UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
[ X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES AND EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File No. 0-28097
DOCTORSURF.COM, INC.
(Name of small business issuer in its charter)
STATE OF FLORIDA 59-3569844
---------------- ----------
(State of or other jurisdiction (IRS Employer Identification No.)
of incorporation or organization)
6925 112th Circle North, Suite 101, Largo, Florida 33773
- - -------------------------------------------------- -----
(Address of Principal Executive Officers) (Zip Code)
Issuer's telephone number: (727) 546-6476
Securities registered pursuant to Section 12(b) of the Exchange Act: None.
Securities registered pursuant to Section 12(g) of the Exchange Act:
Common stock, Par value $.01 per share
--------------------------------------
(Title of Class)
Indicate by check mark whether the issuer (1) filed all reports
required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of
1934 during the past 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 [ ]
Indicate by check mark if disclosure of delinquent filers in response
to Item 405 of Regulation S-B is not contained in this form, and no disclosure
will be contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [ ]
Issuer's revenues for its most recent fiscal year were $0.00.
The aggregate market value of the voting stock held by non-affiliates
of the Registrant cannot be determined. There is currently no established
trading market for the common stock of the Company, and the shares are not
presently listed, therefore aggregate market value cannot be determined.
Number of shares outstanding of the issuer's common stock at $.01 par
value as of March 24, 2000 was 23,250,000.
DOCUMENTS INCORPORATED BY REFERENCE: None.
<PAGE>
PART I
Item 1. BUSINESS.
General
DoctorSurf.com, Inc. (the "Company") was incorporated on April 15,
1999, as a Florida corporation under the name of Doctorschat.com, Inc. In May
1999, its name was changed to DoctorSurf.com, Inc.
The Company was formed to provide a premier Internet web site for
physicians and dentists (collectively "doctors") that will be dedicated to
doctor education, that will provide communication and information exchange using
state of the art technology and security, doctor authentication and a
combination of Internet protocols. Since its incorporation, the Company
primarily has focused on organizing activities and the development of its web
site. Accordingly, the Company has not generated any revenue and may be
considered a development stage company.
The Company develops, designs, programs and hosts an Internet web site
for doctors. The Company's web site address is www.DoctorSurf.com. The site was
in the development and design stage during 1999. The Company web site became
fully operational during the first quarter of 2000.
The Company's principal administrative and marketing facility totals
approximately 2,900 square feet of office space and is located at 6925 112th
Circle North, Suite 101, Largo, Florida 33773.
The Company is a "small business issuer" for purposes of disclosure and
filings under the Securities Act of 1933 and the Securities Exchange Act of
1934.
Overview
The Internet is a rapidly growing, exciting new means of communicating,
accessing information and engaging in commerce. Several factors have led to the
growth of the Internet, including the expanding use of personal computers in
many homes and businesses, easy and affordable accessibility to information,
technology developments permitting faster and user-friendly Internet
connections, and increased awareness of the Internet among consumer and business
users.
Medical information is one of the fastest growing areas of interest on
the Internet. Cyber Dialogue, an independent research company, predicted in late
1998 that 30 million people are expected to use the Internet for health and
medical content in the next two years, according to a November 5, 1998 article
in New Media Age magazine. Doctors who would like to obtain up-to-date
information relevant to their practices and communicate with their colleagues
can make use of the Internet to satisfy their information and communication
needs. The Company believes it will offer a web site that meets those needs by
providing doctors fast and simple access to a variety of communications and
information functions.
Also, the Company believes that healthcare and pharmaceutical companies
will have an increasing interest in using online advertising to reach target
groups that reflect appealing and compatible demographics. According to a
December 10, 1998 article in New Media Age magazine, Jupiter Communications, an
independent research company, predicts that expenditures for online health and
medical advertising will exceed $265 million by 2002. Overall, Jupiter
Communications predicts that by 2002, North American companies will spend $7.7
billion advertising online, according to a March 15, 1999 article in Fortune
magazine.
The Company's business strategy is to provide an education and
communication forum for doctors that have an interest in sharing ideas and
information, discussing clinical cases and the latest techniques with their
colleagues, and want to participate in continuing medical education courses to
obtain required educational credits easily and conveniently.
<PAGE>
The Company's Form SB-2 Registration Statement relating to its free
stock offering of 25,000,000 shares of its common stock was declared effective
on March 7, 2000 by the Securities and Exchange Commission. Doctors may become
members and participate fully in the web site even if they do not wish to
receive shares in the free stock offering.
The web site permits doctors to quickly access comprehensive physician
reference databases, journals, directories and medical news hyperlinks to help
them in their practices. Members also are able to earn continuing medical
education credits and share experiences and exchange information in a private
environment with other doctor members through e-mail, real-time discussions and
message boards. Doctor members also have access to online practice management
tools and recruitment and job placement services. In addition, the web site
offers doctors an online store where doctors can purchase books and medical
supplies for their practices, as well as an online concierge to assist doctors
in making personal consumer purchases.
The Company's web site permits interested persons who are not doctors
to access the site. Visitors to the web site who are not doctors have the option
of completing an online member application and providing their name, birth date,
marital status, gender, and address. Regardless of whether or not visitors
provide their personal information to DoctorSurf.com, however, they have access
only to the web site's medical library, medical news and financial information
hyperlinks, online store, personal concierge, health pages, disease and wellness
centers, and personal emergency medical card. They are also able to access their
own doctor's web site, if the doctor has created a web site page through the
Company's web site. In addition to having access to those features, visitors who
complete the online member application also have access to an e-mail service
through the web site. These basic services became available to visitors during
the first quarter of 2000.
Services
The Company currently offers the following services through its web
site:
o Free e-mail;
o Discussion forums - the ability to create and participate in
web forums that address a variety of medical issues, including
new procedures and insurance;
o Recruiting - online recruitment and job placement services for
doctors;
o Integrated bulletin boards - the opportunity to post comments
on ongoing discussions or on topics of interest, give feedback
or propose a subject to discuss;
o Video web casting - the opportunity for members to participate
in long distance learning; o Calendar & personal schedule -
personal calendar and schedule to keep track of important
dates and events;
o Educational credits - the ability to earn continuing medical
education credits, or CME, through online courses and listings
of upcoming medical meetings;
o Medical library - access to comprehensive physician reference
databases, journals and directories;
o Medical and headline news - online news reports updated daily;
o Financial news hyperlinks - web links to sites providing stock
quotes and other financial information;
<PAGE>
o Online purchases - an online store where doctors can purchase
books and medical supplies for their practices;
o Medical village - links to medical journals, medical schools,
hospitals, and health care organizations around the world;
o Concierge - the availability of a concierge to assist doctors
in making consumer purchases;
o Doctor's web site - ability to create an individualized
web site; and
o Personal emergency medical card - an identification card
issued through the Company that contains personal health and
doctor information in case of emergency.
Marketing
The Company's services are targeted to doctors who have an interest in
communicating with their colleagues and obtaining up-to-date information
relevant to their practices. Through various national marketing efforts that
include direct mail, personal e-mail, and development of strategic relationships
with medical specialty societies and associations, the Company has promoted the
site to the medical community. These marketing efforts have also included
attending national medical conventions and expos and advertising in periodicals
aimed at the doctor community. The Company's marketing and sales function is
primarily performed by its in house sales staff.
Competition
Due to the rapid expansion of the Internet, the market for Internet
services and products is intensely competitive and rapidly changing. There are
no substantial barriers to entry in the Internet market, and the Company expects
that competition will continue to intensify. The Company will compete directly
and indirectly for subscribers and advertisers with other online services or web
sites targeted to the healthcare industry generally, including Healtheon/WebMD,
MedScape, Americasdoctor.com, Accesshealth.com and DrKoop.com.
The Company believes that the central factors for attracting and
retaining doctor subscribers are the depth, breadth and timeliness of services
and content, the ability of the Company's web site to offer interesting and
compelling services and content, its ease of use and name recognition. The
Company believes that the principal factors that will attract advertisers to the
Company's web site are the number of doctor members for the web site, the
aggregate traffic on the web site, the demographics of the doctor subscribers
and creativity in advertising placement on the site. To be competitive, the
Company will need to respond to technological advances and emerging industry
standards and practices on a timely and cost-effective basis.
Many of the Company's current competitors have greater resources to
devote to the development and promotion of their web sites in terms of a longer
operating history, greater financial, technical and marketing resources, wider
name recognition, and larger subscriber bases that in turn generate a greater
ability to attract subscribers and advertisers. There can be no assurance that
the Company will be able to compete successfully against current and future
competitors, or that competitive pressures faced by the Company will not have a
material adverse effect on its business, financial condition and operating
results.
