SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED AUGUST 31, 1999
COMMISSION FILE NUMBER: 0-9065
DOCPLANET.COM, INC.
(Name of small business issuer in its charter)
COLORADO 84-0645174
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3000 W. WARNER AVENUE, SANTA ANA, CALIFORNIA 92704-5311
(Address of principal executive office)(Zip Code)
(714) 754-5800
Issuer's telephone number
DOCSALES.COM, INC.
(Former name if changed since the last report)
Securities registered under Section 12(b) of the Exchange Act: NONE
Securities registered under Section 12(g) of the Exchange Act:
COMMON STOCK, NO PAR VALUE
(Title of Class)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act 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 [ ]
Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B 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. [X]
State issuer's revenues for its most recent fiscal year: $7,590,021
Aggregate market value of the voting stock held by non-affiliates of the
registrant as of NOVEMBER 30, 1999, was $19,387,398. This calculation is based
upon the average of the bid ($4.75) and asked ($4.81) prices of the voting stock
on November 30, 1999.
The number of shares of Common Stock outstanding as of NOVEMBER 30, 1999
was 4,055,941.
Transitional Small Business Disclosure Format: Yes [ ] No [X]
<PAGE>
PART I
ITEM 1. DESCRIPTION OF BUSINESS
OVERVIEW
Management believes that DocPlanet.com, Inc. (the "Company" or "DocPlanet")
has positioned itself to become a complete pharmaceutical and medical supply
solution for healthcare providers, including physicians' offices, clinics, and
other healthcare facilities. The Company intends to use the Internet to expand
its target markets, streamline ordering and distribution processes, create
financial incentives for physicians and enhance the quality of patient care.
DocPlanet has been providing pharmaceutical products and related software to
physicians' offices for over 15 years. The Company uses a point-of-care
distribution model to allow physicians to offer both prescription and
over-the-counter ("OTC") pharmaceuticals directly to patients. Utilizing its
direct sales force, mail order pharmacy and its wholly-owned Quality Care
Pharmaceuticals, Inc. subsidiary's ISO 9002 certified repackaging and
distribution facility, the Company already services more than 1,500 customer
sites across the country and generates in excess of $7 million in revenue
annually.
RECENT DEVELOPMENTS
In July 1999, the Company announced that by mid-November 1999 it expected
to begin offering pharmaceuticals, medical and surgical supplies, and related
services via the Internet to healthcare providers utilizing internally developed
software and e-commerce solutions. The Company's web site and related
e-commerce system is being developed utilizing Oracle's ("ORCL") enterprise
resource planning software ("ERP") and BroadVision's ("BVSN") One-to-One
Customer Solution, which permits the highly customized processing of each
individual client account relationship. Management believes that its proprietary
e-commerce system will permit the Company to expand to many parts of the country
that are neither effectively, nor efficiently served with traditional sales and
distribution networks. This system was activated for general use on November
18th. Given the substantial growth prospects of this Internet-based service
offering, the Company chose to develop capacity in advance of demand.
In July 1999, the Company announced a joint software development agreement
with MasterChart, Inc. of Chicago to augment the Company's existing QScript
pharmaceutical dispensing and ordering software to incorporate use of wireless,
hand-held devices and easier linkages to EMR (electronic medical record)
systems.
In July 1999, DocPlanet also announced that it had entered a vendor
agreement with one of the nation's largest GPOs (group purchasing organizations)
which represents thousands of clinics, physicians, and other healthcare
organizations across the country. The Company's Quality Care Pharmaceuticals,
Inc. ("QCP") subsidiary executed a sales agreement with Tenet Healthcare Corp.
to provide point-of-care medications for its thousands employed and affiliated
physicians associated with hundreds of hospitals and clinics from
coast-to-coast. The Company has also recently signed agreements with a number of
Independent Practice Associations ("IPAs") in Illinois, Kentucky, Michigan and
Oklahoma and remains in active negotiations in several other states.
On July 7, 1999, the Company's stockholders approved up to a forty to one
reverse stock split and the directors subsequently approved a 32 to 1 reverse
stock split. The reverse split went into effect July 8, 1999 and the Common
Stock is currently being quoted and traded on a post-reverse stock split basis.
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In July 1997, the Company and Dornoch Medical Systems, Inc. ("Dornoch")
entered into a Joint Marketing Agreement ("JMA") whereby the Company agreed to
market Dornoch's Redaway system, a medical infectious fluid collection and
disposal system, in return for royalties on sales. In connection with the JMA,
the Company was granted an option to purchase 220 shares of Dornoch Common Stock
at a purchase price of $2,000 per share, which option would vest and be
exercisable upon the sale of 80 Redaway systems through the Company's marketing
efforts. Sales and royalties from the JMA have been negligible. In addition,
Dornoch purchased 1,000,000 pre-reverse split shares of the Company's Common
Stock for $0.30 per share and was granted an option to purchase additional
pre-reverse split 1,000,000 shares for $0.30 per share. See "Note E" to the
"Consolidated Financial Statements." In May 1998, the JMA was terminated by
mutual consent and all stock purchase options were cancelled.
On April 7, 1997, the Company completed the sale of the assets related to
its business of manufacturing and distributing radiopharmaceuticals for a total
purchase price of $6,700,000 pursuant to the terms of an Asset Purchase
Agreement dated April 7, 1997, by and between the Company and Syncor
Pharmaceuticals, Inc. Included in the sale was the New Drug Application ("NDA")
for the radiopharmaceuticals, the building that contains the manufacturing
facility for this business, and all of the related equipment.
On June 15, 1996, the Company entered into a joint venture agreement with
Pharma France, Inc. to form Pharma Labs, LLC ("Pharma Labs"), a manufacturer and
distributor of nutritional health products both domestically and
internationally. The Company contributed $1,000,000 for 52% of the equity in
Pharma Labs, LLC. As of August 31, 1998, the Company had loaned Pharma Labs
$976,274 for inventory, leasehold improvements and operational support. On
October 8, 1998, the Company and the other member of Pharma Labs (the "Other
Member") entered into a Unit Purchase Agreement whereby the Company purchased
the Other Member's 48% interest in Pharma Labs for $35,000. On November 10,
1998, the Company entered into a Purchase Agreement with Adam Equities, Inc.
("AEI"), pursuant to which, on December 3, 1998, AEI purchased substantially all
of the assets of Pharma Labs for $150,000. In addition, AEI assumed Pharma Labs'
obligations under two (2) equipment leases and an affiliate of AEI entered into
a sublease with the Company to sublease Pharma Labs' facility and reimbursed the
Company $57,000 for a lease deposit on the facility. The Company also received a
$250,000 payment from AEI pursuant to the terms of a Non-compete Agreement. As
of August 31, 1999, the liquidation of this subsidiary has been finalized. See
"Note F" in the "Notes to Consolidated Financial Statements."
HISTORY
DocPlanet was incorporated in 1973 under the name Mini-Dose Labs. In 1979,
under the name Benedict Nuclear Pharmaceuticals, Inc., the Company completed an
initial public offering of Common Stock. In 1991, Charles R. Drummond, the
Company's current Chairman, Chief Executive Officer and largest shareholder
acquired voting control of the Company. On October 7, 1992, the Company's name
was changed to North American Chemical Corporation and on March 4, 1994 the
Company's name was changed to Golden Pharmaceuticals, Inc. In connection with
the recent e-commerce initiative, on July 7, 1999 the Company changed its name
to docsales.com, inc., and on October 19, 1999, the Company again changed its
name to DocPlanet.com, Inc.
From 1979 to 1995, the Company's primary business was the manufacture and
distribution of Sodium Iodide 123 diagnostic capsules. In August 1995, the
Company purchased all of the issued and outstanding Common Stock of Quality Care
Pharmaceuticals, Inc. ("QCP"), a repackager and distributor of pharmaceutical
products and related computerized dispensing and patient tracking systems. In
February 1996, QCP entered into a joint venture agreement with the Visiting
Nurses Association of Orange County ("VNA") to establish RxDirect, LLC, a mail
order and direct delivery pharmacy. RxDirect is engaged in the dispensing of
medications via mail order or courier delivery to the subscribers of their
services. The VNA has withdrawn from the RxDirect joint venture as a result of a
change in their operating strategy. The operations of RxDirect are now under the
direct ownership and control of DocPlanet.
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On March 14, 1996, QCP was certified by the International Organization for
Standardization ("ISO 9000") as having the highest quality standards. The
certification audit was performed by the French International Organization,
Ascert (now, AFAQ - Ascert International). In April 1997, the Company completed
the sale of the assets related to its business of manufacturing and distributing
radiopharmaceuticals to Syncor International, Inc. Included in the sale was the
New Drug Application ("NDA") for the radiopharmaceuticals unit, the building
containing the manufacturing facility for the business and all related
equipment.
From the date of its acquisition of QCP, the Company's goal has been to
become a more comprehensive pharmaceutical and medical supply solution provider
to physicians' offices, clinics, and other healthcare facilities. Utilizing
investments from Charles R. Drummond, the Company has made significant strides
in achieving this goal. The Company's product and service offering currently
includes prescription and OTC (over-the-counter) medications and software that
aggregates data for both marketing and clinical research purposes. Utilizing its
national sales force, mail order pharmacy and a ISO 9002 certified fulfillment
facility that is fully licensed by the FDA, DEA and more than 40 state pharmacy
boards across the nation, DocPlanet services more than 1,500 customers across
the country which buy in excess of $7 million of products and services annually.
DocPlanet is located at 3000 West Warner Avenue, Santa Ana, California
97204-5311. The Company's Common Stock is currently listed on the OTC Bulletin
Board and is traded under the symbol "DOCP."
BUSINESS STRATEGY
The goal of DocPlanet is to become a comprehensive pharmaceutical and
medical supply and service solutions company for healthcare providers, including
physicians' offices, clinics, and other healthcare facilities. The key elements
of the Company's business strategy include the following:
LEVERAGE EXISTING BUSINESS MODEL
Management believes that there is significant opportunity for the Company
to increase revenues from its existing base of customers, primarily by expanding
the base of products and services that the Company offers and placing an
increased focus on the marketing of medical and surgical supplies. In addition,
the web site and integrated e-commerce system provides customers fingertip
access to products categorized by specific use and formulary without having to
consult a paper-based product catalog.
Currently, through its national sales force and mail order pharmacy,
DocPlanet services more than 1,500 customer sites across the country, generating
$7 million in annual revenue. The Company operates an ISO 9002 certified
repackaging and distribution facility that is fully licensed by the FDA, DEA and
more than 40 state pharmacy boards across the nation. Management believes that
the Company is capable of supporting a much greater level of revenue with
existing infrastructure and personnel.
LEVERAGE EXISTING SALES AGREEMENTS
The Company has entered into sales agreements with one of the nation's
largest group purchasing organizations and a number of IPAs. Together, these
organizations represent thousands of clinics, physicians, and other healthcare
organizations across the country. The agreement with Tenet Healthcare
Corporation allows the Company to provide point-of-care medications for
thousands of employed and affiliated physicians associated with hundreds of
hospitals and clinics from coast-to-coast. Similar sales agreements have been
executed with Medical Network One and The Physicians Network. The Company is
currently negotiating sales agreements with Uniphy of Louisville and other
organizations. The present vendor agreements emphasize medication-dispensing
systems, but DocPlanet expects to be allowed to offer pharmaceuticals,
medical/surgical supplies and related services via the Internet to many of these
organizations' participants.
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PROVIDE SUPERIOR TECHNOLOGY SOLUTIONS
On November 18th, the Company began offering pharmaceuticals,
medical/surgical supplies and related services via the Internet to doctors'
offices, clinics and similar healthcare organizations. This Internet-based
system of delivery is available across the country utilizing the Company's web
site at www.docplanet.com. Management believes that the e-commerce system will
permit the Company to expand to many parts of the country that are neither
effectively nor efficiently served with traditional sales personnel.
The Company's web site and related e-commerce system is being developed
utilizing "benchmark" technologies, including Oracle's enterprise resource
planning software, BroadVision's One-to-One customer solution and expandable
Exodus Communications hosting facilities. These applications will provide for
highly customized handling and processing of each individual client account
relationship. Sun Microsystems is providing the Company's servers and related
hardware.
The Company also recently signed an agreement with MasterChart Inc. to
offer an innovative prescription management application for physicians. Running
Microsoft Windows CE on palm-size PCs, this new and revolutionary DocScript
application brings mobile prescription management and medication distribution
functionality to MasterChart's Practical Portable Device. The Practical Portable
Device includes digital dictation, document viewing, vitals collection/tracking,
practice guidelines, and other unique elements of DocPlanet's medication and
prescribing software.
DIFFERENTIATE PRODUCT AND SERVICE OFFERING
The Company is more than a web-enabled pharmaceutical distributor. A number
of the Company's products and services are technology-based. DocPlanet has
developed a proprietary dispensing and patient tracking software, DocScript,
that is capable of tracking all dispensed medications, drug samples,
injectibles, and medical and surgical supplies while incorporating bar coding
functionality. The Company is currently developing application enhancements that
will enable the product to track information on all prescriptions whether they
are dispensed in the office or written and dispensed offsite. This enhanced
version of the previously released QScript application will provide users the
ability to collect and analyze data on patient diagnosis, drug utilization,
treatment plans, specific costs and treatment outcomes. After the data have been
aggregated, they can be routed through the Company's web site to a single
database from which it can be sold to other healthcare industry participants.
This data will only be sold after it has been "cleaned" to ensure patient
confidentiality. At DocPlanet, development efforts are continuously underway to
develop new and upgrade existing productivity enhancing physician software
applications.
PRODUCTS AND SERVICES
The Company's current product and service offering includes prescription
pharmaceuticals and OTC (over-the-counter) medications, various supplies and
services, and software that aggregates data for both marketing and clinical
research purposes. In addition to its e-commerce system, the Company utilizes a
direct sales force dispersed throughout the United States to enhance its
physician relationships and operates a mail order pharmacy.
WEB SITE AND E-COMMERCE SYSTEM
The DocPlanet web site and e-commerce system is designed to accentuate the
Company's comprehensive product offering. The product catalog is designed to
streamline the ordering process while providing users extensive access to
products and pricing information. The product catalog will be equipped with a
search feature enabling users to locate products by formulary, product number
and product description. Products will also be grouped alphabetically by
formulary on the basis of anticipated utilization. Utilization classes will
include use-specific generic pharmaceuticals, use-specific brand
pharmaceuticals, and use-specific medical and surgical supplies. Substitute or
alternative medication information will be provided at no additional cost.
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During the initial order, healthcare providers will have the option of
creating a custom ordering list of products that are commonly ordered by their
clinic or practice. This functionality provides the convenience of being able to
order items without perusing the entire catalog.
The Company also plans to allow third parties to provide content that will
increase the "stickiness" and traffic to its web site. This content offering
will be marketed to non-competitive advertisers, companies and strategic
partners on a limited basis. Certain partners will be given the opportunity to
create a hyperlink enabling direct user access on a selected advertisement,
product or topic from the DocPlanet.com web site. The provision of third party
content services is an extremely attractive option because of its ability to
provide a significant source of incremental revenue.
In addition to providing healthcare professionals with the ability to
source prescription pharmaceuticals, OTC medications and medical and surgical
supplies online, the Company is currently planning to offer a number of other
productivity enhancing products and features. These include:
- - Office products;
- - Medical research;
- - Electronic prescription management;
- - Medical claim adjudication (outsourced);
- - Transcription services (outsourced);
- - Electronic medical records accessibility (outsourced);
- - Electronic pharmacist accessibility;
- - Drug interaction information (outsourced);
- - Continuing Medical Education (CME);
- - Center for Disease Control (CDC) Alerts, and
- - General healthcare information.
