FORM 10-QSB
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C., 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended: August 31, 1999
Or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period _______________ to ________________
Commission file number:
HEALTHNET INTERNATIONAL INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
COLORADO 98-0206627
- ------------------------ ---------------------
(State of Incorporation) (IRS Employer ID No.)
Suite 301-1201 West Pender Street
Vancouver, British Columbia
Canada V6E 2X2
---------------------------------------- ----------
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (604) 669-3573
------------------
Indicate by check mark whether the registrant (1) has file all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
---------- ----------
As of August 31, 1999, the registrant had 10,500,000 shares of Common Stock
outstanding.
Transitional Small Business Disclosure Format (check one);
YES NO X
---------- ----------
The registrant meets the conditions set forth in General Instruction and is
therefore filing this Form with the reduced disclosure format.
<PAGE>
HEALTHNET INTERNATIONAL INC.
(A DEVELOPMENT-STAGE COMPANY)
CONSOLIDATED BALANCE SHEETS
(IN UNITED STATES DOLLARS)
As at
<TABLE>
<CAPTION>
AUGUST 31, MAY 31,
1999 1999
$ $
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
CURRENT
Cash 330,097 201,093
Accounts receivable 8,442 7,229
Prepaid expenses 79,462 4,826
- --------------------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 418,001 213,148
- --------------------------------------------------------------------------------------------------
Capital assets, net [NOTE 3] 228,540 244,772
- --------------------------------------------------------------------------------------------------
646,541 457,920
==================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT
Accounts payable and accrued liabilities 39,053 18,433
- --------------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 39,053 18,433
- --------------------------------------------------------------------------------------------------
Note payable [NOTE 4] 900,000 500,000
- --------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 939,053 518,433
- --------------------------------------------------------------------------------------------------
Commitments and contingencies [NOTE 6]
SHAREHOLDERS' EQUITY
Share capital [NOTE 5] 10,500 10,500
Deficit accumulated in the development stage (303,012) (71,013)
- --------------------------------------------------------------------------------------------------
TOTAL SHAREHOLDERS' EQUITY (292,512) (60,513)
- --------------------------------------------------------------------------------------------------
646,541 457,920
==================================================================================================
</TABLE>
SEE ACCOMPANYING NOTES
<PAGE>
HEALTHNET INTERNATIONAL INC.
(A DEVELOPMENT-STAGE COMPANY)
CONSOLIDATED STATEMENT OF
LOSS, COMPREHENSIVE LOSS, AND DEFICIT
(IN UNITED STATES DOLLARS)
<TABLE>
<CAPTION>
FOR THE FOR THE FOR THE PERIOD FROM
THREE MONTH THREE MONTH INCORPORATION ON
PERIOD ENDED PERIOD ENDED JANUARY 21, 1999
AUGUST 31, MAY 31, TO AUGUST 31,
1999 1999 1999
$ $ $
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
EXPENSES
Professional fees 40,199 7,563 53,908
Amortization 41,475 13,855 55,330
Foreign exchange loss(gain) -1,092 1,402 310
General and administrative 44,780 19,323 67,216
Dues and subscriptions 30,976 0 30,976
Salaries and benefits 75,660 18,587 95,271
- --------------------------------------------------------------------------------------------------
LOSS AND COMPREHENSIVE LOSS FOR THE PERIOD 231,998 60,730 303,011
Accumulated deficit, beginning of period 71,013 10,283 --
- --------------------------------------------------------------------------------------------------
ACCUMULATED DEFICIT, END OF PERIOD 303,011 71,013 303,011
==================================================================================================
LOSS PER COMMON SHARE 0.02 0.01 0.03
==================================================================================================
WEIGHTED AVERAGE SHARES OUTSTANDING
FOR THE PERIOD 10,500,000 10,500,000 10,500,000
==================================================================================================
</TABLE>
SEE ACCOMPANYING NOTES
<PAGE>
HEALTHNET INTERNATIONAL INC.