Web Site Development
The Company performs web site research and development at its Largo,
Florida facility. The Company's technology staff is responsible for the
development of new web content ideas, concepts and functions. An advisory group
of doctors assists the staff with web site design and creates content for the
site. The Company's technology staff programs changes in the web site and posts
them to the site after review. The staff also develops operational procedures
and conducts pilot operations prior to the final posting of a site change.
<PAGE>
Web site design and development expenses incurred by the Company are
charged directly to expense as incurred.
Proprietary Rights
The Company relies on a combination of copyright, trademark, patent and
trade secret laws and contractual restrictions to establish and protect its
technology and proprietary rights and information. The Company has registered
the domain name "DoctorSurf.com" and several related domain names such as
"DoctorSurf.net", "DoctorSurf.org", "DrSurf.com", "DrSurf.net" and"DrSurf.org".
The Company believes that establishing and maintaining the
"DoctorSurf.com" service mark and its reputation will be an important aspect of
its effort to attract and expand its doctor member base and attract advertisers
to its web site. The Company is currently in the process of registering the
"DoctorSurf.com" service mark but cannot be certain that it will be able to
register the service mark with the United States Patent and Trademark Office. If
the Company is required to stop using the service mark in the future, current
and potential members may become confused and the Company's business, financial
condition and results of operations may become adversely affected.
The Company's policy is to pursue registrations of all the trademarks
associated with its key products and services. The Company relies on common law
trademark rights to protect its unregistered trademarks. Common law trademark
rights generally are limited to the geographic area in which the trademark is
actually used, while a United States federal registration of a trademark enables
the registrant to stop the unauthorized use of the trademark by any third party
anywhere in the United States. Furthermore, the protection available, if any, in
foreign jurisdictions may not be as extensive as the protection available to the
Company in the United States.
Principal Suppliers and Sources of Supply
The Company depends on third parties to provide many of the services
that it offers to its members. These services include medical and national news,
financial information, practice management services, secure messaging services,
video and audio conferencing, and continuing medical education courses. The
Company has entered into co-branding or distribution agreements, ranging from
twelve to twenty-four months, on medical and national news, financial
information and secure messaging services. Interruption of these and other
services or the failure of these and other services to function properly could
result in a reduction of its doctor member base.
The Company is currently negotiating with third parties to provide
practice management services, video and audio conferencing, and to provide
continuing education courses. Management provides no assurance as to the success
of its negotiations.
The Company intends to enter into additional strategic partnerships
with content providers to provide content for its web site. If the Company is
not able to establish these strategic partnerships or if it is not able to
deliver high quality content, the Company may not be able to attract and
establish a large doctor member base for its web site. In addition, if the
delivery of content or services is interrupted, there could be a delay or
suspension of the offering of these services on the web site. This could have a
material adverse affect on the Company's business, financial condition and
results of operations.
Security
The Company relies on the Internet and depends on the continuous,
reliable and secure operation of Internet servers and related hardware and
software. The Company's systems are susceptible to outages and interruptions due
to fires, floods, power losses, telecommunications failures, break-ins, and
similar events. The systems of the Company's third-party service and content
providers will be subject to similar risks. To the extent that the Company's
services are interrupted or its doctor members are inconvenienced, the Company
could suffer from a loss in advertising or a decreased doctor member base.
<PAGE>
A secure environment for the Company's web site on the Internet
consists of a multi-layered security infrastructure consisting of physical
security, security for the hardware, software, network, data backups and
surrounding policies and procedures. Significant resources in both people and
technology are used not only to implement existing security solutions, but also
to keep up with the latest hardware and software security releases, the latest
security breach methodologies and to face other challenges from the Internet
hacking community. Although management believes that it implements advanced
security measures, the Company's systems may still be vulnerable to electronic
break-ins, computer viruses, programming errors or similar disruptive problems.
Government Regulation
The Company does not believe that it currently is subject to direct
government regulation other than regulations that apply to businesses generally.
Few laws currently exist that specifically regulate communications or commerce
over the Internet. A number of proposals by federal and foreign governments may
lead to laws or regulations concerning various aspects of the Internet,
including the collection of personal information online. If the United States or
foreign governments adopt legislation protecting user privacy, that legislation
could affect the Company's ability to collect or use personal information.
The applicability to the Internet of existing laws is uncertain. If new
laws are adopted or existing laws are applied in an unforeseen manner, it may
decrease the use of the Internet, which would decrease the demand for the
Company's services and increase its cost of doing business.
The Company cannot predict the nature of any future laws, regulations,
interpretations or applications, nor can it determine what effect additional
governmental regulations or administrative orders, when and if promulgated,
could have on its business, financial condition and results of operations in
the future.
Potential Liability
The Company may be subject to third party claims for defamation,
negligence, copyright or trademark infringement or other theories based on the
nature and content of information supplied on its web site, either directly or
through third parties, including materials retrieved from a web site to which
the Company has established a link from its web site. These claims could result
in damages being assessed against the Company. In addition, the Company could
incur significant costs in investigating and defending against those types of
claims.
Employees
As of December 31, 1999, the Company had eight full-time employees. Of
such employees, six were engaged in web site development and programming and two
were engaged in marketing, administration and management. None of the Company's
employees are covered by a collective bargaining agreement. The Company
considers its relations with its employees to be good.
The employees are permitted to participate in employee benefit plans of
the Company that may be in effect from time to time, to the extent eligible.
In addition, the Company has eight part-time officers who serve without
compensation. These officers are engaged in marketing, competitive research,
and web site design and evaluation. Dr. Sharma, while serving as president of
the Company, devoted only part of his time to that effort. Dr. Sharma spent
approximately 20 to 25 hours a week in day-to-day management of the Company.
Mr. Taneja also spent approximately 20 to 25 hours a week in his capacity as
Vice President and Secretary. Drs. Kapil, Amin, Choudhry, Puri, Emandi and
Averill spent approximately 8 to 10 hours per week in management activities in
their capacities as Vice Presidents of the Company.
<PAGE>
The value of these services during the period from May 14, 1999 (date
of inception) to December 31, 1999 has been estimated to be $166,000 and has
been recorded as compensation expense in the accompanying statement of
operation.
Cautionary Statements for Purposes of The "Safe Harbor" Provisions of The
Private Securities Litigation Reform Act of 1995
The Private Securities Litigation Reform Act of 1995 (the "Act")
provides a "safe harbor" for "forward-looking statements" to encourage companies
to provide prospective information, so long as such information is identified as
forward-looking and is accompanied by meaningful cautionary statements
identifying important factors that could cause actual results to differ
materially from those discussed in the forward-looking statement(s). The Company
desires to take advantage of the safe harbor provisions of the Act. The terms
"believe", "intend", "plan", "may", "will", "expect", "should", "could",
"estimate", "anticipate", "possible", and similar terms identify forward-looking
statements. These forward-looking statements involve risks and uncertainties.
Except for historical information, the Company's Annual Report on Form
10-KSB for the period ended December 31, 1999, the Company's quarterly reports
on Form 10-QSB, the Company's current reports on Form 8-K, periodic press
releases, as well as other public documents and statements, may contain
forward-looking statements within the meaning of the Act. In addition,
representatives of the Company may, from time to time, participate in speeches
and calls with market analysts, conferences with investors and potential
investors in the Company's securities, and other meetings and conferences. Some
of the information presented in such speeches, calls, meetings and conferences
may be forward-looking within the meaning of the Act.
It is not reasonably possible to itemize all of the many factors and
specific events that could affect the Company and/or the Company's industry as a
whole. In some cases, information regarding certain important factors that could
cause actual results to differ materially from those projected, forecasted,
estimated, budgeted or otherwise expressed in forward-looking statements made by
or on behalf of the Company may appear or be otherwise conveyed together with
such statements. The following additional factors and other factors listed
elsewhere in this Report (in addition to other possible factors not listed)
could affect the Company's actual results and cause such results to differ
materially from those projected, forecasted, estimated, budgeted or otherwise
expressed in forward-looking statements made by or on behalf of the Company.
No Established Business Model. There is no established business model
for the sale of the Company's service offerings over the Internet, and the
Company may have to change its service offerings in the future. A possibility
exists that a market for its services will never develop. If a market fails to
develop or develops more slowly than expected, the Company might incur more
losses than expected and might not become profitable.
To be successful, the Company must attract a large membership base of
doctors, increase awareness of its brand, develop and provide desirable
services, continue to develop and upgrade its technology, establish strategic
relationships with service and content providers, build an operations structure
to support its business, and attract and retain qualified personnel.
