<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
|X| Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarterly period ended July 31, 1999
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|_| Transition report under Section 13 or 15(d) of the Exchange Act
For the transition period from to
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Commission file number 000-10576
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PETPLANET.COM, INC.
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(Exact name of small business issuer as specified in its charter)
Delaware 22-2298015
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(State or Other Jurisdiction of (I.R.S.Employer Identification No.)
Incorporation or Organization)
21 Stillman Street, Suite 600, San Francisco, California, 94107
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(Address of Principal Executive Offices)
(415) 243-9000
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(Issuer s Telephone Number, Including Area Code)
N/A
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(Former Name, Former Address and Former Fiscal Year,
if Changed Since Last Report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
----- -----
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuers classes of
common stock, as of the last practicable date.
Common Stock, $.01 par value per share, 9,104,640 shares outstanding at
September 10, 1999.
Transitional Small Business Disclosure Format (check one)
Yes No X
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PETPLANET.COM, INC.
INDEX TO FORM 10-QSB
Page
PART I. FINANCIAL INFORMATION
Item 1. Unaudited Financial Statements
Balance Sheet as of July 31, 1999 3
Statements of Operations for the three months and nine months 4
ended July 31, 1999 and July 31, 1998
Statements of Cash Flows for the nine months ended July 31, 5
1999 and July 31, 1998
Notes to Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition 8
and Results of Operations
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 11
Item 2. Changes in Securities 11
Item 3. Defaults Upon Senior Securities 12
Item 4. Submissions of Matters to a Vote of Security Holders 12
Item 5. Other Information 12
Item 6. Exhibits and Reports on Form 8-K 12
2
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PETPLANET.COM, INC.
BALANCE SHEETS
(unaudited)
BALANCE SHEET
7/31/99
ASSETS
Cash & Cash Equivalents 126,504
Furniture, Fixtures and Equipment, less Accumulated
Depreciation of $4,487 at July 31, 1999 78,282
---------
Total Assets 204,786
=========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses 56,178
Notes Payable, current portion 82,000
Capital Lease Commitments - Current 11,240
---------
Total Current Liabilities 149,417
NON-CURRENT LIABILITIES
Notes payable, long term --
Capital Lease Commitments - Non-Current 22,479
---------
Total Liabilities 171,896
STOCKHOLDERS' EQUITY
Common Stock 91,040
Additional paid-in-capital 1,464,000
(Accumulated deficit) (1,387,921)
Deferred consulting fees (70,230)
Other loan receivable (64,000)
---------
Total Stockholders' Equity 32,889
Total liabilities and Stockholders' Equity 204,786
=========
See notes to Financial Statements
3
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PETPLANET.COM, INC.
STATEMENTS OF OPERATIONS
(unaudited)
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
3 Month's Ended 9 Month's Ended
July 31 July 31
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
OPERATING REVENUE
OPERATING EXPENSES
Product Development 125,794 180,602
Officer's Compensation/Consulting Fee's 21,296 50,560 114,661 109,079
Selling, general and administrative expenses 562,972 9,679 627,091 21,028
Depreciation 3,886 4,487
------- -------- ------- --------
Total Operating Expenses 713,948 60,238 936,583 130,107
Non-Operating Expenses
Interest Expense 1,801 947 4,308 2,410
------- -------- ------- --------
Net (Loss) (715,748) (61,185) (940,891) (132,517)
======= ======== ======= ========
Earnings Per Share (0.08) (0.01) (0.10) (0.01)
Weighted Average Shares Outstanding* 9,104,640 9,104,640 9,104,640 9,104,640
</TABLE>
* Due to the nature and timing of the reverse acquisition, weighted average
shares outstanding is considered consistant over the time frame shown to
reflect the combined entities' equity structure.
See notes to Financial Statements
4
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PETPLANET.COM, INC.
