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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MAY 31, 2000
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE
EXCHANGE ACT
FOR THE TRANSITION PERIOD FROM _______ TO _______
COMMISSION FILE NUMBER: 0-9065
DOCPLANET.COM, INC.
(EXACT NAME Of Small Business Issuer AS SPECIFIED 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, including area code
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 [ ]
The number of shares of common stock outstanding as of August 22, 2000, was
7,596,311
Transitional Small Business Disclosure Format: Yes [ ] NO [X]
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<PAGE>
PART I
FINANCIAL INFORMATION
---------------------
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
DOCPLANET.COM, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
ASSETS
------
MAY 31, AUGUST 31,
2000 1999
---------- -----------
<S> <C> <C>
CURRENT ASSETS
Cash $ 259,999 $ 57,073
Trade receivables, net of allowance for doubtful accounts of
$391,177 and $220,384 at May 31, 2000 and August 31, 1999 1,215,124 1,131,242
Notes receivable 28,555 25,680
Inventories 728,859 514,027
Prepaid expenses and other 143,847 66,271
---------- -----------
TOTAL CURRENT ASSETS 2,376,384 1,794,293
NOTES RECEIVABLE, less current maturities 70,562 85,902
PROPERTY, PLANT AND EQUIPMENT - AT COST 4,025,543 3,271,485
Less accumulated depreciation and amortization 1,799,489 1,228,405
---------- -----------
TOTAL PROPERTY, PLANT & EQUIPMENT 2,226,054 2,043,080
---------- -----------
TOTAL LONG-TERM ASSETS 2,296,616 2,128,982
OTHER ASSETS
Intangibles- net of accumulated amortization of $3,696
and $2,900 at May 31, 2000 and August 31, 1999 12,373 9,600
Non-compete agreement 8,635 34,528
---------- -----------
TOTAL OTHER ASSETS 21,008 44,128
---------- -----------
TOTAL ASSETS $4,694,008 $ 3,967,403
========== ===========
</TABLE>
See Notes to Condensed Consolidated Financial Statements
<PAGE>
ITEM 1. FINANCIAL STATEMENTS (continued)
<TABLE>
<CAPTION>
DOCPLANET.COM, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED) - continued
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
----------------------------------------------
MAY 31, AUGUST 31,
2000 1999
------------- -------------
<S> <C> <C>
CURRENT LIABILITIES
Notes payable $ 2,486,410 $ 1,041,924
Notes payable - related parties 500,000 500,000
Current maturities of long-term debt 50,000 50,000
Current maturities of capitalized lease obligations 220,500 312,956
Accounts payable 2,391,119 1,767,676
Accrued liabilities
Salaries, wages and other compensation 226,065 101,254
Interest 284,497 845,393
Other 164,954 662,721
Deferred revenue - 27,780
------------- -------------
TOTAL CURRENT LIABILITIES 6,323,545 5,309,704
LONG-TERM OBLIGATIONS, related parties - 5,819,985
CAPITALIZED LEASE OBLIGATIONS, less current maturities 116,557 131,272
MINORITY INTEREST 1,000,000 1,000,000
------------- -------------
TOTAL LIABILITIES 7,440,102 12,260,961
STOCKHOLDERS' EQUITY (DEFICIT)
Common stock - no par value; 200,000,000 shares authorized;
7,519,092 issued and 7,416,311 outstanding at May 31, 2000;
4,158,722 issued and 4,055,941 outstanding at August 31, 1999. 37,209,008 24,989,858
Preferred stock - no par value; 10,000,000 shares authorized
Class A 15%/ 30% cumulative convertible, 29,653 shares issued and