(A DEVELOPMENT-STAGE COMPANY)
CONSOLIDATED STATEMENT OF
SHAREHOLDERS' EQUITY
(IN UNITED STATES DOLLARS)
As at
<TABLE>
<CAPTION>
DEFICIT
ACCUMULATED IN
COMMON STOCK THE DEVELOPMENT
SHARES AMOUNT STAGE
# $ $
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
BALANCE, JANUARY 21, 1999 -- -- --
Common shares issued for cash 10,500,000 10,500 --
Loss for the period -- -- (10,283)
- --------------------------------------------------------------------------------------------------
BALANCE, February 28, 1999 10,500,000 10,500 (10,283)
Loss for the period -- -- (60,730)
- --------------------------------------------------------------------------------------------------
BALANCE, MAY 31, 1999 10,500,000 10,500 (71,013)
Loss for the period -- -- (231,998)
- --------------------------------------------------------------------------------------------------
BALANCE, AUGUST 31, 1999 10,500,000 10,500 (303,011)
==================================================================================================
</TABLE>
SEE ACCOMPANYING NOTES
<PAGE>
HEALTHNET INTERNATIONAL INC.
(A DEVELOPMENT-STAGE COMPANY)
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN UNITED STATES DOLLARS)
<TABLE>
<CAPTION>
FOR THE FOR THE PERIOD FROM FOR THE PERIOD FROM
THREE MONTH INCORPORATION ON INCORPORATION ON
PERIOD ENDED JANUARY 21, 1999 JANUARY 21, 1999
AUGUST 31, TO MAY 31, TO AUGUST 31,
1999 1999 1999
$ $ $
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Loss for the period (231,999) (71,013) (303,012)
Amortization 41,475 13,855 55,330
Increase in accounts receivable (1,213) (7,229) (8,442)
Increase in prepaid expenses (74,636) (4,826) (79,462)
Increase in accounts payable and accrued
liabilities 20,620 18,433 39,053
- --------------------------------------------------------------------------------------------------
CASH USED IN OPERATING ACTIVITIES (245,753) (50,780) (296,533)
- --------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Additions to capital assets (25,243) (258,627) (283,870)
- --------------------------------------------------------------------------------------------------
CASH USED IN INVESTING ACTIVITIES (25,243) (258,627) (283,870)
- --------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Increase in note payable 400,000 500,000 900,000
Issuance of share capital -- 10,500 10,500
- --------------------------------------------------------------------------------------------------
CASH PROVIDED BY FINANCING ACTIVITIES 400,000 510,500 910,500
- --------------------------------------------------------------------------------------------------
INCREASE IN CASH DURING THE PERIOD 129,004 201,093 330,097
Cash, beginning of period 201,093 -- --
- --------------------------------------------------------------------------------------------------
CASH, END OF PERIOD 330,097 201,093 330,097
==================================================================================================
</TABLE>
SEE ACCOMPANYING NOTES
<PAGE>
1. NATURE OF BUSINESS
Healthnet International Inc. (the "Company") was incorporated on January 21,
1999 in the State of Colorado and is currently in the development stage.
The Company intends to establish itself as an online retailer of health products
and other health-related products. The Company's proposed online store intends
to offer broad selection, informative content, easy-to-use navigation and search
capabilities, a high level of customer service, competitive pricing and
personalized merchandising and recommendations.
Healthnet International Inc. has two wholly owned subsidiaries; Healthnet U.S.A.
Inc. and HNI Healthnet (Canada) Inc.
Healthnet U.S.A. Inc. was incorporated on March 8, 1999. It was incorporated in
the State of Nevada and is intended to function as the operating company for the
United States market.
HNI Healthnet (Canada) Inc. was incorporated on May 18, 1999. It was
incorporated in the Province of British Columbia and is intended to function as
the operating company for the Canadian market.
The Company has selected February as its fiscal year end. In the opinion of
management, the interim financial statements for the quarter ended August 31,
1999 reflect all adjustments, which consist only of normal and recurring
adjustments, necessary to present fairly the financial position at August 31,
1999 and the results of operations and cash flows for the respective three month
period ended August 31, 1999 in accordance with accounting principles generally
accepted in the United States.
2. SIGNIFICANT ACCOUNTING POLICIES
These financial statements are prepared in accordance with generally accepted
accounting principles in the United States. The following is a summary of the
significant accounting policies used in the preparation of these financial
statements.
MANAGEMENT ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Management believes that the estimates utilized in preparing its financial
statements are reasonable and prudent; however, actual results could differ from
these estimates.
<PAGE>
2. SIGNIFICANT ACCOUNTING POLICIES (CONT'D.)
FINANCIAL INSTRUMENTS
The carrying values of the Company's financial instruments approximate fair
values, except as otherwise disclosed in the financial statements.
RECENT ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board has issued SFAS133 'Accounting for
derivative instruments and hedging activities'. SFAS133 is effective for
financial statements for fiscal years beginning after June 15, 2000.
SFAS133 currently has no impact on the Company.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the amounts of the Company and all
its subsidiaries. All significant intercompany balances and transactions have
been eliminated.