POINT-OF-CARE INFORMATION TECHNOLOGY SERVICES
In addition to offering an extensive line of own-use, point-of-care
pharmaceuticals and medical and surgical supplies, the Company has invested
substantial capital and resources to develop an innovative suite of software
applications to streamline the information intensive and inefficient processes
of physician's offices, clinics, and other healthcare facilities. These include
the following:
Electronic Prescription Management Software
----------------------------------------------
DocPlanet is currently developing an upgraded version of its software
DocScript application. The new application is expected to enable the physician's
office to electronically transmit a prescription directly to the local pharmacy.
Through a joint agreement with MasterChart, Inc., DocPlanet is co-developing a
closed pharmacy network that will allow the DocScript software to link in with
pharmacy networks and permit the physician's office to send and manage all
prescriptions electronically. This application is expected to be capable of
running on the Windows CE operating system and on a variety of palm-size PCs.
The application is expected to bring the prescription management and medication
distribution functionality to MasterChart's powerful Practical Portable Device,
which already includes digital dictation, document viewing, vitals
collection/tracking and practice guidelines. This system is expected to enable
the physician's office to pass on a large amount of the management of these
prescriptions to the pharmacy and save its office a considerable amount of time
in dealing with pharmacy inquiries, refills and patient questions. Extensive
development has been completed and beta sites are expected to begin functioning
in February, 2000.
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Inventory Tracking Systems
- ----------------------------
The Company has developed and is currently marketing a proprietary software
application called DocScript. DocScript has an inventory-tracking feature that
enables healthcare facilities to effectively and to efficiently manage
inventory. The software is capable of tracking all dispensed medications, drug
samples, injectables and medical-surgical supplies and incorporates bar-coding
functionality.
Information Collection Software
- ---------------------------------
DocPlanet is currently working with several groups of physicians in an
effort to enhance its information tracking software for data aggregation. The
new version of the DocScript software is being designed to track information on
all prescriptions, whether these prescriptions are dispensed in the office or
written and dispensed off-site. Once collected, this information will be routed
through the Company's web site to a single database from which it can be sold to
interested parties including drug companies, medical information aggregators,
HMOs, government researchers and private researchers. Patient names and other
personal data will be "scrubbed" or "masked" to ensure confidentiality.
POINT-OF-CARE MEDICAL AND PHARMACEUTICAL PRODUCTS
DocPlanet's wholly-owned subsidiary, Quality Care Pharmaceuticals, Inc.
("QCP"), is licensed by the United States Food and Drug Administration ("FDA")
as a manufacturer of repackaged prescription drugs. As such, the Company
purchases bulk quantities of certain pharmaceuticals and repackages them into
smaller dispensing units for sale to its customers.
The Company categorizes its products as follows:
Own-Use Pharmaceuticals
- ------------------------
Pharmaceuticals that the healthcare providers administer to patients while they
are in a given healthcare facility. This category includes:
- - Injectables, e.g., anesthetics, hormones, vaccines, and muscle relaxants
- - Oral Solids, e.g., tablets or capsules taken by mouth
- - Topicals/Ointments, consist of creams or gels
- - Liquids, consist of various suspensions or solutions
Point-of-Care Pharmaceuticals
- ------------------------------
Pharmaceuticals that require a physician to write a prescription and which
are dispensed at the point-of-care ("POC") for use by the patient away from the
medical office. By choosing a customized formulary of a physicians' most
commonly used 10-30 medications, typically generics, many clinics can offer a
convenient service that increases compliance and reduces the overall time and
cost associated with a patient obtaining prescriptions. These medications are
repackaged based on each particular physician's prescribing habits (e.g., a full
course of therapy in seven-day, ten-day or even thirty-day packs), and sold to
the physician.
Medical/Surgical Supplies
- --------------------------
Physicians' offices routinely use an extensive list of medical and surgical
supplies. These include small items such as dressings, sutures, syringes,
needles, antiseptic swabs and cotton balls, as well as larger items such as
garments, surgical accessories, surgical equipment, instruments, and X-ray
products.
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Point-of-Care Pharmaceutical Services
- ---------------------------------------
Dispensing Systems
The Company provides a sophisticated, point-of-care drug dispensing and
tracking system which management believes will improve patient outcomes, reduce
overall healthcare costs, and increase physician profits. The program is
designed to manage drugs dispensed by the physician at the point-of-care and to
electronically link physicians with local pharmacies. The system generates
medication labels and patient advisory leaflets ("PALs") in English and/or
Spanish.
Dispensing medication at the POC provides physicians, managed healthcare
organizations and patients with a number of significant benefits. Unit-of-use
medications are packaged under federal regulation, assuring the highest level of
product quality, purity and safety. Unit-of-use medication is often
significantly less expensive than comparable products dispensed from a retail
pharmacy. Dispensing medication directly to the patient has been shown to
significantly improve drug therapy compliance, which should result in better
patient outcomes and reduce the need for additional medical services. Management
believes this will result in lowering overall medical costs per patient per
incident.
Repackaging
There are extensive opportunities for the private-label packaging of
bottled medications, blister packs (sometimes called "bingo cards" or
"compliance packaging"), and strip packing in flexible plastic pouches.
The largest individual segment of the specialty packaging industry is
compliance packaging. Compliance packaging is used wherever a non-family member
administers long-term drug therapy, typically in an acute-care or long-term care
facility. Virtually all nursing homes, intermediate care facilities, assisted
living facilities and other long-term care operations are required to utilize
compliance packaging for their patients. The average patient in a nursing home
will have from six to twelve individual compliance cards. These cards have a
one-month supply of a single drug and are individually sealed into a plastic
blister. Each dose is pushed through the back of the card and given to the
patient at the appropriate time. Compliance cards allow the medical staff to
visually determine if each dose of the patient's medication regime was taken as
instructed.
Currently, the majority of compliance cards are packaged one-at-a-time,
patient-by-patient in local pharmacies. This process is expensive, time
consuming and rarely conforms to the level of quality, safety or purity that a
licensed drug repackaging facility can provide.
QUALITY CONTROL
The Company believes that it is the only drug repackager in the U.S. that
maintains full compliance to:
- - ISO 9002 International quality standards that currently exceed all
existing FDA regulations;
- - cGMP Current Good Manufacturing Practices - Title 21 Code of Federal
Regulations;
- - FDA Food, Drug and Cosmetic Act, and
- - DEA Controlled Substances Act.
The Company's production batch record requires over 120 specific entries.
Every step requires a minimum of two qualified employees to complete and verify,
and every batch requires a minimum of seven different employees to complete.
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Every step in the production process, including every tablet, capsule,
bottle, cap and label is 100% traceable. The Company maintains this information
no less than one year past the original product's expiration date. In addition
to the batch record, the Company maintains over 25 separate logs that must be
completed every day its plant is in operation. These records document and
monitor facility temperature, humidity, air pressure differentials, facility and
equipment maintenance, equipment cleaning procedures, equipment process
validation systems, and many other critical production and drug storage
parameters to assure maximum product quality, purity, safety and traceability.
It is important to note that the Company packages penicillin and
cephalosporin antibiotics in separate negative airflow packaging rooms. This
process is designed to prevent antibiotic contamination of non-antibiotic
products, and cross contamination between penicillin and cephalosporin products.
Antibiotic contamination of non-antibiotic drug products is a dangerous problem
with the potential to occur at most pharmacies in the United States.
SUPPLIERS
The Company purchases pharmaceuticals from a number of FDA licensed
distributors and manufacturers. DocPlanet's current contract with
American-Clinipharm enables the Company to buy pharmaceutical products from any
of the major wholesalers or directly from the manufacturers. Under the terms of
this agreement, the Company can source its supply from Bergen Brunswig while
maintaining access to the preferred pricing terms offered by Tenet Healthcare's
Group Purchasing Organization, BuyPower.
Currently, Bergen Brunswig is the Company's largest supplier and supplies
about 80% of its medications. Other suppliers include Barnes Wholesaler and
Wyeth-Ayerst. Management believes its relationship with its suppliers is good.
SALES AND MARKETING
The Company will continue to focus significant capital and other resources
on promoting brand identity and increasing consumer awareness to expand its
customer and revenue base. The Company currently maintains a sales and marketing
staff of 24 professionals, including 4 inside sales representatives and 20
outside sales representatives. This group is responsible for maintaining close
contact with the Company's 1,500 customer sites, generating new customers and
executing sales agreements with an array of healthcare organizations. The
Company believes that the DocPlanet web site will be a viable, cost-effective
means of increasing awareness and cross-selling the Company's suite of products.
The application's cataloguing functionality will provide timely access to
pricing information while highlighting alternative medication solutions.
The Company has been marketing its product and service offering to
Independent Practice Associations ("IPAs"). IPAs represent an extremely
attractive market for the point-of-care method of delivery. Participants in
these associations have a high degree of autonomy in their prescribing habits
and are direct benefactors of cost saving initiatives. While the Company
currently markets to this segment through its direct sales force and direct
mailings, DocPlanet intends to provide these customers with web-enabling compact
discs when large numbers of installations are required.
The Company also intends to generate user awareness by executing an
aggressive advertising and public relations campaign. The Company is currently
in discussions with a number of national advertising and public relations firms,
with both on and off-line expertise, to assist in the development of this
campaign. The Company will initially launch this marketing campaign in markets
where it already maintains a strong presence. This "target launch" will enable
the Company to fully develop and test its resources, technical systems and
strategy on a small scale before expanding the concept nationally.
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The Company will utilize various means to promote awareness of the benefits
of its online pharmaceutical and medical supply solution. These include:
- - Direct advertisement, e.g., radio, medical Internet sites and healthcare
magazines
- - Healthcare trade shows, conferences, and conventions
- - Telemarketing
- - Direct marketing to selected managed care organizations, IPAs and GPOs
- - Connectivity tools linking Internet sites of "business partners"
COMPETITION
DocPlanet operates in an industry characterized as intensely competitive,
rapidly evolving and subject to rapid technological change. There are a number
of companies, ranging from pharmaceutical distributors to online pharmacies,
which offer products and services that compete with those of the Company. It is
the goal of management to gain significant market share with its superior
pharmaceutical and medical supply solution before the Company's competitors
introduce products and services with similar features.
Management believes that it competes favorably with its competition on the
basis of price, service and delivery, credit terms, breadth of product lines and
customer support.
Despite the considerable number of companies offering similar products and
services, relatively few companies offer a comprehensive pharmaceutical and
medical supply solution to be delivered at the point-of-care. Within this
segment, the Company views its competition as AllScripts, CompuMed Pharma,
Cheshire Pharmaceuticals and PDRx. AllScripts, Inc., located in Libertyville
Illinois, is the Company's most formidable competitor. From 1986 to 1997,
AllScripts' core business was selling pre-packaged medications to physicians. In
1997, its current management was hired to focus efforts on a developing an
expanded electronic prescription writing software, TouchScript. The latest
version of this application allows physicians to access information at the point
of prescription on patients' drug history, potential adverse reactions,
formulary preferences and generic alternatives. AllScripts' current business
model places a primary emphasis on the TouchScript application and significant
revenue is forecasted from the sale of software licenses. AllScripts maintains a
limited sales force and is forecasted to generate revenues in excess of $26
million in fiscal 1999. CompuMed, Cheshire Pharmaceuticals, PDRx and PCA are
smaller than DocPlanet and operate on a regional basis. These regional
pharmaceutical supply dispensing companies offer a product solution similar to
that of DocPlanet. However, they do not have the same sophisticated web site
capabilities nor prescription management software with the same features.
GOVERNMENT REGULATION
DocPlanet's operations are regulated by the DEA, FDA and various state
bureaus of pharmacy which govern the distribution of pharmaceutical products and
controlled substances. These organizations require distributors of
pharmaceutical products and controlled substances to obtain permits and to meet
various security and operating standards. Management believes the Company has
received all necessary regulatory approvals and believes that the Company is in
substantial compliance with all applicable requirements.
The operations of the mail order pharmacy, RxDirect, are subject to the
same federal and state regulatory organizations as the Company. As a result, the
Company is required to obtain permits and to meet various security and operating
standards of such federal and state organizations relating to its mail order
operations. Management believes that the Company has obtained all necessary
regulatory approvals and that the Company is in substantial compliance with all
such applicable requirements.
Changes in government regulations cannot be predicted. The Company also
cannot predict whether any agency will adopt regulations that will have a
material effect on the Company's operations.
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ORGANIZATION AND EMPLOYEES
As of August 31, 1999, the Company had a total of seventy-five (75)
full-time employees. Additional employees are hired from time to time during
peak production periods. None of the Company's employees is represented by a
union or collective bargaining agreement and management considers relations with
employees to be good.
The following table provides a breakdown of employees by category:
<TABLE>
<CAPTION>
CATEGORY NUMBER OF EMPLOYEES
- ---------------------------- -------------------
<S> <C>
Executives / Management. . . 4
Administration . . . . . . . 6
Sales and Marketing. . . . . 24
Information Systems. . . . . 6
Production / Quality Control 29
Warehousing and Shipping . . 6
-------------------
Total. . . . . . . . . . . . 75
</TABLE>
PRODUCT LIABILITY AND INSURANCE
DocPlanet maintains insurance that provides coverage that it believes to be
in accordance with industry standards for a Company of its size and type. In
addition to this coverage, the Company currently maintains product liability
insurance in the aggregate amount of $5 million per occurrence per year with a
$2,500 deductible.
ITEM 2. DESCRIPTION OF PROPERTIES
The Company leases a 25,000-square-foot facility in Santa Ana, California
pursuant to a lease agreement which expires in March 2004.
The Company believes its facilities and equipment are well maintained and
in good operating condition and will satisfy its current manufacturing and
processing needs.
ITEM 3. LEGAL PROCEEDINGS
QCP along with several other entities, including the manufacturers of the
drugs, has been named as a defendant in approximately forty-seven lawsuits
brought by numerous plaintiffs relating to personal injury claims caused by the
use of phentermine and/or fenfluramine, collectively known as Phen-Fen. To date,
QCP has been named in forty-five California lawsuits; however, it has been
served court papers in only fifteen. Of the fifteen, the plaintiff from one
lawsuit has recently dismissed QCP. QCP is also a third-party defendant in class
action lawsuits in Nevada, West Virginia and Florida. QCP's involvement in each
of these lawsuits is limited to its distribution or repackaging of these drugs.
Based on the recent dismissal, QCP's limited involvement with these Phen-Fen
drugs and the defense being provided by the Company's insurance carrier, the
Company currently believes that the outcome of these lawsuits will not have a
material adverse effect on its business, financial condition, results of
operations or future prospects.
10
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
In the fourth quarter of fiscal 1999, the annual shareholders' meeting was
held on July 7, 1999 at which the shareholders authorized a proposal to change
the corporate name from Golden Pharmaceuticals, Inc. to docsales.com, inc. The
change in name passed with 98,049,753 votes "For" and 669,079 votes "Against"
the proposal. At the same meeting, the shareholders re-elected Arch G. Gothard,
III and Jeffrey L. Wertz as Board members. Arch Gothard received 98,760,748
"For" and 575,920 "Withheld" and Jeffrey Wertz received 98,741,588 "For" and
595,080 "Withheld."
In addition, on July 7, 1999, the shareholders authorized a proposal of an
up to forty to one reverse stock split on the Company's Common Stock. The up to
forty to one reverse stock split passed with 97,819,194 votes "For" and
1,116,644 votes "Against" the proposal. The directors subsequently approved a 32
to 1 reverse stock split. The reverse stock split went into effect July 8, 1999
and the Company's Common Stock is currently being quoted and traded on a
post-reverse stock split basis.
Subsequent to fiscal year ended August 31, 1999, a special meeting was held
on October 19, 1999 in which the shareholders authorized a proposal for a change
in corporate name from docsales.com, inc. to DocPlanet.com, Inc. The change in
corporate name passed with 2,670,423 votes "For" and 3,526 votes "Against" the
proposal.
