<PAGE>
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: November 30, 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: 000-26553
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 2V2
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (604) 669-3573
As of November 30, 1999, the registrant had 10,500,000 shares of Common Stock
outstanding.
Transitional Small Business Disclosure Format (check one);
YES NO X
---------- ----------
<PAGE>
Part I - Financial Information
-------------------------------
Item 1 - Financial Statements:
HEALTHNET INTERNATIONAL INC.
(A DEVELOPMENT-STAGE COMPANY)
<TABLE>
CONSOLIDATED BALANCE SHEET
(IN UNITED STATES DOLLARS)
<CAPTION>
AUDITED
AS AT AS AT
30 NOVEMBER 28 FEBRUARY
1999 1999
$ $
- --------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents (38,350) 9,157
Accounts receivable 12,377 --
Inventories 103 --
Prepaid expenses and deposits 45,852 --
------------ ------------
Total current assets 19,982 9,157
CAPITAL ASSETS, NET OF ACCUMULATED AMORTIZATION (NOTE 3) 242,055 --
------------ ------------
TOTAL ASSETS 262,037 9,157
============ ============
LIABILITIES
CURRENT LIABILITIES
Accounts payable and accrued liabilities 33,156 8,940
------------ ------------
LONG-TERM LIABILITIES
Notes payable (Note 4) 1,000,000 --
------------ ------------
SHAREHOLDERS' EQUITY
Share Capital (note 5) 10,500 10,500
Retained Earnings (781,619) (10,283)
------------ ------------
Total shareholders' Equity (771,119) 217
------------ ------------
------------ ------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY 262,037 9,157
============ ============
</TABLE>
SEE ACCOMPANYING NOTES
<PAGE>
HEALTHNET INTERNATIONAL INC.
(A DEVELOPMENT-STAGE COMPANY)
<TABLE>
CONSOLIDATED STATEMENT OF
LOSS, COMPREHENSIVE LOSS, AND DEFICIT
(IN UNITED STATES DOLLARS)
<CAPTION>
FOR THE FOR THE FOR THE
THREE MONTH THREE MONTH NINE MONTH
PERIOD ENDED PERIOD ENDED PERIOD ENDED
NOVEMBER 30, AUGUST 31, NOVEMBER 30
1999 1999 1999
$ $ $
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
EXPENSES
Professional fees 13,539 40,199 61,301
Amortization 35,071 41,475 90,401
Foreign exchange loss(gain) 3,790 -1,092 4,100
General and administrative 201,603 44,780 265,706
Dues and subscriptions 35,505 30,976 66,481
Salaries and benefits 189,100 75,660 283,347
- -------------------------------------------------------------------------------------------
LOSS AND COMPREHENSIVE LOSS FOR 478,608 231,998 771,336
THE PERIOD
Accumulated deficit, beginning of period 303,011 71,013 10,283
- -------------------------------------------------------------------------------------------
ACCUMULATED DEFICIT, END OF PERIOD 781,619 303,011 781,619
===========================================================================================
LOSS PER COMMON SHARE 0.05 0.02 0.08
FULLY DILUTED 0.04 0.02 0.07
===========================================================================================
WEIGHTED AVERAGE SHARES OUTSTANDING
FOR THE PERIOD 10,500,000 10,500,000 10,500,000
FULLY DILUTED 11,500,000 11,500,000 11,500,000
===========================================================================================
</TABLE>
SEE ACCOMPANYING NOTES
<PAGE>
HEALTHNET INTERNATIONAL INC.
(A DEVELOPMENT-STAGE COMPANY)
<TABLE>
CONSOLIDATED STATEMENT OF
SHAREHOLDERS' EQUITY
(IN UNITED STATES DOLLARS)
<CAPTION>
As at November 30, 1999
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)
Loss for the period -- -- (478,608)
========================================================================================
BALANCE, NOVEMBER 30, 1999 10,500,000 10,500 (781,619)
========================================================================================
</TABLE>
SEE ACCOMPANYING NOTES
<PAGE>
HEALTHNET INTERNATIONAL INC.