outstanding at May 31, 2000 and August 31, 1999. 292,558 292,558
Addition Paid In Capital 1,554,682 -
------------- -------------
39,056,248 25,282,416
Accumulated deficit (41,708,210) (33,481,842)
------------- -------------
(2,651,962) (8,199,426)
Less common stock in treasury at cost, 102,781 shares at
May 31, 2000 and August 31, 1999. 94,132 94,132
------------- -------------
TOTAL STOCKHOLDERS' DEFICIT (2,746,094) (8,293,558)
------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY(DEFICIT) $ 4,694,008 $ 3,967,403
============= =============
</TABLE>
See Notes to Condensed Consolidated Financial Statements
<PAGE>
ITEM 1. FINANCIAL STATEMENTS (continued)
<TABLE>
<CAPTION>
DOCPLANET.COM, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
NINE MONTHS ENDED
MAY 31
--------------------------
2000 1999
------------ ------------
<S> <C> <C>
NET SALES $ 6,226,662 $ 5,743,743
COST OF SALES 4,960,752 4,418,192
------------ ------------
GROSS MARGIN 1,265,910 1,325,551
Selling, general and administrative expense 5,865,196 3,550,980
------------ ------------
OPERATING LOSS (4,599,286) (2,225,429)
OTHER INCOME/ (EXPENSE)
Interest expense (2,102,674) (599,325)
Interest expense from beneficial conversions (1,554,682) -
Joint venture loss - (22,618)
Settlement of accounts payable and other liabilities - 211,330
Other income/(expense) 75,321 41,679
------------ ------------
TOTAL OTHER INCOME (EXPENSE) (3,582,035) (368,934)
------------ ------------
LOSS BEFORE INCOME TAX EXPENSE (8,181,321) (2,594,363)
------------ ------------
INCOME TAX EXPENSE (BENEFIT) - 1,258
------------ ------------
NET LOSS $(8,181,321) (2,595,621)
LOSS ATTRIBUTABLE TO MINORITY INTEREST (45,041) (21,370)
------------ ------------
NET LOSS APPLICABLE TO COMMON SHARES $(8,226,362) $(2,616,991)
============ ============
BASIC AND DILUTED LOSS PER SHARE $ (1.48) $ (0.67)*
============ ============
WEIGHTED AVERAGE SHARES OUTSTANDING 5,555,608 3,911,340*
============ ============
<FN>
* Adjusted and restated for 32:1 reverse stock split effective July 8, 1999.
</TABLE>
See Notes to Condensed Consolidated Financial Statements
<PAGE>
ITEM 1. FINANCIAL STATEMENTS (continued)
<TABLE>
<CAPTION>
DOCPLANET.COM, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
THREE MONTHS ENDED
MAY 31
--------------------------
2000 1999
------------ ------------
<S> <C> <C>
NET SALES 2,391,110 $ 2,051,129
COST OF SALES 1,972,064 1,587,399
------------ ------------
GROSS MARGIN 419,036 463,730
Selling, general and administrative expense 1,607,882 1,087,039
------------ ------------
OPERATING LOSS (1,188,846) (623,309)
OTHER INCOME/ (EXPENSE)
Interest expense (515,459) (185,408)
Other income/(expense) 23,959 18,023
------------ ------------
TOTAL OTHER INCOME (EXPENSE) (491,500) (167,385)
------------ ------------
LOSS BEFORE INCOME TAX EXPENSE (1,680,346) (790,694)
------------ ------------
INCOME TAX EXPENSE (BENEFIT) - -
------------ ------------
NET LOSS (1,680,346) (790,694)
LOSS ATTRIBUTABLE TO MINORITY INTEREST (15,123) (15,123)
------------ ------------
NET LOSS APPLICABLE TO COMMON SHARES $(1,695,469) $ (805,817)
============ ============
BASIC AND DILUTED LOSS PER SHARE $ (.23) $ (0.21)*
============ ============
WEIGHTED AVERAGE SHARES OUTSTANDING 7,517,483 3,911,340*
============ ============
<FN>
*Adjusted and restated for 32:1 reverse stock split effective July 8, 1999.