11
<PAGE>
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER
MATTERS
The Company's Common Stock is traded in the over-the-counter market and is
quoted on the "OTC Bulletin Board" under the symbol "DOCP." In fiscal 1998, the
Company's symbol was "GPHI." In fiscal 1999, the Company changed its symbol to
"DOCP." The change in symbol was executed in conjunction with the Company's
change in name to docsales.com, inc. on July 7, 1999 (see Item 4. "Submission of
Matters to a Vote of Security Holders"). The following table sets forth the high
and low closing bid prices for the periods indicated, as reported by the OTC
Bulletin Board.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED AUGUST 31, 1999 HIGH LOW
- ---------------------------------- ------ ------
<S> <C> <C>
1st Quarter. . . . . . . . . . . . $ 0.08 0.02
2nd Quarter. . . . . . . . . . . . 0.08 0.27
3rd Quarter. . . . . . . . . . . . 0.20 0.04
4th Quarter. . . . . . . . . . . . 8.25* 0.19
FOR THE YEAR ENDED AUGUST 31, 1998 HIGH LOW
- ---------------------------------- ------ ------
1st Quarter. . . . . . . . . . . . $ 0.19 0.0625
2nd Quarter. . . . . . . . . . . . 0.16 0.09
3rd Quarter. . . . . . . . . . . . 0.12 0.07
4th Quarter. . . . . . . . . . . . 0.085 0.035
<FN>
*After giving effect to the 32:1 reverse stock split.
</TABLE>
These quotations are inter-dealer prices without retail markup, markdown or
commissions, and may not necessarily represent actual transactions.
As of October 31, 1999, there were approximately 2,500 shareholders of
record of the Company's Common Stock. The Company has never declared any cash
dividends on its Common Stock. The dividend payments on the Preferred Stock of
QCP are permitted under the terms of the ALCO Facility, and QCP Preferred limits
dividends on the Common Stock of DocPlanet.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The following discussion should be read in conjunction with the selected
financial data and the financial statements and notes thereto filed herewith.
The statements contained in this report, if not historical, are forward
looking statements within the meaning of the Private Securities Litigation
Reform Act of 1995, and involve risks and uncertainties that could cause actual
results to differ materially from the financial results described in such
forward looking statements. These risks and uncertainties include, among others,
the level and rate of growth in the Company's operations, the capital
requirements of the Company and the ability of the Company to achieve earnings
per share growth through internal investment, strategic alliances, joint
ventures and other methods. The success of the Company's business operations is,
in turn, dependent on factors such as the effectiveness of the Company's
marketing strategies to grow its customer base and improve customer response
rates, the appeal of the Company's mix of products, the Company's success at
entering into and collaborating with others to conduct effective strategic
alliances and joint ventures, general competitive conditions within the
healthcare industry and general economic conditions. Further, any forward
looking statements or statement speak only as of the date on which such
statement was made, and the Company undertakes no obligation to update any
forward looking statement or statements to reflect events or circumstances after
the date on which such statement is made or to reflect the occurrence of
unanticipated events. Therefore, forward-looking statements should not be relied
upon as a prediction of actual future results.
12
<PAGE>
RECENT DEVELOPMENTS
The Company incurred a net loss of ($3,906,000) during the fiscal year
ended August 31, 1999, and as of that date, the Company's current liabilities
exceeded its current assets by $3,516,000 and its total liabilities exceeded its
total assets by $8,294,000. These conditions, as well as others, raise
substantial doubt about the Company's ability to continue as a going concern. As
a result, the Company's auditors have included an explanatory paragraph in their
report to the Company's Consolidated Financial Statements at August 31, 1999.
See "Note C" to "Notes to the Consolidated Financial Statements." The
Consolidated Financial Statements do not include any adjustments to reflect the
possible future efforts on the recoverability and classification of assets or
the amounts and classification of liabilities that may result from the outcome
of this uncertainty.
The Company's operations in fiscal 1999 have consumed substantial amounts
of cash and have generated significant net losses which reduced shareholder's
equity to a deficit of ($8,294,000) at August 31, 1999. The Company has a
current period operating loss and negative cash flow from operations, and is
expected to have continuing losses and negative cash flow from operations in the
near future.
Based on the current assets available of $1,794,000 at August 31, 1999, an
expected sales level increase of approximately 20% and the subsequent financing
of $750,000 received in fiscal 2000 (see "Note T" in the "Notes to the
Consolidated Financial Statements"), management believes the Company can fund
operations for the first half of fiscal 2000. In addition, management
anticipates that a minimum of approximately $3,500,000 will be required to
adequately pursue its e-commerce initiative. In response, management is
currently reviewing a variety of debt and equity financing alternatives.
However, none of the related financing alternatives has been finalized as of
November 30, 1999 and no assurance can be given that management will be able to
raise the funds necessary to assure a continuation of operations beyond the
first six months of fiscal 2000.
RESULTS OF OPERATIONS
FISCAL YEAR ENDED AUGUST 31, 1999, COMPARED TO FISCAL YEAR ENDED AUGUST 31, 1998
($ ROUNDED TO NEAREST THOUSAND)
NET SALES - Net sales for the fiscal year ended August 31, 1999, were
$7,590,000, an increase of $1,146,000 compared to $6,444,000 for the same period
last year. The increase is because of higher sales recorded at QCP.
QCP recorded net sales of $7,383,000 in fiscal 1999 compared to $5,502,000
in fiscal 1998. The higher sales level was because of the expansion of QCP sales
into the following new business areas: seasonal sale of flu vaccine, sales to
new government accounts and sales of new products. The most significant new
product increase related to a new line of in-office-use injectibles.
COST OF SALES - Cost of sales as percentage of sales was 78% in fiscal 1999
compared to 82% for fiscal 1998. This decrease in cost of sales as a percentage
of sales from the prior year is the result of the liquidation of Pharma Labs in
1999 which traditionally incurred lower selling prices, higher material costs
and higher per unit overhead costs.
SELLING, GENERAL AND ADMINISTRATIVE - Selling, general and administrative
expenses ("SG&A") were $5,466,000 in fiscal 1999, a decrease of $1,353,000
compared to $6,819,000 during fiscal 1998. This decrease was primarily the
result of the liquidation of Pharma Labs in fiscal 1999 and overhead cost
reductions which began in the first quarter of fiscal 1999.
UNUSUAL CHARGES / IMPAIRMENT LOSS - Unusual charges/Impairment loss
decreased by $943,000 in 1999. This decrease is specifically due to a one-time
impairment charge related to Pharma Labs and was recorded in fiscal 1998. No
such impairment existed and no charge was recorded in fiscal 1999.
13
<PAGE>
GOODWILL IMPAIRMENT CHARGE - Goodwill impairment charge decreased by
$3,510,000 in 1999. The decrease is specifically due to a $3,510,000 goodwill
impairment charge recorded in the fourth quarter of fiscal 1998 which resulted
in a zero balance for goodwill at August 31, 1998. Accordingly, no such charge
was required for fiscal 1999.
INTEREST EXPENSE - Interest expense increased to $883,000 from $598,000 in
fiscal 1998 primarily due to $1,265,000 borrowed from a shareholder who is also
an officer and director. In addition, the Company borrowed an additional
$208,000, net of repayment, on a new line of credit.
GAIN ON DISPOSAL OF ASSETS - Gain on disposal of assets decreased by
$112,000 in 1999. This decrease was specifically due to the sale of a building
located in Golden, Colorado in fiscal 1998.
NET INCOME (LOSS) - The Company reported a net loss of ($3,906,000) for
fiscal 1999 as compared to a net loss of ($10,068,000) for fiscal 1998. The
fiscal 1999 net loss was primarily because of operating losses of ($3,792,000)
compared to an operating loss of ($10,131,000) in the prior year. The decrease
in the fiscal 1999 net loss was primarily due to operating losses including a
$3,510,000 goodwill impairment charge (see "Note Q" to the "Consolidated
Financial Statements") and $943,000 unusual charge-impairment loss in 1998. In
addition, related to the shut down of Phama Labs in 1998, the Company recorded
the following: a $676,000 bad debt provision taken against working capital loans
made to Phama Labs, a $415,000 write-off of a trade receivable from a
Vietnam-based business and a $367,000 write-off of inventory.
FOURTH QUARTER ADJUSTMENTS - Operating results for the fourth quarter of
fiscal 1999 include the following adjustments: (i) A $222,000 gain to recognize
approximately eleven months of revenue on the unamortized balance of a
Non-compete Agreement related to the liquidation of Pharma Labs. (ii) A $112,000
adjustment to recover an asset previously written-off in conjunction with the
sale of Pharma Labs' assets to Adams Equities, Inc. (iii) A $199,000 write-off
of notes receivable related to a prior year release of a contingency and notes
related to customers (iv) A $172,000 write-off of Pharma Labs' trade accounts
payable that terminated in accordance with the liquidation of this subsidiary.
FISCAL YEAR ENDED AUGUST 31, 1998, COMPARED TO FISCAL YEAR ENDED AUGUST 31, 1997
($ ROUNDED TO NEAREST THOUSAND)
NET SALES - Net sales for the fiscal year ended August 31, 1998, were
$6,444,000, a decrease of $5,514,000 compared to $11,958,000 for the same period
in fiscal 1997. The decrease is due to the loss of $2,370,000 in sales arising
from the sale of the radiopharmaceutical business on April 7, 1997 and lower
sales recorded at QCP and Pharma Labs.
QCP recorded net sales of $5,502,000 in fiscal 1998 compared to $8,033,000
in fiscal 1997. The lower sales level was due to the loss of a private label
customer and substantially lower diet drug business.
Pharma Labs' sales in fiscal 1998 were $941,000 compared to $1,555,000 in
fiscal 1997. Sales in fiscal 1997 included substantial stocking orders primarily
in the quarter ended February 28, 1997 of new product from a Vietnam distributor
in anticipation of strong customer demand. Actual customer demand was well below
expectations, which resulted in excess distributor inventory and depressed
fiscal 1998 sales. Furthermore, in the last quarter of fiscal 1998, the Pharma
Labs' business was winding down and production was scaled back.
COST OF SALES - Cost of sales as percentage of sales was 82% in fiscal 1998
compared to 68% for fiscal 1997. This increase in cost of sales as a percentage
of sales from the prior year is due to the loss of higher margin sales from the
radiopharmaceutical business in fiscal 1998 due to the sale of that business in
April 1997 and higher cost of sales at Pharma Labs. Pharma Labs' cost of sales
increased from 76% of sales in the prior year to 142% of sales in fiscal 1998
due primarily to lower selling prices, higher material costs, higher per unit
overhead cost resulting from the lower sales volume and a $367,000 write off of
inventory. In fiscal 1998, QCP's cost of sales remained at 72% of net sales.
14
<PAGE>
SELLING, GENERAL AND ADMINISTRATIVE - Selling, general and administrative
expenses ("SG&A"), excluding the unusual charges discussed below, were
$6,819,000, an increase of $425,000 compared to $6,394,000 during fiscal 1997.
QCP'S sg&a expense increased to $4,788,000 from $4,181,000 in fiscal 1997 due to
increased spending on staffing and infrastructure costs to support QCP'S long
term growth program and development of new product initiatives. DOCPLANET'S sg&a
expense decreased $426,000 to $867,000 from $1,293,000 during fiscal 1997. This
decrease was due primarily to the elimination of sg&a expenses as a result of
the sale of the radiopharmaceutical business. Pharma Labs' sg&a expense during
fiscal 1998 was $1,164,000 compared to $920,000 during fiscal 1997 as a result
of bad debt expenses of $383,000 during fiscal 1998.
UNUSUAL CHARGES / IMPAIRMENT LOSS - In fiscal 1998, efforts to turn around the
poor performance of Pharma Labs did not meet expectations, and the Company could
no longer be assured that future cash flow from Pharma Labs would cover the
carrying value of certain assets. Accordingly in fiscal 1998, Pharma Labs
recorded a non-cash impairment loss of $943,000 related to the write-down of
property, plant and equipment to estimated net realizable value and the
write-off of capitalized Non-compete Agreement costs, net of amortization.
GOODWILL IMPAIRMENT CHARGE - Based on the operating loss and negative cash flow
from operations in fiscal 1998 combined with a history of operating losses and
negative cash flow from operations, the Company determined in fiscal 1998 that
significant uncertainty existed regarding the recoverability of the carrying
value of goodwill. Accordingly, a $3,510,000 goodwill impairment charge was
recorded in the fourth quarter of fiscal 1998.
INTEREST EXPENSE - Interest expense decreased to $598,000 from $1,456,000
in fiscal 1997 primarily due to the repayment of the $3,750,000 term loan on
April 7, 1997.
GAIN ON DISPOSAL OF ASSETS - In fiscal 1998, the Company recorded a
$112,000 gain on the sale of a building located in Golden, Colorado. This
facility was no longer needed due to the consolidation of business operations in
California.
NET INCOME (LOSS) - The Company reported a net loss of ($10,068,000) for
fiscal 1998 as compared to a net income of $1,821,000 for fiscal 1997. The
fiscal 1998 net loss was primarily due to operating losses of ($10,131,000)
compared to an operating loss of ($2,583,000) in the prior year. Contributing to
the fiscal 1998 operating loss was a $3,510,000 goodwill impairment charge as
discussed above, and a $943,000 unusual charge - impairment loss related to the
revaluation of Pharma Labs' property, plant and equipment and write-off of an
intangible asset pertaining to a Non-compete Agreement. The fiscal 1998
operating loss also includes the following items related to the shut down of
Pharma Labs; a $367,000 write-off of inventory, a $415,000 write-off of a trade
receivable from a Vietnam based business and a $676,000 bad debt provision taken
against working capital loans made to Pharma Labs.
FOURTH QUARTER ADJUSTMENTS - Operating results for the fourth quarter of
fiscal 1998 include the following adjustments: (i) A $385,000 write down of
property held for sale to re-value Pharma Labs' assets to their selling price as
specified in a pending sale contract. (ii) A $125,000 adjustment to re-instate a
payable due to the Other Member of Pharma Labs in accordance with a Non-compete
Agreement. These adjustments were included in the category unusual charges
impairment loss. (iii) a $167,000 write-off of Pharma Labs' inventory was
charged to cost of sales in the fourth quarter of fiscal 1998. (iv) $3,510,000
good will impairment charge was also recorded.
15
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES ($ ROUNDED TO NEAREST THOUSAND)
The following table is presented to facilitate the discussion of the
Company's current liquidity and sets forth the Company's liquidity position as
of August 31, 1999, as compared to August 31, 1998.
<TABLE>
<CAPTION>
AUGUST 31, AUGUST 31,
1999 1998
------------ ------------
<S> <C> <C>
Current assets . . . . . . . . . $ 1,794,000 $ 2,471,000
Current liabilities. . . . . . . 5,310,000 7,906,000
------------ ------------
Net working capital (deficiency) $(3,516,000) $(5,435,000)
</TABLE>
At August 31, 1999, current assets were $1,794,000, a decrease of $677,000
from the prior year end. Decreases in inventory and trade receivables of $64,000
and $246,000, respectively, from fiscal 1998 year end levels are primarily
because of the liquidation of Pharma Labs in 1999. Assets held for sale
decreased by $173,000 and were also directly attributable to the liquidation of
Pharma Labs in 1999.
$199,000 of notes receivable were written-off as efforts to collect these
notes, which were greater than one year past due at August 31, 1999, had proven
unsuccessful.