STATEMENTS OF CASH FLOWS
(unaudited)
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Nine Month Ended
July 31
1999 1998
------- -------
<S> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES
Net income (loss) (940,891) (132,517)
Adjustments to reconcile net income (loss) to net cash flows from operating
activities:
Depreciation 4,487 --
Stockholder services contributed 41,667 75,000
Common stock issued for services 2,000 --
Options issued for services 70,933 34,079
Changes in operating assets and liabilities
Accrued Expenses 105,257 4,212
Capital lease commitments 35,394 --
Accrued Interest 1,698 2,410
-------- --------
Net cash flow - operating activities (679,456) (16,816)
CASH FLOW FROM INVESTING ACTIVITIES -
Purchase of property and equipment (81,487) --
CASH FLOW FROM FINANCING ACTIVITIES
Proceeds from issuance of common stock 872,000 --
Proceeds of notes from affiliate 13,000 16,750
-------- --------
Net Cash Flow - Financing Activities 885,000 16,750
NET CHANGE IN CASH 124,057 (66)
CASH, BEGINNING OF PERIOD 2,447 519
CASH, END OF PERIOD 126,504 453
======== ========
</TABLE>
See notes to Financial Statements
5
<PAGE>
PETPLANET.COM, INC.
Notes to Financial Statements
Note 1 - Basis of Presentation
All financial statements are unaudited. In the opinion of management of
PetPlanet.com, Inc., a Delaware corporation (the "Registrant" or the "Company"),
all adjustments which include only normal recurring adjustments necessary to
present fairly the financial position, results of operations and cash flows for
all periods presented have been made. The results of operations for interim
periods are not necessarily indicative of the operating results of the full
year.
Footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been omitted in
accordance with the published rules and regulations of the Securities and
Exchange Commission. These financial statements should be read in conjunction
with the financial statements and notes thereto included in the Registrant's
Form 10-KSB for the most recent fiscal year (filed under the name Techscience
Industries, Inc.) as well as the Registrant's Form 8-K filed on June 3, 1999 as
amended on August 4, 1999.
Loss per Share - Loss per share is based on the weighted-average number of
shares outstanding during the periods. The effect of options and warrants
outstanding and shares issuable in connection with convertible debentures is not
included since it would be dilutive.
Note 2 - Acquisition
On May 13, 1999, PetPlanet.com, Inc., (formally Techscience Industries Inc.), a
publicly held Delaware corporation, (the "Company" or "PPI Delaware"), and
PetPlanet.com Inc., a California corporation ("PPI" or "PPI California"), and
the individual holders of all of the outstanding common stock of PPI (the
"Holders") consummated a reverse acquisition (the "Reorganization") pursuant to
a certain Agreement and Plan of Reorganization ("Agreement") dated May 12, 1999.
Pursuant to the Agreement, the Holders tendered to the Company all issued and
outstanding shares (10,570,000) of common stock of PPI in exchange for 6,754,640
shares of common stock of the Company, and therefore PPI became the wholly owned
subsidiary of the Company. The Company also issued options to purchase 570,360
shares of the Company's common stock to holders of options to purchase PPI's
common stock. Therefore, a total of 7,325,000 shares of Common Stock of the
Company are issuable in respect of all common stock and common stock equivalents
of PPI.
The reorganization, which has been accounted for as a reverse acquisition,
provides that the assets and liabilities of both companies shall be combined at
their adjusted historical cost basis. In addition, the equity of PPI California,
the surviving company for accounting purposes, will be carried at adjusted
historical cost basis and the accumulated deficit of PPI Delaware shall be
offset with additional paid in capital. Par values of PPI Delaware, the
surviving company for legal purposes, will be adjusted to that of PPI.
6
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Note 3 - Bridge Loan
Pursuant to a separate agreement, prior to the closing of the Reorganization,
the Company advanced a $150,000 bridge loan to PPI, with interest at 10% per
annum, collateralized by 51% of PPI's common stock. The loan was repaid at the
closing by payment of $100,000 in cash and $50,000 in common stock.
Note 4 - Going Concern
The Company's financial statements have been presented on the basis that it is a
going concern which contemplates the realization of assets and the satisfaction
of liabilities in the normal course of business. The Company is a development
stage company and has had a history of losses since its inception in October,
1996. The Company's continued existence is dependent upon its ability to achieve
profitable operations and obtain additional financing.
