UNITED STATES
SECURITIES & 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 September 30, 1999
OR
[ ] TRANSITION REPORT UNDER TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ___________ to ____________________
Commission file number: 000-27627
WORLD DIAGNOSTICS, INC.
(Exact name of small business issuer as specified in its charter)
DELAWARE 65-0742342
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
157271 N.W. 60th Avenue, Suite #201, Miami Lakes, Florida 33014
(Address of principal executive offices)
(305) 827-3304
(Issuer's telephone number)
________________________________________________________________________________
(Former name, former address and former fiscal year,
if changed since last report)
<PAGE>
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court. Yes [ ] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: 4,281,827 outstanding shares as of
September 30, 1999.
________________________________________________________________________________
Transactional Small Business Disclosure Format (Check One): Yes [X] No [ ]
<PAGE>
WORLD DIAGNOSTICS, INC.
TABLE OF CONTENTS
PAGE
----
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS.................................................1
BALANCE SHEET......................................................2
SEPTEMBER 30, 1999 and MARCH 31, 1999
STATEMENTS OF OPERATION............................................3
THREE MONTHS AND SIX MONTHS ENDED
SEPTEMBER 30, 1999 AND 1998
STATEMENTS OF STOCKHOLDERS' EQUITY.................................4
STATEMENTS OF CASH FLOWS...........................................5
THREE MONTHS AND SIX MONTHS ENDED
SEPTEMBER 30, 1999 AND 1998
NOTES TO FINANCIAL STATEMENTS......................................7
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS.......................11
PART II - OTHER INFORMATION
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K....................................19
SIGNATURE....................................................................20
EXHIBIT INDEX................................................................21
EXHIBIT 4.1 - PROMISSORY NOTE............................................22
EXHIBIT 4.2 - WARRANT CERTIFICATE........................................24
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
1
<PAGE>
WORLD DIAGNOSTICS, INC.
BALANCE SHEET
<TABLE>
<CAPTION>
SEPTEMBER 30, MARCH 31,
1999 1999
------------- -----------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 17,315 $ 358,595
Accounts receivable 157,466 82,112
Inventory, net of reserve of $19,066 at September 30, 1999
and March 31, 1999 68,192 42,484
Other current assets 27,126 5,999
----------- -----------
Total current assets 270,099 489,190
Fixed assets, net 55,249 16,979
Other assets 5,423 4,419
----------- -----------
Total assets $ 330,771 $ 510,588
=========== ===========
LIABILITIES AND STOCKHOLDERS' (DEFICIT) EQUITY
Current liabilities:
Notes payable $ 50,000 $ 127,500
Current portion of obligations under capital leases 11,271 3,324
Accounts payable and accrued expenses 287,412 222,622
----------- -----------
Total current liabilities 348,683 353,446
Obligations under capital leases 25,628 7,120
----------- -----------
Total liabilities 374,311 360,566
Commitments
Stockholders' (deficit) equity:
Common stock $0.001 par value; 10,000,000 shares
authorized, 4,281,827 and 3,410,737 shares issued and
outstanding at Sept. 30, 1999 and March 31, 1999, respectively 4,282 3,410
Additional paid-in capital 1,794,031 1,100,972
Unearned compensation (1,120) (7,840)
Accumulated deficit (1,840,733) (946,520)
----------- -----------
Total stockholders' (deficit) equity (43,540) 150,022
----------- -----------
Total liabilities and stockholders' (deficit) equity $ 330,771 $ 510,588
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
2
<PAGE>
WORLD DIAGNOSTICS, INC.
STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
------------------------------ ------------------------------
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1999 1998 1999 1998
------------- ------------- ------------- -------------
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Revenues $ 301,034 $ 113,278 $ 541,078 $ 265,101
Cost of goods sold 246,535 79,055 444,509 188,224
----------- ----------- ----------- -----------
Gross profit 54,499 34,223 96,569 76,877
Selling, general, and administrative expenses 221,178 65,905 505,294 157,049
----------- ----------- ----------- -----------
Loss from operations before other expenses (166,679) (31,682) (408,725) (80,172)
Other expenses:
Interest expense 866 -- 866 --
Other income 825 -- 9,316 --
----------- ----------- ----------- -----------
Loss from operations before extraordinary item (166,720) (31,682) (400,275) (80,172)
Extraordinary loss on extinguishment of debt -- -- 493,938 --
----------- ----------- ----------- -----------
Net loss $ (166,720) $ (31,682) $ (894,213) $ (80,172)
=========== =========== =========== ===========
Basic and dilutive loss per common share:
Loss from operations before extraordinary item $ (0.04) $ (0.01) $ (0.09) $ (0.03)
Extraordinary items -- -- (0.12) --
----------- ----------- ----------- -----------
Basic and diluted loss per common share $ (0.04) $ (0.01) $ (0.21) $ (0.03)
=========== =========== =========== ===========
Weighted average number of common shares outstanding 4,281,827 2,980,000 4,216,525 2,817,363
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
WORLD DIAGNOSTICS, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON
COMMON STOCK STOCK ADDITIONAL
----------------------- SUBSCRIPTION PAID-IN UNEARNED ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT RECEIVABLE CAPITAL COMPENSATION DEFICIT EQUITY
--------- ----------- ------------ ----------- ------------ ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, April 1, 1997 2,580,000 $ 2,580 $ (2,580) $ -- $ -- $ (13,832) $ (13,832)
Capital contribution, net -- -- -- 20,576 -- -- 20,576
Net loss -- -- -- -- -- (108,210) (108,210)
--------- ----------- ----------- ----------- ----------- ----------- -----------
Balance, March 31, 1998 2,580,000 2,580 (2,580) 20,576 -- (122,042) (101,466)
Payment of stock subscription
receivable -- -- 2,580 -- -- -- 2,580
Issuance of common stock at
$0.125 per share 400,000 400 -- 29,344 -- -- 29,744
Issuance of common stock
due to forbearance agreement
at $0.125 per share 200,000 200 -- 24,800 -- -- 25,000
Issuance of common stock for
extinguishment of debt
at $2.16 per share 29,237 29 -- 63,013 -- -- 63,042
Exercise of common stock
purchase warrants 201,500 201 -- 201,299 -- -- 201,500
Proceeds from exercise of
common stock purchase
warrants to be issued -- -- -- 374,250 -- -- 374,250
Loss on warrant inducement -- -- -- 374,250 -- -- 374,250
Issuance of stock options -- -- -- 13,440 (13,440) -- --
Amortization of unearned
compensation -- -- -- -- 5,600 -- 5,600
Net loss -- -- -- -- -- (824,478) (824,478)
--------- ----------- ----------- ----------- ----------- ----------- -----------
Balance at March 31, 1999 3,410,737 $ 3,410 $ -- $ 1,100,972 $ (7,840) $ (946,520) $ 150,022
========= =========== =========== =========== =========== =========== ===========
Issuance of common stock for
extinguishment of debt
at $5.25 per share 101,090 101 -- 530,622 -- -- 530,723
Issuance of common stock from
the exercise of common
stock purchase warrants 748,500 749 -- (749) -- -- --
Issuance of common stock for
extinguishment of debt
at $5.63 per share 6,000 6 -- 33,744 -- -- 33,750
Issuance of common stock for
compensation of employees
and non-employees at $6.04
and $5.63 per share 15,500 16 -- 92,030 -- -- 92,046
Capital contribution from the
forgiveness of debt by
shareholder -- -- -- 37,412 -- -- 37,412
Amortization of unearned
compensation -- -- -- -- 6,720 -- 6,720
Net loss -- -- -- -- -- (894,213) (894,213)
--------- ----------- ----------- ----------- ----------- ----------- -----------
Balance at September 30, 1999
(unaudited) 4,281,827 $ 4,282 $ -- $ 1,794,031 $ (1,120) $(1,840,733) $ (43,540)
========= =========== =========== =========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
WORLD DIAGNOSTICS, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
---------------------------- -----------------------------
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1999 1998 1999 1998
------------- ------------- ------------- -------------
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss $(166,720) $ (31,682) $(894,213) $ (80,172)
Adjustments to reconcile net loss to net cash used
in operating activities:
Extraordinary loss on extinguishment of debt -- -- 493,938 --
Common stock issued in lieu of compensation -- -- 92,046 --
Amortization of unearned compensation 3,360 -- 6,720 --
Depreciation and amortization 2,700 -- 5,192 --
Changes in operating assets and liabilities:
Accounts receivable (23,370) 15,902 (75,354) 7,562
Inventory (25,207) (38,261) (25,708) (35,369)
Other current assets (11,639) (1,963) (21,127) (1,935)
Other assets 1 -- (1,004) (2,600)
Accounts payable and accrued expenses 95,097 32,354 90,237 13,474
--------- --------- --------- ---------
Net cash used in operating activities (125,778) (23,650) (329,273) (99,040)
--------- --------- --------- ---------
Cash flow from investing activities:
Purchases of fixed assets (4,159) -- (13,003) --
--------- --------- --------- ---------
Net cash used in investing activities (4,159) -- (13,003) --
--------- --------- --------- ---------
Cash flows from financing activities:
Proceeds from notes payable 50,000 44,387 50,000 124,470
Payment of notes payable -- -- (45,000) --
Payments under capital lease obligation (2,023) -- (4,004) --
Proceeds from stock subscription receivable -- -- -- 2,580
Decrease in cash overdraft -- (10,806) -- (15,579)
--------- --------- --------- ---------
Net cash provided by financing activities 47,977 33,581 996 111,471
--------- --------- --------- ---------
Net (decrease) increase in cash and cash equivalents (81,960) 9,931 (341,280) 12,431
Cash and cash equivalents at beginning of period 99,275 2,500 358,595 --
--------- --------- --------- ---------
Cash and cash equivalents at end of period $ 17,315 $ 12,431 $ 17,315 $ 12,431
========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE>
WORLD DIAGNOSTICS, INC.
