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Filed pursuant to Rule 424(b)(3)
Registration No. 333-38872
PROSPECTUS SUPPLEMENT
TO
PROSPECTUS DATED JANUARY 25, 2001
13,693,733 SHARES
PET QUARTERS, INC.
COMMON STOCK
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The following information supplements the information contained in the
Prospectus and the post effective Amendment to the Prospectus dated July 10,
2000 and January 25, 2001 respectively. You should read this prospectus
supplement and all previous prospectuses carefully before you invest. These
documents contain information you should consider when making your investment
decision. When used herein, the term "Prospectus" refers to the Prospectus dated
July 10, 2000, the post effective Amendment dated January 24, 2001 and all
supplements to the Prospectus.
THE DATE OF THIS PROSPECTUS SUPPLEMENT IS APRIL 17, 2001
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR ACCURATE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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You should rely only on the information contained in this prospectus.
We have not authorized any other person to provide you with different
information. If anyone provides you with different or inconsistent information,
you should not rely on it. We are not making an offer to sell these securities
in any jurisdiction where the offer or sale is not permitted. You should assume
that the information appearing in this prospectus is accurate as of the date on
the front cover of this prospectus only. Our business, financial condition,
results of operation, and prospects may have changed since that date.
PROSPECTUS DELIVERY REQUIREMENT
All underwriters that effect transactions in these securities, whether
participating in this offering, may be required to deliver a prospectus to
purchasers of these securities.
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TABLE OF CONTENTS
Page No.
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RECENT DEVELOPMENTS...............................................................................................3
RISK FACTORS......................................................................................................3
PRICE RANGE OF COMMON STOCK.......................................................................................4
CAPITALIZATION....................................................................................................4
SUMMARY FINANCIAL DATA............................................................................................5
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.............................5
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RECENT DEVELOPMENTS
You should read this prospectus supplement and the related prospectus
carefully before you invest. Both documents contain information you should
consider when making your investment decision.
On April 12, 2001, we issued a drawdown notice to Splendid Rock
Holdings, Ltd. in connection with the equity line of credit agreement dated
March 15, 2000, evidencing an equity draw down facility between us and Splendid
Rock Holdings, Ltd. This notice indicated our intent to sell 300,000 shares of
our common stock to Splendid Rock Holdings, Ltd. for a price of $0.0516 per
share. These purchases resulted in aggregate proceeds of approximately $15,480
being paid and released from escrow to us by Splendid Rock Holdings, Ltd. We are
required to pay certain fees and expenses in connection with the sale.
We expect to use the proceeds of this sale of common stock under the
equity line of credit agreement for general corporate purposes. We have been
informed by Splendid Rock Holdings that it has reached an agreement with an
unaffiliated third party to sell the shares of common stock sold to it pursuant
to the drawdown notice.
The Company had a note due on April 15, 2001 in the amount of
$1,450,000. We have negotiated an extension of the note until July 12, 2001,
paid the interest current and negotiated a reduction in the interest rate on the
note to 9.5%. The note has a secured senior lien on PQ Acquisition Corporation
(Humboldt and Maplewood Industries).
RISK FACTORS
Our Company is highly dependent upon the services of its core group of
officers and directors. These include Steve Dempsey, Gregg Rollins, Mike Kelly
and Dino Mishova. Because of the expense associated with insuring these persons,
the Company does not currently maintain key person life insurance on these
individuals. The loss of services of one or more of these individuals would have
a significant adverse impact on the Company's long-term planning, financing and
operations.
Our Company continues to require additional capital resources. The
Company has reduced staff and other expenses in its effort to become cash-flow
positive. The full benefit of expense reduction will not be fully realized until
the first quarter of fiscal 2002 (i.e., July through September 2001). Because of
the price decline in the Company's stock, accessing capital through the equity
line of credit agreement is not as attractive as it once was. The Company is
currently reviewing alternate sources of capital which include short and long
term borrowing secured by Company assets. The Company's continued growth and
viability depends upon continued access to capital.
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PRICE RANGE OF COMMON STOCK
Since April, 1998, our common stock has traded on the over-the-counter
bulletin board under the symbol PDEN. Below are the quarterly high and low
closing prices since inception as recorded by the bulletin board. Bid prices
were not available.
Period Low High
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January - March 1999 9/16 1-13/16
April - June 1999 7/8 4-19/32
July - September 1999 2-15/16 6-9/16
October - December 1999 1 3-11/32
January - March 2000 2-21/32 5-19/32
April - June 2000 3-27/32 1-7/32
June - September 2000 .78 1.26
October - December 2000 .19 1.06
January - March 2001 .068 .385
As of September 15, 2000 , the Company had 2,356 shareholders of
record.