</TABLE>
See Notes to Condensed Consolidated Financial Statements
<PAGE>
ITEM 1. FINANCIAL STATEMENTS (continued)
<TABLE>
<CAPTION>
DOCPLANET.COM, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
FOR THE NINE MONTHS ENDED
MAY 31
--------------------------
CASH FLOWS USED IN OPERATING ACTIVITIES 2000 1999
------------ ------------
<S> <C> <C>
Net loss $(8,226,362) $(2,616,991)
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 594,204 270,537
Issuance of options expense 1,037,537 -
Interest expenses from beneficial conversions 1,554,682 -
Stock Grants 956,250 -
Issuance of stock for service 249,212 -
Settlement of accounts payable and other liabilities - (211,330)
Joint venture loss - 22,618
Changes in assets and liabilities net of effects of acquisition and joint venture:
(Increase) in accounts receivable (83,882) (29,071)
(Increase) decrease in inventories (214,832) 66,339
(Increase) decrease in prepaid expenses and other (77,577) 35,383
Increase in accounts payable 623,443 49,067
Increase in deferred revenue - non-compete agreement - 250,000
Increase in accrued liabilities 187,645 354,336
------------ ------------
TOTAL ADJUSTMENTS 4,826,682 807,879
------------ ------------
NET CASH USED IN OPERATING ACTIVITIES (3,399,680) (1,809,112)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property, plant, and equipment (754,058) (21,816)
Proceeds from sale of equipment - 150,000
Increase investment in joint venture - (21,000)
Increase in notes receivable 12,466 -
------------ ------------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES (741,592) 107,184
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of preferred shares in subsidiary - 1,000,000
Dividends on preferred shares (45,204)
Borrowings under notes payable - related parties 370,000 460,034
Payments under notes payable - related parties (180,000) -
Borrowings under notes payable - unrelated parties 1,073,475 -
Issuance of Capital Stock 2,517,573 -
Borrowings under capitalized lease and other long-term obligations - 21,816
Payments on capitalized lease and other long term obligations (142,132) (170,047)
Borrowings on line of credit 6,077,051 6,448,972
Payments on line of credit (5,326,565) (6,120,707)
------------ ------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 4,344,198 1,640,068
------------ ------------
NET INCREASE (DECREASE) IN CASH 202,926 (61,860)
CASH, BEGINNING OF YEAR 57,073 61,860
------------ ------------
CASH, END OF QUARTER 259,999 -
============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW ACTIVITIES:
Interest paid 362,328 266,734
============ ============
Income taxes paid (received) 0 1,258
============ ============
NON CASH FINANCING AND INVESTING ACTIVITIES:
Purchase of equipment under Capital Leases 34,961 -
============ ============
Conversion of debt to common stock - related parties 6,929,103 -
============ ============
Conversion of debt to common stock - unrelated parties 529,475 -
============ ============
</TABLE>
See Notes to Condensed Consolidated Financial Statements
<PAGE>
DOCPLANET.COM, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF ACCOUNTING POLICIES
The accompanying unaudited financial statements of DocPlanet.com, Inc., formerly
known as docsales.com, inc., and Golden Pharmaceuticals, Inc., have been
prepared in accordance with generally accepted accounting principles for interim
financial information and pursuant to the rules and regulations of the
Securities and Exchange Commission. Accordingly, they do not include all of the
information and notes required by generally accepted accounting principles for
annual financial statements.
The accompanying unaudited financial statements and disclosures reflect all
adjustments, which, in the opinion of the management, are necessary for a fair
presentation of the results of operations, financial position, and cash flow of
the Company. The results of operations for the periods indicated are not
necessarily indicative of the results for the full year.
The financial statements should be read in conjunction with the audited
financial statements and the notes thereto included in the Company's Annual
Report on Form 10-KSB for the year ended August 31, 1999, as filed with the
Securities and Exchange Commission.
