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 December 31, 1999
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from ___________ to ____________________
Commission file number ______________________________________
WORLD DIAGNOSTICS, INC.
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(Exact name of small business issuer as specified in its charter)
DELAWARE 65-0742342
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(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
15271 N.W. 60TH AVENUE, SUITE #201, MIAMI LAKES, FLORIDA 33014
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(Address of principal executive offices)
(305) 827-3304
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(Issuer's telephone number)
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(Former name, former address and former fiscal year,
if changed since last report)
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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:
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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
DECEMBER 31, 1999 and MARCH 31, 1999
STATEMENTS OF OPERATION...........................................3
THREE MONTHS AND SIX MONTHS ENDED
DECEMBER 31, 1999 AND 1998
STATEMENTS OF STOCKHOLDERS' EQUITY................................4
STATEMENTS OF CASH FLOWS..........................................5
THREE MONTHS AND SIX MONTHS ENDED
DECEMBER 31, 1999 AND 1998
NOTES TO FINANCIAL STATEMENTS.....................................7
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS......................10
PART II - OTHER INFORMATION
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K...................................18
SIGNATURE...................................................................19
EXHIBIT INDEX...............................................................20
FINANCIAL DATA SCHEDULE.....................................................21
i
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PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
1
<PAGE>
WORLD DIAGNOSTICS, INC.
BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1999 1999
------------ -----------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 18,345 $ 358,595
Accounts receivable 229,512 82,112
Inventory, net of reserve of $19,066 at December 31, 1999
and March 31, 1999 133,156 42,484
Other current assets 23,931 5,999
----------- -----------
Total current assets 404,944 489,190
Fixed assets, net 130,054 16,979
Other assets 10,963 4,419
----------- -----------
Total assets $ 545,961 $ 510,588
=========== ===========
LIABILITIES AND STOCKHOLDERS' (DEFICIT) EQUITY
Current liabilities:
Notes payable $ 375,000 $ 127,500
Current portion of obligations under capital leases 13,114 3,324
Accounts payable and accrued expenses 411,475 222,622
----------- -----------
Total current liabilities 799,589 353,446
Obligations under capital leases 31,946 7,120
----------- -----------
Total liabilities 831,535 360,566
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 Dec. 31, 1999 and March 31, 1999, respectively 4,282 3,410
Additional paid-in capital 1,810,281 1,100,972
Unearned compensation -- (7,840)
Accumulated deficit (2,100,137) (946,520)
----------- -----------
Total stockholders' (deficit) equity (285,574) 150,022
----------- -----------
Total liabilities and stockholders' (deficit) equity $ 545,961 $ 510,588
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
2
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WORLD DIAGNOSTICS, INC.
STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-----------------------------
DECEMBER 31, DECEMBER 31,
1999 1998
------------ ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
Revenues $ 386,813 $ 129,389
Cost of goods sold 299,492 103,243
----------- -----------
Gross profit 87,321 26,146
Selling, general, and administrative expenses 341,493 99,153
----------- -----------
Loss from operations before other expenses (254,172) (73,007)
Other expenses:
Interest expense 5,515 9,486
Other income 283 --
----------- -----------
Loss from operations before extraordinary item (259,404) (82,493)
Extraordinary loss on extinguishment of debt -- --
----------- -----------
Net loss $ (259,404) $ (82,493)
=========== ===========
Basic and dilutive loss per common share:
Loss from operations before extraordinary item $ (0.06) $ (0.03)
Extraordinary items -- --
----------- -----------
Basic and diluted loss per common share $ (0.06) $ (0.03)
=========== ===========
Weighted average number of common shares outstanding 4,281,827 3,008,391
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE>
WORLD DIAGNOSTICS, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON
COMMON STOCK STOCK ADDITIONAL
---------------------- SUBSCRIPTION PAID-IN UNEARNED ACCUMULATED
SHARES AMOUNT RECEIVABLE CAPITAL COMPENSATION DEFICIT
--------- ----------- ------------ ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Balance, April 1, 1997 2,580,000 $ 2,580 $ (2,580) $ -- $ -- $ (13,832)
Capital contribution, net -- -- -- 20,576 -- --
Net loss -- -- -- -- -- (108,210)
--------- ----------- ----------- ----------- ----------- -----------
Balance, March 31, 1998 2,580,000 2,580 (2,580) 20,576 -- (122,042)