STATEMENTS OF CASH FLOWS, CONTINUED
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
In May 1999, the Company issued 6,000 shares of restricted common stock to
extinguish accounts payable in the amount of $8,035.
In June 1999, the Company issued 101,090 shares of restricted common stock to
extinguish notes payable in the amount of $62,500.
In June 1999, two shareholders and directors of the Company forgave $37,412 in
liabilities due from the Company resulting in the recognition of a capital
contribution of $37,412.
For the six months ended September 1999, the Company acquired office equipment
in the amount of $30,460 through capital lease agreements.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
6
<PAGE>
WORLD DIAGNOSTICS, INC.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION:
NATURE OF OPERATIONS
World Diagnostics, Inc. (the "Company") was organized in Delaware on
February 2, 1997. The Company has exclusive distribution agreements
with two generic diagnostic products' manufacturers. The Company
understands that these manufacturers have know-how that is proprietary
for rapid diagnostic tests in the area of infectious diseases and other
diagnostic products. The products are sold predominately through
distributors and dealers in forty-four countries which are primarily
located in the Caribbean, South America, Eastern Europe, Europe, Asia
and Middle East.
The financial statements reflect the combination of World Diagnostics,
Inc. and Health Tech International, a company that was owned by the
President of WDI and conducted operations prior to its acquisition by
the Company. Effective March 31, 1998, these companies effected a
combination of companies under common control, with World Diagnostics,
Inc. being the surviving company. This combination was treated similar
to a pooling of interests. All significant intercompany accounts and
transactions have been eliminated from these financial statements.
BASIS OF PRESENTATION
The information for the three and six months ended September 30, 1999
and 1998 has not been audited by independent certified public
accountants, but includes all adjustments which are, in the opinion of
management, necessary to a fair statement of the results for such
periods. Certain information and footnote disclosure normally included
in financial statements prepared in accordance with generally accepted
accounting principles have been omitted pursuant to the requirements of
the Securities and Exchange Commission, although the Company believes
that the disclosures included in these interim financial statements are
adequate to make the information not misleading. It is suggested that
these consolidated financial statements should be read in conjunction
with the consolidated financial statements and notes thereto included
in the Company's Annual Report on Form 10-SB (see File Number
000-27627) on file with the Securities and Exchange Commission.
The accompanying financial statements have been prepared on a going
concern basis, which contemplates the realization of assets and the
satisfaction of liabilities in the normal course of business. As shown
in the financial statements, the Company incurred losses of $894,213,
$824,478 and $102,810 and had negative cash flows from operations of
$329,273, $347,991 and $56,710 during the six months ended September
30, 1999 and the fiscal years ended March 31, 1999 and 1998,
respectively. These factors including the uncertainty surrounding
future equity financing through a contemplated offering raise
substantial doubt about the Company's ability to continue as a going
concern for a reasonable period of time.
7
<PAGE>
The financial statements do not include any adjustments relating to the
recoverability and classification of liabilities that might be
necessary should the Company be unable to implement its business plan
and continue as a going concern. The Company's ability to continue as a
going concern is dependent upon obtaining adequate financial resources.
The Company has retained an investment banking firm to assist in the
private placement of equity securities. No assurance can be made that
the private placement will be successful.
2. NOTES PAYABLE:
In April 1999, the Company paid the outstanding balance due under the
Note to MediaVest, Inc. a company controlled by the a Chairman and a
shareholder of WDI through the issuance of 101,090 shares of common
stock and $45,000 in cash. The fair market value of the common stock
was $7.00 at the date of extinguishment. The restricted common stock
cannot be sold for a 12 month period from the date of issuance and
after that can only be sold in accordance with Rule 144 or other
applicable exemption. Due to these restrictions, the Company discounted
the fair value of the Company's common stock at the date of
extinguishment by 25%. An extraordinary loss of $468,223 was recorded
in the statement of operations for the six months ended September 30,
1999 representing the difference between the discounted fair market
value of the common stock issued and the carrying amount of the Note
extinguished.
In June 1999, two shareholders and directors of the Company forgave a
total of $20,000 in notes payable due from the Company. This action was
treated as a capital contribution and resulted in an increase of
$20,000 in additional paid-in capital. (See Note 3).
On September 29, 1999, the Company received a loan of $50,000 from
MediaVest, Inc., a Company controlled by a shareholder and Chairman of
WDI. The loan is not collateralized, non interest bearing and is due on
demand. Subsequent to September 30, 1999, the loan has been repaid in
full.
3. COMMON STOCK
In April 1999, the Company issued 748,500 shares of its common stock
associated with the March 1999 exercise of 748,500 Warrants. This
action resulted in a $748 increase in the common stock account and a
corresponding $748 decrease in additional paid-in capital.