Basic and diluted earnings per share for the nine months ended May 31, 2000 and
May 31, 1999 is calculated as follows:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
MAY 31
--------------------------------
2000 1999
--------------- ---------------
<S> <C> <C>
Net loss $ (8,226,362) $ (2,616,991)
--------------- ---------------
Weighted average shares outstanding for
basic earnings per share calculation 5,555,608** 3,911,340**
--------------- ---------------
Diluted earnings per share
Weighted average shares outstanding 5,555,608** 3,911,340**
Effect of exercise of options *
--------------- ---------------
Weighted average shares outstanding for
diluted earnings per share calculation 5,555,608 3,911,340
--------------- ---------------
<FN>
*Adjusted for the July 8, 1999, 32:1 reverse stock split of the Company's no par
value common stock. In addition, all references to shares of common stock
in the May 31, 2000 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 quarters ended May 31, 2000 and May 31,
1999, 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
quarter ended May 31, 2000 and 1999, that could potentially dilute earnings per
share in the future is 276,064 and 115,000, respectively.
</TABLE>
<PAGE>
RECLASSIFICATION - Certain reclassifications have been made to conform prior
years' information with the current year presentation.
USE OF ESTIMATES - The preparation of the Condensed 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 the 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.
NOTE 2. 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. The Company incurred operating
losses of ($4,599,286) and ($3,792,339) respectively, during the nine months
ended May 31, 2000 and during the fiscal year ended August 31, 1999. In
addition, at May 31, 2000, the Company had a negative working capital position
of ($3,947,161) due primarily to $2,486,410 in short-term borrowings and
$2,391,119 in accounts payable. The Company had a total stockholders' deficit
of ($2,746,094) as of May 31, 2000. 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 financial statements do not include any adjustments related to the
recoverability and classification of assets and liabilities that might be
necessary should the Company be unable to continue as a going concern. The
Company's continuation as a going concern is dependent upon its ability to
generate sufficient cash flow to meet its obligations on a timely basis, to
obtain replacement working capital financing, to obtain sufficient equity
financing to re-capitalize the Company, and ultimately to attain profitability.
To counteract the losses and negative capital described above, the Company is
actively pursuing capital infusions from a variety of sources. In addition, the
Company plans to increase revenue by expanding its customer base. Also, in
fiscal 1999, the Company implemented a new e-commerce initiative that includes a
new Docplanet web site and an integrated e-commerce system that 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 making about 40% of its
sales from the web site. In order to reduce operating losses, the Company has
made staffing reductions and is narrowing its product lines in order to gain
further manufacturing economies.
NOTE 3. INVENTORIES
Inventories consist of the following items that are stated at the lower of cost
or market, determined by the first-in, first-out ("FIFO) method:
5/31/00 08/31/99
-------- ---------
Raw materials $ 43,740 $ 21,733
Work-in-progress 87,480 8,000
Finished goods 597,639 484,294
-------- ---------
$728,859 $ 514,027
-------- ---------
NOTE 4. NOTES PAYABLE AND LONG-TERM DEBT
On April 2, 1999, the Company entered into an agreement with ALCO Financial
Services, LLC ("ALCO") for a $1,500,000 revolving credit facility (the "ALCO
Facility") bearing interest at prime plus three percent (3%). The first draw
under this new credit facility 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 for a period
of two years with a one-year renewal term. The ALCO Facility is collateralized
by inventory, accounts receivable, fixtures, equipment and intangibles, and
availability under the ALCO Facility is primarily determined based on eligible
accounts receivable and inventory.
During the nine months ending May 31, 2000, the Company received overadvances on
the ALCO revolving facility in the amount of $700,000. The terms of this
financing include the issuance of stock options on the Company's common stock,
which vest according to a repayment period of sixty days followed by subsequent
thirty-day periods. As of May 31, 2000, 233,667 options to purchase the
Company's common stock are vested. Repayment of $200,000 of the overadvance was
made during the period ending February 29, 2000, and $125,000 was repaid during
<PAGE>
July, 2000, and reborrowed in August, leaving a current overadvance balance of
$500,000. The Company has made a verbal commitment to pay-off the
overadvance by August 31, 2000.
The Company borrowed a total of $400,000 from three unrelated parties during the
quarter at rates of prime plus four percent (4%).
