever develop for any of the Company's securities. The Company does not presently meet the requirements for listing securities on any national securities exchange or the NASDAQ Stock Market. The absence of a public market for the Company's securities makes an investment in such securities highly illiquid. In addition, the absence of a public market results in there being no true "market price" for the Company's securities which would enable investors to determine the value of their investment. Forward Looking Statements: The Company may from time to time make "forward- looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. When used in this discussion, the words "estimate", "project", "anticipate" and similar expressions are subject to certain risks and uncertainties, such as changes in general economic conditions, competition, changes in federal regulations, as well as uncertainties relating to raising additional financing and acceptance of the Company's product and services in the marketplace, including those discussed below that could cause actual results to differ materially from those projected. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as to the date hereof. The Company undertakes no obligation to publicly release the results of any revisions to those forward-looking statements that may be made to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events. Item 7. Financial Statements. The response to this item is submitted in a separate section of this report. See Financial Statements and Schedules on Page [3]. 13 PART II OTHER INFORMATION Item 1. Legal Proceedings The Company is not a party to any material legal proceeding. Item 2. Changes in Securities On January 1, 1999, the Company entered into a three-year employment agreement with Gerald D. Appel to serve as its President and Chief Executive Officer. Pursuant to the employment agreement, Mr. Appel was granted three hundred thousand (300,000) Common Shares of the Company. Although the shares were granted in fiscal 1999, they were not issued until February 2000. The issuance of these shares was exempt from registration pursuant to Section 4(2) of the Act as a transaction not involving any public offering. Item 3. Defaults Upon Senior Securities There were no defaults upon Senior Securities during the three months ended March 31, 2000. Item 4. Submission of Matters to a Vote of Security Holders Effective as of January 13, 2000, shareholders holding 5,093,358 shares, representing approximately 52.4% of the outstanding Common Stock, by written consent approved an amendment to the Articles of Incorporation of the Company changing the corporate name from "Myo Diagnostics, Inc." to "MPR Health Systems, Inc." Item 5. Other Information Inapplicable. There is no other information to be reported during the three months ended March 31, 2000. Item 6. Exhibits and Reports on Form 8-K. (a) Exhibits: Exhibit 27.1 Financial Data Schedule (b) Reports on Form 8-K. None. 14 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. MPR HEALTH SYSTEMS, INC. Date: May 31, 2000 By: /s/ GERALD D. APPEL ------------------------------------------- Gerald D. Appel, President, Chief Executive Officer and Chairman of the Board [Principal Financial and Accounting Officer]