At August 31, 1999, current liabilities were $5,310,000, a decrease of
$2,596,000 from the prior year end. This decrease is primarily because of the
reclassification of debt payable to Charles R. Drummond, Chairman and Chief
Executive Officer, as a long-term obligation in the amount of $5,820,000 at
August 31, 1999. This was offset by additional borrowings of $1,265,000 from
this shareholder and an increase of $555,000 in accrued interest on this
financing was recorded in 1999. The classification was further offset by
increases of $625,000 and $548,000 for trade accounts payable and other accrued
expenses, respectively, which are primarily attributable to the expansion of
QCP's product line. Also, the Company borrowed an additional $208,000,
versus 1998, on its credit facility (the "Revolving Facility") with ALCO
Financial Services, LLC ("ALCO") . See "Note K" in the "Notes to the
Consolidated Financial Statements."
The Company has capitalized leases and operating leases for equipment,
facilities and a vehicle used in its business. Minimum lease payments for its
capitalized and operating leases are expected to be $313,000 and $153,000,
respectively, for the fiscal year ending August 31, 2000.
As of August 31, 1999, the Company had net operating loss carry forwards
for federal income tax purposes of approximately $19,630,000. The net
operating loss carry forwards will expire in the years 1999 through 2014. The
Company's ability to utilize its net operating loss carry forwards is subject to
an annual limitation in future periods pursuant to the "change in ownership"
rules under Section 382 of the Internal Revenue Code of 1986. The Company has
established a valuation allowance against 100% of the net operating loss carry
forwards because it is uncertain whether the Company will utilize these carry
forwards due to continuing operating losses.
Prior to April 2, 1999, the Company's primary source of funds for working
capital was the Company's revolving facility with Norwest Bank (the "Bank")
(since merged with Wells Fargo Bank). On April 2, 1999, the Company entered
into the ALCO revolving line of credit facility, as refered to above and as
disclosed in "Note N" in the Notes to the Consolidated Financial Statements. At
August 31, 1999, the balance outstanding was $1,042,000, and the interest rate
under the Revolving Facility was 11.25%. The Revolving Facility is primarily
collateralized by the Company's accounts receivable and inventory, and
availability under the Revolving Facility is determined based primarily on
eligible accounts receivable and inventory. As of August 31, 1999, $25,000 and
$27,000 of eligible accounts receivable and inventory, respectively, was
available on the Revolving Facility.
In order to help meet its working capital requirements, the Company has
borrowed money from certain shareholders and directors of the Company. The loans
are evidenced by promissory notes which provide for interest at the Bank's prime
plus 2%. The promissory notes are unsecured obligations. The amounts outstanding
under the promissory notes in aggregate were $6,320,000 ($5,820,000 payable to
Charles R. Drummond; $470,000 payable to Arch G. Gothard, III; $30,000 payable
to John Grant at August 31, 1999). Certain of the promissory notes ($1,425,000
payable to Charles R. Drummond and $470,000 payable to Arch G. Gothard, III)
were payable on demand or no later than April 1, 1998 and, accordingly, are past
due. Pursuant to a letter dated October 29, 1999, Charles R. Drummond committed
not to demand payment of, or take any action to collect, the promissory notes
owed him until August 31, 2000 or such time as the Company has the ability to
repay such promissory notes. The promissory notes payable to Charles R. Drummond
are fully subordinate for all purposes to the security interest of the Bank.
16
<PAGE>
In fiscal 2000, management estimates that the Company will require
approximately $3,500,000 in debt or equity financing in order to ensure the
continuation of operations. Management is currently reviewing various debt and
equity financing alternatives. However, no assurance can be given that
management will be able to raise these funds nor can assurance be given that
potential financing will be available at acceptable terms.
DISCLOSURE OF SIGNIFICANT RISK AND UNCERTAINTY
At August 31, 1998, the Company conducted a test for asset impairment in
Accordance with financial Accounting Standard 121. Key assumptions in the
1998 asset impairment test included the reversal of fiscal 1998 operating
losses and sales declines, several years of significant sales growth, and
product cost reduction achieved through purchasing and volume efficiencies.
At August 31, 1999, management is not aware of any material items which
would impair the Company's assets as disclosed in the 1999 Consolidated
Financial Statements.
YEAR 2000
The Company recognizes the need to ensure its operations will not be
adversely impacted by year 2000 software failures. The Company has addressed
this risk to the availability and integrity of financial systems and the
reliability of operational systems. The Company has completed processes for
evaluating and managing the risks and costs associated with this problem. The
Company has installed a new business software package to accommodate business
growth and upgrade current systems. Management believes that this package is
year 2000 compliant. Management believes that, with respect to the year 2000,
only minor matters remain to be implemented with a few customers, and no major
vendor is expected to encounter problems.
Although management believes the installation of the year 2000 software to
be sufficient to avoid any material interruption in its operations, there is no
guarantee that a material failure in that system could not occur. The failure to
correct a material year 2000 problem could result in an interruption in, or a
failure of, certain normal business activities or operations.
ITEM 7. FINANCIAL STATEMENTS
The financial statements of the Company are attached to this Report.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
17
<PAGE>
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS OF THE
REGISTRANT; COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
The following persons hold the positions indicated.
<TABLE>
<CAPTION>
NAME AGE PRINCIPAL OCCUPATION OR EMPLOYMENT DIRECTOR
- --------------------
DURING THE PAST FIVE YEARS; OTHER DIRECTORSHIPS SINCE
------------------------------------------------------------------ --------
<S> <C> <C> <C>
Charles R. Drummond (56) Chairman of the Board of Directors, Chief Executive Officer and 1991
Treasurer of the Company since 1992. Owner and operator of
Drummond Ranches, a cattle ranching operation in Pawhuska,
Oklahoma, since 1965. Partner in Drummond and Hull Oil
Company.
Ladd A. Drummond (30) Director. Co-owner of Drummond Land and Cattle Company 1994
since January 1991; operator of risk management and investment
businesses.
Arch G. Gothard, III (54) Director. President of First Kansas, Inc. since October 1988. Mr. 1995
Gothard is also serves as a director of First State Bank, Kenco
Plastics, Inc., LDI, Inc., Pay Phone Concepts, Inc. and Collins
Industries, Inc.
John H. Grant (57) Vice Chairman & Secretary of the Board of Directors and Chief 1990
Operating Officer of QCP. Professor of Business Administration,
University of Pittsburgh, Pennsylvania from January 1972 to
August 1997.
</TABLE>
The Company's Articles of Incorporation, as amended, provide for a Board of
Directors made up of three classes. The members of each class serve three-year
staggered terms with one class to be elected at each annual meeting. As provided
in the Company's Bylaws, the Board has currently set the total number of
directors at four (4). The current terms of the Class A (C. Drummond and J.
Grant), Class B (A. Gothard) and Class C (L. Drummond) directors expire at the
Company's annual meeting of shareholders in 2000, 2002, and 2001 respectively.
Officers serve at the discretion of the Board of Directors and are elected at
the first meeting of the Board of Directors after each annual meeting of
shareholders. Jeffrey Wertz resigned as a Director in September 1999.
Charles R. Drummond and Ladd A. Drummond are father and son. In addition,
the Company uses one law firm whose partners are the brother and cousin of
Charles R. Drummond. There are no other family relationships between any of the
directors and executive officers of the Company.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE - Section 16(a) of
the Securities Exchange Act of 1934 and the rules thereunder require the
Company's officers and directors, and persons who own more than ten percent of a
registered class of the Company's equity securities, to file reports of
ownership and changes in ownership with the Securities and Exchange Commission
and to furnish the Company with copies.
Based solely on its review of the copies of the Section 16(a) forms
received by it, or written representations from certain reporting persons, the
Company believes that, during the last fiscal year, all Section 16(a) filing
requirements applicable to its officers, directors and greater-than-ten-percent
beneficial owners were filed in compliance with all applicable filing
requirements.
18
<PAGE>
ITEM 10. EXECUTIVE COMPENSATION
The following table sets forth certain information concerning compensation
paid by the Company to the Chief Executive Officer and any executive officer
whose total annual salary and bonus exceeded $100,000 for the last fiscal year:
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION LONG-TERM COMPENSATION
AWARDS
--------------------- --------------------------------
(a) (b) (c) (d) (g) (i)
- --------------------------------- ----- ---------- --------- ----------------- -------------
NAME & PRINCIPAL POSITION YEAR SALARY ($) BONUS ($) SECURITIES ALL OTHER
UNDERLYING COMPENSATION
OPTIONS/ SARS (#) ($)
- --------------------------------- ----- ---------- --------- ----------------- -------------
<S> <C> <C> <C> <C> <C>
Charles R. Drummond . . . . . . . 1999 190,000 -0- -0- 60,000 (1)
Chairman, Chief Executive
Officer and Treasurer
1998 150,000 -0- -0- 24,000 (1)
1997 150,000 -0- -0- 24,000 (1)
John H. Grant . . . . . . . . . . 1999 105,000 -0- -0- -0-
Vice Chairman, Chief Operating
Officer and Secretary
1998 105,000 -0- -0- -0-
1997 8,750 -0- -0- -0-
- -------------
<FN>
(1) Living Allowance.
</TABLE>
The foregoing compensation tables do not include certain fringe benefits
made available on a nondiscriminatory basis to all Company employees such as
group health insurance, dental insurance, long-term disability insurance,
vacation and sick leave. In addition, the Company makes available certain
non-monetary benefits to its executive officers with a view to acquiring and
retaining qualified personnel and facilitating job performance. The Company
considers such benefits to be ordinary and incidental business costs and
expenses. The aggregate value of such benefits in the case of each executive
officer and of the group listed in the above table, which cannot be precisely
ascertained but which is less than the lesser of (a) ten percent of the cash
compensation paid to each such executive officer or to the group, respectively,
or (b) $50,000 times the number of individuals in the group, as the case may be,
is not included in such table.
EMPLOYMENT AGREEMENTS - On September 1, 1991 the Company entered into an
employment agreement with Mr. Charles R. Drummond whereby Mr. Charles R.
Drummond was employed by the Company beginning on September 1, 1991 for a period
of three years or the termination of the employment agreement. Pursuant to the
terms of the agreement, Mr. Charles R. Drummond's duties are to act as Chairman
of the Board and Secretary of the Company. The agreement provides that Mr.
Charles R. Drummond will be paid an annual salary subject to periodic increases
from time to time at the sole discretion of the Board. The agreement provides
that Mr. Charles R. Drummond's employment with the Company may be terminated for
cause, as defined therein. If Mr. Charles R. Drummond's employment is terminated
without cause, the Company shall pay Mr. Charles R. Drummond, in addition to
amounts accrued during the respective periods prior to such termination,
severance pay in an amount equal to the amount of compensation that would
otherwise be payable to Mr. Charles R. Drummond under the agreement. The Board
and Mr. Charles R. Drummond have agreed to extend the employment agreement on a
year to year basis. Mr. Charles R. Drummond's salary for the period of September
1, 1999, through August 31, 2000, was $190,000 plus a living allowance of
$60,000.
In 1997, the Company entered into an employment agreement with John H.
Grant for a period of five years or until termination of the agreement. Mr.
Grant's duties include service as Vice Chairman of the Board at a minimum annual
salary of $95,000. He is currently being paid a salary of $105,000 per year.
19
<PAGE>
In October 1992, the Company adopted a Performance Stock Option Plan (the
"Plan"), approved by the shareholders, for the benefit of employees, officers
and directors of the Company, including the executive officers referred to in
the Summary Compensation Table. The Stock Option Committee of the Board of
Directors selects the optionee and determines the terms and conditions of the
stock option grants. As of August 31, 1999, options to purchase 107,930
post-reverse split shares of Common Stock were outstanding pursuant to the Plan.
COMPENSATION OF DIRECTORS - Directors who are not employees of the Company
are entitled to $1,500 for each board meeting attended in person, and $500 for
each committee meeting attended in person plus reimbursement for travel and
other expenses relating to attendance at each such meeting.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding beneficial
ownership of outstanding shares of Common Stock as of November 30, 1999, by (i)
each person who is known by the Company to own beneficially more than five
percent of the outstanding shares of the Company's Common Stock, (ii) the
Company's directors, Chief Executive Officer and executive officers whose total
compensation exceeded $100,000 for the last fiscal year; and (iii) all directors
and executive officers of the Company as a group. In addition, all references to
the number of shares have been adjusted for the July 8, 1999 32:1 reverse stock
split.
<TABLE>
<CAPTION>
NAME SHARES
BENEFICIALLY OWNED PERCENT OF CLASS
------------------ -----------------
<S> <C> <C>
Timothy E. Drummond (1). . . . . . . . . . . . . . . . . . . . . . 398,755 10%
623 Kihekah Avenue
Pawhuska, Oklahoma 74056
Charles R. Drummond (1). . . . . . . . . . . . . . . . . . . . . . 877,699 22%
3000 West Warner Avenue
Santa Ana, California 92704
John H. Grant (1). . . . . . . . . . . . . . . . . . . . . . . . . 72,326 2%
3000 West Warner Avenue
Santa Ana, California 92704
Ladd A. Drummond (1) . . . . . . . . . . . . . . . . . . . . . . . 579,787 14%
623 Kihekah Avenue
Pawhuska, Oklahoma 74056
Arch G. Gothard, III (1) . . . . . . . . . . . . . . . . . . . . . 100,506 2%
Box 5950
Breckenridge, Colorado 80424
All executive officers and directors as a group (five persons) (1) 2,047,317 50%
<FN>
(1) Shares are considered beneficially owned, for purposes of this table, only
if held by the person indicated, or if such person, directly or indirectly,
through any contract, arrangement, understanding, relationship or otherwise
has or shares the power to vote, to direct the voting of and/or to dispose
of or to direct the disposition of, such security, or if the person has the
right to acquire beneficial ownership within 60 days, unless otherwise
indicated.
</TABLE>
20
<PAGE>
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In August 1995, the Company issued 2,000,000 shares of its Common Stock to
a corporation of which Mr. Charles R. Drummond is the sole shareholder in order
to have the Company released from a contingent liability. This matter has been
resolved and the shares have been transferred back to the Company.
RxDirect subleases approximately 1,500 square feet at the Company's Santa
Ana, California, facility for $7,800 per year.
LOANS FROM SHAREHOLDERS AND DIRECTORS - During the fiscal year ended August
31, 1999, and subsequent to the end of the year, the Company obtained financing
through the issuance of notes payable to certain shareholders and directors of
the Company. The amounts outstanding through the issuance of these notes payable
were $6,320,000 ($5,820,000 payable to Charles R. Drummond; $470,000 payable to
Arch G. Gothard, III; $30,000 payable to John Grant) and $6,470,000 ($5,970,000
payable to Charles R. Drummond; $470,000 payable to Arch G. Gothard III; $30,000
payable to John Grant) at August 31, 1999, and November 30, 1999, respectively.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following documents of the Company are filed as a part of this
Report.
1. Financial Statements
2. Financial Statement Schedules
Schedules for which provision is made in the applicable regulations of the
Securities and Exchange Commission have been omitted because they are not
required under the related instructions or the information related is contained
elsewhere in the financial statements.
3. Exhibits
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ------------ --------------------------------------------------------------------------------------------
<S> <C>
3.1 (1) - Articles of Incorporation filed October 4, 1973.
3.2 (1) - Articles of Amendment to Articles of Incorporation filed December 22, 1976.
3.3 (1) - Articles of Amendment to Articles of Incorporation filed August 25, 1978.
3.4 (1) - Articles of Amendment to Articles of Incorporation filed June 15, 1979.
3.5 (1) - Articles of Amendment to Articles of Incorporation filed January 12, 1981.
3.6 (1) - Articles of Amendment to Articles of Incorporation filed June 16,1987.
3.7 (1) - Articles of Amendment to Articles of Incorporation filed October 9, 1992.
3.8 (2) - Articles of Amendment to Articles of Incorporation filed December 16, 1997
3.9 (1) - Certificate of Designation of 15%/30% Cumulative Convertible Preferred Stock filed
- December 9, 1987.