NOTE 5. COMMON STOCK TRANSACTIONS
On September 22, 1999, the Company received $50,000 from an outside investor for
12,500 shares of the Company's common stock.
On October 19, 1999, the Board of Directors (the "Board") approved the grant of
an aggregate of 300,000 shares of the Company's no par value common stock valued
at an aggregate of approximately $956,250 with certain restrictions to one
employee who is also a director of the Company and to a director of the Company.
On October 20, 1999, the Company received $10,000 from one outside investor for
approximately 2,857 shares of the Company's common stock.
On November 9, 1999, the Company issued 60,000 shares of restricted common stock
to two investors for $124,949.
On November 10, 1999, the Company issued 6,000 shares of the Company's common
stock to one consultant for services valued at $30,750.
November 24, 1999 the Company issued 56,250 of shares of common stock to one
vendor for services. The market value for the related services was $168,750.
On November 30, 1999 the Company issued 11,047 shares of the Company's common
stock to one consultant for professional services valued at $49,712.
On January 3, 2000, the Company issued 40,461 shares of restricted common stock
to an outside investor to repay a loan to the Company in the amount of $129,475;
the loan was received in November 1999.
On January 3, 2000, the Company issued 161,429 shares of restricted common stock
to an outside investor for purchase price of $517,000.
On January 3, 2000, the Company issued 28,125 shares of restricted common stock
to a related party to repay loans to the Company in the amount of $90,000. The
related loan was originally received in November 1999.
On January 31, 2000, the Board of Directors approved the issuance of 100,000
shares of common stock to an unrelated party for the repayment of a $400,000
promissory note.
On February 29, 2000, the Board of Directors approved the private placement of
an aggregate of 200,000 shares of common stock to two outside investors for a
purchase price of $1,200,000.
By resolution dated December 21, 1999, the Board of Directors of the Company
approved the conversion of loans from directors and officers, in whole or in
part, into shares of the Company's common stock, no par value, at $3.00 per
share.
Pursuant to a Conversion Agreement, effective February 29, 2000, CEO, Charles R.
Drummond exercised his right of conversion of his loans to the Company by
converting all of the $6,839,103 of debt owed to him by the Company into
2,279,701 shares of the Company's restricted common stock. This debt includes
accrued interest through February 29, 2000. On the commitment date of December
21, 1999, the fair value of the common stock (as determined by the closing
quoted market price) was $3.625 per share, and the conversion price was $3.00
per share. Consequently the intrinsic value of the conversion feature of the
debt was $.625 per share on 2,279,701 shares or $1,424,813. This beneficial
conversion feature has been recognized as interest expense, and an increase in
additional paid-in capital.
On March 1, 2000, an accredited investor purchased 100,000 shares of common
stock for $600,000 in a private placement transaction.
On March 24, 2000, the Company issued 2,000 shares of common stock to one vendor
in consideration for services valued at $15,062.
<PAGE>
NOTE 6. 15/30 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.
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.
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 May 31, 2000 and August 31, 1999, 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 May 31,
2000, $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 this matter in fiscal 2000 and the related accrued
dividends have been reclassified on the May 31, 2000 balance sheet as an offset
to the accumulated deficit. At May 31, 2000, the holders of the 15/30 Preferred
Stock can convert their shares into 9,452 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 102% of the issue price.
NOTE 7. RELATED PARTY TRANSACTIONS
During the first nine months of fiscal 2000, the Company borrowed $190,000, net
of repayments, from related parties. During the nine months ended May 31, 2000,
the Company recorded $600,287 of interest expense on loans from related parties.
At May 31, 2000, the amounts outstanding under the related promissory notes were
$500,000, ($470,000 payable to Arch G. Gothard III; $30,000 payable to John H.
Grant). At May 31, 2000, $ 135,012 in accrued interest was payable on the
related party notes. Certain of these loans are payable on demand and all such
loans bear interest at the bank prime rate plus 2%. The $470,000 loan payable
to Arch G. Gothard III was payable on April 1, 1998, and is past due at May 31,
2000.