Note 5 - Web Developer Agreement
In April, 1999, the PPI California entered into an agreement with a technology
company, (the "Development Company"), to design, develop and enhance the
computer software and information technology associated with PPI California's
commercial web site. In accordance with the agreement, PPI California issued an
option to the Development Company for the right to purchase approximately
135,000 shares of the Registrant's common stock (post Acquisition equivalent).
In addition, PPI California has agreed to make payments based on a series of
milestones for the project that are expected to exceed $200,000.
7
<PAGE>
PART I. FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis of Financial Condition or Plan of
Operations
Company Background
On May 13, 1999, Techscience Industries Inc. (the "Company"), a
Delaware corporation and PetPlanet.com, Inc. ("PPI"), a California corporation,
and the individual holders of all of the outstanding capital stock of PPI (the
"Holders") consummated a reverse acquisition (the "Reorganization") pursuant to
a certain Agreement and Plan of Reorganization ("Agreement") of such date.
Pursuant to the Agreement, the Holders tendered to the Company all issued and
outstanding shares (10,570,000) of common stock of PPI in exchange for 6,754,640
shares of common stock of the Company, and therefore PPI became the wholly owed
subsidiary of the Company. The Company also issued options to purchase 570,360
shares of the Company's common stock to holders of options to purchase PPI
common stock. The Reorganization is being accounted for as a reverse
acquisition.
Simultaneous with the closing of the Reorganization, all of the then
officers and directors of the Company tendered their respective resignations in
accordance with the terms of the Agreement. Shareholders representing a majority
of the outstanding common stock of the Company then elected Steven E. Marder,
Kim Marder and Raymond Skiptunis to serve on the Board of Directors of the
Company (the "Board"). The Board subsequently appointed Steven E. Marder as the
President and Chief Executive Officer of the Company. As a condition to the
Reorganization, each of the Holders executed an investment letter agreement
("Investment Letter Agreement") pursuant to which the Holders are prohibited
from publicly selling the shares of the Company received in the Reorganization
for a period of six months from the date thereof.
On May 20, 1999, the Company amended its Articles of Incorporation in
order to change its name from Techscience Industries, Inc. to PetPlanet.com,
Inc. Copies of the Agreement and a form of the Investment Letter Agreement are
filed as Exhibits 2.1 and 4.1 respectively to the Company's Form 8-K filed on
June 3, 1999 and are incorporated herein by reference. The foregoing
descriptions are qualified in their entirety by reference to the full text of
such agreements.
Because the nature of the Company's business completely changed as of
the date of the Reorganization, a current description of the Company's business
operations is set forth below
Business Description
The Company is the developer, producer, and operator of the
Internet-based network known as PetPlanet.com (www.petplanet.com) which is
designed to cater to the needs and interests of pet owners. PetPlanet.com is an
emerging global Internet network servicing the needs of a focused target
audience for pet product and service providers. The Company targets households
caring for one or more pets (called "Pet Families") which make up over 60% of
the households in the United States. PetPlanet.com will provide a place where
Pet Families can access personalized local and national information, unique
products and services, and interact with others sharing similar interests. The
Company targets Pet Families by providing (i) comprehensive content, services
and features; (ii) active community participation; and (iii) a targeted
cost-effective medium for business-to-consumer advertising. When fully launched,
PetPlanet.com will feature personalized national and local information,
community-oriented content, entertainment, and information to allow Pet Families
to find and buy products and services for their pets.
8
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Plan of Operation
In order to achieve its objectives, the Company will seek to:
o expand the user base and enhance user experience with new features,
services and content;
o build the PetPlanet.com brand;
o enhance the PetPlanet.com site functionality and performance through
continued investments in technology and site infrastructure;
o expand globally through an aggressive acquisition program;
o establish additional strategic relationships with online distribution
partners;
o introduce the PetPlanet.com Store in September, 1999;
Pet Families in the USA spend over $23 billion a year on products and
services relating to their pets. While the major pet supply manufacturers and
retailers account for much of this commerce, the pet industry is also comprised
of many small-to-medium sized marketers of products and services who currently
depend on magazines and other media for much of their marketing and sales. The
Company believes that there is no clear leader in the Internet pet market. To
leverage the existing expertise of an established pet industry player,
PetPlanet.com has partnered with a top tier pet product distribution company
carrying over 25,000 products across all pet categories.