Payment of stock subscription receivable -- -- 2,580 -- -- --
Issuance of common stock at $0.125 per share 400,000 400 -- 29,344 -- --
Issuance of common stock
due to forbearance agreement
at $0.125 per share 200,000 200 -- 24,800 -- --
Issuance of common stock for
extinguishment of debt at $2.16 per share 29,237 29 -- 63,013 -- --
Exercise of common stock purchase
warrants 201,500 201 -- 201,299 -- --
Proceeds from exercise of common stock
purchase warrants to be issued -- -- -- 374,250 -- --
Loss on warrant inducement -- -- -- 374,250 -- --
Issuance of stock options -- -- -- 13,440 (13,440) --
Amortization of unearned compensation -- -- -- -- 5,600 --
Net loss -- -- -- -- -- (824,478)
--------- ----------- ----------- ----------- ----------- -----------
Balance at March 31, 1999 3,410,737 $ 3,410 $ -- $ 1,100,972 $ (7,840) $ (946,520)
========= =========== =========== =========== =========== ===========
Issuance of common stock for
extinguishment of debt at $5.25 per share 101,090 101 -- 530,622 -- --
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 -- --
Issuance of common stock for
compensation of employees and
non-employees at $6.04 and $5.63
per share 15,500 16 -- 92,030 -- --
Capital contribution from the forgiveness
of debt by shareholder -- -- -- 37,412 -- --
Amortization of unearned compensation -- -- -- -- 7,840 --
Proceeds from stock purchase warrants 16,250 16,250
Net loss -- -- -- -- -- (1,153,617)
--------- ----------- ----------- ----------- ----------- -----------
Balance at December 31, 1999 (unaudited) 4,281,827 $ 4,282 $ -- $ 1,810,281 $ -- $(2,100,137)
========= =========== =========== =========== =========== ===========
<CAPTION>
STOCKHOLDERS'
EQUITY
-------------
<S> <C>
Balance, April 1, 1997 $ (13,832)
Capital contribution, net 20,576
Net loss (108,210)
-----------
Balance, March 31, 1998 (101,466)
Payment of stock subscription receivable 2,580
Issuance of common stock at $0.125 per share 29,744
Issuance of common stock
due to forbearance agreement
at $0.125 per share 25,000
Issuance of common stock for
extinguishment of debt at $2.16 per share 63,042
Exercise of common stock purchase
warrants 201,500
Proceeds from exercise of common stock
purchase warrants to be issued 374,250
Loss on warrant inducement 374,250
Issuance of stock options --
Amortization of unearned compensation 5,600
Net loss (824,478)
-----------
Balance at March 31, 1999 $ 150,022
===========
Issuance of common stock for
extinguishment of debt at $5.25 per share 530,723
Issuance of common stock from the
exercise of common stock purchase
warrants --
Issuance of common stock for
extinguishment of debt at $5.63 per share 33,750
Issuance of common stock for
compensation of employees and
non-employees at $6.04 and $5.63
per share 92,046
Capital contribution from the forgiveness
of debt by shareholder 37,412
Amortization of unearned compensation 7,840
Proceeds from stock purchase warrants
Net loss (1,153,617)
-----------
Balance at December 31, 1999 (unaudited) $ (285,574)
===========
</TABLE>
4
The accompanying notes are an integral part of these financial statements.
<PAGE>
WORLD DIAGNOSTICS, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
----------------------------- ----------------------------
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1999 1998 1999 1998
------------ ------------ ------------ ------------
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (259,404) $ (82,493) $(1,153,617) $ (162,665)
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 1,120 -- 7,840 --
Depreciation and amortization 4,348 -- 9,540 --
Changes in operating assets and liabilities:
Accounts receivable (72,046) (14,861) (147,400) (7,299)
Inventory (64,964) (18,061) (90,672) (53,430)
Other current assets 3,195 (1,644) (17,932) (3,579)
Other assets (5,540) -- (6,544) (2,600)
Accounts payable and accrued expenses 124,062 (1,742) 214,299 11,732
----------- ----------- ----------- -----------
Net cash used in operating activities (269,229) (118,801) (598,502) (217,841)
----------- ----------- ----------- -----------
Cash flow from investing activities:
Purchases of fixed assets (68,340) (11,673) (81,343) (11,673)
----------- ----------- ----------- -----------
Net cash used in investing activities (68,340) (11,673) (81,343) (11,673)
----------- ----------- ----------- -----------
Cash flows from financing activities:
Proceeds from notes payable 400,000 35,530 450,000 160,000
Payment of notes payable (75,000) -- (120,000) --
Proceeds from issuance of warrants 16,250 94,000 16,250 94,000
Payments under capital lease obligation (2,651) -- (6,655) --
Proceeds from stock subscription receivable -- -- -- 2,580
Decrease in cash overdraft -- -- -- (15,579)
----------- ----------- ----------- -----------
Net cash provided by financing activities 338,599 129,530 339,595 241,001
----------- ----------- ----------- -----------
Net (decrease) increase in cash and cash equivalents 1,030 (944) (340,250) 11,487
Cash and cash equivalents at beginning of period 17,315 12,431 358,595 --
----------- ----------- ----------- -----------
Cash and cash equivalents at end of period $ 18,345 $ 11,487 $ 18,345 $ 11,487
=========== =========== =========== ===========
</TABLE>
5
The accompanying notes are an integral part of these financial statements.