8
<PAGE>
In May 1999, the Company paid the outstanding balance due to various
vendors through the issuance of 6,000 shares of common stock. The fair
market value of the common stock was $7.50 at the date of
extinguishment. The restricted common stock cannot be sold for a 12
month period from the date of issuance and after that can only be sold
in accordance with Rule 144 or other applicable exemption. Due to these
restrictions, the Company discounted the fair value of the Company's
common stock at the date of extinguishment by 25%. An extraordinary
loss of $25,715 was recorded in the statement of operations for the six
months ended September 30, 1999 representing the difference between the
discounted fair market value of the common stock issued and the
carrying amount of the accounts payable extinguished.
During the six months ended September 30, 1999, the Company issued
15,500 shares of its common stock to various non-employee consultants
for past services rendered. Pursuant to the application of SFAS No. 123
in accounting for the issuance of stock to non-employee consultants,
the Company recorded compensation expense based on the fair market
value of the shares issued since the fair value of the shares is more
reliably measurable. The restricted common stock cannot be sold for a
12 month period from the date of issuance and after that can only be
sold in accordance with Rule 144 or other applicable exemption. Due to
these restrictions, the Company discounted the fair value of the
Company's common stock at the date of issuance by 25%. Due to the
issuance of the shares, the Company recorded $92,046 in compensation
expense, which is included in selling, general and administrative
expenses in the statement of operations for the six months ended
September 30, 1999.
In June 1999, two shareholders and directors of the Company forgave a
total of $37,412 in notes payable and other liabilities due from the
Company. This action was treated as a capital contribution and resulted
in an increase of $37,412 in additional paid-in capital. (See Note 3).
4. RELATED PARTIES
The Company has a customer, Micro Services Industries, that may be
deemed to be an affiliate of a director and shareholder of the Company.
Micro Services Industries accounted for 9% of the revenue for the six
months ended September 30, 1999 and owed the Company $3,893 as of
September 30, 1999 which was all current invoices.
5. SUBSEQUENT EVENT
Subsequent to September 30, 1999, MediaVest, Inc., a company controlled
by a shareholder and Chairman of the Company loaned $25,000 to the
Company which has since been repaid. In November 1999, the Company
authorized the issuance of a $375,000 aggregate loan through the
issuance of five month 6% Subordinated Promissory Notes with interest
and principal payable on March 31, 2000 and 187,500 Common Stock
Purchase Warrants at a purchase price of $.10 per warrant. The warrants
are exercisable at any time on or before September 30, 2000 at a price
equal to the lower of either $6.00 per share of common stock or the
most recent issue price of WDI Common Stock or conversion price with
respect to
9
<PAGE>
a security convertible into WDI Common Stock prior to March 31, 2000.
The Promissory Notes are unsecured and the warrants have no
registration rights or other conditions. $50,000 of the promissory
notes and 25,000 warrants were subscribed to by the children of the
Chairman and Director of the Company.
10
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FORWARD LOOKING STATEMENTS
The following Management's Discussion and Analysis of Financial
Condition and Results of Operations contains forward-looking statements
(identified by the words "estimate:, project", "anticipate", "expect", "intend",
"believe", "hope", "will", and similar expressions) which are based upon
management's current expectations and speak only as of the date made. Therefore,
actual outcomes and results may differ materially from what is expressed or
forecasted in forward-looking statements, whether as a result of new
information, future events or other. These forward-looking statements are
subject to risks, uncertainties and factors that could cause actual results to
differ materially from the results anticipated in the forward-looking
statements. WDI's operating results may fluctuate on a quarter-to-quarter basis
as a result of a number of factors, including the competitive and economic
factors affecting WDI's international markets, WDI's ability to keep abreast of
technological innovations, actions of distributors, manufacturing and production
delays or difficulties, currency risk, adverse actions or delays in product
reviews, and the degree of acceptance that our new products achieve during the
year. For further information, refer to Management's Discussion and Analysis and
the Risk Factors section of WDI's Registration Statement on Form 10-SB (File
Number 000-27627).
REVENUES
For the three months ended September 30, 1999 ("Fiscal Year 2000 second
quarter") and six months ended September 30, 1999, revenue increased by 166% or
$187,756 and 104% or $275,977 over the 1999 second fiscal quarter and six months
ended September 30, 1998. The increase is primarily due to larger sales volume,
higher prices to new customers in emerging markets and increased direct sales to
end users such as physicians offices, hospitals, private laboratories, clinics
and government agencies.
11
<PAGE>
Below is a breakdown of sales by region.