PetPlanet.com's business model is founded upon the concept of
"community driven e-commerce". The Company believes that in order to build a
successful e-commerce business that derives its sales from Pet Families, the
experience must blend elements focused on community, content and commerce. The
network will also offer elements such as its classified listings service,
personalized e-mail, chat and a personalized calendar with local and national
events.
Significant capital will be required to develop the site, secure online
distribution, generate brand identity and complete domestic and international
acquisitions. While the Company is projected to generate revenue in the first
year, the Company is projected to show significant losses in the first several
years of operation as it invests heavily in acquisition of market share.
Spending will concentrate primarily in building the brand through aggressive
marketing, taking advantage of newer technologies to enhance the network, and
building an adequate level of infrastructure to sustain the growth in the
business, and seek to make strategic acquisitions. The Company will seek
acquisition targets that complement its existing business, augment the
distribution of the pet community, enhance its technological capabilities,
and/or expand its ability to conduct commerce.
9
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Liquidity
The Company is actively pursuing additional funding sources necessary
to continue executing on its key business plan initiatives and is planning a
private placement of equity securities. The Company may also opt to finance its
short term capital needs through a bridge loan or the issuance of convertible
debt. While the Company is confident it can satisfy its short and long-term
financing objectives, no assurance can be given that it will be able to secure
additional equity financing on favorable terms. Without additional financing,
the Company's business would be severely impacted in the near term.
Research & Development
The Company has engaged Outlook Technologies to spearhead the design
and implementation of all major product development on the site. During the
quarter, Outlook made significant progress in designing and developing an
e-commerce component to the site as well as additional community features and
tools. The results of their development efforts will be reflected in the
following quarter.
Employees
The Company currently has approximately 14 employees. The Company plans
to grow aggressively as additional financing is secured. The Company intends to
double in the number of employees over the next 12 months to support its growth.
Management believes these resources will be necessary to execute on the business
initiatives scheduled for the following months and as a result of higher
business volumes.
10
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
The Company is not a party to any litigation or governmental
proceedings that management believes would result in judgments or fines that
would have a material adverse effect on the Company.
Item 2. Changes in Securities
Shares Issued in the Company's Private Placement
Simultaneous with the closing of the Reorganization, the Company closed
on a private placement made pursuant to Rule 506 of Regulation D of the
Securities Act of 1933, as amended (the "Act") pursuant to which it issued
250,000 shares of the Company's Common Stock to accredited investors in exchange
for the aggregate sum of $1,000,000. No underwriting discounts or commissions
were paid in connection with this private placement, however, the Company
incurred unallocated expenses of $25,000 in connection with this transaction.
Shares Issued in Connection with Bridge Financings
On February 19, 1999, and pursuant to the terms and conditions of two
identical Accredited Investor Subscription Agreements with non-affiliated
investors, the Registrant consummated a private placement under Rule 506 of
Regulation D under the 33 Act (the "Bridge Private Offering"). The Bridge
Private Offering, which provided the funding for the Registrant's bridge loan to
PPI, was comprised of two 10% promissory notes in the aggregate principal amount
of $150,000 (the "Notes"). The Notes were due and payable on the closing date of
the Reorganization with PPI. On May 13, 1999, the holders of the Bridge Notes
converted an aggregate of $50,000 of principal due under the Bridge Note into an
aggregate of 100,000 shares of the Company's Common Stock.
On February 5, 1999, and pursuant to the terms and conditions of five
identical Accredited Investor Subscription Agreements with non-affiliated
investors, the Registrant consummated a private placement under Rule 506 of
Regulation D under the Securities Act of 1933 (the "Seed Money Private
Offering"). The Seed Money Offering, which provided the necessary funding to
implement the Reorganization, was comprised $24,800 principal amount of 30 day
convertible promissory notes bearing interest at 9.6% per annum (the "Notes").