CAPITAL ASSETS
Capital assets are recorded at cost less accumulated depreciation. Capital
assets are depreciated over their useful lives as follows:
Office furniture 10% declining balance
Computer hardware 30% declining balance
Internet software 2 years straight line
TRANSLATION OF FOREIGN CURRENCIES
Monetary assets and liabilities denominated in foreign currencies are translated
into United States dollars at the year end rates of exchange. Non-monetary
assets and liabilities denominated in foreign currencies are translated into
United States dollars at the rates of exchange in effect at the date of the
transaction. Foreign currency revenue and expense items, except amortization are
translated at average monthly rates of exchange. Exchange gains or losses are
included in the statement of loss as incurred. Amortization is translated at the
same rate as the related assets.
<PAGE>
2. SIGNIFICANT ACCOUNTING POLICIES (CONT'D.)
CASH AND CASH EQUIVALENTS
For the purposes of the statement of cash flows, cash and cash equivalents
consist of cash on hand and balances with banks.
LOSS PER COMMON SHARE
The loss per common share has been determined by dividing the loss for each
period by the weighted average number of common shares of the Company
outstanding during each period.
3. CAPITAL ASSETS
<TABLE>
Capital assets of the Company consist of the following:
<CAPTION>
ACCUMULATED NET BOOK
COST DEPRECIATION VALUE
$ $ $
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
AUGUST 31, 1999
Office furniture and equipment 51,140 1,594 49,546
Computer hardware 16,058 2,185 13,873
Internet software 216,673 51,552 165,121
- --------------------------------------------------------------------------------------------------
283,871 55,331 228,540
==================================================================================================
</TABLE>
4. NOTES PAYABLE
Notes payable at August 31, 1999 totalling $900,000 are due to DGD Wealth
Management. The notes payable, which are unsecured, bear interest at the rate of
5% per annum and are due on May 31, 2001. Management believes the fair value of
the notes approximate their carrying value.
<PAGE>
<TABLE>
5. SHARE CAPITAL
<CAPTION>
August 31, May 31,
1999 1999
$ $
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
AUTHORIZED
100,000,000 common shares, par value $0.001
50,000,000 preferred shares, par value $0.001
ISSUED
10,500,000 common shares 10,500 10,500
==================================================================================================
</TABLE>
At August 31, 1999, 1,000,000 common shares were reserved for issuance pursuant
to exercise of stock options to be granted to the directors and officers of the
Company.
6. COMMITMENTS AND CONTINGENCIES
[i]The Company has entered into operating leases in respect of its office
premises and an office copier. Minimum payments under these lease
commitments over the next three years are represented in the table below.
<TABLE>
<CAPTION>
OFFICE OFFICE
EQUIPMENT PREMISES
$ $
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
2000 927 36,966
2001 1,850 --
2002 1,850 --
- --------------------------------------------------------------------------------------------------
4,627 36,966
==================================================================================================
</TABLE>
<PAGE>
6. COMMITMENTS AND CONTINGENCIES (CONT'D.)
[ii] YEAR 2000 ISSUE
The Year 2000 Issue arises because many computerized systems use two
digits rather than four to identify a year. Date-sensitive systems may
recognize the year 2000 as 1900 or some other date, resulting in errors
when information using year 2000 dates is processed. In addition, similar
problems may arise in some systems which use certain dates in 1999 to
represent something other than a date. The effects of the Year 2000 Issue
may be experienced before, on, or after January 1, 2000, and, if not
addressed, the impact on operations and financial reporting may range
from minor errors to significant systems failure which could affect an
entity's ability to conduct normal business operations. It is not
possible to be certain that all aspects of the Year 2000 Issue affecting
the entity, including those related to the efforts of customers,
suppliers, or other third parties will be fully resolved.
7. COMPARATIVE FIGURES:
Certain of the comparative figures have been reclassified to conform to
the presentation adopted in the current period.
<PAGE>
Item 2. PLAN OF OPERATION
(All figures are in US dollars)
General
- -------
The Company's current plan of operation is to derive its revenues principally
from the sale of health related products via the Internet. Secondary revenues
are expected to be generated through major sponsorships on the Company's web
site and sales of demographic data obtained through the Company's website. The
Company launched a portion of its website, www.medicinecabinet.net, on September
13, 1999. This aspect of the website generates no revenues but provides health
and health related information to viewers, which information includes an
encyclopedia, an on-line health magazine and other interactive aspects for
members.