<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 nine months ended December 1999, the Company acquired office
equipment in the amount of $41,272 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 proprietary distribution agreements
with four generic diagnostic products' manufacturers and has proprietary
technology for rapid diagnostic tests in the area of infectious diseases
and other diagnostic products. The products are sold predominately
through distributors and dealers in twenty-nine countries which are
primarily located in the Caribbean, South America, Eastern Europe and
Asia.
The financial statements reflect the combination of World Diagnostics,
Inc. and Health Tech International. 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 nine months ended December 31, 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 $1,153,617,
$824,478 and $102,810 and had negative cash flows from operations of
$598,502, $347,991 and $56,710 during the nine months ended December 31,
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.
The financial statements do not include any adjustments relating to the
recoverability and
7
<PAGE>
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 Chairman and
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 nine months ended December 31, 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. In November 1999, the loan was repaid in full.
In November 1999, MediaVest, Inc., a Company controlled by a shareholder
and director loaned $25,000 to the Company which was repaid.
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.
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 nine months ended December 31, 1999
representing the difference between the discounted fair
8
<PAGE>
WORLD DIAGNOSTICS, INC.
NOTES TO FINANCIAL STATEMENTS, CONTINUED
market value of the common stock issued and the carrying amount of the
accounts payable extinguished.
During the nine months ended December 31, 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 nine months ended December 31, 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).
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
prior to March 31, 2000. The Promissory Notes are unsecured and the
warrants have no registration rights or other conditions. $50,000 of this
loan has been subscribed to by the children of the Chairman and Director
of the Company.
4. RELATED PARTIES
The Company has a customer, Micro Services Industries, that is also a
director and shareholder of the Company. Micro Services Industries
accounted for 8% of the revenue for the nine months ended December 31,
1999.
9
<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 December 31, 1999 ("Fiscal Year 2000 third quarter")
and nine months ended December 31, 1999, revenue increased by 199% or $257,424
and 135% or $533,401 over the 1999 third fiscal quarter and nine months ended
December 31, 1998. The increase is primarily due to 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. Revenues decreased 67% in Western Europe in the 2000 third fiscal
quarter over the 2000 second fiscal quarter due to a large one time sale in
Western Europe in the second fiscal quarter.
10
<PAGE>
Below is a breakdown of sales by region.
NET SALES TRENDS BY REGION
THREE MONTHS NINE MONTHS
--------------------- --------------------
Period Ended, (in Thousands) 12/31/99 12/31/98 12/31/99 12/31/98
-------- -------- -------- --------
BREAKDOWN
OF REVENUES
Domestic Sales 30 8 56 29
INTERNATIONAL
REVENUES:
Caribbean 81 73 270 230
South America 150 19 351 88
Eastern Europe 27 14 56 16
Central America 24 8 36 9
Pacific Rim 54 5 72 10
Western Europe 12 70
Other 9 2 17 12
--- --- --- ---
TOTAL REVENUE 387 129 928 394
11
<PAGE>
THREE MONTHS ENDED DECEMBER 31, 1999 VERSUS THREE MONTHS
ENDED DECEMBER 31, 1998
COST OF SALES AND GROSS PROFIT
The Company's gross profit on product sales increased to $87,321 for the Fiscal
Year 2000 third quarter from $26,146 in the 1999 third quarter. Gross profit
increased as a percentage of sales to 23% for the third quarter of Fiscal Year
2000 from 20% in the third quarter of Fiscal Year 1999. Gross profit increased
due to larger order quantities and special pricing from vendors.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses increased 245% from $99,153 for the
third quarter of Fiscal Year 1999 compared to $341,493 for the third 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 $61,530 due to additional personnel hired for
Technical Support, Sales and Marketing. Travel and trade shows increased by
$15,900 for the Fiscal Year 2000 third quarter over Fiscal 1999. Professional
fees increased by $36,540 for the Fiscal Year 2000 third quarter over the third
quarter of Fiscal Year 1999 due to the professional fees associated with the
Form 10-SB Registration. The Company incurred costs of $43,600 in connection
with the continuing improvements of the Company's website redesign and related
marketing and Internet infrastructure systems to enhance accessability and
functionality for users in emerging international markets.