NET SALES TRENDS BY REGION
<TABLE>
<CAPTION>
Three Months Six Months
Period ended, (in thousands) 09/30/99 09/30/98 09/30/99 09/30/98
------------------------ -----------------------
<S> <C> <C> <C> <C>
BREAKDOWN OF REVENUES
Domestic Sales 18 9 26 18
INTERNATIONAL REVENUES:
Caribbean 96 67 192 159
South America 108 31 195 77
Eastern Europe 20 33
Central America 1 7 1
Pacific Rim 10 2 18 2
Western Europe 36 58
Other 12 4 12 8
------------------------ -----------------------
TOTAL REVENUE 301 113 541 265
</TABLE>
12
<PAGE>
THREE MONTHS ENDED SEPTEMBER 30, 1999 VERSUS THREE MONTHS
ENDED SEPTEMBER 30, 1998
COST OF SALES AND GROSS PROFIT
The Company's gross profit on product sales increased to $54,499 for the Fiscal
Year 2000 second quarter from $34,223 in the 1999 second quarter. Gross profit
decreased as a percentage of sales to 18% for the second quarter of Fiscal Year
2000 from 30% in the second quarter of Fiscal Year 1999. Gross profit decreased
due to the accelerated expansion of the business and unusual freight costs plus
unexpected inventory adjustments arising from certain manufacturing problems
associated with one of the Company's suppliers of a particular product line in
Fiscal Year 2000. Also, there were higher costs from excess inventory charges
due to product line imbalances and delivery delays due to the rapid growth in
revenue which increased from $113,278 for the three months ended September 30,
1998 to $301,034 in the three months ended September 30, 1999.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses increased 236% from $65,905 for the
second quarter of Fiscal Year 1999 compared to $221,178 for the second quarter
of Fiscal Year 2000. The increase in selling, general and administrative
expenses is primarily due to the overall growth experienced by WDI. Payroll and
related tax expenses increased by $12,334 due to additional personnel hired for
Technical Support, Sales and Marketing. Professional fees increased by $18,684
for the Fiscal Year 2000 second quarter over the second quarter of Fiscal Year
1999 due to the professional fees associated with the Form 10-SB Registration.
Additional costs were incurred in connection with the continuing improvements of
the Company's website redesign to enhance accessability and functionality for
users in emerging international markets.
INTEREST EXPENSE
Interest expense increased to $866 for the second quarter of Fiscal Year 2000
over the second quarter of Fiscal Year 1999. Interest expense was incurred
primarily on capital lease obligations in Fiscal 2000 for capital expenditures.
13
<PAGE>
OTHER INCOME
Other income increased by $825 in the three months ended September 30, 1999
compared to 1999 due to miscellaneous cash receipts dealing with non-operating
activities.
NET LOSS
The net loss for the three months ended September 30, 1999 increased to $166,679
or $(.04) per share from $31,682 or $(0.01) per share compared to the three
months ended September 30, 1998. The loss from operations for the three months
ended September 1999 was $166,679 or $(0.04) per share, an increase of $134,997
over the three months ended September 1998. The loss increased primarily due to
higher operating expenses related to staff increases to support the overall
growth of the Company, new computer systems and technical training, expenses
relating to qualifying for the FDA Good Manufacturing Practices License and
professional fees associated with the Company's 10-SB Registration Statement.
SIX MONTHS ENDED SEPTEMBER 30, 1999 VERSUS SIX MONTHS ENDED
SEPTEMBER 30, 1998
COST OF SALES AND GROSS PROFIT
The Company's gross profit on product sales increased to $96,569 for the six
months ended September 30, 1999 from $76,877 for the six months ended September
30, 1998. Gross profit decreased as a percentage of sales for the six months of
Fiscal 2000 to 18% from 29% for Fiscal 1999. Gross profit decreased due to the
accelerated expansion of the Company during the first six months of Fiscal Year
2000. The Company's revenues increased rapidly in the six months ended September
30, 1999 which caused the Company to seek new suppliers and manufacturers (some
internationally). There were numerous delivery delays from several suppliers
which caused more frequent ordering that increased the freight costs of the
products. In addition, the Company rejected several shipments from a particular
supplier which further contributed to the delays and overall freight costs. This
supplier has been replaced because of failure to remedy their production
problems. The Company is seeking to increase inventory levels, subject to its
ability to obtain further financing, which would alleviate smaller and more
frequent orders and higher freight costs.
14
<PAGE>
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses increased from $157,049 for the six
months of Fiscal Year 1999 compared to $505,294 for the six months of Fiscal
Year 2000. The increase in selling, general and administrative expenses is
primarily due to the overall growth experienced by WDI. Payroll and related tax
expenses increased $90,498 due to additional personnel hired for Technical
Support, Sales and Marketing. Professional fees increased by approximately
$70,300 for the six months of Fiscal Year 2000 over Fiscal Year 1999 due to the
professional fees associated with the Form 10-SB Registration and $375,000 loan
and warrants. The website was redesigned to enhance accessability and
functionality for users in emerging international markets.