On January 3, 2000, the company issued 28,125 shares of restricted common stock
to repay a $90,000 loan from a relative of the CEO, Charles R. Drummond.
Effective February 29, 2000, CEO, Charles R. Drummond exercised his right of
conversion of his loans to the Company by converting all of the $6,839,103 of
debt owed to him by the Company into 2,279,701 shares of the Company's
restricted common stock. This debt included $1,079,118 of accrued interest
through February 29, 2000.
<PAGE>
NOTE 8. CONTINGENCIES
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.
The Company's Quality Care Pharmaceuticals, Inc. (QCP) subsidiary, 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 August 21, 2000, the outcome of these lawsuits is not reasonably
determinable.
NOTE 9. SUBSEQUENT EVENTS
On June 14, 2000, the Directors approved the issuance of 105,000 restricted
shares of common stock to a public relations and investor relations firm in
consideration for professional services.
On June 30, 2000, the Company borrowed $250,000.- from a healthcare software
firm serving similar markets at 12% interest and convertible to the Company's
common stock at $2.50.
On July 18, 2000, the Company issued 75,000 shares of restricted stock to a
consulting firm in consideration for public relations and advisory services.
On July 31, 2000, the Company reduced the exercise price of the options to
purchase common stock held by ALCO Financial to $3.00 and increased the maximum
they could receive to 365,000.
ITEM 2. 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, 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 health care market and general economic conditions.
Further, any forward looking statements 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.
<PAGE>
RECENT DEVELOPMENTS
The Company had a net loss of ($8,226,000) during the nine months ended May 31,
2000, and, as of May 31, 2000, the Company's current liabilities exceeded its
current assets by ($3,948,000) and its total liabilities exceeded its total
assets by ($2,746,000). These conditions as well as others, raise substantial
doubt about the Company's ability to continue as a going concern.
The Company's operations in fiscal 1999 and through the first nine months of
fiscal 2000 have consumed substantial amounts of cash and have generated
significant net losses that reduced shareholders' equity to a deficit of
($2,746,094) at May 31, 2000. The Company has a current period operating loss
and negative cash flow from operations, and is expected to have continuing
losses and negative cash flow from operations in the near future.
In response, management has reduced staffing, has narrowed its product line, and
is currently reviewing a variety of debt and equity financing alternatives.
Although management has not begun negotiations for a definitive agreement,
management has been in discussions with potential investors and potential
acquirers of the Company. However, none of the related financing alternatives
has been finalized as of August 21, 2000 and no assurance can be given that
management will be able to raise the funds necessary to assure a continuation of
operations.
RESULTS OF OPERATIONS
NINE MONTHS ENDED MAY 31, 2000, COMPARED TO NINE MONTHS ENDED MAY 31, 1999, ($
ROUNDED TO NEAREST THOUSAND)
NET SALES - Net sales for the nine months ended May 31, 2000, increased $483,000
to $6,227,000 from $5,744,000 for the same period last year. The sales gain is
primarily due to an increase in a short-term contract for Point of Care
medications, which has since ended, and partially offsetting the sales gain was
lower sales of seasonal flu vaccines in the first quarter of this fiscal year
and lower margins on sales through the Company's web site during the third
quarter.
COST OF SALES - Cost of sales as a percentage of sales increased to 80% or
($4,961,000) for the nine months ended May 31, 2000, as compared to 77% or
$4,418,000 for the same period last year. Contributing to the slightly higher
cost of sales percentage is the increase of sales of lower margin products
through the Company's web site during the third quarter of fiscal 2000.
SELLING GENERAL AND ADMINISTRATIVE - Selling, general and administrative
expenses (SG&A) for the nine months ended May 31, 2000 were $5,865,000 compared
to $3,551,000 during the comparable period last year. This increase is
attributed to a $956,000 charge to compensation expense for grants of 300,000
shares of restricted common stock to two directors who are shareholders. The
Board of Directors approved the grants on October 19, 1999. In addition,
expenses to support the Company's E-Commerce initiative accounted for the
majority of the balance of the increase.