INTEREST EXPENSE
Interest expense decreased by $3,971 for the third quarter of Fiscal Year 2000
over the third quarter of Fiscal Year 1999. Interest expense was incurred
primarily on the Promissory Notes and capital lease obligations in Fiscal 2000
for capital expenditures.
12
<PAGE>
OTHER INCOME
Other income increased by $283 in the three months ended December 31, 1999
compared to 1999 due to miscellaneous cash receipts dealing with non-operating
activities.
NET LOSS
The net loss and loss from operations for the three months ended December 31,
1999 increased to $259,404 or $(.06) per share from $82,493 or $(0.03) per share
compared to the three months ended December 31, 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,
continuing website redesign, and professional fees associated with the Company's
10-SB Registration Statement.
NINE MONTHS ENDED DECEMBER 31, 1999 VERSUS NINE MONTHS
ENDED DECEMBER 31, 1998
COST OF SALES AND GROSS PROFIT
The Company's gross profit on product sales increased to $183,890 for the nine
months ended December 31, 1999 from $103,023 for the nine months ended December
31, 1998. Gross profit decreased as a percentage of sales for the nine months of
Fiscal 2000 to 20% from 26% for Fiscal 1999. Gross profit decreased due to the
accelerated expansion of the Company during the first nine months of Fiscal Year
2000. The Company's revenues increased rapidly in the nine months ended December
31, 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.
13
<PAGE>
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses increased from $256,202 for the
nine months of Fiscal Year 1999 compared to $846,787 for the nine 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 $253,456 due to additional personnel hired for Technical
Support, Sales and Marketing. Travel and trade shows increased by $33,100 for
Fiscal Year 2000 over Fiscal 1999. Professional fees increased by approximately
$106,822 for the nine months of Fiscal Year 2000 over Fiscal Year 1999 due to
the professional fees associated with the Form 10-SB Registration Statement and
$375,000 loan and warrants. The Company incurred costs of $61,200 to redesign
the website and related marketing and Internet infrastructure systems to enhance
accessability and functionality for users in emerging international markets.
During the first quarter of Fiscal Year 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 or other applicable
exemption. 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 decreased by $3,105 in the nine months ended December 31, 1999
over December 31, 1998. Interest expense was incurred primarily on the
Promissory Notes and capital lease obligations in Fiscal 2000 for capital
expenditures.
OTHER INCOME
Other income increased by $9,599 in the nine months ended December 31, 1999
compared to 1998 due to miscellaneous cash receipts dealing with non-operating
activities.
14
<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 nine months ended December 31, 1999 increased to $1,153,617
or $(.27) per share from $162,665 or $(.06) per share compared to the nine
months ended December 31, 1998. For the nine months ended December 31, 1999,
$585,984 of the loss was attributed to non-cash charges associated with equity
transactions. The loss from operations for the nine months ended December 1999
was $659,679 or $(.16) per share, an increase of $497,014 over the nine months
ended December 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, continuing website
redesign, expenses relating to qualifying for the FDA Good Manufacturing
Practices License and professional fees associated with the Company's 10-SB
Registration Statement.
15
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1999, WDI had cash and cash equivalents of $18,345 compared to
$358,595 at March 31, 1999. Working capital, defined as current assets less
current liabilities, was $(394,645) at December 31, 1999 as compared to $135,744
at March 31, 1999. The Company had current assets of $404,944 and stockholders'
deficit of $(285,574) at December 31, 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 nine months ended December 31,
1999, the Company used $598,502 in operating activities, compared to $181,533
during the nine months ended December 31, 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 nine months ending December 31, 1999
consisted of fixed asset purchases such as a new computer network, new
accounting software, a cold room, website infrastructure, and other equipment
and furniture. The Company had capital expenditures of $11,673 in Fiscal Year
1999 and $81,343 in Fiscal Year 2000.
Net cash flows provided by financing activities increased from $241,001 in the
nine months ended December 31, 1998 to $339,595 in the nine months ended
December 31, 1999. The increase is principally due to the proceeds from notes
payable and issuance of warrants in the nine months ended December 31, 1999 over
the same period in 1998.