During the first quarter of Fiscal 2000, the Company issued 15,500 shares of its
common stock to various non-employee consultants for past services rendered. The
restricted shares cannot be sold for a twelve month period and after that can
only be sold in accordance with Rule 144. Due to these restrictions, the Company
discounted the fair value of the Company's common stock on the date of issuance
by 25%. Due to the issuance of these shares, the Company recorded $92,046 of
compensation expense in the first quarter of Fiscal 2000.
INTEREST EXPENSE
Interest expense increased by $866 in the six months ended September 30, 1999
over September 30, 1998. Interest expense was incurred primarily on capital
lease obligations in Fiscal 2000 for capital expenditures.
OTHER INCOME
Other income increased by $9,316 in the six months ended September 30, 1999
compared to 1998 due to miscellaneous cash receipts dealing with non-operating
activities.
15
<PAGE>
EXTRAORDINARY LOSS ON EXTINGUISHMENT OF DEBT
In April 1999, the Company's Board of Directors issued 101,090 restricted common
shares and $45,000 in cash to extinguish the $120,000 note due to MediaVest,
Inc. The fair market value of the common stock on that date was $7.00 per share.
The restricted common stock cannot be sold for twelve months from the date of
issuance and after that may only be sold in accordance with Rule 144 or other
applicable exemption. The Company discounted the fair value of the common stock
by 25% on the date of the extinguishment. The extraordinary non-cash loss on the
extinguishment of debt is $468,223 which is the difference between the fair
market value of the stock and the carrying amount of the note extinguished.
In May 1999, the Company paid the outstanding balance of $34,000 due to various
vendors through the issuance of 6,000 shares of common stock. The fair market
value of the common stock on the date of extinguishment was $7.50 per share. The
restricted common stock cannot be sold for twelve months from the date of
issuance and after that may only be sold in accordance with Rule 144 or other
applicable exemption. The Company discounted the fair value of the common stock
by 25% on the date of the extinguishment. The extraordinary non-cash loss on the
extinguishment of debt is $25,715 which is the difference between the fair
market value of the stock and the carrying amount of the note extinguished.
NET LOSS
The net loss for the six months ended September 30, 1999 increased to $894,213
or $(.21) per share from $80,172 or $(.03) per share compared to the six months
ended September 30, 1998. For the six months ended September 30, 1999, $585,984
of the loss was attributed to non-cash charges associated with equity
transactions. The loss from operations for the six months ended September 1999
was $408,725 or $(.09) per share, an increase of $242,046 over the six months
ended September 1998. The loss increased primarily due to higher operating
expenses related to staff increases to support the overall growth of the
Company, new computer systems and technical training, expenses relating to
qualifying for the FDA Good Manufacturing Practices License and professional
fees associated with the Company's 10-SB Registration Statement.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1999, WDI had cash and cash equivalents of $17,315 compared to
$358,595 at March 31, 1999. Working capital, defined as current assets less
current liabilities, was $(78,584) at September 30, 1999 as compared to $135,744
at March 31, 1999. The Company had current assets of $270,099 and stockholders'
deficit of $(43,540) at September 30, 1999. This compares to current assets of
$489,190 and stockholders' equity of $150,022 at March 31, 1999. These decreases
are due primarily to the increased expenditures for professional fees,
additional payroll and expansion. During the six months
16
<PAGE>
ended September 30, 1999, the Company used $329,273 in operating activities,
compared to $99,040 during the six months ended September 30, 1998. The increase
in cash used in operations was due to higher losses net of certain non-recurring
non-cash transactions including loss on early extinguishment of debt and common
stock issued in lieu of compensation, and increases in accounts receivable and
inventory levels.
Cash used in investing activities in the six months ending September 30, 1999
consisted of fixed asset purchases such as a new computer network, a cold room,
website infrastructure, and other equipment and furniture. There are no new
fixed asset additions expected for the three month period ending December 31,
1999. There were no capital expenditures in Fiscal Year 1999.
Net cash flows provided by financing activities decreased from $111,471 in the
six months ended September 30, 1998 to $996 in the six months ended September
30, 1999. The decrease is principally due to the repayments of notes payable and
decreased borrowings from MediaVest, Inc. in the six months ended September 30,
1999 over the same period in 1998.
On September 29, 1999, the Company received a loan for $50,000 from the Chairman
and Shareholder of the Company which has since been repaid. MediaVest, Inc., a
company controlled by a shareholder and director loaned $25,000 to the Company
after September 30, 1999, which was subsequently repaid. As of November 15,
1999, the Company had a cash balance of approximately $68,000. In November 1999,
the Company authorized the issuance of a $375,000 aggregate loan through the
issuances of five month 6% Subordinated Promissory Notes with interest and
principal payable on March 31, 2000 and 187,500 Common Stock Purchase Warrants
at a purchase price of $.10 per warrant. The warrants are exercisable at any
time on or before September 30, 2000 at a price equal to the lower of either
$6.00 per share of common stock or the most recent issue price of WDI Common
Stock or conversion price with respect to a security convertible into WDI Common
Stock prior to March 31, 2000. Proceeds of the loan and warrants were primarily
used for working capital, inventory increase, installation of a new accounting
system, website development, legal and accounting fees.