OTHER INCOME (EXPENSE) - Interest expense increased to $2,103,000 from $599,000
in the comparable period last year.
This increase is primarily due to a $1,038,000 charge to interest expense
related to the issuance of options on common stock for overadvances on the
Company's line of credit. In addition, the increase was also attributable to
interest expense on working capital borrowings, until the conversion to equity
on February 29, 2000, from shareholders who are also directors.
Interest expense from beneficial conversions for the first nine months ended May
31, 2000 was $1,555,000. The majority of the expense is attributed to the
conversion of Charles R. Drummond's loans to the Company into the Company's
restricted common stock, $1,425,000, and the balance is due to the conversion of
three other loans into the Company's restricted common stock.
Other expense increased to ($3,582,000) for the nine months ending May 31, 2000,
from ($369,000) for the same period last year. The increase is attributed
primarily to the interest expense and beneficial conversion described above.
NET LOSS - The net loss increased due to the reasons indicated in the preceding
paragraphs.
THREE MONTHS ENDED MAY 31, 2000, COMPARED TO THREE MONTHS ENDED MAY 31, 1999,
($ ROUNDED TO NEAREST THOUSAND)
<PAGE>
NET SALES - Net sales for the three months ended May 31, 2000, were $2,391,000,
an increase of $340,000 compared to $2,051,000 for the same period last year.
The increase is due primarily to contract manufacturing,
COST OF SALES - Cost of sales as a percentage of sales was 83% or $1,972,000 in
the quarter ended May 31, 2000, compared to 77% or $1,587,000 for the comparable
quarter last year. The increase in the cost of sales percentage is attributed
to increased sales of lower margin products as a percent of sales, including
those over the Company's web site.
SELLING GENERAL AND ADMINISTRATIVE - SG&A expenses increased to $1,608,000 in
the quarter ended May 31, 2000, from $1,087,000 during the same period last
year. The increase is a result of additional consulting, support and
depreciation expenses associated with the E-commerce business.
OTHER INCOME (EXPENSE) - Interest expense for the quarter ending May 31, 2000,
increased to $516,000 from $185,000 from the comparable period last year. This
increase is due primarily to the higher interest rate on the overadvance from
ALCO Financial.
NET LOSS - The net loss increased due to the reasons indicated in the preceding
paragraphs.
LIQUIDITY AND CAPITAL RESOURCES
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 May 31,
2000, as compared to August 31, 1999.
<TABLE>
<CAPTION>
MAY 31, AUGUST 31,
2000 1999
------------ -------------
<S> <C> <C>
Current assets 2,376,000 $ 1,794,000
Current liabilities 6,324,000 5,310,000
------------ -------------
Net working capital (deficiency) ($3,948,000) ($3,516,000)
============ =============
</TABLE>
At May 31, 2000, current liabilities were $6,324,000 an increase of
$1,014,000 from August 31, 1999. Current liabilities increased primarily due to
the following: an additional borrowing on the line of credit and short-term
notes payable of $1,444,000 and an increase in accounts payables of $623,000.
Partially offsetting the above increases was a decrease in related party accrued
interest of $724,000 and a decrease in other liabilities of $498,000. The
decrease in related party accrued interest is a result of Charles R. Drummond
having converted his loans to the Company into common stock.
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 prime rate plus 2%. The
promissory notes are unsecured obligations. The amounts outstanding under the
promissory notes in the aggregate were $500,000 ($470,000 payable to Arch G.
Gothard, III and $30,000 payable to John Grant) at May 31, 2000 and August 21,
2000. As of May 31, 2000, the note payable of $470,000 to Arch G. Gothard III
was payable on demand or no later than April 1, 1998 and, accordingly, is past
due. Pursuant to the December 21, 1999 Board resolution, the amounts
outstanding under the promissory notes are eligible to convert into shares of
the Company's common stock at $3.00 per share.