3.10 (1) - Corrected Certificate of Designation of 15%/30% Cumulative Convertible Preferred Stock
- filed December 14, 1987.
21
<PAGE>
3.11 (1) - Corrected Certificate of Designation of 15%/30% Cumulative Convertible Preferred Stock
- filed February 5, 1988.
3.12 (1) - Certificate of Designation of Class A Convertible Preferred Stock filed October 12, 1990.
3.13 (3) - Second Amended and Restated Bylaws
4.2 (1) - Specimen Certificate for Common Stock, no par value per share.
10.1 (3) - Amended and Restated Credit and Security Agreement dated August 7, 1995 among the
- Company, Quality Care Pharmaceuticals, Inc. and Norwest Credit, Inc.
10.2 (4) - Operating Agreement dated June 14, 1996 between the Registrant and Pharma France, Inc.
10.3 (5) - Form of Promissory Notes executed by the Company in favor of Charles R. Drummond.
- Schedule A sets forth the date and principal amount of each promissory note.
10.4 (5) - Form of Promissory Notes executed by the Company in favor of Arch G. Gothard, III.
- Schedule B sets forth the date and principal amount of each promissory note.
10.5 (5) - Purchase Agreement dated November 10, 1998 by and among Adams Equities, Inc.,
- Pharma Labs, LLC, GMP Laboratories of America and Golden Pharmaceuticals, Inc.
10.6 (5) - Agreement Not to Compete dated November 10, 1998 among Pharma Labs, LLC, Golden
- Pharmaceuticals, Inc.
21.1* - Subsidiaries of the Registrant.
27.1* - Financial Data Schedule.
<FN>
(1) Incorporated by reference to registrant's Annual Report on Form 10-K, dated
August 31, 1991, as filed with the Securities and Exchange Commission.
(2) Incorporated by reference to registrant's Annual Report on Form 10-K, dated
August 31, 1997, as filed with the Securities and Exchange Commission
(3) Incorporated by reference to registrant's Annual Report on Form 10-K, dated
August 31, 1995, as filed with the Securities and Exchange Commission.
(4) Incorporated by reference to registrant's Annual Report on Form 10-K, dated
August 31, 1996, as filed with the Securities and Exchange Commission.
(5) Incorporated by reference to registrant's Annual Report on Form 10-K, dated
August 31, 1998, as filed with the Securities and Exchange Commission.
* Filed herewith.
(b) Reports on Form 8-K
None.
</TABLE>
22
<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.
DOCPLANET.COM, INC.
Dated: December 7, 1999 By /s/ Charles R. Drummond
-----------------------------------------------
Charles R. Drummond, Chairman of the Board,
Chief Executive Officer and Treasurer
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 and
in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------ -------------------------- ----------------
<S> <C> <C>
/s/ Charles R. Drummond Chairman of the Board, December 7, 1999
- ------------------------ Chief Executive Officer
Charles R. Drummond and Treasurer
/s/ Ladd A. Drummond Director December 7, 1999
- ------------------------
Ladd A. Drummond
/s/ Arch G. Gothard, III Director December 7, 1999
- ------------------------
Arch G. Gothard, III
/s/ John H. Grant Vice Chairman of the Board December 7, 1999
- ------------------------ and Corporate Secretary
John H. Grant
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE
----
<S> <C>
FINANCIAL STATEMENTS:
Report of Independent Certified Public Accountants. . . . . F-2
Consolidated Balance Sheets as of August 31, 1999 and 1998. F-3
Consolidated Statements of Operations for the Years Ended
August 31, 1999 and 1998. . . . . . . . . . . . . . . . . F-5
Consolidated Statement of Stockholders' Equity (Deficit)
for the Years Ended August 31, 1999 and 1998. . . . . . . F-6
Consolidated Statements of Cash Flows for the Years Ended
August 31, 1999 and 1998. . . . . . . . . . . . . . . . . F-7
Notes to Consolidated Financial Statements. . . . . . . . . F-9
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
DocPlanet.com, Inc.
Santa Ana, California
We have audited the accompanying consolidated balance sheets of
DocPlanet.com, Inc. (a Colorado corporation) and Subsidiaries as of August 31,
1999 and 1998, and the related consolidated statements of operations,
stockholders' equity (deficit) and cash flows for each of the years then ended.
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 audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits 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 audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of DocPlanet.com, Inc. and
Subsidiaries as of August 31, 1999 and 1998, and the consolidated results of
their operations and their consolidated cash flows for each of the years then
ended in conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As shown in the financial statements,
the Company incurred a net loss of $3,905,958 during the year ended August 31,
1999, and, as of that date, the Company's current liabilities exceeded its
current assets by $3,515,411 and its total liabilities exceeded its total assets
by $8,293,558. These factors, among others, as discussed in Note C to the
financial statements, raise substantial doubt about the Company's ability to
continue as a going concern. Management's plans in regard to these matters are
also described in Note C. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
/s/ GRANT THORNTON LLP
Denver, Colorado
October 22, 1999
F-2
<PAGE>
<TABLE>
<CAPTION>
DOCPLANET.COM, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
AUGUST 31,
----------------------
1999 1998
---------- ----------
<S> <C> <C>
CURRENT ASSETS
Cash. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 57,073 $ 61,860
Trade receivables, net of allowance for doubtful accounts of $220,384 and . . . 1,131,242 1,377,291
535,945 at August 31, 1999 and 1998
Notes receivable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25,680 139,797
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 514,027 577,947
Prepaid expenses and other. . . . . . . . . . . . . . . . . . . . . . . . . . . 66,271 141,144
Net assets held for sale. . . . . . . . . . . . . . . . . . . . . . . . . . . . - 173,000
---------- ----------
TOTAL CURRENT ASSETS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,794,293 2,471,039
NOTES RECEIVABLE, less current maturities . . . . . . . . . . . . . . . . . . . . 85,902 -
PROPERTY, PLANT AND EQUIPMENT - AT COST . . . . . . . . . . . . . . . . . . . . . 3,271,485 2,166,642
Less accumulated depreciation and amortization. . . . . . . . . . . . . . . . . 1,228,405 873,325
---------- ----------
TOTAL PROPERTY, PLANT & EQUIPMENT . . . . . . . . . . . . . . . . . . . . . 2,043,080 1,293,317
---------- ----------
TOTAL LONG-TERM ASSETS. . . . . . . . . . . . . . . . . . . . . . . . . . 2,128,982 1,293,317
OTHER ASSETS
Intangibles - net of accumulated amortization of $2,900 and $1,933 at August 31,
1999 and 1998 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,600 10,067
Non-compete agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34,528 69,050
---------- ----------
TOTAL OTHER ASSETS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44,128 79,117
---------- ----------
TOTAL ASSETS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $3,967,403 $3,843,473
========== ==========
</TABLE>
See Notes to Consolidated Financial Statements
F-3
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS - continued
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
AUGUST 31,
----------------------------
1999 1998
------------- -------------
<S> <C> <C>
CURRENT LIABILITIES
Notes payable $ 1,041,924 $ 833,639
Notes payable - related parties 500,000 5,014,200
Current maturities of long-term debt 50,000 212,228
Current maturities of capitalized lease obligations 312,956 224,588
Accounts payable 1,767,676 1,142,999
Accrued liabilities
Salaries, wages and other compensation 101,254 47,070
Interest 845,393 316,854
Other 662,721 114,653
Deferred revenue 27,780 -
------------- -------------
TOTAL CURRENT LIABILITIES 5,309,704 7,906,231
LONG-TERM OBLIGATIONS, related parties 5,819,985 25,000
CAPITALIZED LEASE OBLIGATIONS, less current maturities 131,272 467,191
EXCESS LOSS ON INVESTMENT IN JOINT VENTURE - 39,875
CONTINGENCIES AND COMMITMENTS - -
MINORITY INTEREST 1,000,000 -
STOCKHOLDERS' EQUITY (DEFICIT)
Common stock - no par value; 200,000,000 shares authorized; 4,158,722 and
4,014,191 issued; 4,055,941 and 3,911,340 outstanding in 1999 and 1998,
respectively . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24,989,858 24,714,858
Preferred stock - no par value; 10,000,000 shares authorized Class A 15%/ 30%
cumulative convertible, 29,653 shares issued and outstanding in 1999
and 1998 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 292,558 292,558
Dividends accrued on preferred stock. . . . . . . . . . . . . . . . . . . . . . . . 241,757 236,419
------------- -------------
25,524,173 25,243,835
Accumulated deficit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (33,723,599) (29,744,527)
------------- -------------
(8,199,426) (4,500,692)
Less common stock in treasury at cost, 102,781 shares at August 31, 1999 and 1998,.
respectively 94,132 94,132
------------- -------------
TOTAL STOCKHOLDERS' EQUITY (DEFICIT) (8,293,558) (4,594,824)
------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT). . . . . . . . . . . . . . $ 3,967,403 $ 3,843,473
============= =============
</TABLE>
See Notes to Consolidated Financial Statements
F-4
<PAGE>
<TABLE>
<CAPTION>
DOCPLANET.COM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
AUGUST 31,
---------------------------
1999 1998
------------ -------------
<S> <C> <C>
NET SALES. . . . . . . . . . . . . . . . . . . . $ 7,590,021 $ 6,443,863
COST OF SALES. . . . . . . . . . . . . . . . . . 5,916,256 5,302,545
------------ -------------
GROSS MARGIN . . . . . . . . . . . . . . . . . . 1,673,765 1,141,318
Selling, general and administrative expense. . 5,466,104 6,819,170
Unusual charge - impairment loss . . . . . . . - 943,275
Goodwill impairment charge . . . . . . . . . . - 3,509,847
------------ -------------
OPERATING LOSS . . . . . . . . . . . . . . . (3,792,339) (10,130,974)
OTHER INCOME (EXPENSE)
Interest expense . . . . . . . . . . . . . . . (883,368) (598,160)
Joint venture loss . . . . . . . . . . . . . . - (125,741)
Gain (loss) on disposal of assets. . . . . . . - 112,074
Gain (loss) on Liquidation of Subsidiary . . . 506,189 -
Other income (expense) . . . . . . . . . . . . 263,560 99,786
------------ -------------
TOTAL OTHER INCOME (EXPENSE) . . . . . . . . (113,619) (512,041)
------------ -------------
LOSS BEFORE INCOME TAX EXPENSE . . . . . . . (3,905,958) (10,643,015)
INCOME TAX EXPENSE - 7,714
------------ -------------
MINORITY INTEREST - 582,969
------------ -------------
NET LOSS $(3,905,958) $(10,067,760)
============ =============
BASIC LOSS PER SHARE $ (1.03) $ (2.57)
============ =============
DILUTED LOSS PER SHARE $ (1.03) $ (2.57)
============ =============
NUMBER OF SHARES USED IN PER SHARE CALCULATION:
Basic 3,810,256 3,910,908
============ =============
Diluted 3,810,256 3,910,908
============ =============
</TABLE>
See Notes to Consolidated Financial Statements
F-5
<PAGE>
<TABLE>
<CAPTION>
DOCPLANET.COM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE YEARS ENDED AUGUST 31, 1999 AND 1998
DIVIDENDS
ACCRUED ON
PREFERRED STOCK PREFERRED ACCUMULATED
COMMON STOCK 15%/30% CUMULATIVE STOCK DEFICIT TREASURY STOCK
----------------------- ---------------- --------- ------------- ----------------
SHARES AMOUNT SHARES AMOUNT AMOUNT AMOUNT SHARES AMOUNT
---------- ----------- ------ -------- --------- ------------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE - August 31, 1997 . . . 4,013,096 $24,709,383 29,653 $292,558 $234,363 $(19,672,986) 102,781 $94,132
Accrued dividends on preferred
stock (see Note L). . . . . . - - - - 3,781 (3,781) - -
Conversion of debt, dividends
payable and services to
common stock. . . . . . . . . 1,095 5,475 - - (1,725) - - -
Net loss. . . . . . . . . . . . - - - - - (10,067,760) - -
---------- ----------- ------ -------- --------- ------------- ------- -------
BALANCE - August 31, 1998 . . . 4,014,191 $24,714,858 29,653 $292,558 $236,419 $(29,744,527) 102,781 $94,132
Purchase of Minority Interest
of RxDirect . . . . . . . . . - - - - - (67,776) - -
Accrued dividends on preferred
stock (see Note L). . . . . . - - - - 5,338 (5,338) - -
Common stock issued . . . . . . 207,031 275,000 - - - - - -
Net loss. . . . . . . . . . . . - - - - - (3,905,958) - -
Common stock cancelled
(see Note L). . . . . . . . . (62,500) - - - - - - -
========== =========== ====== ======== ========= ============= ======= =======
BALANCE - August 31, 1999 . . . 4,158,722 $24,989,858 29,653 $292,558 $241,757 $(33,723,599) 102,781 $94,132
========== =========== ====== ======== ========= ============= ======= =======
</TABLE>
F-6
<PAGE>
<TABLE>
<CAPTION>
DOCPLANET.COM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
AUGUST 31,
---------------------------
1999 1998
------------ -------------
<S> <C> <C>
CASH FLOWS USED IN OPERATING ACTIVITIES
Net income (loss) $(3,905,958) $(10,067,760)
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 377,743 806,548
Gain on disposal of property, plant and equipment - (112,074)
Unusual charge - impairment loss - 943,275
Goodwill impairment charge - 3,509,847
Stock issued for services and fees 150,000 3,750
Minority interest 22,618 (582,969)
Joint venture loss - 125,741
Changes in assets and liabilities net of effects of acquisition and joint venture:
Decrease in accounts receivable 287,487 401,030
Decrease in inventories 138,475 423,743
Decrease in prepaid expenses and other 75,536 33,624
Increase in accounts payable 68,994 101,360
Decrease in income taxes payable - (40,000)
Decrease in accrued expenses 748,297 250,544
Decrease - Non-compete agreement (222,221) -
------------ -------------
TOTAL ADJUSTMENTS 1,646,929 5,864,419
------------ -------------
NET CASH USED IN OPERATING ACTIVITIES (2,259,029) (4,203,341)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property, plant, and equipment (513,553) (332,979)
Proceeds from sale of property, plant and equipment 150,000 198,901
(Increase) investment in joint venture (21,153) (84,000)
Decrease in notes receivable 278,216 112,703
------------ -------------
NET CASH USED BY INVESTING ACTIVITIES (106,490) (105,375)
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of preferred shares of subsidiary 1,000,000 -
Borrowings under notes payable - related parties 1,294,985 4,480,000
Payments under notes payable - related parties - (80,800)
Issuance of common stock 125,000 -
Borrowings under capitalized lease and other long-term obligations 21,815 185,005
Payments on capitalized lease and other long-term obligations (256,804) (330,243)
Borrowings on line of credit 7,903,298 10,208,254
Payments on line of credit (7,695,013) (10,117,783)
Payments of dividend (32,549) -
------------ -------------
NET CASH PROVIDED BY (USED BY) FINANCING ACTIVITIES 2,360,732 4,344,433
------------ -------------
NET INCREASE (DECREASE) IN CASH (4,787) 35,717
CASH, BEGINNING OF YEAR 61,860 26,143
------------ -------------
CASH, END OF YEAR $ 57,073 $ 61,860
============ =============
</TABLE>
See Notes to Consolidated Financial Statements
F-7
<PAGE>
<TABLE>
<CAPTION>
DOCPLANET.COM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
AUGUST 31,
------------------
1999 1998
-------- --------
<S> <C> <C>
Cash paid during the period for interest. . . . . . . . . . . . . . . $354,829 $284,812
======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Supplemental schedule of non-cash investing and financing activities:
Purchase of equipment under a capital lease . . . . . . . . . . . . $158,586 $185,005
Conversion of dividends payable to common stock . . . . . . . . . . -0- 1,725
Stock issued for services . . . . . . . . . . . . . . . . . . . . . 150,000 3,750
Purchase of property, plant and equipment in accounts payable and
accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . 538,863 -0-
</TABLE>
See Notes to Consolidated Financial Statements
F-8
<PAGE>
A. HISTORY AND BUSINESS ACTIVITY
DOCPLANET.COM, INC. ("DOCPLANET") is the name of the parent company. On
October 19, 1999, the shareholders approved a change in name from docsales.com,
inc. to DocPlanet.com, Inc. In accordance with the Company's mission to provide
the best pharmaceutical and medical office products and services to as many
healthcare facilities as possible, the Board of Directors initiated this name
change to more accurately reflect management's long-term Internet strategy.