(A DEVELOPMENT-STAGE COMPANY)
<TABLE>
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN UNITED STATES DOLLARS)
<CAPTION>
FOR THE FOR THE FOR THE
THREE-MONTH THREE-MONTH NINE-MONTH
PERIOD ENDED PERIOD ENDED PERIOD ENDED
NOVEMBER 30, AUGUST 31, NOVEMBER 30,
1999 1999 1999
$ $ $
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Loss for the period (478,608) (231,999) (771,336)
Amortization 35,071 41,475 90,401
Increase in accounts receivable (3,935) (1,213) (12,377)
Decrease in prepaid expenses 33,610 (74,636) (45,852)
Increase in inventory (103) -- (103)
Decrease in accounts payable and accrued
liabilities (5,896) 20,620 24,216
- ----------------------------------------------------------------------------------------
CASH USED IN OPERATING ACTIVITIES (419,861) (245,753) (715,051)
- ----------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Additions to capital assets (48,586) (25,243) (332,456)
- ----------------------------------------------------------------------------------------
CASH USED IN INVESTING ACTIVITIES (48,586) (25,243) (332,456)
- ----------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Increase in note payable 100,000 400,000 1,000,000
Issuance of share capital -- -- --
- ----------------------------------------------------------------------------------------
CASH PROVIDED BY FINANCING ACTIVITIES 100,000 400,000 1,000,000
- ----------------------------------------------------------------------------------------
DECREASE IN CASH DURING THE PERIOD (368,447) 129,004 (47,507)
Cash, beginning of period 330,097 201,093 9,157
- ----------------------------------------------------------------------------------------
CASH, END OF PERIOD (38,350) 330,097 (38,350)
========================================================================================
</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 November 30,
1999 reflect all adjustments, which consist only of normal and recurring
adjustments, necessary to present fairly the financial position at November 30,
1999 and the results of operations and cash flows for the respective three-month
period ended November 30, 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.
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.
<PAGE>
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.
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
Capital assets of the Company consist of the following:
ACCUMULATED NET BOOK
COST DEPRECIATION VALUE
$ $ $
- --------------------------------------------------------------------------------
NOVEMBER 30, 1999
Office furniture and equipment 59,570 3,319 56,251
Computer hardware 22,434 4,644 17,790
Internet software 250,452 82,438 168,014
- --------------------------------------------------------------------------------
332,456 90,401 242,055
================================================================================
4. NOTES PAYABLE
Notes payable at November 30, 1999 totaling $1,000,000 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>
5. SHARE CAPITAL
November 30, August 31,
1999 1999
$ $
- --------------------------------------------------------------------------------
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
FULLY DILUTED
11,500,000 760,500 760,500
================================================================================
At November 30, 1,000,000 common shares were reserved for issuance pursuant to
exercise of stock options to be granted to the employees, directors and officers
of the Company. Virtually all of these options were granted to such persons at
November 30, 1999.
6. COMMITMENTS AND CONTINGENCIES
[i]The Company has entered into operating leases in respect of its office
premises and office equipment. Minimum payments under these lease
commitments over the next three years are represented in the table below.
OFFICE OFFICE
EQUIPMENT PREMISES
$ $
- --------------------------------------------------------------------------------
2000 5,602 16,788
2001 20,550 11,192
2002 17,433 --
- --------------------------------------------------------------------------------
43,585 27,980
================================================================================
7. SUBSEQUENT EVENTS:
On December 7, 1999, the Company filed an S-8 amendment to increase the
number of Company shares authorized under its Stock Option Plan from 1
million to 1.2 million shares.
On December 8, 1999, the Company completed a debt financing agreement in
the amount of $500,000. The unsecured note bears interest at a rate of 5%
and is due May 31, 2001. The Company estimates the fair value of the note
to approximate its carrying value.
On December 13, 1999, the Company's shares commenced trading under the
symbol HLNT on the NASD Over-The-Counter Bulletin Board (OTC:BB) market.