The Company has suffered substantial recurring losses from operations. The
Company incurred a net loss of ($3,906,000) during the fiscal year ended August
31, 1999 and a net loss of ($8,266,00) during the nine months ended May 31,
2000. As of May 31, 2000, the Company's current liabilities exceeded its
current assets by $3,948,000 and its total liabilities exceeded its total
assets by $2,746,000. Because as of May 31, 2000, the Company owed
$6,324,000 in current liabilities and had only $2,376,000 in current assets,
there is substantial doubt about the Company's ability to continue as a going
concern. The Company has reduced staffing as a result of operating efficiencies
from the e-commerce system and is taking other steps to reduce expenses.
In addition, the Company is in discussions with potential investors and
potential acquirers of the Company. However, the Company has not begun any
negotiations for a definitive agreement and does not have any commitments for
financing, and there can be no assurance that a sale or combination transaction
can be negotiated or that any additional financing will be available to the
Company on terms acceptable to the Company, if at all. The Company's ability to
<PAGE>
continue as a going concern is dependent upon its ability to obtain funding for
the Company's capital requirements and operating losses. The Company has very
limited current access to additional funding, so its existing resources may only
last a few more months. The Company's shareholder deficit and continuing losses
create serious risk of loss for the holders of the Company's securities.
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. Although no
subsequent test for asset impairment has been conducted, management believes
that assets reported on the balance sheet are properly stated and no material
write-down is required at May 31,2000.
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 of 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.
As of August 22, 2000 the Company has not experienced any material interruption
in its operations due to year 2000 software failures.
FORWARD-LOOKING STATEMENTS
This report on Form 10-QSB contains forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended. Actual results could
differ from those projected in any forward-looking statement for the reasons set
forth herein as well as in other sections of the Company's report filed on Form
10-KSB for the year ended August 31, 1999, or for other unforeseen reasons. The
forward-looking statements contained herein are made as of the date of this
report and the Company assumes no obligation to update such forward-looking
statements, or to update the reasons why actual results could differ from those
projected in such forward-looking statements.
<PAGE>
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
As previously reported, 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. There have been no material developments in there lawsuits since
the date of the Company's last report.
On March 24, 2000, the Company filed suit against a software technology company
in the U.S. District Court for the Central District of California, Southern
Division. The Company is suing for (1) misappropriation of trade secrets, (2)
breach of contract, (3) breach of fiduciary duty, (4) unfair competition, (5)
fraud, (6) conversion and (7) intentional interference with prospective economic
advantage. The Company is seeking injunctive relief and damages arising from a
breach of a development contract between the two companies. Subsequently, the
software technology company filed a motion to dismiss in the Circuit Court of
the Nineteenth Judicial Circuit, Lake County, Illinois. As of August 22, 2000,
the outcome of these lawsuits is not reasonably determinable.
ITEM 2. CHANGES IN SECURITIES.
On March 1, 2000, the Board approved the issuance of 100,000 shares of common
stock to one investor in exchange for $600,000. No underwriter participated in
this transaction, and the offering and sale of the securities were made solely
to accredited investors under the exemption provided by Section 4(2) of the
Securities Act of 1933, as amended, as the sale was limited to accredited
investors.
During June, the Company issued 105,000 shares of restricted common stock and
during July the Company issued 75,000 shares of restricted common stock in
consideration for professional services.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
ITEM 5. OTHER INFORMATION.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
a) Exhibits
27 Financial Data Schedule.*
b) Reports on Form 8-K
Incorporated by reference to registrant's Current Report on Form 8-K, dated
March 13, 2000, as filed with Securities and Exchange Commission, for the
purpose of reporting the conversion of Charles R. Drummond's debt.
____________
* Filed herewith
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
DocPlanet.com, Inc.
--------------------
(Registrant)
DATED: August 22, 2000 BY: /s/ John H. Grant
--------------------
John H. Grant, Vice Chairman
(Chief Accounting Officer)
<PAGE>