The Company cannot guarantee that it will achieve these goals. The
Company also cannot guarantee that doctors will accept the Company's services as
a replacement for traditional sources of the services that the Company plans to
offer. The failure of the Company's services to achieve market acceptance would
prevent the Company from attracting a large doctor member base and would
adversely affect its revenues.
Lack of Operating History. The Company was formed in April 1999 and has
not yet generated any revenue. The Company has no operating history on which it
and its prospects can be evaluated. The Company may not be able to successfully
manage its business to achieve or maintain profitability, and its prospects are
subject to the risks, expenses and uncertainties frequently encountered by
companies in the early stages of development in new and evolving markets for
online services.
<PAGE>
Need for Addition Capital. The Company anticipates needing to raise
additional funds through a private placement or public offering of its
securities to fully implement its marketing plans and to hire additional
personnel. The Company cannot be certain that additional financing will be
available on favorable terms, or at all. If adequate funds are not available or
are not available on acceptable terms, the Company's ability to fully implement
its marketing plans, hire a sufficient number of personnel, develop its brand,
take advantage of unanticipated opportunities, and otherwise respond to
competitive pressures will be limited.
Potential Liability for Previous Private Placment. The Company
previously sold to a limited number of investors 750,000 shares of common stock
at a price of $1 per share in a private placement that was not registered under
the federal securities laws. Because the private placement and the Company's
free stock offering may be treated as a single offering for federal securities
law purposes, the exemption from registration relied on for the private
placement may no longer be available. As a result, the private placement may
have violated federal securities laws. Because of that possibility, the Company
has offered to each investor in the private placement the right to resell their
shares to the Company and receive a refund of the price paid by them. The resale
right expires on August 25, 2000.
To date, two investors have accepted the offer to resell their shares
and received a total refund of $35,000, the aggregate purchase price. If all
investors in the private placement accept the resale offer, the Company would be
required to pay to them $750,000. If this occurs, the Company cannot be certain
that it will have sufficient funds to repurchase the shares that were sold in
the private placement. In addition, the Company may be subject to liability and
fines or penalties under the federal securities laws because the federal
securities laws do not expressly provide that liability is avoided because an
offer is made to repurchase shares sold in violation of those laws.
Lack of Profitability. The Company anticipates that it will incur
losses for the foreseeable future. The Company cannot be certain that it can
achieve sufficient revenues in relation to its expenses to become profitable. If
the Company becomes profitable, the Company cannot be certain that it can
maintain or increase profitability.
Lack of Sufficient Number of Members. The Company expects to derive a
portion of its revenues from advertising on the Company's web site. If the
Company does not have a large doctor member base, it may not be able to generate
sufficient advertising revenue. In addition, because the Internet advertising
market is new and rapidly evolving, the Company cannot predict its effectiveness
as compared to traditional media advertising. As a result, demand and market
acceptance for Internet advertising is uncertain. The Company cannot be certain
that the market for Internet advertising will continue to emerge or become
sustainable. If the market for Internet advertising fails to develop or develops
more slowly than expected, then the Company's ability to generate advertising
revenue may be materially adversely affected.
Going Concern Qualification. The Company's independent accountants have
included a statement in their report on the Company's financial statements
indicating that the financial statements have been prepared assuming that the
Company will continue as a going concern. The Company suffered losses from
operations since its inception and has a potential liability of $750,000
associated with its private placement, which cause substantial doubt as to its
ability to continue as a going concern.
Rapid Technological Change. The market for Internet products and
services is characterized by rapid technological developments, evolving industry
standards, and frequent new products and enhancements. If faster Internet access
becomes more widely available through cable modems or other technologies, the
Company may be required to make significant changes to the design and content of
its web site to compete effectively. The Company cannot be certain that it will
have the resources to make these changes.
Also, as the number of web pages and users increase, the Company will
need to modify the Internet infrastructure and its web site to accommodate
increased traffic. If the Company cannot modify its computer systems, the
Company may experience system disruptions and slower response times.
<PAGE>
Limited Trademark Protection: No Patents. The Company cannot be certain
that it will be able to register the "DoctorSurf.com" service mark with the
United States Patent and Trademark Office. If the Company is required to stop
using the "DoctorSurf.com" service mark, current and potential members could be
confused and the Company's business could be disrupted. Common law trademark
rights generally are limited to the geographic area in which the trademark is
actually used, while a United States federal registration of a trademark enables
the registrant to stop the unauthorized use of the trademark by any third party
anywhere in the United States. The Company intends to register its trademarks in
certain foreign jurisdictions. However, the protection available, if any, in
such jurisdictions may not be as extensive as the protection available to the
Company in the United States.
Infringement on Intellectual Property Rights of Others. Although the
Company seeks to ensure that it does not infringe on the intellectual property
rights of others, the Company cannot assure that third parties will not assert
intellectual property claims against the Company. Infringement claims by third
parties against the Company may have a material adverse affect on the Company.
Key Personnel. As a small company with only eight full time employees,
the Company's success depends on the services of its senior management team. If
the Company loses the services of one or more of these employees, the Company
could be materially adversely affected.
Provisions on the Payment of Dividends. The Company has never declared
or paid dividends on common stock and does not anticipate paying any cash
dividends in the foreseeable future. The Company intends to reinvest earnings,
if any, in the development or expansion of its business. The Board of Directors
will determine, in its sole discretion, whether to declare any dividends on the
Company's common stock in the future after taking into account various factors,
including the Company's financial condition, operating results, current and
anticipated cash needs and plans for expansion.
Control By Certain Stockholders. Directors, executive officers and
principal shareholders beneficially own approximately 64% of the outstanding
shares of the Company's common stock. Therefore, these stockholders will have
significant control over the election of the Company's directors and most of the
Company's corporate actions.
Exposure to Natural Disasters. The Company's physical facilities are
located in the greater Tampa Bay area, which is prone to hurricanes. The
Company's business could be adversely affected should its ability to maintain an
active web site be impacted by such event.
Future Plans
During 2000, the Company intends to generate revenues through
advertising and sponsorships, and fees and commissions on transactions and sales
occurring through its web site.
Management of the Company has determined that additional office
facilities will be necessary for the expansion of its administrative, technical
and marketing staff during the next twelve months. In order to satisfy this
future need, the Company has obtained a right of first refusal to lease
approximately 7,500 square feet of space adjoining its Largo, Florida facility.
Management of the Company is considering acquiring other Internet web
sites in order to provide additional functions and content to its web site. In
order to accomplish its future plans, the Company is considering raising capital
either through private placement or an initial public offering.
Item 2. PROPERTIES.
The Company leases approximately 1,800 square feet of office space for
its executive offices and its operations in Largo, Florida. The facility is
located at 6925 112th Circle North, Suite 101, Largo, Florida, 33773. The lease
expires on August 31, 2000 and is renewable at the option of the Company for an
additional one-year term. The monthly lease payments are $1,200. In January
2000, the Company entered into a lease amendment agreeing to lease an additional
1,100 square feet. In addition,
<PAGE>
the Company has obtained a right of first refusal to lease approximately 7,500
square feet of space adjoining its Largo, Florida facility.
In the judgment of management, the lease described above reflects rent
at current fair market value.
As of December 31, 1999, the Company had property and equipment, net of
accumulated depreciation, in the approximate amount of $82,000.
Item 3. LEGAL PROCEEDINGS.
From time to time, the Company may become involved in litigation
arising in the ordinary course of its business. The Company is not presently
subject to any material legal proceedings.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
<PAGE>
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
There is currently no established trading market for the common stock
of the Company, and the shares are not presently listed.
As of March 24, 2000, there were approximately 80 stockholders of the
Company's common stock.
Historically, the Company has not declared or paid any cash dividends
on the common stock. It currently intends to retain any future earnings to fund
the development and growth of its business. Any future determination to pay
dividends on the common stock will depend upon the Company's results of
operations, financial condition and capital requirements, or other contractual
arrangements and such other factors deemed relevant by the Company's Board of
Directors.
Recent Sales of Unregistered Securities
During 1999, the Company has issued unregistered securities to a
limited number of persons as described below.
(1) In May 1999, the Company issued an aggregate of 22,500,000
shares of its common stock, at a price of $.01 per share, to
accredited investors in a private placement exempt from
registration under Rule 506 of Regulation D of the Securities
Act of 1933.