The report of our independent certified public accountants in connection with
our audited financial statements as of March 31, 1999 and March 31, 1998 and for
each of the two years then ended contains an explanatory paragraph indicating
factors which create substantial doubt about our ability to continue as a going
concern. These factors include recurring net losses in Fiscal Year 2000 and
Fiscal Year 1999 and uncertainty surrounding future equity financing through
anticipated offerings. WDI's ability to implement its business plan and continue
as a going concern is dependent upon obtaining adequate financial resources. The
Company has retained an investment banking firm to assist in the private
placement of equity securities. No assurance can be made that the private
placement will be successful. In such an instance, the Company would rely upon
its shareholders and/or MediaVest, Inc. to meet future financing needs for the
remainder of Fiscal Year 2000 while the Company pursues other financing
alternatives.
17
<PAGE>
Furthermore, since July 1, 1999, the Company has implemented improved credit
policies for its customers which has served to help cash flow. Also, the Company
has negotiated more favorable terms with the majority of its suppliers, whereby
payments may be made within 45 days as compared to 30 days previously.
In the Fiscal Year 2000 first and second fiscal quarters as well as Fiscal Year
1999, the Company has continued substantial operating losses which utilized most
of its available cash reserves. The Company anticipates that it will continue to
incur net losses for the forseeable future.
The Company does not intend to pay cash dividends in the forseeable future.
YEAR 2000 COMPLIANCE
Many currently installed computer systems and software products are unable to
distinguish year 2000 dates. This situation could result in system failures or
miscalculations causing disruptions in the operations of any business. As a
result, many companies' software and computer systems may need to be upgraded or
replaced to comply with year 2000 requirements. Our ability to operate is
dependent upon delivery of accurate, electronic information via the Internet. To
the extent year 2000 issues result in the long-term inoperability of the
Internet, our business, results of operations and financial condition could have
a material adverse impact. The Company believes that its internal systems are
year 2000 compliant or will be upgraded or replaced in connection with changes
to information systems prior to the year 2000. It is anticipated that the costs
to comply will be immaterial to the Company.
The Company has instituted a vendor/supplier compliance verification program to
assure that the Company will have an uninterrupted supply of goods, services and
materials. The Company expects to complete this verification process during
December 1999.
18
<PAGE>
PART II - OTHER INFORMATION
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS
NUMBER EXHIBITS
------ --------
* 3.1 ARTICLES OF INCORPORATION
* 3.2 BYLAWS
4.1 PROMISSORY NOTE
4.2 WARRANT CERTIFICATE
27.0 FINANCIAL DATA SCHEDULE
- - -----------------------------
* Incorporated by reference to the Registrant's Registration Statement in
Form 10-SB, No. 000-27627, which was declared effective by the
Securities & Exchange Commission on November 5, 1999.
- - -----------------------------
(B) REPORTS ON FORM 8-K
No reports on Form 8-K were filed during the quarter ended
September 30, 1999.
19
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
WORLD DIAGNOSTICS, INC.
Dated: DECEMBER 16, 1999 By: /s/ KEN M. PETERS
----------------------------
Ken M. Peters, President
20
<PAGE>
INDEX TO EXHIBITS
EXHIBIT PAGE
- - ------- ----
3.1 ARTICLES OF INCORPORATION
Incorporated by reference to the Registrant's Registration
Statement in Form 10-SB, No. 000-27627, which was declared
effective by the Securities & Exchange Commission on
November 5, 1999.
3.2 BYLAWS
Incorporated by reference to the Registrant's Registration
Statement in Form 10-SB, No. 000-27627, which was declared
effective by the Securities & Exchange Commission on
November 5, 1999.
4.1 PROMISSORY NOTE....................................................22
4.2 WARRANT CERTIFICATE................................................24
27.0 FINANCIAL DATA SCHEDULE............................................
21
EXHIBIT 4.1
PROMISSORY NOTE
$___, 000
Miami-Dade County, Florida October ___, 1999
FOR VALUE RECEIVED, WORLD DIAGNOSTICS, INC., a Delaware corporation (the
"Maker"), promises to pay to the order of __________________________ (the
"Payee") on March 31, 2000, the principal sum of _______ Thousand ($__,000)
Dollars in lawful money of the United States, in hand or at the principal office
of the Payee as may from time to time be designated by the Payee. This Note
shall bear interest on the unpaid principal balance at the rate of Six Percent
(6%) per annum, payable at the time of the payment of the principal sum of this
Note.
In the event of a default in the payment of this Note, then at the
option of the Payee, this Note shall bear interest computed from the date of
such default at one percent (1%) per month, but in any event not in excess of
the legally prescribed rate for instruments of this kind. The term "event of
default" as used herein, shall mean the failure of Maker to pay the principal or
interest due under the Note, which failure shall continue for five (5) business
days after notice of default, such notice to be delivered to Maker by
registered, certified or overnight mail duly recorded at the principal office of
the Maker.