On December 29, 1999, the Company launched its health information portal
www.medicinecabinet.co.uk in the United Kingdom, and launched its online
retail store in the United States on www.medicinecabinet.com.
On December 30, 1999, the Company entered into an agreement with InterWorld
Corporation to purchase a major upgrade to the Company's internet software.
Total consideration for the software and its implementation is expected to
approach $900,000, which will be paid in instalments within six months of
November 30, 1999. The Company believes that this state-of-the-art software
positions the Company at the forefront of technology in its market
segments.
8. 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)
FORWARD LOOKING INFORMATION
Healthnet International Inc. (the "Company" or "Healthnet") cautions readers
that certain important factors may affect the Company's actual results and could
cause such results to differ materially from any forward-looking statements that
may be deemed to have been made in this Form 10-QSB, or that is otherwise made
by or on behalf of the Company. Such factors include, among others, the
speculative nature of the industry in which the Company operates, technology
failures, environmental or government regulations, availability of financing,
force majeure events, and other risk factors as described from time to time in
the Company's filings with the Securities and Exchange Commission. Many of these
factors are beyond the Company's ability to control or predict. For this
purpose, any statements contained in the registration statement that are not
statements of historical fact may be deemed to be forward-looking statements.
Without limiting the generality of the foregoing, words such as "may", "expect",
believe", "anticipate", "intend", "could", "estimate" or "continue" or the
negative or other variations of comparable terminology, are intended to identify
forward-looking statements. The Company disclaims any intent or obligation to
update its forward-looking statements, whether as a result of receiving new
information, the occurrence of future events, or otherwise.
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 arms
length lenders. The Company has secured approximately $1,000,000 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 fiscal quarter, 2000, which should 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 third fiscal
quarter ended November 30, 1999 amounted to $478,608. Expenses during the period
increased to $478,608 from $231,998 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.
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
Cash flow used in operations for the three months ended November 30, 1999 was
$419,861. It is expected that revenues from sales should commence shortly after
the launch of the online store in the fourth fiscal quarter, 2000. No assurance
can be given that revenues from sales will initially meet expenses and as such,
the Company may finance operations through existing and additional debt
and/or equity 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.
The $48,586 used in investing activities consisted primarily of office and
computer equipment.
Net cash provided by financing activities for the three months ended November
30, 1999 was $100,000 from the proceeds of the note payable.
Net cash on hand at November 30, 1999 decreased to a book overdraft of $38,350
from $330,097 at August 31, 1999.
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.
The Company has identified three categories of computer systems that 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.
As of January 11, 2000, the Company's computer systems have operated without any
Y2K related problems and appear to be Y2K compliant. The Company is not aware
that any of its major third-party suppliers or business partners has experienced
any significant Y2K problems that would have an adverse effect on the Company.
Readers should be cautioned that forward-looking statements contained in the Y2K
update should be read in conjunction with the Company's disclosures under the
heading: "Forward Looking Information".
<PAGE>
Part II - Other Information
- --------------------------------------------------------------------------------
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: January 15, 2000 /s/ GRANT JOHNSON
------------------------------------
Grant R. Johnson
President and CEO
Date: January 15, 2000 /s/ JOSEPH HARKINS
------------------------------------
Joseph Harkins
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> FEB-28-2000
<PERIOD-START> MAR-01-1999
<PERIOD-END> NOV-30-1999
<CASH> (38,350)
<SECURITIES> 0
<RECEIVABLES> 12,377
<ALLOWANCES> 0
<INVENTORY> 103
<CURRENT-ASSETS> 19,982
<PP&E> 242,055
<DEPRECIATION> 0
<TOTAL-ASSETS> 262,037
<CURRENT-LIABILITIES> 33,156
<BONDS> 0
0
0
<COMMON> 10,500
<OTHER-SE> (781,619)
<TOTAL-LIABILITY-AND-EQUITY> 262,037
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 771,336
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> (771,336)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (771,336)
<EPS-BASIC> .08
<EPS-DILUTED> .07
</TABLE>