(2) From June through August 1999, the Company issued an aggregate
of 750,000 shares of its common stock, at a price of $1.00 per
share, to accredited investors in a private placement exempt
from registration under Rule 506 of Regulation D of the
Securities Act of 1933. Due to a possible violation of the
Securities Act of 1933 requirements, the Company has issued a
memorandum to the purchasers of the shares enabling them to
sell their shares back to the Company at any time through
August 25, 2000 for the original issuance price of $1.00 per
share. As of December 31, 1999, two investors have requested
refunds of a total of $35,000. During January 2000, these
two investors were paid $35,000 for their 35,000 shares.
These shares were subsequently reissued to new investors for
$1.00 per share.
None of the foregoing transactions involved any underwriters, under-
writing discounts or commissions or any public offering, and the Company
believes that each transaction was exempt from the registration requirements of
the Securities Act under Rule 506 of Regulation D of the Securities Act of 1933.
The recipients in such transactions represented their intention to acquire the
securities for investment only and not with a view to or for sale in connection
with any distribution thereof, and appropriate legends were affixed to the share
certificates and instruments issued in such transactions. All of the recipients
had adequate access to information about the Company.
<PAGE>
Item 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
Overview
The Company is a development stage company and had not generated any
revenues during the period from May 14, 1999 (date of inception) to December 31,
1999. In order to fund operations through December 31, 1999, the Company has
relied on funding raised from sales of the Company's equity securities.
Operating expenses include sales and marketing costs, general and
administrative costs and depreciation and amortization expense. Other income
(expense) consists primarily of interest income associated with cash maintained
in a money market fund and interest expense associated with borrowings to
finance capital equipment expenditures and other working capital needs.
Results of Operations
Sales and marketing expenses. Sales and marketing expenses consist
primarily of advertising and promotional expenses. Sales and marketing expenses
were $35,142 for the period from May 14, 1999 (date of inception) through
December 31, 1999.
General and administrative expenses. General and administrative
expenses consist primarily of personnel costs related to general management
functions, finance, accounting, payroll expenses and professional fees related
to legal, audit and tax matters, and web site hosting and update expenses.
General and administrative expenses were $577,529 for the period from May 14,
1999 (date of inception) through December 31, 1999.
Interest income (expense), net. Interest income, net of interest
expense was $13,702 for the period from May 14, 1999 (date of inception) through
December 31, 1999.
Income taxes. The Company has no income tax provision for the period
presented due to its net operating loss. The net operating loss may be carried
forward for up to 20 years. As such, the Company does not anticipate any
liability for income taxes for the fiscal year ended December 31, 1999. See Note
2 to financial statements.
Management believes that there was no material effect on operations or
the financial condition of the Company as a result of inflation in 1999.
Liquidity and Capital Resources
The Company has financed its operations through the sale of equity
securities issued by the Company. The Company had a working capital deficit of
$272,437 at December 31, 1999. The Company estimates that it will need
additional funds for on-going web site development, marketing, promotions, and
for general working capital purposes over the next 12 months, including the
Company's plans to hire additional full time management personnel and acquire
additional office space.
Net cash used in operating activities was $245,600 during the period
from May 14, 1999 (date of inception) through December 31, 1999. The usage of
cash is primarily attributable to the net operating loss as well as an increase
in prepaid expenses and other assets of $60,301, partially offset by an increase
in accounts payable and accrued expenses of $261,770 and an increase in
contributed services of $166,000. During the period from May 14, 1999 (date of
inception) to December 31, 1999, the Company was in its development stage and
did not generate any revenues. During 2000, management expects that the Company
will generate revenues through advertising and sponsorships, and fees and
commissions on transactions and sales occurring through its web site, which will
have future positive cash effects in its operating activities.
<PAGE>
Net cash used in investing activities was $33,196 during the period
from May 14, 1999 (date of inception) to December 31, 1999, representing the
purchase of property and equipment.
Net cash provided by financing activities was $937,425 during the
period from May 14, 1999 (date of inception) to December 31, 1999, representing
proceeds from issuance of common stock subject to a recession offer of $705,000,
proceeds from issuance of common stock of $225,000 and refund due to stockholder
of $25,000, partially offset by repayments of long-term obligations of $17,575.
In May 1999, 22,500,000 shares of common stock of the Company were sold
to accredited investors at $.01 per share, for gross proceeds of $225,000.
Proceeds were used for web site development and general working capital
purposes.
From June through August 1999, 750,000 shares of common stock of the
Company were sold to accredited investors at $1.00 per share, for gross proceeds
of $750,000. Proceeds were used for general working capital purposes. The shares
were sold to a limited number of investors in a private placement that was not
registered under the federal securities laws. For federal securities law
purposes, however, the private placement and the free share offering may be
considered a single offering. If considered a single offering, the exemption
from registration that the Company relied on in making the private placement
would not be available and the private placement would not be exempt from
registration under the federal securities laws. Because of that possibility, the
Company has offered to each investor in the private placement the right to
resell their shares to the Company and receive a refund of the price paid by
them of $1 per share.
The private placement investors' right to sell their shares to the
Company began on August 25, 1999 and will expire on August 25, 2000. To date,
two investors accepted the Company's offer to resell their shares and received a
refund of the purchase price. If all purchasers in the private placement accept
the Company's offer, the Company could havea potential liability of $750,000. If
this were to occur, the Company cannot be certain that the Company would have
sufficient funds to repurchase the shares that were sold in the private
placement.
The Company's financial statements have been prepared assuming that it
will continue as a going concern. The Company's losses from operations since its
inception and its $750,000 potential liability associated with its private
placement raise substantial doubt as to its ability to continue as a going
concern. If all of the Company's private placement investors accept the offer to
resell their shares, the Company may have to obtain financing for the monies to
be refunded to the private placement investors. Even if no other private
placement investors request a refund on their purchase price, the Company may
need to raise additional capital to fund operations.
Management believes that cash expected to be generated from operations,
current cash reserves, and existing financial arrangements will not be
sufficient for the Company to meet its capital expenditures and working capital
needs for its operations as presently conducted. The Company's future liquidity
and cash requirements will depend on a wide range of factors, including expected
results from operations as revenues are generated. In particular, as the Company
does not expect cash flows from operations to be sufficient in the next twelve
months, the Company is considering raising capital either through a private
placement or an initial public offering. There can be no assurance that such
capital would be raised in sufficient amounts to meet the Company's financial
need in the next twelve months.
Year 2000 Statement
The Company has not incurred any problems as a result of Year 2000
readiness. However, no assurances can be given that the Company's Year 2000
efforts are appropriate, adequate, or complete. In addition, the Company is
unable to fully determine the effect of a failure of its own systems or those of
any third party with whom it conducts business, but any significant failures
could have a material adverse affect on the Company's financial condition,
results of operations and cash flows.
<PAGE>
Item 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
See financial statements following Item 13 of this Annual Report on
Form 10-KSB.
Item 8. CHANGES IN AND DISAGREEMENT WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE.
None.
<PAGE>
PART III
Item 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTORS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.
The following are the names and certain information regarding the
current Directors and Executive Officers of the Company:
<TABLE>
<CAPTION>
Name Age Position Director Since
---- --- -------- --------------
<S> <C> <C> <C>
George L. Stuart, Jr. 53 Chief Executive Officer N/A
Rakesh K. Sharma, M.D. 42 President and Director 1999
Jugal K. Taneja 55 Vice President, Secretary and Director 1999
John P. Seeman 39 Chief Technology Officer N/A
Sanjiv Kapil, M.D. 31 Vice President N/A
Mahesh Amin, M.D. 43 Vice President N/A
Umesh Choudhry, M.D. 38 Vice President N/A
Rajinder S. Puri, M.D. 63 Vice President N/A
Venkata Rao Emandi, M.D. 58 Vice President N/A
Francis J. Averill, M.D. 41 Vice President N/A
Martin A. Traber 53 Director 1999
</TABLE>
All directors hold office until the next annual meeting of stockholders
and the election and qualification of their successors. Officers are elected
annually by the Board of Directors and, subject to existing employment
agreements, serve at the discretion of the Board.
Background of Executive Officers and Directors
George L. Stuart, Jr. has been the Company's Chief Executive Officer
since December 1, 1999. From July 1997 to December 1999 Mr. Stuart was Vice
President and Director of Leapfrog Smart Products, Inc., a high-technology smart
card development company in Orlando, Florida. From January 1995 to July 1997,
Mr. Stuart was a partner in Stuart/Cloud Enterprises, a government relations
business development and organizational consulting firm in Tallahassee, Florida.
From January 1991 to January 1995, Mr. Stuart served as the Secretary and Chief
Executive Officer of the State of Florida's Department of Business and
Professional Regulation. Mr. Stuart holds a B.A. degree in Economics from the
University of Florida and an M.B.A. degree from Harvard University's Graduate
School of Business.