A provision hereof which may prove unenforceable under any law shall
not affect the validity of any other provisions hereof.
22
<PAGE>
Maker hereby waives presentment for payment, protest and notice of
protest and all other notices or demands in connection with the delivery,
acceptance, performance, default or endorsement of this Note.
This Note shall be governed by the laws of the State of Florida.
WORLD DIAGNOSTICS, INC.
By: ______________________
Ken Peters, President
23
EXHIBIT 4.2
WARRANT CERTIFICATE
EXERCISABLE AT ANY TIME COMMENCING OCTOBER __, 1999
UNTIL 5:00 P.M., EASTERN TIME, SEPTEMBER 30, 2000
______ Warrants
This Warrant Certificate certifies that ________, or registered
assigns, is the registered holder of _____________ (______) Warrants to
purchase, at any time until 5:00 P.M. Eastern time on September 30, 2000
("Expiration Date"), an aggregate of up to _______________________ (_______)
shares of common stock of World Diagnostics, Inc., a Delaware corporation
("WDI"), at an exercise price of the lesser of (i) $6.00 per share or (ii) the
lowest issuance price at which WDI's common stock is issued through March 31,
2000 (the "Exercise Price") upon surrender of this Warrant Certificate and
payment of the Exercise Price at the office of WDI
at______________________________. Payment of the Exercise Price may be made in
cash, or by certified or official bank check in New York Clearing House funds
payable to the order of WDI, or any combination thereof.
The Warrants are exercisable at any time from October___, 1999 until
5:00 P.M. Eastern time September 30, 2000 ("Expiration Date") each Warrant
entitling the holder thereof to purchase one fully-paid and non-assessable share
of common stock of WDI, at the Exercise Price.
24
<PAGE>
No Warrant may be exercised after 5:00 P.M., Eastern time, on the
Expiration Date, at which time all Warrants evidenced hereby, unless exercised
prior thereto, shall thereafter be void.
This Warrant Certificate may be divided or combined with other Warrant
Certificates of other denominations upon surrender hereof at an office or agency
maintained by WDI for such purpose, together with a written notice specifying
the names and denominations (in whole Warrants) in which new Warrant
Certificates are to be issued, signed by the holder thereof or his duly
authorized attorney, together with the funds to pay any transfer, documentary,
stamp or other taxes or government charges payable in connection with such
transfer and any other amounts required pursuant to this Warrant Certificate.
Upon such surrender and payment, a new Warrant Certificate or Certificates
representing a like aggregate number of Warrants shall be issued and delivered
in accordance with such notice.
Upon the exercise of less than all of the Warrants evidenced by this
Certificate, WDI shall forthwith issue to the holder hereof a new Warrant
Certificate representing such number of unexercised Warrants.
WDI may deem and treat the registered holder(s) hereof as the absolute
owner(s) of this Warrant Certificate (notwithstanding any notation of ownership
or other writing
25
<PAGE>
hereon made by anyone), for the purpose of any exercise hereof, and of any
distribution to the holder(s) hereof, and for all other purposes, and WDI shall
not be affected by any notice to the contrary.
IN WITNESS WHEREOF, WDI has caused this Warrant Certificate to be duly
executed under its corporate seal.
Dated: October ___, 1999 WORLD DIAGNOSTICS, INC.
By: ____________________
Ken Peters
President
26
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM BALANCE
SHEETS AND INCOME STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS
<FISCAL-YEAR-END> SEP-30-1999 SEP-30-1999
<PERIOD-START> JUL-01-1999 APR-01-1999
<PERIOD-END> SEP-30-1999 SEP-30-1999
<CASH> 17,315 17,315
<SECURITIES> 0 0
<RECEIVABLES> 157,466 157,466
<ALLOWANCES> 0 0
<INVENTORY> 68,192 68,192
<CURRENT-ASSETS> 270,099 270,099
<PP&E> 55,249 55,249
<DEPRECIATION> 0 0
<TOTAL-ASSETS> 330,771 330,771
<CURRENT-LIABILITIES> 348,683 348,683
<BONDS> 0 0
0 0
0 0
<COMMON> 10,000,000 10,000,000
<OTHER-SE> 0 0
<TOTAL-LIABILITY-AND-EQUITY> 330,771 330,771
<SALES> 301,034 541,078
<TOTAL-REVENUES> 301,034 541,078
<CGS> 246,535 444,509
<TOTAL-COSTS> 0 0
<OTHER-EXPENSES> 221,178 505,294
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 866 866
<INCOME-PRETAX> (166,720) (400,275)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (166,720) (400,275)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 493,938
<CHANGES> 0 0
<NET-INCOME> (166,720) (894,213)
<EPS-BASIC> (0.04) (0.21)
<EPS-DILUTED> (0.04) (0.21)
</TABLE>