The Notes converted into an aggregate of 400,000 shares of the Company's Common
Stock at a conversion of $.062 per share.
Shares Issued in the Reorganization
In connection with the Reorganization as described in Part I, Item 2
above, the holders of PPI's common stock tendered to the Company all issued and
outstanding (10,570,000) shares of common stock of PPI in exchange for 6,754,640
shares of common stock of the Company. Also in connection with the
Reorganization, the Company issued options to purchase 570,360 shares of the
Company's common stock to holders of options to purchase PPI common stock.
11
<PAGE>
Item 3. Defaults Upon Senior Securities
N/A
Item 4. Submissions of Matters to a Vote of Security Holders
On May 17, 1999, the holders of a majority of the Common Stock voted by
written resolution to change the name of the Company from Techscience
Industries, Inc. to Petplanet.com, Inc.
On May 17, 1999, the holders of a majority of the Common Stock voted by
written resolution to elect Steven E. Marder and Kim Marder to the Company's
Board of Directors.
Item 5. Other Information
Hiring of Executives
In the quarter covered by this report, the Company hired three
additional executives. Jeff Harris will serve as the Company's Vice President
Finance & Operations. Mr. Harris will be responsible for overseeing and managing
the day-to-day finance and business operations of the Company and will oversee
the customer service ordering and fulfillment process for the Company's
e-commerce initiatives. Mark P. Brown was retained as the Company's Vice
President Product Management, in which capacity he will be responsible for the
development of the Company's Internet product and the functionality of the site.
Phillip A. Schein was hired to serve as the Company as Vice President Online
Development. In this capacity, Mr. Schein is responsible for the technology,
design and integration of the site's content, commerce and community functions.
Commencement of Trading
On or about July 28, 1999, the Company changed its stock trading symbol
from "TSCID" to "EPET" and began trading its Common Stock under such symbol on
the National Association of Securities Dealers' Over-the-Counter Bulletin Board.
E-Commerce Agreement
On July 30, 1999 the Company entered into an e-commerce agreement with
America Online, Inc. a leading interactive service, under which the Company will
be an anchor tenant in the Pet Accessory area of the newShop@AOL, AOL.COM,
CompuServe and Netscape online shopping destinations. Pursuant to such
agreement, the Company will also receive promotion in areas on AOL, AOL.COM and
CompuServe. This term of this agreement shall run until late 2000.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
4.1 E-commerce Agreement with America Online, Inc. and the
Company dated July 30, 1999 (to be filed by amendment).
12
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(b) Reports on Form 8-K
A report on Form 8-K was filed by the Company on May 13, 1999
concerning (i) the letter of intent for the Reorganization; (ii) the proposed
private placement; (iii) the $150,000 bridge financing; and (iv) the
implementation of a reverse stock split of the Company's Common Stock.
A report on Form 8-K was filed by the Company on June 3, 1999
concerning the terms and Reorganization described above.
A report on Form 8-K/A was filed by the Company on August 4, 1999 for
purposes of (i) describing the Company's business after the Reorganization; and
(ii) disclosing the pro forma combined financial information for the
Reorganization.
13
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PETPLANET.COM, INC.
By: /s/ Steven E. Marder
-----------------------------
Steven E. Marder, President
(Principal Executive Officer)
Date: September 14, 1999
14
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<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> FEB-28-1998
<PERIOD-END> JUL-31-1999
<CASH> 127
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 127
<PP&E> 78
<DEPRECIATION> 5
<TOTAL-ASSETS> 205
<CURRENT-LIABILITIES> 149
<BONDS> 0
0
0
<COMMON> 91
<OTHER-SE> (58)
<TOTAL-LIABILITY-AND-EQUITY> 205
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 704
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2
<INCOME-PRETAX> (706)
<INCOME-TAX> 0
<INCOME-CONTINUING> (706)
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</TABLE>