John P. Seeman has been the Company's Chief Technology Officer since
August 1, 1999. Mr. Seeman was President of All World Network, Inc., an
Internet e-commerce development company from September 1994 to August 1999. Mr.
Seeman holds a Bachelor of Engineering Technology degree from the University of
South Florida and is currently attending the master's program in computer
science. Mr. Seeman has been a faculty member at the University of South
Florida's Information Science and Decision Systems department lecturing on
object-oriented design, database design and programming languages since 1988.
<PAGE>
Rakesh K. Sharma, M.D. is the Company's President and has served on the
Board of Directors of the Company since its inception. For the last five years
he has been a cardiologist and a member of the medical staffs of several
hospitals in the Tampa Bay, Florida area. Dr. Sharma has been on the Board of
Directors of Dynamic Health Products, Inc., a Florida corporation that
manufactures and packages health products and nutritional supplements, since
March 1999.
Jugal K. Taneja is Secretary and a Vice President of the Company and
has served on its Board of Directors since the Company's inception. From
November 1991 until December 1998, Mr. Taneja served as the Chairman of the
Board and as Chief Executive Officer of NuMED Home Health Care, Inc., a provider
of home health care services and contract staffing of health care employees.
From June 1993 until March 1998, he was also the Chief Executive Officer of
National Diagnostics, Inc., a provider of medical diagnostic services. NuMED and
National Diagnostics, Inc., are publicly traded companies. Mr. Taneja was
Chairman of the Board of DrugMax.com, Inc., a public company engaged in
e-commerce, from March 1997 until November 1999 and is currently a Director of
that company. In addition, Mr. Taneja is currently serving as the Chairman of
the Board of Dynamic Health Products, Inc., a Florida corporation that
manufactures and packages health products and nutritional supplements. He has
held that position since Dynamic's inception in January 1998.
Sanjiv Kapil, M.D. is a Vice President of the Company. Dr. Kapil is a
rheumatologist and since 1996 has practiced in a multi-specialty group at a
clinic in the Tampa Bay, Florida area. From July 1994 to June 1996 he
was a Fellow at the University of Washington Medical Center in Seattle, WA.
Mahesh Amin, M.D. is a Vice President of the Company. Dr. Amin is a
cardiologist who has been in private practice in Clearwater, Florida since July
1992.
Umesh Choudhry, M.D. is a Vice President of the Company. From July
1995 to August 1999, Dr. Choudhry served on the teaching staff at the
University of South Florida's College of Medicine. Since July 1998 he has been
practicing as a gastroenterologist in Clearwater, Florida.
Rajinder S. Puri, M.D. is a Vice President of the Company. Dr. Puri is
a general practitioner with offices in Lakeland and Winter Haven, Florida. He
has been in private practice in Central Florida since January 1981.
Venkata Rao Emandi, M.D. is a Vice President of the Company. Dr.
Emandi is an oncologist in private practice in the Tampa Bay, Florida area. He
has been in private practice since June 1983.
Francis J. Averill, M.D. is a Vice President of the Company. Since
July 1991, Dr. Averill has worked as a pulmonologist at the Diagnostic Clinic in
Largo, Florida and currently is the director of the intensive care unit at Largo
Medical Center.
Martin A. Traber has served as a Director of the Company since its
inception. He has been a partner in the law firm of Foley & Lardner since
August, 1994. Prior to joining Foley & Lardner, Mr. Traber was a partner in the
law firm of Ardor & Hadden where he served for ten years on the firm's
management committee and was national chairman of the business and corporate
departments and of the marketing and business development committee. Mr. Traber
has over 27 years of experience in corporate finance and securities law.
Section 16(a) Beneficial Ownership Reporting Compliance
None of the Company's directors or officers and no person who was the
beneficial owner of more than ten percent of the Company's common stock have
filed a Form 3 as required by Section 16(a) of the Securities and Exchange Act
of 1934.
<PAGE>
Item 10. EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
Annual Compensation(1)
----------------------
Name and
Principal Position Year Salary($) Bonus($)
- - ----------------------------------------------------------------------------
George L. Stuart, Jr., CEO(2) 1999 $10,417 $ -0-
- - -----------
(1) All employees of the Company including its executive officers, are paid by
the Company.
(2) George L. Stuart, Jr. commenced employment with the Company on December 1,
1999.
Historically, no director of the Company received any compensation or
other remuneration for serving on the Board of Directors, except for the
reimbursement for reasonable expenses incurred in attending meetings of the
Company's Board of Directors.
<TABLE>
<CAPTION>
Option Grants in Last Fiscal Year
Individual Grants
% of
Number of Total
Securities Options
Underlying Granted to Exercise
Options Employees or Base
Granted in Fiscal Price Expiration
Name # Year ($/Sh) Date
- - --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
George L. Stuart, Jr. 250,000 83.33% $1.00 12/02/2002
All other employees 50,000 16.67% $1.00 01/01/2001
</TABLE>
Employment Agreements
There are currently no Employment Agreements between the Company and
its employees. The Company intends to enter into an Employment Agreement with
George L. Stuart, Jr., the Company's Chief Executive Officer, for a term of
three years commencing on December 1, 1999, which will renew automatically for
successive periods of one year after its expiration unless, not less than 30
days prior to the end of the initial term or any one-year renewal period, one of
the parties sends written notice to the other party of its intent to terminate
the agreement. The salary payable under the agreement will be $125,000 per year.
Item 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth certain information, as of December 31,
1999 with respect to the beneficial ownership of the outstanding Common Stock by
(i) any holder of more than five (5%) percent; (ii) each of the Company's
executive officers and directors; and (iii) the directors and executive officers
of the Company as a group. An asterisk indicates beneficial ownership of less
than 1% of the outstanding Common Stock. Except as otherwise indicated, each
of the shareholders listed below has sole voting and investment power over the
shares beneficially owned.
<PAGE>
<TABLE>
<CAPTION>
AMOUNT AND
NATURE OF APPROXIMATE
TITLE OF NAME AND ADDRESS BENEFICIAL PERCENT
CLASS OF BENEFICIAL OWNER OWNERSHIP(1) OF CLASS
- - -------- ------------------- ------------ ------------
<S> <C> <C> <C>
Common Rakesh K. Sharma, M. D. 5,000,000 21.5%
1819 Alicia Way
Clearwater, FL 33764
Common 21st Century Health Care Fund 2,500,000 10.8%
7270 Sawgrass Point Drive
Pinellas Park, FL 33782
Common Carnegie Capital, Ltd. 2,500,000 10.8%
7270 Sawgrass Point Drive
Pinellas Park, FL 33782
Common Brod Living Trust 2,500,000 10.8%
1 Cedar Glen Drive
Blairstown, NJ 07825
Common Stephen M. Watters 2,500,000 10.8%
6950 Bryan Dairy Road
Largo, FL 33777
Common Mahesh Amin, M.D. 1,010,000 4.3%
1802 Nottingham Lane
Clearwater, FL 33764
Common Rajinder S. Puri, M.D. 1,000,000 4.3%
1209 Lakepoint Terrace
Lakeland, FL 33813
Common Sanjiv Kapil, M.D. 1,000,000 4.3%
207 S. Coolidge Avenue
Tampa, FL 33609
Common Umesh Choudry, M.D. 500,000 2.2%
7920 Oliver Road
Largo, FL 33777
Common Francis Averill, M.D. 500,000 2.2%
2140 Long Bow Lane
Clearwater, FL 33764
Common Venkata Rao Emandi, M.D. 35,000 *
5723 West Shore Drive
New Port Richey, FL 34652
Common Jugal K. Taneja (2) 5,900,000 25.4%
7270 Sawgrass Point Drive
Pinellas Park, FL 33782
Common Martin A. Traber -0- -0-
Foley & Lardner
100 North Tampa Street, 27th Floor
Tampa, FL 33602
<PAGE>
Common All officers and directors as
a group (9 persons) 14,945,000 64.3%
</TABLE>
- - ------------------------
*Less than one percent
(1) Beneficial ownership is determined in accordance with the rules of the
Commission and generally includes voting or investment power with respect
to the shares shown. Except where indicated by footnote and subject to
community property laws where applicable, the persons named in the table
have sole voting and investment power with respect to all shares of
voting securities shown as beneficially owned by them.
(2) Includes 5,000,000 shares beneficially owned: (i) 2,500,000 shares owned
by 21st Century Health Care Fund and (ii) 2,500,000 shares owned by
Carnegie Capital, Ltd. Mr. Taneja is the general partner of both 21st
Century Health Care Fund and Carnegie Capital, Ltd. As such, Mr. Taneja
holds sole voting and investment power with respect to such shares.