Prior to the final name change, the shareholders approved a change in name from
Golden Pharmaceuticals, Inc. to docsales.com, inc. DocPlanet is an operating
company that manages its subsidiaries.
QUALITY CARE PHARMACEUTICALS, INC. ("QCP") is a wholly-owned subsidiary of
DocPlanet. QCP purchases bulk quantities of pharmaceutical products from
manufacturers for repackaging into a single user prescription form, and produces
software for dispensing sites. QCP's clients consist of private physicians,
hospitals, group practices, managed care programs, pharmacies and other legally
constituted medical facilities throughout the United States. In 1999, DocPlanet
implemented a new Internet strategy to service QCP's existing customer base in
conjunction with targeting new on-line clients.
PHARMA LABS, LLC. ("PHARMA LABS") is a wholly-owned subsidiary of
DocPlanet. Pharma Labs was engaged in the manufacturing, packaging, and
distribution of nutritional supplement products, such as vitamins, minerals and
herbal products. Pharma Labs distributed its products primarily to Southeast
Asia. On December 3, 1998, the Company completed the sale of Pharma Labs' (see
Note F) assets.
RXDIRECT, LLC ("RXDIRECT") is a wholly-owned subsidiary of QCP. RxDirect is
engaged in the dispensing of medications via mail order and direct delivery. In
1998, RxDirect was a joint venture with VNA Home Health Systems ("VNA") of which
QCP owned 50%. On October 13, 1998, the Company and VNA signed an agreement
pursuant to which the joint venture would be terminated. Consequently, as of
October 13, RxDirect became a wholly-owned subsidiary of QCP and is included as
such, in the 1999 Consolidated Financial Statements (see Note D).
B. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION - The consolidated financial statements include
the accounts of DocPlanet, its wholly-owned subsidiaries QCP, RxDirect and
Pharma Labs, collectively referred to as the Company. All material intercompany
balances and transactions have been eliminated in consolidation.
INVESTMENT IN CONSOLIDATED SUBSIDIARY - On June 15, 1996, the Company
entered into a joint venture agreement with Pharma France, Inc. to form Pharma
Labs. The Company contributed $1,000,000 in working capital, leasehold
improvements, and operational support to Pharma Labs, while Pharma France, Inc.
contributed $923,076 in machinery and equipment and leasehold improvements. In
August 1998, the Company entered into an agreement for the dissolution and
liquidation of Pharma Labs (see Note F).
INVESTMENT IN JOINT VENTURE - RxDirect is a wholly-owned subsidiary of QCP.
In 1998, RxDirect was a 50%-owned subsidiary of QCP and was recorded under the
equity method on QCP's financial statements. In October 1998, the Company signed
an agreement pursuant to which RxDirect would become a 100% wholly-owned
subsidiary of DocPlanet (see Note D).
INVENTORIES -Inventories are stated at the lower of cost or market,
determined by the first-in, first-out ("FIFO") method.
DEPRECIATION AND AMORTIZATION - Depreciation and amortization are computed
on a straight-line basis for book and tax purposes over the estimated useful
lives of the respective assets which range from three to fifteen years.
F-9
<PAGE>
B. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued
AMORTIZATION OF CAPITALIZED SOFTWARE COSTS - The Company capitalizes and
amortizes certain costs of computer software to be sold, upon project completion
on a straight-line basis over a five-year period. The Company amortized $60,719
and $34,125 of capitalized software costs in 1999 and 1998, respectively. In
addition, the Company had a balance of $252,426 and $132,969 in capitalized
software costs at August 31, 1999 and 1998, respectively.
GOODWILL - In 1998, the Company performed tests for impairment of goodwill
in accordance with the methodology prescribed by the Financial Accounting
Standards Board ("FASB") in Statement of Financial Accounting Standards ("SFAS")
121. Under this method, the goodwill attributable to the acquisition of QCP is
grouped with QCP's property, plant and equipment carrying value for comparison
to QCP's undiscounted, forecasted cash flow. If the sum of the expected
undiscounted cash flow is less than the carrying value of the above assets, an
impairment loss is recognized.
In 1999, no tests for impairment of goodwill were required as the Company
recorded a $3,509,847 impairment charge to eliminate goodwill in the prior
fiscal year (see Note Q).
EARNINGS PER COMMON SHARE - In accordance with SFAS 128, which was
effective for periods ending after December 15, 1997, earnings per common share
has been revised and the prior period has been restated to present basic and
diluted earnings per share.
Basic and diluted earnings per share for the fiscal years ended August 31
is calculated as follows:
<TABLE>
<CAPTION>
1999 1998
------------ -------------
<S> <C> <C>
Net income (loss) . . . . . . . . . . . . . . . . . . . . . $(3,905,958) $(10,067,760)
------------ -------------
Weighted average number of shares outstanding
Basic earnings per share
Weighted average shares outstanding for basic earnings
per share calculation. . . . . . . . . . . . . . . . . 3,810,256* 3,910,908*
------------ -------------
Diluted earnings per share
Weighted average shares outstanding. . . . . . . . . . . 3,810,256 3,910,908
Effect of exercise of options . . . . . . . . . . . . . ** **
------------ -------------
Weighted average shares outstanding for diluted earnings
per share calculation. . . . . . . . . . . . . . . . . . 3,810,256 3,910,908
------------ -------------
<FN>
* Adjusted for the July 8, 1999, 32:1 reverse stock split of the Company's no
par value Common Stock (see Note L). In addition, all references to shares
of Common Stock in the 1999 Consolidated Financial Statements and the Notes
to the Consolidated Financial Statements have been revised for the effect
of the fiscal 1999 reverse split.
** The effect of options and convertible shares was not included in the
diluted earnings per share calculation for the fiscal years ended August
31, 1999 and 1998, as they would have been anti-dilutive. The total number
of common shares not included in the diluted earnings per share calculation
for the fiscal years ended August 31, 1999 and 1998, that could potentially
dilute earnings per share in the future is 38,240 and 46,342 for 1999 and
1998, respectively.
</TABLE>
RECLASSIFICATION - Certain reclassifications have been made to conform
prior years' information with the current year presentation.
USE OF ESTIMATES - The preparation of the consolidated financial statements
in accordance with generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenue and expenses during
the reported period. These estimates are based upon management's best findings,
after considering past and current events and assumptions about future events.
Actual results could differ from those estimates.
F-10
<PAGE>
B. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued
SFAS 123, "Accounting for Stock-Based Compensation" encourages, but does
not require companies to record compensation cost for stock-based employee
compensation plans at fair value. The Company has chosen to continue to account
for stock-based compensation using the intrinsic value method prescribed in
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees," and related interpretations. Accordingly, compensation cost for
stock options is measured as the excess, if any, of the quoted market price of
the Common Stock at the date of grant over the amount the employee must pay to
acquire the stock. The pro forma effect of implementing SFAS 123 is not
disclosed as it is deemed not to be material.
On September 1, 1998 the Company adopted SFAS No. 130, Reporting
Comprehensive Income. SFAS 130 establishes standards to provide prominent
disclosure of comprehensive income items. Comprehensive income is the change in
equity of a business enterprise during a period from transactions and other
events and circumstances from non-owner sources. The company had no
comprehensive income to disclose as of August 31, 1999.
On September 1, 1998 the Company adopted SFAS No. 131, Disclosures about
Segments of an Enterprise and Related Information. SFAS No. 131 redefines how
operating segments are determined and requires disclosures of certain financial
and descriptive information about a Company's operating segments. Management
has determined that under current conditions, the Company will report one
business segment.
C. REALIZATION OF ASSETS
The accompanying financial statements have been prepared on a going concern
basis, which contemplates the realization of assets and the satisfaction of
liabilities in the normal course of business. As shown in the financial
statements, the Company incurred operating losses of ($3,792,339) and
($10,130,974), respectively, during the years ended August 31, 1999 and 1998. In
addition, at August 31, 1999, the Company had a negative working capital
position of ($3,515,411) due primarily to $6,319,985 in borrowings from related
parties (see Note O), and the Company had a total stockholders' deficit of
($8,293,558). These factors among others raise substantial doubt that the
Company will be able to continue as a going concern for a reasonable period of
time.
The Company has retained a financial advisory firm and is actively pursuing
capital infusions from a variety of sources. In addition, the company plan's to
increase revenue from its existing customer base, primarily by expanding the
base of products that the Company offers and placing an increased focus on the
marketing of medical and surgical supplies. Also, in fiscal 1999, the Company
implemented a new e-commerce initiative that includes a new DocPlanet website
and an integrated e-commerce system which provides customers fingertip access
to products categorized by specific use and formulary without having to consult
a paper based catalog. The DocPlanet web site was completed in November 1999 and
the Company is currently taking customer orders from the web site.
D. INVESTMENT IN JOINT VENTURE
On February 12, 1996, QCP entered into a joint venture agreement with VNA
to form RxDirect, a mail order/direct delivery pharmacy. VNA agreed to
contribute $300,000 to fund the start up of operations of which $250,000 has
been contributed to date. In 1998, QCP recorded RxDirect under the equity method
on QCP's Financial Statements. As of August 31, 1999 QCP had contributed
$245,000 in services and operational support and has a balance of $175,777 in
loans to RxDirect for working capital and to fund operations.
On October 13, 1998, the Company and VNA entered into an agreement whereby
VNA would withdraw from the joint venture upon payment of a withdrawal fee.
Under the terms of the withdrawal agreement, VNA agreed to pay a $154,000
withdrawal fee, including accounts receivable of $47,761. The Company collected
$52,000 of the $154,000 and has written-off the remaining $102,000.
The following shows condensed financial information for RxDirect:
<TABLE>
<CAPTION>
AT AUGUST 31,
----------------------
1999 1998
---------- ----------
<S> <C> <C>
Total Assets . . . . . . . . . . . . $ 81,548 $ 212,071
Working Capital Loans from QCP . . . $ 175,777 $ 244,576
Total Other Liabilities. . . . . . . 30,527 21,245
Total Equity (Deficit) . . . . . . . (124,756) (53,750)
---------- ----------
Total Liabilities & Equity (Deficit) $ 81,548 $ 212,071
========== ==========
FOR THE YEAR
ENDED AUGUST 31
----------------------
1999 1998
---------- ----------
Net Sales. . . . . . . . . . . . . . $ 178,010 $ 546,785
Total Costs and Expenses . . . . . . 249,016 798,267
---------- ----------
Net Loss . . . . . . . . . . . . . . $ (71,006) $(251,482)
========== ==========
</TABLE>
F-11
<PAGE>
E. JOINT MARKETING AGREEMENT
On July 15, 1997, the Company and Dornoch Medical Systems, Inc. ("Dornoch")
entered into a Joint Marketing Agreement, whereby the Company agreed to market
Dornoch's Redaway products. In connection with this agreement, Dornoch purchased
1,000,000 shares (see Note L) of the Company's Common Stock for $.30 per share
and had an option to purchase an additional 1,000,000 pre-reverse split (see
Note L) shares at $.30 per share. Also, the Company had an option to purchase
220 shares of Dornoch common shares at a purchase price of $2,000 per share.
Sales and royalties derived from this agreement were not material. In May 1998,
the Joint Marketing Agreement was terminated by mutual consent and all stock
purchase options were cancelled.
F. DISCONTINUED LINE OF BUSINESS
On August 3, 1998, the Company and the Other Member of Pharma Labs, LLC
(the "Other Member") entered into an agreement for the Dissolution and
Liquidation of Pharma Labs, LLC ("Liquidation Plan). In order to facilitate the
wind-down of Pharma Labs, the Company entered into a Unit Purchase Agreement on
October 8, 1998 with the Other Member, whereby the Company purchased the Other
Member's 48% equity interest in Pharma Labs for $35,000.
On December 3, 1998, the Company completed the sale of Pharma Labs'
machinery and equipment to Adams Equities, Inc. ("Buyer") for $150,000, pursuant
to the terms of a Purchase Agreement dated November 10, 1998. The Purchase
Agreement also includes a Non-compete Agreement between the Company and the
Buyer, for which the Company received $250,000 at closing. In addition, the
Buyer assumed Pharma Labs' obligations under two (2) equipment leases and an
affiliate of Buyer entered into a sublease with the Company to sublease Pharma
Labs' facility and reimbursed the Company $57,000 for a lease deposit. At August
31, 1999 and 1998, Pharma Labs' assets are valued at estimated net realizable
value.
In 1998, the Company recorded the following adjustments to reduce the
carrying value of Pharma Labs' assets to estimated net realizable value:
Property, plant and equipment, and lease hold improvements were written
down $750,775 to the $150,000 sale price pursuant to the Purchase Agreement. The
unamortized balance of $192,500 remaining on the Pharma Labs' Non-compete
Agreement was written-off as no future benefit existed with the shut down of
Pharma Labs. These write-downs are reported in the Consolidated Statement of
Operations under the category unusual charge. Also, the Pharma Labs' property,
plant and equipment are classified in the accompanying Consolidated Balance
Sheets as net assets held for sale.
The Company recorded a $366,656 loss on the write-off of inventory. All
efforts to liquidate this inventory were unsuccessful. In the Consolidated
Statement of Operations, the inventory write down was included in cost of sales.
The $415,000 trade receivable from a Vietnam-based business affiliated with
the Other Member was written-off as not collectable due to the poor financial
condition of the Other Member and the Company's inability to collect an
unsecured debt in Vietnam. The Company loaned Pharma Labs $976,274 in working
capital funds. Based on estimated proceeds from the liquidation of Pharma Labs,
a $676,000 bad debt provision was recorded against the Pharma Labs loan in 1998.
In the Consolidated Statement of Operations, the above bad debt provisions were
included in selling, general and administrative expense.
In 1999, the following adjustments were recorded to finalize the
liquidation of Pharma Labs.
In conjunction with the termination of the Pharma Labs' Non-compete
Agreement, which ended on November 10, 1999, the Company recorded a $222,221
adjustment to recognize approximately eleven months of revenue on the
unamortized balance of the Buyer's Non-compete Agreement (see Note R).
F-12
<PAGE>
F. DISCONTINUED LINE OF BUSINESS - continued
$172,386 was written-off related to Pharma Labs' trade accounts payable
that terminated pursuant to the liquidation of this subsidiary. The related
trade amounts payable were written-off in accordance with a "Bulk Sale Notice"
to the creditors of Pharma Labs as required by the Laws of the State of
California. As of August 31, 1999, no claims were received from any creditors.
In addition, no claims have been made through the statutory time period for
creditors to make claims which ended one year from the date of sale to the Buyer
on December 3, 1999 (see Note R).
$111,582 adjustment was recorded to recover packaging equipment previously
written-off in conjunction with the December 3rd sale. In 1999, the Company
finalized the sub-lease to Adams Equities, Inc. for the related equipment and
has recorded this equipment within Consolidated Balance Sheet under the category
of notes receivable and has recorded the corresponding liability to notes
payable. In addition, the Company has properly classified the related current
and long-term balances and has recorded the applicable depreciation expense
within the Consolidated Statement of Operations (see Note R).