It is anticipated that the Internet will continue to become more accessible and
that the market opportunities for the Company will continue to expand. This
tremendous growth will also attract many potential new competitors. In order to
maintain sales growth, the Company intends to expand the content and to improve
the services on its Internet web site, as well as researching and developing
other projects that will utilize its existing facilities and expertise.
The Company has been funded to date through debt financing from private arm's
length lenders. The Company has secured approximately $900,000 US through debt
financing. In addition, it is anticipated that revenues will commence with the
launch of the retail store component of the Company's website, which is proposed
to occur in the fourth calendar quarter, 1999, which should enable the Company
to meet its financial obligations for the next twelve months. Thereafter, the
Management of the Company believes that revenues from sales will enable the
Company to meet its financial obligations. No assurance can be given that
revenues from sales of health products and/or advertising and/or sponsorships
will enable the Company to meet its financial obligations. As such, the Company
may solicit and arrange for additional debt financing from private arm's length
lenders in the event revenues do not meet the Company's financial obligations.
In addition, the Company may consider raising additional equity financing
through the sale of common stock of the Company through private placements to
sophisticated investors. The combination of expected revenues and additional
debt and/or equity financing is intended to provide the Company with sufficient
operating capital for a period of approximately two years.
RESULTS OF OPERATIONS
- ---------------------
Operations to date have been limited to establishing the infrastructure and to
other general and administrative expenditures. Losses for the second fiscal
quarter ended August 31, 1999 amounted to $231,998. Expenses during the period
increased to $231,998 from $60,730 in the prior quarter as a result of continued
development of the Company's website and the corresponding human resources
required. The Company anticipates that this development will continue to require
moderate increases in staff levels and office space.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
Cash flow used in operations for the three months ended August 31, 1999 was
$245,753. It is intended that revenues from sales should commence shortly after
the launch of the online store in the forth calendar quarter, 1999. No assurance
can be given that revenues from sales will initially meet expenses and as such,
the Company plans to finance operations through existing and additional debt
financing from arm's length private lenders until such time as revenues from
sales meet or exceed expenses. Once achieved, the Company intends to begin
repaying the private arm's length lenders. In addition, the Company may raise
additional money as is deemed necessary by management through private placements
of stock issued out of the treasury of the Company to individuals or
corporations who have expressed interest in obtaining stock in the Company.
<PAGE>
The $25,243 used in investing activities consisted primarily of office and
computer equipment.
Net cash provided by financing activities for the three months ended August 31,
1999 was $400,000 from the proceeds of the note payable.
Net cash on hand at August 31, 1999 increased to $330,097 from $201,093 at May
31, 1999.
<PAGE>
Part II - Other Information
- -----------------------------
Item 5 - Other Information
YEAR 2000 RISKS AND COMPLIANCE
Many existing computer programs use only two digits to identify a year. These
programs were designed and developed without addressing the impact of the
upcoming change in the century. If not corrected, many computer software
applications could fail or create erroneous results by, at or beyond the year
2000. The Company uses software, computer technology and other services
developed and provided by third party suppliers that may fail due to the year
2000 phenomenon. For example, the Company is dependent on the financial
institutions involved in processing customers' credit card payments for the
Internet services and a third party that hosts the Company's services. The
Company is also dependant on telecommunications vendors and suppliers to
maintain our network and the United States Postal Service and other third party
carriers to deliver orders to customers.
The Company has identified three categories of computer systems which may be
affected by the Year 2000 issue:
1. Internal Systems. The Company owns and operates computer hardware on which is
loaded licensed software from major software providers. The Company uses these
computers and software programs for some accounting functions, office
administration functions, word processing functions, internal and external
e-mail.
2. Third party Providers of Computer Systems. The Company relies on various
third party providers of computer hardware and software which third parties
provide critical services to the Company including, product supply, product
distribution, credit card processing, website hosting, long distance Internet
connectivity, e-mail providers, and substantially all other systems used by the
Company in respect of the operation of the website; and
3. The General Infrastructure. This category includes the integrity and
stability of the Internet in providing the Company's services, the computer
systems of financial institutions and services used by customers, the utility
companies used by the Company and the customers, etc.
In respect of number 1 above, the Company has assessed the year 2000 readiness
of its internal systems. All hardware and software used internally has been
purchased within the previous six months and were purchased from reputable
vendors with assurances there from that all such items, alone and in combination
with each other are Year 2000 compliant. Based upon these assurances, the
Company has neither incurred any expenses in relation to this assessment nor has
it developed a remediation plan because it believes that it is not necessary.