Item 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The Company does not have a policy with regards to entering into
transactions with affiliates.
The Company's operations were previously located at facilities located
at 6950 Bryan Dairy Rd., Largo, FL 33777, owned by Dynamic Health Products, Inc.
Jugal K. Taneja, who is a Vice President, Secretary and a Director of the
Company, is the beneficial owner of approximately 40.2% of the shares of Dynamic
Health Products, Inc. Also, Dr. Sharma, who is President and a Director of the
Company, is on the Board of Directors of Dynamic Health Products, Inc. No rent
was charged for the Company's use of the facilities during its initial
development phase. On September 1, 1999, the Company moved its operations to new
office space located at 6925 112th Circle North, Suite 101, Largo, Florida
33773.
The Company's legal counsel is Foley & Lardner. Martin A. Traber is a
partner at Foley & Lardner, as well as a Director of the Company.
<PAGE>
PART IV
Item 13. EXHIBITS AND REPORTS ON FORM 8-K
(a)(1) Financial Statements.
See pages F-1 through F-12.
(a)(2) Financial Statement Schedules.
Schedules not listed in the index to the financial statements included
in Part II, Item 7, have been omitted because they are not applicable or are not
required or the information required to be set forth therein is included in the
financial statements or notes thereto.
(a)(3) Exhibits.
The following exhibits are filed with this report:
3.1 Articles of Incorporation of DoctorsChat.com, Inc., filed April 15,
1999.(1)
3.2 Articles of Amendment to Articles of Incorporation of DoctorsChat.com,
Inc., dated May 12, 1999, filed May 13, 1999.(1)
10.1 Lease Agreement between Pinellas Center For The Visually Impaired, Inc.
and DoctorSurf.com, Inc., dated August 17, 1999.(1)
10.2 Lease Addendum between Pinellas Center For The Visually Impaired, Inc.
and DoctorSurf.com, Inc., dated January 20, 2000.
27.1 Financial Data Schedule (for SEC use only).
- - ------------
(1) Incorporated by reference to the Company's Registration Statement
on Form SB-2, Registration Statement No. 333-80475.
(b) Reports on Form 8-K.
None.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
DOCTORSURF.COM, INC.
Dated: March 30, 2000 By: /s/ George L. Stuart, Jr.
--------------------------------------
George L. Stuart, Jr., Chief
Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant in the capacities and on the dates indicated.
Signature Title Date
- - --------- ----- -----
/s/ Rakesh Sharma, M. D. President, March 30, 2000
- - ---------------------------- and Director
Rakesh Sharma, M. D.
/s/ Jugal K. Taneja Vice President, March 30, 2000
- - ---------------------------- and Director
Jugal K. Taneja
/s/ George L. Stuart, Jr. Chief Executive Officer March 30, 2000
- - ----------------------------
George L. Stuart, Jr.
<PAGE>
DOCTORSURF.COM, INC.
INDEX TO FINANCIAL STATEMENTS AND SCHEDULES
Independent Auditors' Report F-2
Balance Sheet as of December 31, 1999 F-3
Statement of Operations for the period from May 14, 1999
(date of inception) to December 31, 1999 F-4
Statement of Shareholders' Deficiency for the period from May 14, 1999
(date of inception) to December 31, 1999 F-5
Statement of Cash Flows for the period from May 14, 1999
(date of inception ) to December 31, 1999 F-6
Notes to Financial Statements F-7
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
DoctorSurf.com, Inc.:
We have audited the accompanying balance sheet of DoctorSurf.com, Inc. (a
development stage company) (the "Company") as of December 31, 1999, and the
related statements of operations, stockholders' deficiency and cash flows for
the period from May 14, 1999 (date of inception) to December 31, 1999. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of the Company as of December 31, 1999, and the
results of its operations and its cash flows for the period from May 14, 1999
(date of inception) to December 31, 1999, in conformity with accounting
principles generally accepted in the United States of America.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. The Company is a development stage
enterprise engaged in the development and management of an Internet site. As
discussed in Notes 2 and 5 to the financial statements, the Company's operating
loss since inception and the contingency surrounding equity shares issued as
part of the Private Placement Memorandum raise substantial doubt about its
ability to continue as a going concern. Management's plans concerning these
matters are also described in Note 2. The financial statements do not include
any adjustments that might result from the outcome of these uncertainties.
DELOITTE & TOUCHE LLP
Certified Public Accountants
Tampa, Florida
March 7, 2000
F-2
<PAGE>
DoctorSurf.com, Inc.
(A Development Stage Company)
BALANCE SHEET
DECEMBER 31, 1999
- - --------------------------------------------------------------------------------
ASSETS
Cash and cash equivalents $ 658,629
Prepaid and other assets 86,121
-----------
Total current assets 744,750
PROPERTY AND EQUIPMENT - Net 82,023
-----------
TOTAL ASSETS $ 826,773
===========
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Accounts payable and accrued expenses $ 261,770
Current portion of long-term obligations 25,417
Common stock subject to recission offer - $.01 par value,
750,000 shares issued and outstanding (Notes 5 and 7) 750,000
Subscription receivable (45,000)
Obligation to potential stockholder (Note 5) 25,000
-----------
Total current liabilities 1,017,187
LONG-TERM OBLIGATIONS - Less current portion 35,949
-----------
COMMITMENTS AND CONTINGENCIES (Note 5)
STOCKHOLDERS' DEFICIENCY:
Preferred stock, $.01 par value - 5,000,000 shares
authorized; no shares issued or outstanding -
Common stock, $.01 par value - 95,000,000 shares
authorized; 22,500,000 shares issued and outstanding 225,000
Additional paid-in capital 166,000
Deficit accumulated during the development stage (617,363)
-----------
Total (226,363)
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIENCY $ 826,773
===========
See notes to financial statements.
F-3
<PAGE>
DoctorSurf.com, Inc.
(A Development Stage Company)
STATEMENT OF OPERATIONS
PERIOD FROM MAY 14, 1999 (DATE OF INCEPTION) TO DECEMBER 31, 1999
- - --------------------------------------------------------------------------------
OPERATING EXPENSES:
Sales and marketing $ 35,142
General and administrative 592,529
Depreciation and amortization 4,294
-----------
Total operating expenses 631,965
OTHER (INCOME) EXPENSE:
Interest income (16,626)
Other income (900)
Interest expense 2,924
-----------
Total other income (14,602)
NET LOSS $ 617,363
===========
NET LOSS PER COMMON SHARE:
Basic $ 0.03
===========
Diluted $ 0.03
===========
Weighted average shares outstanding 22,500,000
See notes to financial statements
F-4
<PAGE>
DoctorSurf.com, Inc.
(A Development Stage Company)
STATEMENT OF STOCKHOLDERS' DEFICIENCY
PERIOD FROM MAY 14, 1999 (DATE OF INCEPTION) TO DECEMBER 31, 1999
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Deficit
Accumulated
Preferred Stock Common Stock Additional During
-------------------- --------------------- Paid-in Development
Shares Amount Shares Amount Capital Stage Total
<S> <C> <C> <C> <C> <C> <C> <C>
INITIAL ISSUANCE OF COMMON
STOCK, MAY 14, 1999 (Note 1) - $ - 22,500,000 $ 225,000 $ - $ - $ 225,000
Contributed services (Note 2) - - - - 166,000 - 166,000
Net loss - - - - - (617,363) (617,363)
------ ------ ---------- --------- --------- ----------- -----------
BALANCES, DECEMBER 31, 1999 - $ - 22,500,000 $ 225,000 $ 166,000 $ (617,363) $ (226,363)
====== ====== ========== ========= ========= =========== ===========
</TABLE>
See notes to financial statements.
F-5
<PAGE>
DoctorSurf.com, Inc.
(A Development Stage Company)
STATEMENT OF CASH FLOWS
PERIOD FROM MAY 14, 1999 (DATE OF INCEPTION) TO DECEMBER 31, 1999
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (617,363)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization expense 4,294
Contributed services (Note 2) 166,000
Increase in prepaid and other assets (60,301)
Increase in accounts payable and accrued expenses 261,770
---------
Net cash used in operating activities (245,600)
---------
CASH FLOWS FROM INVESTING ACTIVITIES -
Purchases of property and equipment (33,196)
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of long-term obligations (17,575)
Proceeds from common stock subject to recission offer (Note 5) 705,000
Proceeds from issuance of common stock 225,000
Refund due to stockholder (Note 5) 25,000
---------
Net cash provided by financing activities 937,425
---------
NET INCREASE IN CASH AND CASH EQUIVALENTS 658,629
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD -
-
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 658,629
=========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for interest $ 2,513
Cash paid during the period for income taxes $ -
SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING
AND FINANCING ACTIVITIES:
Issuance of common stock for subscription receivable $ 45,000
Long-term obligation for capital lease incurred for
purchase of property and equipment $ 53,121
Short-term obligation incurred for prepaid insurance policy $ 25,820
</TABLE>
See notes to financial statements.