The 1999 adjustments have been included in the Consolidated Statement of
Operations in other income as a gain on liquidation of subsidiaries in the
amount of $506,189.
G. INVENTORIES
Inventories consist of the following items which are stated at the lower of
cost or market, determined by the first-in, first-out ("FIFO") method:
<TABLE>
<CAPTION>
AT AUGUST 31,
------------------
1999 1998
-------- --------
<S> <C> <C>
Raw materials. . $ 21,733 $ 93,359
Work-in-progress 8,000 2,088
Finished goods . 484,294 482,500
-------- --------
$514,027 $577,947
======== ========
</TABLE>
H. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are carried at cost and are classified as
follows:
<TABLE>
<CAPTION>
AT AUGUST 31,
-------------------------
1999 1998
------------ -----------
<S> <C> <C>
Leasehold improvements . . . . . . . . . . . . $ 204,459 $ 170,274
Machinery and equipment. . . . . . . . . . . . 1,112,960 1,208,576
Computers. . . . . . . . . . . . . . . . . . . 1,372,184 428,404
Furniture and fixtures . . . . . . . . . . . . 233,840 226,419
Adjudication Software. . . . . . . . . . . . . 252,426 132,969
Plant Licensing. . . . . . . . . . . . . . . . 75,462 -
Vehicles . . . . . . . . . . . . . . . . . . . 20,154 -
------------ -----------
$ 3,271,485 $2,166,642
Less accumulated depreciation and amortization (1,228,405) (873,325)
------------ -----------
$ 2,043,080 $1,293,317
============ ===========
</TABLE>
F-13
<PAGE>
I. NOTES RECEIVABLE
$198,658 of notes receivable were written-off in 1999. Two of the notes
totaling $139,797 were held in conjunction with the release of a contingency
(see Note N). Three additional notes for $23,230, $22,493 and $13,138 related to
customers that had signed promissory notes as a means of refinancing former
trade receivables. Collection efforts proved unsuccessful and each note was
greater than one year past due at August 31, 1999. These write-offs are reported
in the Consolidated Statement of Operations within the category of selling,
general and administrative expense.
J. LEASE COMMITMENTS
CAPITALIZED LEASES - The Company leases equipment for use in the production
process and administration of its business. Computer equipment is also leased
for customer use in prescription drug dispensing. For financial reporting
purposes, minimum lease rentals relating to the equipment have been capitalized.
The leases, which are non-cancelable, expire at various dates through the
year 2003. The recorded cost of assets under capital leases is $ 1,184,054 and
$1,188,929 at August 31, 1999, and 1998, respectively. Accumulated amortization
associated with the recorded assets was $444,081 and $358,991 at August 31, 1999
and 1998, respectively.
Future minimum annual lease payments under capitalized leases are as
follows:
<TABLE>
<CAPTION>
YEAR ENDING AUGUST 31,
- ---------------------------------
<S> <C>
2000. . . . . . . . . . . . . . . $ 312,956
2001. . . . . . . . . . . . . . . 143,422
2002. . . . . . . . . . . . . . . 43,358
2003. . . . . . . . . . . . . . . 3,523
2004. . . . . . . . . . . . . . . -
----------
503,259
Less amount representing interest (59,031)
----------
Discounted lease obligations. . . 444,228
Less current portion. . . . . . . (312,956)
----------
Long-term portion . . . . . . . . $ 131,272
==========
</TABLE>
OPERATING LEASES - The Company leases business facilities, vehicles and
equipment under operating leases which expire at various dates through 2004.
Under the terms of the leases, the Company will pay monthly rental ranging from
$12,335 in 1999 and $11,788 in 2004. Future minimum annual rental payments under
operating leases are as follows:
<TABLE>
<CAPTION>
YEAR ENDING AUGUST 31,
- --------------------------------------------------------------------------------
<S> <C>
2000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $152,497
2001 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 150,863
2002 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 148,114
2003 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 145,910
2004 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76,003
Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -
---------
$673,387
Less: Annual rental payments receivable under Sub-lease of facility (see Note F) (42,060)
---------
$631,327
=========
</TABLE>
Rent expense totaled approximately $136,667 and $324,850 for the fiscal
years ending August 31, 1999 and 1998, respectively.
F-14
<PAGE>
K. NOTES PAYABLE AND LONG-TERM DEBT
Notes payable and long-term debt consist of the following:
<TABLE>
<CAPTION>
AT AUGUST 31,
--------------------------
1999 1998
------------ ------------
<S> <C> <C>
Note payable, term loan, payable in monthly installments of $1,180,
including interest at the Bank prime plus 3% (totaling 11.25% at
August 31, 1999) through January 1, 1999. Collateralized by
equipment, general intangibles, inventory and accounts
receivable. . . . . . . . . . . . . . . . . . . . . . . . . . . . $ - $ 5,903
Note payable, $1,500,000 revolving line of credit with interest
payable at Bank prime plus 3% (totaling 11.25% at August 31,
1999) through April 2, 2001. Collateralized by inventory,
accounts receivable, fixtures, equipment and intangibles. . . . . 1,041,924 833,639
Non-interest bearing notes payable, to officer of QCP payable in
semi-annual installments of $33,334 through July 15, 1998,
uncollateralized. . . . . . . . . . . . . . . . . . . . . . . . . - 31,325
Notes payable to shareholders who are officers and directors of the
Company payable on demand, including interest at Bank prime
plus 2% (totaling 10.25% at August 31, 1999), uncollateralized.
$1,425,000 of the August 31, 1999 outstanding balance was due
April 1, 1998 and is past due. One of the note holders, however,
agreed to defer payment until after August 31, 2000 or until the
Company has the ability to pay such obligations. $5,819,985 of
this balance is subordinated to the two-year revolving line of
credit. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,849,985 4,544,200
Note payable to a director of the Company, payable on demand,
including interest at Bank prime plus 2% (totaling 10.25% at
August 31, 1999), uncollateralized. The total outstanding balance
of the notes was due on April 1, 1998 . . . . . . . . . . . . . . 470,000 470,000
Non-interest bearing note payable in semi-annual installments of
$25,000, commencing April 30, 1997, uncollateralized. One
payment for $25,000 was past due as of April 30, 1999 . . . . . . 50,000 75,000
Non-interest bearing note payable to officers of Pharma Labs. . . . - 125,000
------------ ------------
7,411,909 6,085,067
Less: Note payable, revolving line of credit . . . . . . . . . . . (1,041,924) (833,639)
Note payable, related party. . . . . . . . . . . . . . . . . . . (5,849,985) -
Current maturities . . . . . . . . . . . . . . . . . . . . . . . (520,000) (5,226,428)
------------ ------------
$ - $ 25,000
============ ============
</TABLE>
F-15
<PAGE>
K. NOTES PAYABLE AND LONG-TERM DEBT - continued
On April 2, 1999, the Company entered into a two-year agreement with ALCO
Financial Services, LLC ("ALCO") for a $1,500,000 revolving line of credit
facility (the "ALCO Facility") bearing interest at prime plus three percent
(3%). The first draw under this new credit agreement was made on April 6, 1999
in the amount of $563,500 and was used to pay in full all amounts due under the
Company's previous credit facility with Norwest Bank. The ALCO Facility is
collateralized by inventory, accounts receivable, fixtures, equipment and
intangibles and availability under the ALCO Facility is determined based on
eligible accounts receivable, inventory, fixtures, equipment and intangibles.
Pursuant to the agreement, $5,819,985 of the related party note payable to
shareholders is subordinated to the ALCO Line of Credit Agreement.
Aggregate annual principal payments applicable to notes payable and
long-term debt for years ending after 1999 are as follows:
<TABLE>
<CAPTION>
YEAR ENDING AUGUST 31,
- ----------------------
<S> <C>
2000 . . . . . . . . . $1,591,924
2001 . . . . . . . . . 5,819,985
2002 . . . . . . . . . -
2003 . . . . . . . . . -
2004 . . . . . . . . . -
Thereafter . . . . . . -
----------
$7,411,909
==========
</TABLE>
L. STOCKHOLDERS' EQUITY
COMMON STOCK - On July 7, 1999, the stockholders approved up to a forty to
one reverse stock split on the Company's Common Stock, no par value, and the
directors subsequently approved a 32 to 1 reverse stock split. The reverse stock
split became effective July 8, 1999 and the Common Stock is currently being
quoted and traded on a post-reverse stock split basis. All references to the
number of shares, per share amounts, stock option date and market prices of the
Company's Common Stock have been restated in accordance with the reverse stock
split.
PREFERRED STOCK - The Company's charter provides for two classes of
preferred stock. In 1987, the Company created a series of preferred stock,
15%/30% Cumulative Convertible Preferred Stock ("15/30 Preferred Stock"). The
issue price was $10 per share and the maximum issuable shares under the series
was 700,000 shares. In October 1990, the Company created a second series of
preferred stock, Class A Convertible Preferred Stock ("Convertible Preferred
Stock). The issue price was $10 per share and the maximum issuable shares under
the series was 200,000 shares. There are currently no shares of Convertible
Preferred Stock outstanding.
15/30 Preferred Stock. In 1988, the Company completed a public offering of
----------------------
equity securities comprised of units of one share of 15/30 Preferred Stock and
two shares of Common Stock valued at $10 per unit. A total of 84,242 shares of
15/30 Preferred Stock were issued in this offering. Dividends on the 15/30
Preferred Stock were payable solely from the net profits generated from the sale
of Iodine 123 HIPDM (as defined in the Certificate of Designations) ("HIPDM").
However, no net profits were ever generated from the sale of HIPDM and the
underlying license rights related to HIPDM were fully impaired in 1991 and
released upon termination of the license agreement on November 30, 1993.
F-16
<PAGE>
L. STOCKHOLDERS' EQUITY - continued
Each share of the 15/30 Preferred Stock may be converted into 0.32 shares
of Common Stock. The Company is required to reserve Common Stock sufficient to
allow conversion of all Preferred Stock and accrued dividends. The holders of
the 15/30 Preferred Stock, in the event of liquidation of the Company, will
receive an amount equal to the issue price before any holder of Common Stock or
any other stock ranking junior to the Preferred Stock can be paid.
As of August 31, 1999 and 1998, 54,589 of the 84,242 shares of Preferred
Stock outstanding were converted into Common Stock. $469,644 of accrued
dividends had been recorded on the 15/30 Preferred Stock and, as of August 31,
1999, $227,887 of the $469,644 in accrued dividends on the 15/30 Preferred Stock
had been converted into Common Stock. After these dividend accruals, management
determined that no dividends should have been recorded and, consequently that no
Common Stock should have been issued in payment of these dividends. Management
expects to resolve these matters in the next fiscal year. At August 31, 1999,
the holders of 15/30 Preferred Stock can convert their shares into 16,655 shares
of post-reverse split Common Stock including accrued dividends.
Pursuant to the Certificate of Designations for the 15/30 Preferred Stock,
in the event the Company completes an underwritten public offering of its Common
Stock in which the offering price is at least $32.00 per share, the 15/30
Preferred Stock will automatically convert to Common Stock. Commencing in 1991,
the Company has the right but not the obligation to convert all of the
outstanding 15/30 Preferred Stock into Common Stock at the 102% of the issue
price.
STOCK OPTION PLAN - On October 30, 1992, the Company's stockholders
approved the Plan which provides 50,000,000 shares of Common Stock available for
the granting of options. The Plan permits the granting of stock options to
certain directors, officers and employees of the Company or any subsidiary
thereof. Authority to grant options under the Plan will terminate on October 7,
2002.
A summary of stock option transactions follows:
<TABLE>
<CAPTION>
1999 1998
------------------------- -------------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
SHARES EXERCISE PRICE SHARES EXERCISE PRICE
-------- --------------- -------- ---------------
<S> <C> <C> <C> <C>
Options outstanding
September 1 . . . 81,833 $ 6.29 110,156 $ 7.87
Granted . . . . . 47,815 6.40 18,751 6.40
Canceled. . . . . (21,718) 9.60 (47,074) 8.39
Exercised . . . . - - - -
-------- --------------- -------- ---------------
Options outstanding
August 31 . . . . 107,930 $ 6.41 81,833 $ 6.29
======== =============== ======== ===============
</TABLE>
Weighted average fair value of options granted during the year ended August
31, 1999, is $1.50.
F-17
<PAGE>
L. STOCKHOLDERS' EQUITY - continued
The following information applies to options outstanding at August 31,
1999:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------------ ----------------------------
WEIGHTED
AVERAGE
RANGE OF REMAINING WEIGHTED WEIGHTED
EXERCISE NUMBER CONTRACTUAL AVERAGE NUMBER AVERAGE
PRICES OUTSTANDING LIFE (YEARS) EXERCISE PRICE EXERCISABLE EXERCISE PRICE
- -------------- ----------- ------------ --------------- ----------- ---------------
<S> <C> <C> <C> <C> <C>
0.64 - 6.39 14,062 4.69 $ 2.76 6,250 $ 3.20
6.40 - 7.99. 76,878 6.75 6.40 15,000 6.40
8.00 - 10.24. 16,990 4.87 9.48 16,990 9.48
----------- -----------
107,930 38,240
=========== ===========
</TABLE>
The following information applies to options outstanding at August 31, 1998:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------------ ----------------------------
WEIGHTED
AVERAGE
RANGE OF REMAINING WEIGHTED WEIGHTED
EXERCISE NUMBER CONTRACTUAL AVERAGE NUMBER AVERAGE
PRICES OUTSTANDING LIFE (YEARS) EXERCISE PRICE EXERCISABLE EXERCISE PRICE
- -------------- ----------- ------------ --------------- ----------- ---------------
<S> <C> <C> <C> <C> <C>
0.64 - 6.39. 21,093 4.69 $ 2.76 14,063 $ 2.76
6.40 - 7.99 . 39,063 6.00 6.40 15,000 6.40
8.00 - 10.24. 21,677 5.04 9.51 16,990 9.48
----------- -----------
81,833 46,053
=========== ===========
</TABLE>
The pro-forma effect of implementing SFAS 123 is not disclosed and is not
deemed material. See further discussion in Note B to Consolidate Financial
Statements.
In January 1999, QCP sold 1,000,000 shares of its Series A Preferred Stock,
no par value ("QCP Preferred Stock"), for an aggregate purchase price of
$1,000,000 to one accredited investor pursuant to the exemption provided by
Section 4(2) of the Securities Act of 1933, as amended. The QCP Preferred Stock
is convertible at the option of the holder into shares of the Company's no par
value Common Stock at a conversion price of $6.40 per share, which is subject to
adjustment upon certain events. Dividends are cumulative and payable on each
share of QCP Preferred Stock at the rate of $.06 per annum. The QCP Preferred
Stock restricts the payment of dividends to the Common Stock holders of QCP
until the payment of all accrued but unpaid dividends on the QCP Preferred
Stock. Each share of QCP Preferred Stock is entitled to a liquidation preference
of $1.00 per share plus all accrued but unpaid dividends. QCP may redeem the QCP
Preferred Stock at any time on or after January 14, 2004 at a price equal to the
liquidation preference. Dividends are recorded as a direct reduction to retained
earnings and are also recorded as an other accrued liability within QCP's
balance sheet. As of August 31, 1999, $30,247 was accrued for dividends on QCP
Preferred Stock which is consolidated as an other accrued liability on the
Consolidated Balance Sheet.
In July 1999, two accredited investors purchased Common Stock of the
Company for a total amount of $125,000. No underwriter participated in this
transaction, and the offering and sale of the securities was made solely to
accredited investors under the exemption provided by Section 4(2) of the
Securities Act of 1933 as the sale was limited strictly to accredited investors.
The proceeds of the sales were used by the Company for working capital purposes.