In respect of number 2 above, the Company has relied upon third parties for the
provision of substantially all of the systems for the operation of the website.
These systems include software used to provide the Company's websites' search
capabilities, customer interaction, and transaction processing and fulfillment
functions, as well as firewall, security monitoring and back-up capabilities.
The Company is currently assessing the Year 2000 readiness of the third party
supplied software, computer technology and other services of the Company's
vendors. As part of the assessment, the Company is in the process of seeking
assurances from these third parties that their software, computer technology and
other services are Year 2000 compliant. At this time, the Company has not yet
developed a contingency plan to address situations that may result if these
third parties are unable to achieve Year 2000 compliance. Such contingency plan
will depend on the results of the Year 2000 review and assessment, the extent of
the corrective actions that have been implemented by the third parties and by
the Company and the status of the distribution systems that the Company intends
to establish. Based upon the results of this assessment, the Company will
develop and implement, if necessary, a remediation plan with respect to the
third party software, third party vendors and computer technology and services
that may fail to be Year 2000 compliant. At this time, the expenses associated
with this assessment and potential remediation plan are expected to be
insignificant but cannot be determined with any degree of accuracy at this time.
<PAGE>
The failure of the software and computer technologies of the third parties to be
Year 2000 compliant would have an adverse effect on the Company including
difficulties in operating the website effectively or at all, difficulties taking
customers' orders, difficulties in making product deliveries and difficulties
conducting other fundamental parts of the business.
In respect of number 3 above, the Year 2000 readiness of the general
infrastructure necessary to support the Company's operations is difficult to
assess. For example, the Company depends on the integrity and stability of the
Internet to provide the Company's services. The Company also depends on the Year
2000 compliance of the computer systems and financial services used by
consumers. Thus, the infrastructure necessary to support the Company's
operations consists of a network of computers and telecommunications systems
located throughout the world and operated by numerous unrelated entities and
individuals, none of which has the ability to control or manage the potential
Year 2000 issues that may impact the entire infrastructure. The Company's
ability to assess the reliability of this infrastructure is limited and the
Company relies solely on generally available news reports, surveys and
comparable industry data. Based on these sources, the Company believes that most
entities and individuals that rely significantly on the Internet are reviewing
and attempting to remediate issues relating to Year 2000 compliance, but it is
not possible to predict whether these efforts will be successful in reducing or
eliminating the potential negative impact of Year 2000 issues.
A significant disruption in the ability of consumers to reliable access the
Internet or portions of it or to use their credit cards would have an adverse
effect on demand for the Company's products and services. In addition, the
Company may have difficulties operating portions or all of its website
effectively, taking customers' orders, fulfilling and distributing customers'
orders and conducting other fundamental parts of the Company's business.
The costs to address the Year 2000 compliance issues delineated above have not
been determined at this time. The cost of developing and implementing a plan, if
necessary, could be material and the Company may not have enough time to
implement it before the year 2000. Any failure of the Company's material
systems, our suppliers' material systems or the Internet to be year 2000
compliant could include difficulties in operating the website effectively,
taking product orders, making product deliveries or conducting other fundamental
parts of the Company's business, any one of which would have an adverse effect
on the Company.
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibit No. Description
-------------- ---------------
27 Financial Data Schedule
(b) There are no reports on Form 8-K that were filed for the quarter.
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.
HEALTHNET INTERNATIONAL INC.
(Registrant)
Date: October 13, 1999 /s/ GRANT JOHNSON
------------------------------------
Grant R. Johnson
President and CEO
Date: October 13, 1999 /s/ DOUGLAS BOLEN
------------------------------------
Douglas Bolen
Corporate Counsel, Secretary
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAY-31-2000
<PERIOD-START> JUN-30-1999
<PERIOD-END> AUG-31-1999
<CASH> 330,097
<SECURITIES> 0
<RECEIVABLES> 8,442
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 418,001
<PP&E> 228,540
<DEPRECIATION> 0
<TOTAL-ASSETS> 646,541
<CURRENT-LIABILITIES> 39,053
<BONDS> 0
0
0
<COMMON> 10,500
<OTHER-SE> (303,012)
<TOTAL-LIABILITY-AND-EQUITY> 646,541
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 231,998
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (303,011)
<INCOME-TAX> 0
<INCOME-CONTINUING> (303,011)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (303,011)
<EPS-BASIC> (.02)
<EPS-DILUTED> (.02)
</TABLE>
