Medinex Suffering Dot-Com Blues Problems Felt By Many Start-Ups Being Experienced In Post Falls

Eighteen months ago, Medinex was flush from its first public offering.

The Web software company had raised more than $20 million. Shares were trading at $10. And, the first of 10 acquisitions was in the works.

But the days of big spending are a distant memory at the Post Falls company, which sells products to the medical industry and political groups. These days, even the phone bill comes under scrutiny.

Medinex had gone through all but $800,000 in cash at the end of the third quarter.

The work force - which once totaled 180 in Post Falls, Atlanta and Washington, D.C., has been sliced in half. The price of its stock closed at 25 cents a share Wednesday.

Company co-founder Gary Paquin left Medinex last month, in part because of Medinex’s financial constraints, though he remains on the board. In the near term, the company will also decide whether to continue his sister-in-law’s job. Kelly McCarthy is vice president of acquisitions and the wife of Tony Paquin, president and CEO.

The acquisition stage is largely over for Medinex, said Tony Paquin. “The idea here is for the company to get profitable as soon as possible.”

Can Medinex do that before its cash runs out? Tony Paquin says “yes,” but the company’s balance sheet indicates it will be a challenge. Medinex had revenues of $5.7 million through the first nine months of the year. Its net losses were $20.1 million.

In addition, Medinex’s stock price has failed to meet Nasdaq’s $1 minimum share price since early October. Neither Tony Paquin nor Nasdaq officials will comment on whether Medinex has received a de-listing warning.

“I think they’re doing the right things,” said Jim Creamer, an analyst with the company that took Medinex public, Global Capital Securities Corp. of Englewood, Colo.

Medinex is cutting costs while working to increase its revenues, Creamer said. Whether those factors will converge at the right time is a question many other start-ups are also facing, he said.

“Profitability” has become the buzzword of struggling e-commerce companies, said Tom Simpson, managing partner of Northwest Venture Associates in Spokane.

The Internet euphoria poured millions of dollars into start-up companies, some with shaky business plans, he said. Public investors’ ardor cooled just as quickly.

“It’s analogous to going to a wild party, having a blast, waking up with a hangover, and saying `Never again,”’ Simpson said.

Now, the burden of proof is on companies to demonstrate they have good products, something that will sustain the business in the long run, he said.

Tony Paquin said Medinex is up to the challenge.

“We’re a fast-growing company that acquired a lot of valuable assets,” he said. “We’d prefer stock prices of $5 and $25, and a better equity market. But you just can’t control that.”

To Medinex’s credit, it was able to raise $900,000 in a very difficult market through a private placement last month, Creamer said.

The company is also past the “expensive front end” of its business plan - developing the software, he said.

`To some degree, they’ve just moved into the more mature part of their business plan,” Creamer said.

Tony Paquin, 42, is better known in North Idaho as the Republican who planned to challenge U.S. Rep. Helen Chenoweth in the 1998 GOP primary, before dropping out of the race. Medinex is the second company he and his brother, Gary, have run.

The two brothers started Medinex, originally called Netivation.com, in 1997 after selling an insurance software company in Coeur d’Alene.

Medical software was a natural step after insurance software, Tony Paquin said.

The company’s medical division sells an online software product called “physician’s office management.” Doctors offices can use it for billing, scheduling appointments and tracking insurance. Medinex also sells medical supplies online.

The company’s political division provides online access to federal campaign contribution information, consulting and online fund raising.

At one time, four Paquin brothers worked for the company, in addition to Tony’s wife and her brother - a situation that led some former employees to privately complain about nepotism.

Tony Paquin earned $150,000 in salary last year, while Gary Paquin earned $125,000 as chief marketing officer. Both men received $50,000 bonuses in 1999.

David Paquin earned $110,000 as vice president of human resources. Mike Paquin, who was a general manager, has since left the company. So has McCarthy’s brother, James Caughorn, who was national sales manager.

All executive team members took pay cuts of 25 to 50 percent in September, Tony Paquin said. His salary, originally at $225,000 this year, dropped to $157,000.

Tony Paquin said the concentration of family members in Medinex isn’t unusual in a small town.

“In a town like Coeur d’Alene, you try to get all the talent you can,” he said. “You tend to hire people you know.”

He dismissed the criticism as comments of downsized employees with axes to grind.

“What’s typical in high-tech is that you go into high-speed growth, with lots of mergers and acquisitions. Then you have to look for efficiencies,” Tony Paquin said. “Some employees aren’t used to it.”

Becky Kramer can be reached (208)765-7122 or by e-mail at beckyk@spokesman.com.

This sidebar appeared with the story: IN THE COURTS Legal challenge

Medinex is being sued by Gary Strong, the company’s former director of investor relations. In the suit, Strong said he believes he was fired in June for refusing to take part in actions that went against federal Securities and Exchange Commission regulations. Medinex denies the allegations. In court papers, company officials say Strong was fired because of his angry outbursts and demeaning manner to female co-workers. Strong is seeking an amount in excess of $10,000 to be proved in trial.