F-6
<PAGE>
DoctorSurf.com, Inc.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
PERIOD FROM MAY 14, 1999 (DATE OF INCEPTION) TO DECEMBER 31, 1999
- - --------------------------------------------------------------------------------
1. ORGANIZATION AND NATURE OF BUSINESS
DoctorSurf.com, Inc. (the "Company") was formed pursuant to the Florida
Business Corporation Act on April 15, 1999. On May 14, 1999, 22.5 million
common shares of the Company were sold in exchange for $225,000 (see Note
5). The Company was incorporated to provide a premier Internet web site
for doctors that is dedicated to doctor education, communication, and
information exchange using state-of-the-art technology, security, doctor
authentication, and a combination of Internet protocols. The Company
activated its web site during the first quarter of 2000. The Company's
fiscal year-end is December 31. During 1999, the Company filed a
registration statement on Form SB-2 for the issuance of 25,000,000 shares
of common stock (see Note 7).
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation - The accompanying financial statements have been
prepared assuming that the Company will continue as a going concern. As
reflected in the financial statements, the Company is a development stage
enterprise, which has yet to generate revenues to support further
operations. Certain shareholders of the Company have contributed their
personal services to the Company. The value of these services for the
period ended December 31, 1999 has been estimated to be $166,000 and has
been recorded as compensation expense in the accompanying statement of
operations. In order to fund operations to date, the Company has relied on
funding raised from sales of the Company's equity securities. The
Company's operating losses since inception and the contingency surrounding
equity shares issued as part of the Private Placement Memorandum (see
Notes 5 and 7) raise substantial doubt about its ability to continue as a
going concern.
The Company's success is dependent upon its ability to raise additional,
sufficient investment capital to support the design and implementation of
viable Internet web sites, thereby generating revenues to continue to fund
operations. Management is considering raising capital either through a
private placement or an initial public offering.
The Company is subject to the risks and difficulties experienced by any
new Internet-based business, such as limited operating history,
competition, potential inability to locate Internet service providers and
possible changes in domestic and foreign government regulation which may
affect the acceptability of the Company's product by customers.
Ultimately, the attainment of profitable operations is dependent upon
future events including achieving a level of sales to support the
Company's cost structure.
Cash and Cash Equivalents - The Company considers all highly liquid
investments with a maturity at time of purchase of three months or less to
be cash equivalents.
Prepaid and Other Assets - Expense items of a nature that will benefit
future periods are charged to prepaid and other assets and are amortized
over the respective periods.
Subscription Receivable - On June 21, 1999, in connection with the Private
Placement Memorandum (see Note 5), the Company entered into a stock
subscription agreement with an individual to sell 70,000 shares of the
Company's common stock at a purchase price of $1 per share. The Company
received $25,000 cash and a subscription receivable for $45,000. The
receivable balance at December 31, 1999 was $45,000 (see Note 6).
F-7
<PAGE>
Property and Equipment - Depreciation is provided for using the
straight-line method, in amounts sufficient to relate the cost of
depreciable assets to operations over their estimated service lives
(ranging from three to seven years). Leasehold improvements and equipment
under capital leases are amortized over the lives of the respective
leases, inclusive of bargain renewal options, or the service lives of the
assets, whichever is shorter. Accelerated methods are used for tax
depreciation.
Use of Estimates - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities, the disclosures of contingent assets and liabilities at the
date of the financial statements, and the reported amounts of expenses
during the reported period. Actual results could differ from those
estimates.
Income Taxes - The Company has adopted Statement of Financial Accounting
Standards No. 109 ("SFAS No. 109"), Accounting for Income Taxes. Under
SFAS No. 109, the Company uses the asset and liability method which
recognizes the amount of current and deferred taxes payable or refundable
at the date of the financial statements as a result of all events that
have been recognized in the financial statements and as measured by the
provisions of enacted tax laws.
The Company has a gross deferred tax asset as of December 31, 1999 of
approximately $225,000. This asset is comprised of the potential future
tax benefit of its operating losses to date. Management has evaluated the
available evidence regarding the future taxable income and other possible
sources of realization of deferred tax assets. A 100 percent valuation
allowance has been established by management against the gross deferred
tax asset, as it is more likely than not that the deferred tax asset will
not be realized.
Fair Value of Financial Instruments - The estimated fair value of amounts
reported in the financial statements have been determined by using
available market information and appropriate valuation methodologies. The
carrying values of assets and liabilities approximate their fair values
either because of their short-term nature or based upon their interest
rates, which approximate market interest rates. .
Concentration of Risk - Financial instruments that potentially subject the
Company to concentrations of credit risk consists of cash. The Company
maintains its cash in deposit accounts with high quality financial
institutions, which, at times, may exceed federally insured limits. The
Company has not experienced any losses in such accounts.
Stock-Based Compensation - The Company has adopted only the disclosure
provisions of SFAS No. 123) ("SFAS No. 123"), Accounting for Stock-Based
Compensation. As permitted by SFAS No. 123, the Company measures
compensation costs in accordance with Accounting Principles Board Opinion
No. 25 ("APB No. 25"), Accounting for Stock Issued to Employees, and
related interpretations. Accordingly, no accounting recognition is given
to stock options issued to employees that are granted at fair market value
until they are exercised. Upon exercise, net proceeds, including income
tax benefits realized, are credited to equity. Pro forma information
regarding net income and earnings per share, as calculated under the
provisions of SFAS No. 123, are disclosed in Note 6.
Loss per Common Share - The Company has adopted SFAS No. 128, Earnings Per
Share. Basic loss per common share is computed by dividing the loss
available to common shareholders by the weighted average number of common
shares outstanding for the period. Diluted loss per common share reflects
the potential dilution of securities that could share in the loss. The
750,000 shares of common stock subject to the recission offer have been
excluded from both the basic and diluted loss per common share
computations because these shares are treated as a liability by the
Company.
F-8
<PAGE>
Costs of Start-Up Activities- The American Institute of Certified Public
Accountants issued Statement of Position ("SOP") No. 98-5, Reporting on
the Costs of Start-Up Activities. The standard provides guidance on the
financial reporting costs for start-up costs and organization costs. This
standard requires cost of start-up and organization costs to be expensed
as incurred, and is effective for fiscal years beginning after December
15, 1998. The Company accounts for start-up costs and organization costs
in accordance with SOP No. 98-5.
Software Development Costs - In March 1998, the American Institute of
Certified Public Accountants issued SOP No. 98-1, Accounting for the Costs
of Computer Software Developed or Obtained for Internal Use. SOP No. 98-1
states that for software obtained or developed for internal use, computer
software costs that are incurred in the preliminary project stage should
be expensed as incurred. Costs to develop internal use computer software
during the application development stage should be capitalized under a
fixed-asset model, as long as those costs meet certain predefined
characteristics. SOP No. 98-1 also provides that these capitalized
development costs should be amortized in a systematic and rational manner
over the estimated useful life of the software. Training and maintenance
costs incurred during the post-implementation operating stage should be
expensed as incurred. This statement is effective for financial statement
periods ending after December 15, 1999. The Company accounts for software
development costs in accordance with SOP No. 98-1.
Derivative Financial Instruments - In June 1998, the FASB issued SFAS No.
133 ("SFAS No. 133"), Accounting for Derivative Instruments and Hedging
Activities. SFAS No. 133 establishes accounting and reporting standards
for derivative instruments, including certain derivative instruments
embedded in other contracts (collectively referred to as derivatives), and
for hedging activities. Such standard requires than an entity recognize
all derivatives as either assets or liabilities in the balance sheet and
measure these instruments at fair value. The accounting for changes in the
fair value of a derivative (that is, gains and losses) depends upon the
intended use of the derivative and resulting designation if used as a
hedge. SFAS No. 133, as amended, is effective for all fiscal quarters of
fiscal years beginning after June 15, 2000. The Company has not evaluated
the effect, if any, that the adoption of SFAS No. 133 will have on the
Company's financial statements.
