Is Medinex on the ropes?
Post Falls company posted $30 million net loss in 2000; auditors skeptical its viableApril 20th, 2001
Post Falls-based Medinex Systems Inc. has spent nearly all of the $21 million it raised two years ago in an initial public offering, has posted a $30 million net loss for 2000, and has trimmed roughly 80 percent of the about 180 employees it had on board early last year.
Also, the independent auditor that Medinex hired to review its 2000 financial statements has expressed substantial doubt about the companys ability to continue as a going concern.
That and other information is disclosed in the young Internet companys recently filed annual report.
The report says that despite annual revenues that soared to $4.6 million in 2000, from $717,000 the year earlier, the company, which offers Internet services and software to the health-care industry, had just $144,000 in cash and cash equivalents on hand as of Dec. 31.
That isnt enough to fund operations this year, Medinex says in the report.
The company will be required to obtain additional sources of financing in the year 2001 to continue its operations, it says. Those operations include Medinex Office, a Web-based medical-practice management system, and Med-Market.com, an e-commerce site used by medical equipment manufacturers and distributors.
Medinex President and CEO Tony Paquin declined comment on the companys annual report and current financial status.
He has gone over those things with some other publications and is a little tired of talking about it, says Susan Cuff, Medinexs investor relations manager.
To be sure, Medinex isnt the only Internet-related company nationally to have struggled in the past year or so. Many already have folded, and more are expected to fail this year.
In Paquins letter to shareholders in the annual report, he writes, 2000 was a tumultuous year for Medinex Systems Inc.
The companys successful stock offering fueled a string of acquisitions and product releases, but that growth required substantial infusions of both cash and human resources. As mid-2000 approached, it became clear that we needed to direct our increasingly scarce resources to our most promising products and markets, Paquin wrote.
Accordingly, Medinex sold its political division to that units CEO in February for $1.2 million. The division, which provided politically-oriented content via the Internet, was responsible for nearly $19 million of Medinexs net loss last year, the annual report says.
The sale of the political division, plus layoffs that occurred last summer, have reduced Medinexs employment to 33 people from a high of 182 early in 2000, the company says.
Medinexs significantly higher 2000 revenues werent enough to offset an 85 percent increase in general and administrative expenses, a 100 percent increase in sales and marketing costs, and a big write-down in intangible assets, which primarily are composed of goodwill, the annual report shows.
Intangible asset write-downs, in fact, accounted for about $9 million of Medinexs $30 million net loss last year. The company reduced by $2 million the value of its medical division and by $7 million the value of the political division that later was sold.
A company will write down such assets based on projected cash flows from those assets, says Susan Gill, an associate professor of accounting at Washington State University, in Pullman.
Medinex still lists $1.9 million in intangible assets on its balance sheet, which was the largest dollar amount of any asset class. Other assets include cash, accounts receivable, inventory, and property and equipment.
Gill says Internet companies can have significant intangible assets because so much of their business activities involve intellectual property rights rather than producing or selling tangible goods and services.
However, independent auditors Williams & Webster PS, of Spokane, which audited Medinexs financial statements for the annual report, listed Medinexs current level of intangible assets as one of the reasons for declaring in a statement included in the annual report its substantial doubt about Medinexs ability to survive.
Company reducing expenses
Medinex, which changed its name last year from Netivation.com Inc., is taking steps to reduce general and administrative expenses, its annual report says.
The members of Medinexs executive team voluntarily reduced their annual compensation by 25 to 50 percent, it says. According to the companys proxy statement, filed April 2, Paquins salary was lowered to $157,000, from $225,000. He actually was paid $201,750 last year, however, because the reduction didnt take place until Octobera slight increase from the combined $200,000 salary-and-bonus he was paid in 1999, the proxy says.
According to the proxy, Medinexs other executive officersa group of six that includes Paquins three brothers and his wifewere paid combined salaries and bonuses of $701,389 last year. Paquins wife and two of his brothers since have resigned from the company.
Medinex isnt the first company the Paquins have been involved with together: In 1989, Tony and Gary Paquin co-founded Agency One Corp., a Coeur dAlene-based business that developed software for the insurance industry. Agency One was sold in 1993, although both Gary and Tony Paquin remained in executive positions there until 1997.
Counting on software system
As of the end of 2000, Medinex reported that it was pinning its future on its Medinex Office software system.
It is the widespread distribution and implementation of Medinex Office software that will drive our growth, Paquin says in his letter to shareholders.
Short term, the company needs to enhance its cash flow, though, and according to its annual report is evaluating a variety of outside financing alternatives to do so. Last November, Medinex completed a private equity placement that netted it $687,000. There are also opportunities for other business combinations, acquisitions, and divestitures that offer potential cash infusions to Medinex, the report says.
Medinex likely cant count on a cash boost from recouping the majority of its $525,000 investment in Money-Zone.com, a Charlotte, N.C.-based corporate finance Web site, made in September 1999, the report says. It says Medinex has determined it was more likely than not that a recovery of the market value of the investment was remote. The investment now is listed on Medinexs balance sheet as worth just $99,000.
The MoneyZone investment has sparked controversy on Internet message boards that cover Medinex. Thats because, according to Medinexs proxy statement, Tony Paquin had served as a director of MoneyZone.com, formerly known as EBonline.
Other challenges face Medinex this year.
For example, the company is awaiting word on whether its stock will be de-listed from the Nasdaq quotation system, where it has been traded since its IPO in 1999.
Nasdaq notified Medinex earlier this year that the company had run afoul of the exchanges minimum stock-price rule; Medinexs stock closed at 20 cents a share on Monday. The company pleaded its case to Nasdaq on April 6, Medinex announced, and the delisting of the companys securities has been stayed pending the outcome of (that) hearing.
In addition, Medinex is involved in a number of legal proceedings, including two collections actions and a lease dispute brought against it by other companies, the annual report says. It says Medinex is countersuing one of the companies involved in the collections actions.
Medinex also has filed a complaint against selected posters to a Yahoo! Inc. Internet message board, alleging that messages posted by those individuals constitute defamation of character. The annual report says Medinex has subpoenaed Yahoo! for the real identities of those people, who post their messages under pseudonyms.