On September 29, 1999, the Company received a loan for $50,000 from the Chairman
of the Company which was repaid in November 1999. MediaVest, Inc., a Company
controlled by a shareholder and director loaned $25,000 to the Company in
November 1999, which was subsequently repaid. As of January 31, 2000, the
Company had a cash overdraft of approximately $8,500. The Company continues to
experience cash overdrafts in February, however there has been a significant
accounts receivable collections effort to improve the cash flow. 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 prior to March 31, 2000. Proceeds of the loan and warrants were primarily
used for working capital, inventory increase, installation
16
<PAGE>
of a new accounting system, website development, legal and accounting fees. The
Company will seek to repay the $375,000 bridge loan from borrowings from certain
shareholders in the event that equity financing is not secured before such date,
or will seek to have the Noteholders convert their notes into the Company's
common stock.
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. The Company has been engaged in various
exploratory discussions with prospective investors, and while no specific terms
have been negotiated, a due diligence process has begun on behalf of some
investors who are considering an equity investment in the Company. No assurance
can be made that the private placement of Company equity 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.
The Company has recently formed a new subsidiary, GLOBALeMED.com, Inc., a
Delaware corporation, to facilitate the expansion of its e-commerce business to
business activities. The Company is continually developing its website and
Internet marketing and infrastructure development for its GLOBALeMED system. The
Company is continuing to explore the feasibility of establishing strategic
alliances with compatible e-commerce partners for its GLOBALeMED system which
could involve a financial investment by those parties for working capital.
In the Fiscal Year 2000 three 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.
17
<PAGE>
PART II - OTHER INFORMATION
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
The following is a list of exhibits filed as part of this report of Form 10-QSB.
Where indicated, exhibits that were previously filed are incorporated by
reference.
(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
- -----------------------------
* Filed as an exhibit to the Registrant's Registration Statement of Form
10-SB, (Registration No. 000-27627), which was declared effective by
the Securities & Exchange Commission on November 5, 1999 and
incorporated herein by reference.
# Filed as an exhibit to the Company's 10-QSB for the period ended
September 30, 1999, and incorporated herein by reference.
- ---------------------------------
(b) REPORTS ON FORM 8-K
No reports on Form 8-K were filed during the quarter ended December
31, 1999.
18
<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: FEBRUARY 14, 2000 By: /s/ KEN M. PETERS
------------------
Ken M. Peters, President
and Chief Financial Officer
19
<PAGE>
INDEX TO EXHIBITS
EXHIBIT
- -------
3.1 ARTICLES OF INCORPORATION
Filed as an exhibit 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 and
incorporated herein by reference.
3.2 BYLAWS
Filed as an exhibit 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 and
incorporated herein by reference.
4.1 PROMISSORY NOTE
Filed as an exhibit to the Company's 10-QSB for the period
ended September 30, 1999, and incorporated herein by
reference.
4.2 WARRANT CERTIFICATE
Filed as an exhibit to the Company's 10-QSB for the period
ended September 30, 1999, and incorporated herein by
reference.
27.0 FINANCIAL DATA SCHEDULE
<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 9-MOS
<FISCAL-YEAR-END> DEC-31-1999 DEC-31-1999
<PERIOD-START> OCT-01-1999 APR-01-1999
<PERIOD-END> DEC-31-1999 DEC-31-1999
<CASH> 18,345 18,345
<SECURITIES> 0 0
<RECEIVABLES> 229,512 229,512
<ALLOWANCES> 0 0
<INVENTORY> 133,156 133,156
<CURRENT-ASSETS> 404,944 404,944
<PP&E> 130,054 130,054
<DEPRECIATION> 0 0
<TOTAL-ASSETS> 545,961 545,961
<CURRENT-LIABILITIES> 799,589 799,589
<BONDS> 0 0
0 0
0 0
<COMMON> 10,000,000 10,000,000
<OTHER-SE> 0 0
<TOTAL-LIABILITY-AND-EQUITY> 545,961 545,961
<SALES> 386,813 927,891
<TOTAL-REVENUES> 386,813 927,891
<CGS> 299,492 744,001
<TOTAL-COSTS> 0 0
<OTHER-EXPENSES> 341,493 846,787
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 5,515 6,381
<INCOME-PRETAX> (259,404) (659,679)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (259,404) (659,679)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 493,938
<CHANGES> 0 0
<NET-INCOME> (259,404) (1,153,617)
<EPS-BASIC> (0.06) (0.27)
<EPS-DILUTED> (0.06) (0.27)
</TABLE>