In 1998, RxDirect was a joint venture with VNA Home Health Systems ("VNA")
of which QCP owned 50%. On October 13, 1998, the Company and VNA signed an
agreement pursuant to which the joint venture would be terminated. Consequently,
as of October 13, 1998, RxDirect became a wholly-owned subsidiary of QCP and is
included as such, in the 1999 Consolidated Financial Statements (see Note D).
F-18
<PAGE>
M. INCOME TAXES
The following is a summary of the provision for income taxes:
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31,
---------------------------
1999 1998
------------- ------------
<S> <C> <C>
Current provision
Federal . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ - $ 10,876
State - (3,162)
------------- ------------
$ - $ 7,714
============= ============
Deferred provision
Federal . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ - $ -
State - -
------------- ------------
$ - $ -
============= ============
Total provision
Federal . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ - $ 10,876
State - (3,162)
------------- ------------
$ - $ 7,714
============= ============
The provision for income taxes differs from the amount
determined by applying the statutory rate to net income, due
to the following reasons for the years ended August 31:
Income taxes (benefit) at statutory rate . . . . . . . . . . . . $ (1,521,000) $(3,926,000)
Goodwill impairment charge - 1,617,000
Change in prior year deferred tax estimate - 1,252,000
(Benefit) expense due to change in asset valuation allowance 2,828,000 1,072,000
Expiration net operating losses (1,170,000) -
Other (137,000) (7,286)
------------- ------------
Income tax provision . . . . . . . . . . . . . . . . . . . . . . $ - $ 7,714
============= ============
Sources of change in deferred taxes and the deferred tax effect
of each were as follows for the year ended August 31:
Change in asset valuation allowance. . . . . . . . . . . . . . . $ (2,828,000) $(1,072,000)
Allowance for doubtful accounts 86,000 -
Write off of Goodwill 1,288,000 -
Accrued liabilities 29,000 25,000
Depreciation and amortization (282,000) 118,000
Carry forward (use) of net operating losses for income tax
reporting 1,707,000 929,000
------------- ------------
Income tax provision . . . . . . . . . . . . . . . . . . . . . . $ - $ -
============= ============
Components of deferred tax assets at August 31, were as follows:
Net operating loss carry forward . . . . . . . . . . . . . . . . 7,656,000 $ 5,949,000
Allowance for doubtful accounts 86,000 -
Write off of Goodwill 1,288,000 -
Accrued liabilities 217,000 188,000
Depreciation and amortization - 282,000
------------- ------------
9,247,000 6,419,000
Valuation allowance (9,247,000) (6,419,000)
------------- ------------
NET ASSET. . . . . . . . . . . . . . . . . . . . . . . . . . . $ - $ -
============= ============
</TABLE>
F-19
<PAGE>
M. INCOME TAXES - continued
<TABLE>
<CAPTION>
YEAR FEDERAL NET YEAR
GENERATED OPERATING LOSS EXPIRES
- --------- --------------- -------
<S> <C> <C>
1984. . . $ 2,888,000 1999
1985. . . 992,000 2000
1986. . . 909,000 2001
1987. . . 1,074,000 2002
1990. . . 2,092,000 2005
1991. . . 1,075,000 2006
1994. . . 62,000 2009
1996. . . 570,000 2011
1998. . . 5,450,000 2013
1999. . . 4,518,000 2014
---------------
$ 19,630,000
===============
</TABLE>
The Company's ability to utilize its net operating loss carry forwards is
subject to an annual limitation in future periods pursuant to the "change in
ownership" rules under Section 382 of the Internal Revenue Code of 1986. The
Company has established a valuation allowance against 100% of the net operating
loss carry forwards because it is uncertain whether the Company will utilize
these carry forwards due to continuing operating losses.
N. CONTINGENCIES AND COMMITMENTS
Due to the nature of its products, the Company is subject to regulation by
a number of federal and state agencies, including the Federal Food and Drug
Administration, the Drug Enforcement Agency and the State of California. The
Company must comply with regulatory requirements. Should it violate such
requirements, its ability to operate could be suspended or terminated.
Management believes it has the control system and policies in place so that it
will fully comply with regulatory requirements.
QCP along with several other entities, including the manufacturers of the
drugs, has been named as a defendant in approximately forty-seven lawsuits
brought by numerous plaintiffs relating to personal injury claims caused by the
use of phentermine and/or fenfluramine, collectively known as Phen-Fen. To date,
QCP has been named in forty-five California lawsuits; however, it has been
served court papers in only fifteen. Of the fifteen, the plaintiff from one
lawsuit has recently dismissed QCP. QCP is also a third-party defendant in class
action lawsuits in Nevada, West Virginia and Florida. QCP's involvement in each
of these lawsuits is limited to its distribution or repackaging of these drugs.
As of November 30, 1999, the outcome of these lawsuits is not reasonably
determinable.
On November 4, 1991, the Company entered into a settlement agreement which
transferred certain undeveloped land in satisfaction of a judgment against the
Company. As provided in the settlement agreement, the Company would remain
contingently liable to the extent proceeds from the sale of the land were less
than $2,715,000.
In August 1995, the Company amended the settlement agreement whereby
another corporation, 100%-owned by a director, officer and stockholder, has
assumed the obligations of the Company under the settlement agreement. In
exchange, the Board of Directors approved the issuance of 62,500 post-reverse
split shares of the Company's Common Stock to this corporation. The judgement
has been completely satisfied from the proceeds from the sale of the land, and
these shares have been transferred back to the Company and cancelled as of
August 31, 1999.
F-20
<PAGE>
O. RELATED PARTY TRANSACTIONS
During fiscal 1999, the Company borrowed $1,294,985, net of repayments,
from shareholders who are also officers and directors. During fiscal 1999, the
Company recorded $557,200 in interest expense on these loans from related
parties. Subsequent to fiscal 1999 year end and through September 30, 1999 an
additional $150,000 from related parties was borrowed from one officer described
above. These loans are payable on demand and bear interest at Bank prime plus
2%. In addition, $1,264,985 of proceeds received in 1999 is subordinate to the
Company's line of credit agreement with the ALCO (see Note K). Loan proceeds
were used for working capital.
In fiscal 1999, the Company used one law firm whose partners are the
brother and cousin of one shareholder who is also an officer and director. Legal
expense related to this law firm was not material in 1999 nor is there material
outstanding invoice payable to this law firm at August 31, 1999.
P. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
Estimated fair value of financial instruments held for purposes other than
trading are as follows:
<TABLE>
<CAPTION>
AT AUGUST 31, 1999
--------------------------------
CARRYING VALUE FAIR VALUE
------------------- -----------
<S> <C> <C>
Cash . . . . . . $ 57,073 $ 57,073
Notes receivable 111,582 111,582
AT AUGUST 31, 1998
--------------------------------
CARRYING VALUE FAIR VALUE
------------------- -----------
Cash . . . . . . $ 61,860 $ 61,860
Notes receivable 139,797 139,797
</TABLE>
The following methods and assumptions were used to estimate the fair value
of each class of financial instrument for which it is practicable to estimate
that value.
CASH - The Company classifies as cash the amounts on deposit in banks.
NOTES RECEIVABLE - The carrying value approximates fair value as the
interest rate at August 31, 1999 and 1998, is considered to approximate the
market rate.
NOTES PAYABLE AND LONG-TERM DEBT - Due to the related party nature of the
debt, the fair market value is not determinable at August 31, 1999 and 1998. The
carrying value approximates fair value at August 31, 1999 and 1998 as the
interest rate at August 31, 1999 and 1998, is considered to approximate the
market rate in all material respects.
Q. GOODWILL IMPAIRMENT CHARGE
Due to 1998's operating loss and negative cash flow from operations,
combined with a history of operating losses and negative cash flow from
operations, the Company determined that significant uncertainty existed
regarding the recoverability of the carrying value of goodwill. Accordingly, a
$3,509,847 goodwill impairment charge was recorded in the fourth quarter of
fiscal 1998.
In 1999, no tests for impairment of goodwill were required as the Company
recorded a $3,509,847 impairment charge to eliminate goodwill in the prior year.
F-21
<PAGE>
R. FOURTH QUARTER ADJUSTMENTS
Operating results for the fourth quarter of fiscal 1999 include the
following adjustments: A $222,221 gain to recognize approximately eleven months
of revenue on the unamortized balance of the Adams Equities, Inc.' Non-compete
Agreement. A $172,386 write-off of Pharma Labs' trade accounts payable that
terminated in accordance with the liquidation of this subsidiary. In addition, a
$111,582 adjustment to recover an asset previously written-off in conjunction
with the sale of Pharma Labs' assets to Adams Equities, Inc. was recorded in the
fourth quarter of fiscal 1999. These adjustments have been included in the
Consolidated Statement of Operations as a gain on liquidation of subsidiary.
In addition, $198,658 of notes receivable comprised of two notes totaling
$139,797 held in conjunction with the release of contingency (see Note N) and
three additional notes totaling $58,861 related to customers were written-off in
the fourth quarter of fiscal 1999 (see Note I).
S. YEAR 2000
The Company recognizes the need to ensure its operations will not be
adversely impacted by year 2000 software failures. The Company has addressed
this risk to the availability and integrity of financial systems and the
reliability of operational systems. As of November 1999, the Company has
completed all significant processes for evaluating and managing the risks and
costs associated with this problem. In addition, the Company has installed a new
business software package to accommodate business growth and upgrade current
systems. The incremental cost of achieving year 2000 compliance, exclusive of
the upgrade cost for new software is not material.
Although management believes the installation of the year 2000 complaint
software to be sufficient to avoid any material interruption in its operations,
there is no guarantee that a material failure in that system could not occur.
The failure to correct a material year 2000 problem could result in an
interruption in, or a failure of, certain normal business activities or
operations. Such failure could materially and adversely affect the Company's
results of operations, liquidity and financial condition.
T. SUBSEQUENT EVENTS
On October 19, 1999, the Board of Directors (the "Board") approved the
grant of 300,000 shares of the Company's no par value Common Stock valued at
approximately $483,000 with certain restrictions to two employees who are
directors and shareholders. Consistent with the restrictions, the grant price is
equal to fifty percent of the closing market value of the Company's Common Stock
on October 19, 1999. This transaction was initiated by the Board subsequent to
the balance sheet date and thus, has not been recorded and is not reflected in
the 1999 Consolidated Financial Statements.
On September 14, 1999, the Company obtained an overadvance of $300,000 over
its $1,500,000 revolving line of credit with ALCO. The terms of this financing
include the issuance of stock options on the Company's Common Stock which vest
according to repayment period of sixty days followed by subsequent thirty-day
periods. As of December 3, 1999, 45,000 options to purchase the Company's Common
Stock are due. Repayment of this advance has not been made as of December 3,
1999.
On September 7, 1999, the Company executed a convertible promissory note in
the amount of $400,000 to an unrelated third party. This note pays interest at a
rate of 10% annually and is due on November 30, 2000. The note is convertible
into Common Stock at the option of the holder at any time prior to payment. In
addition, on September 25, 1999, the Company issued a promissory note in the
amount of $50,000 to an unrelated third party. This note pays interest at a rate
of 10% annually and is due on June 1, 2000. The financing related to these
notes has been used to help fund operations in the first quarter of fiscal 2000.
F-22
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
- ------------ -------------------------------------------------------------------------------------------------------
<S> <C>
3.1 (1) - Articles of Incorporation filed October 4, 1973.
3.2 (1) - Articles of Amendment to Articles of Incorporation filed December 22, 1976.
3.3 (1) - Articles of Amendment to Articles of Incorporation filed August 25, 1978.
3.4 (1) - Articles of Amendment to Articles of Incorporation filed June 15, 1979.
3.5 (1) - Articles of Amendment to Articles of Incorporation filed January 12, 1981.
3.6 (1) - Articles of Amendment to Articles of Incorporation filed June 16,1987.
3.7 (1) - Articles of Amendment to Articles of Incorporation filed October 9, 1992.
3.8 (2) - Articles of Amendment to Articles of Incorporation filed December 16, 1997.
3.9 (1) - Certificate of Designation of 15%/30% Cumulative Convertible Preferred Stock filed December 9, 1987.
- Corrected Certificate of Designation of 15%/30% Cumulative Convertible Preferred Stock filed
3.10 (1) - December 14, 1987.
- Corrected Certificate of Designation of 15%/30% Cumulative Convertible Preferred Stock filed
3.11 (1) - February 5, 1988.
3.12 (1) - Certificate of Designation of Class A Convertible Preferred Stock filed October 12, 1990.
3.13 (3) - Second Amended and Restated Bylaws
4.2 (1) - Specimen Certificate for Common Stock, no par value per share.
- Amended and Restated Credit and Security Agreement dated August 7, 1995 among the Company,
10.1 (3) - Quality Care Pharmaceuticals, Inc. and Norwest Credit, Inc.
10.2 (4) - Operating Agreement dated June 14, 1996 between the Registrant and Pharma France, Inc.
- Form of Promissory Notes executed by the Company in favor of Charles R. Drummond. Schedule A sets
10.3 (5) - forth the date and principal amount of each promissory note.
- Form of Promissory Notes executed by the Company in favor of Arch G. Gothard, III. Schedule B sets
10.4 (5) - forth the date and principal amount of each promissory note.
- Purchase Agreement dated November 10, 1998 by and among Adams Equities, Inc., Pharma Labs, LLC,
10.5 (5) - GMP Laboratories of America and Golden Pharmaceuticals, Inc.
- Agreement Not to Compete dated November 10, 1998 among Pharma Labs, LLC, Golden
10.6 (5) - Pharmaceuticals, Inc., Adams Equities, Inc. and GMP Laboratories of America.
21.1* - Subsidiaries of the Registrant.
27.1* - Financial Data Schedule.
(b) - Reports on Form 8-K
- None
<FN>
(1) Incorporated by reference to registrant's Annual Report on Form 10-K, dated August 31, 1991, as filed with
the Securities and Exchange Commission.
(2) Incorporated by reference to registrant's Annual Report on Form 10-K dated August 31, 1997, as filed with the
Securities and Exchange Commission.
(3) Incorporated by reference to registrant's Annual Report on Form 10-K dated August 31, 1995, as filed with the
Securities and Exchange Commission.
(4) Incorporated by reference to registrant's Annual Report on Form 10-K dated August 31, 1996, as filed with the
Securities and Exchange Commission.
(5) Incorporated by reference to registrant's Annual Report on Form 10-K, dated August 31, 1998, as filed with
the Securities and Exchange Commission.
* Filed herewith.
</TABLE>
<PAGE>
1999 10-KSB
EXHIBIT 21.1, SUBSIDIARIES OF DOCPLANET.COM, INC.
QUALITY CARE PHARMACEUTICALS, INC.
PHARMA LABS, LLC
RXDIRECT, LLC
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> AUG-31-1999
<PERIOD-START> SEP-01-1998
<PERIOD-END> AUG-31-1999
<CASH> 57073
<SECURITIES> 0
<RECEIVABLES> 1242824
<ALLOWANCES> 220384
<INVENTORY> 514027
<CURRENT-ASSETS> 1794293
<PP&E> 3271485
<DEPRECIATION> 1228405
<TOTAL-ASSETS> 3967403
<CURRENT-LIABILITIES> 5309704
<BONDS> 0
0
292558
<COMMON> 24989858
<OTHER-SE> (33481842)
<TOTAL-LIABILITY-AND-EQUITY> 3967403
<SALES> 7590021
<TOTAL-REVENUES> 7590021
<CGS> 5916256
<TOTAL-COSTS> 5916256
<OTHER-EXPENSES> (113619)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (883368)
<INCOME-PRETAX> (3905958)
<INCOME-TAX> 0
<INCOME-CONTINUING> (3792339)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3905958)
<EPS-BASIC> (1.03)
<EPS-DILUTED> (1.03)
</TABLE>