3. PROPERTY AND EQUIPMENT
At December 31, 1999, property and equipment consist of the following:
Office equipment $ 3,632
Computer equipment 25,503
Equipment under capital leases 53,121
Furniture and fixtures 2,991
Leasehold improvements 1,070
-------
86,317
Less accumulated depreciation and amortization (4,294)
Total $ 82,023
=======
Depreciation and amortization expense for the period from May 14, 1999
(date of inception) to December 31, 1999 was $4,294.
F-9
<PAGE>
4. LONG-TERM OBLIGATIONS
At December 31, 1999, long-term obligations consist of the following:
<TABLE>
<CAPTION>
<S> <C>
Computer equipment under capital lease - $53,121 original
principal balance, bearing interest at 17.97% per annum;
monthly principal and interest payments of $1,930; maturing
in November 2002; collateralized by the equipment $ 51,131
Loan payable to credit company - $25,820 original principal
balance, bearing interest at 9.58% per annum; monthly
principal and interest payments of $2,096; maturing
in June 2000. 10,235
61,366
Less current portion of long-term debt 25,417
-------
$ 35,949
=======
</TABLE>
5. COMMITMENTS AND CONTINGENCIES
On May 14, 1999, the Company received $25,000 from an investor for the
purchase of 2,500,000 common shares of the Company. A stock certificate
for the 2,500,000 common shares was not issued to this investor as the
Company had requested certain information from the investor to ensure that
they were accredited. If the investor was not accredited, the Company
would have to refund the $25,000. As of December 31, 1999, the Company is
still awaiting certain information from this investor and, accordingly,
the $25,000 has been recorded in the accompanying balance sheet as an
obligation to a potential stockholder. Additionally, the 2,500,000 common
shares are not reflected in the issued and outstanding number of common
shares as of December 31, 1999.
Pursuant to a Private Placement Memorandum dated June 1999 (the
"Placement"), the Company offered 750,000 shares of the Company's common
stock for $1 per share. As of December 31, 1999, all of the 750,000 shares
offered had been sold. Due to a possible violation of the Securities Act
of 1933 requirements, the Company has issued a memorandum to the
purchasers of the shares enabling them to sell their shares back to the
Company at any time through August 25, 2000 for the original issuance
price of $1. As such, the proceeds from the issuance of the 750,000 shares
of common stock have been classified outside of equity in the accompanying
balance sheet under the caption Common Stock Subject to Recission Offer.
As of December 31, 1999, two investors have requested refunds of a total
of 35,000 shares (see Note 7).
In November 1999, the Company entered into an agreement with accounting
professionals, whereby these professionals will assist the Company in the
preparation of financial statement projections and the Company's business
plan. Estimated fees under this agreement are $120,000 to be paid in three
$20,000 installments and three issuances of 20,000 shares of common stock
of the Company. As of December 31, 1999, the Company had paid $20,000 and
had accrued another $20,000 for professional services rendered under this
agreement.
The Company leases office space under the terms of a one-year operating
lease terminating in August 2000. This lease is renewable at the option of
the Company for an additional one-year term. The stipulated monthly rental
payment is $1,200, plus applicable sales tax (see Note 7).
F-10
<PAGE>
6. STOCK OPTIONS
During the period from May 14, 1999 (date of inception) through December
31, 1999, the Company granted stock options to certain employees and the
Chief Executive Officer ("CEO"). The CEO was granted 250,000 stock options
according to the terms of an employment agreement; 100,000 of these
options vested on December 1, 1999 (effective hiring date per employment
agreement) and the remaining 150,000 stock options vest evenly over a
three-year period. These options expire on December 1, 2003. An additional
50,000 stock options were granted to certain employees on December 31,
1999. These options vested immediately and expire on January 1, 2001. As
of December 31, 1999, 150,000 options are exercisable. All options have an
exercise price at their grant date of $1, which equals the market price of
the stock at that time. As of December 31, 1999, none of the stock options
have been exercised.
<TABLE>
<CAPTION>
Weighted
Average
Number of Exercise
Incentive Stock Options Shares Price
<S> <C> <C>
Outstanding May 14, 1999 (date of inception) -
Granted 300,000
Exercised -
Forfeited -
--------
Outstanding December 31, 1999 300,000 $ 1.00
======== =====
</TABLE>
The Company applies APB No. 25 in accounting for its stock options.
Accordingly, no compensation cost has been recognized for the options
granted to employees because the estimated price equaled the fair market
value on the date of the grant. Had compensation cost been determined on
the basis of fair value pursuant to SFAS No. 123, net loss and net loss
per share would have increased as follows for the period ended December
31, 1999:
Net Loss
Net Loss Per Share
As reported $ (602,363) $ 0.03
Pro forma $ (647,682) $ 0.03
The weighted-average fair value of options granted in 1999 was $1.00. The
estimated fair value was determined using the minimum value method with
the following weighted-average assumptions used for grants in 1999:
Dividend yield 0.00 %
Option term - CEO 3 years
Option term - others 1 year
Expected volatility - CEO 0 %
Expected volatility - others 0 %
Risk-free interest rate - CEO 6.3 %
Risk-free interest rate - others 6.0 %
F-11
<PAGE>
7. SUBSEQUENT EVENTS
In January 2000, $10,000 of the subscription receivable was satisfied for
cash. The remaining $35,000 subscription receivable was terminated and the
related shares (35,000 shares) were sold to other independent investors
for $35,000 in cash.
In January 2000, the Company entered into a lease amendment agreeing to
lease an additional 1,100 square feet of office space. The additional
monthly rental payment is $4,400. In addition, the commencement date of
the original lease (see Note 5) will be changed to February 1, 2000. This
new lease is renewable at the option of the Company for an additional
two-year term.
During January 2000, the two investors requesting refunds for shares
purchased in conjunction with the Placement (see Note 5) were paid $35,000
for their 35,000 shares. These shares were subsequently reissued to new
investors for $1 per share.
On March 7, 2000, the registration statement on Form SB-2 Post-Effective
Amendment No. 2 was declared effective by the Securities and Exchange
Commission (the "SEC") in select states. The 25,000,000 shares of common
stock registered thereunder are approved for issuance in the states of
California, Louisiana, and Georgia. Approval for issuance in additional
states is pending from the SEC. Pursuant to the Company's marketing plan,
these registered shares will be issued at no cost to doctors who become
secured members on the Company's web site. The fair market value of these
shares will be charged to operations as promotion costs at the time of
their issuance.
******
F-12
EXHIBIT 10.2
LEASE ADDENDUM
Pursuant to that lease made on August 17, 1999 between PCVI (Landlord) and Dr.
Surf.Com (Tenant) for that space at 6925 112th Circle North, Suite 101, Largo,
Florida 33773. The pates hereby agree to the following changes and conditions:
1. The remaining warehouse in unit 101 (approximately 1,100 sq. ft), will be
made available to the tenant at a lease rate of $4.00 psf (modified gross).
2. The tenant will be responsible for all tenant improvements in the space and
will perform said tenant improvements subject to all appropriate building
codes and the landlords approval.
3. The commencement date of the original lease (for the front 1,800 sq. ft of
office) will be changed to February 1, 2000 to coincide with the possession
of the warehouse space applicable to this addendum.
4. The lease term for both spaces will be for one (1) year and will terminate
on January 31, 2001.
5. The tenant will have one (1) two (2) year renewal option subject to an
escalation rate of 3% per year.
6. In the event that, a prospective tenant is found for the space next door in
Suite 102, Dr. Surf.Com will be given a 24 hour "right of first refusal" to
lease space under equal or greater terms as may be negotiated with said
prospective tenant.
In all other cases the terms and conditions of the original lease will remain in
full force and affect.
- - ---------------------------------- ------------------------------------------
Dated Witness
- - ---------------------------------- ------------------------------------------
For the Landlord: PCVI Witness
- - ---------------------------------- ------------------------------------------
Dated Witness
- - ---------------------------------- ------------------------------------------
For the Tenant: Dr.Surf.Com Witness
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0001088095
<NAME> DoctorSurf.com, Inc.
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 658,629
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 744,750
<PP&E> 86,317
<DEPRECIATION> 4,294
<TOTAL-ASSETS> 826,773
<CURRENT-LIABILITIES> 1,017,187
<BONDS> 0
0
0
<COMMON> 225,000
<OTHER-SE> (451,363)
<TOTAL-LIABILITY-AND-EQUITY> 826,773
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,924
<INCOME-PRETAX> (617,363)
<INCOME-TAX> 0
<INCOME-CONTINUING> (617,363)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (617,363)
<EPS-BASIC> (.03)
<EPS-DILUTED> (.03)
</TABLE>