CAPITALIZATION
The following table sets forth our capitalization (i) as of June 30,
2000 and December 31, 2000, on an actual basis, and (ii) as of December 31,
2000, on a pro forma basis to reflect the issuance of 639,659 shares of common
stock on January 26, 2000 and the 300,000 shares issued in by this supplement,
pursuant to our equity line of credit agreement. The table below should be read
in conjunction with our consolidated financial statements and the notes thereto,
which are included elsewhere in this prospectus.
June 30, 2000 December 31, 2000 December 31, 2000
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Pro Forma
Notes Payable, Capital Leases and
Convertible Debenture........................ $ 1,951,877 $ 3,087,612 $ 3,087,612
Stockholders Equity:
Convertible Preferred Stock: $0.001
par value 10,000,000 authorized,
34,642 issued and 32,769 outstanding...... $ 35 $ 33 $ 33
Common stock: $0.001 par value
40,000,000 authorized, 18,147,783,
19,857,648, and 21,347,307
outstanding............................... $ 18,148 $ 20,844 $ 21,784
Additional Paid-in-Capital................... $ 33,109,661 $ 35,120,499 $ 35,285,039
Accumulated Deficit.......................... $ (16,586,531) $ (22,470,744) $ (22,470,744)
Unamortized Stock Compensation............... $ (96,855) $ 0 $ 0
Total Stockholders' Equity.............. $ 16,444,458 $ 12,670,634 $ 12,836,112
Total Capitalization.................... $ 18,396,335 $ 15,758,246 $ 15,923,724
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SUMMARY FINANCIAL DATA
The following table sets forth a summary of our statement of operations
and balance sheets for the periods presented on a actual basis.
FISCAL YEAR ENDED
2000 1999 1998
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STATEMENT OF OPERATIONS DATA:
Net sales $ 13,731,147 $ 262,470 $ 43,835
Gross margin 4,284,747 56,696 21,927
Total Operating Expenses 12,849,848 1,114,966 855,119
Operating loss (8,565,101) (1,058,270) (833,192)
Net loss (11,318,087) (1,052,265) (816,179)
Net loss for common stockholders (14,718,087) (1,052,265) (816,179)
Basic and diluted net loss for common
stockholders per common share (1.18) (0.09) (0.10)
Weighted average shares outstanding used to
compute basic and diluted net loss for common
stockholders per common share 12,482,101 11,453,000 8,568,125
Total assets 21,846,952 1,042,285 1,489,059
Notes payable, capital leases and convertible debenture 1,951,877 325,000 -0-
Total stockholders' equity 16,444,458 501,278 1,468,354
The following table sets forth a summary of our statement of operations
for the three month period ended December 31, 2000, as compared to the three
month period ended December 31, 1999.
Three Months Ended December
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2000 1999
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STATEMENT OF OPERATIONS DATA:
Net Sales $ 3,548,401 $ 3,688,148
Gross Margin $ 995,461 $ 1,253,203
Total Operating Expenses $ 3,423,131 $ 2,513,184
Operating Loss $ (2,427,670) $ (1,259,981)
Net loss $ (2,707,487) $ (2,742,323)
Net loss for common shareholders
Basic and diluted net loss for common shareholders (0.13) (0.24)
Basic and diluted shares for common shareholders 20,501,209 11,399,962
BALANCE SHEET DATA:
Total assets $ 19,108,845 $ 21,846,952
Notes payable, capital leases and convertible debenture $ 3,087,612 $ 1,951,877
Total stockholders' equity $ 12,670,634 $ 16,444,458
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION, AND RESULTS OF OPERATIONS
The following discussion and analysis contains some forward-looking
statements, which are based upon our plans, goals, and objectives for Pet
Quarters, Inc. and its management. Such statements are subject to various risks
and uncertainties, including our inability to secure ongoing financing. The most
important risk concerns the cash to operate the businesses of Pet Quarters, Inc.
We have additional loans, some of which are demand loans, which could require
additional infusions of capital. Our longer-
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term development plans also require additional capital for completion.
Consequently, the reader should consider that such uncertainties and risks may
cause actual results to vary materially from the stated plans, goals, and
objectives outlined below. Unless otherwise indicated, this discussion covers
the period beginning on October 1, 2000 and concluding on December 31, 2000.
BALANCE SHEET DATA AS OF DECEMBER 31, 2000 COMPARED TO JUNE 30, 2000
Assets: The total assets as of December 31, 2000 were $19,108,845 as compared to
$21,846,952 as of June 30, 2000. This is an 13% decrease, which reflects the
goodwill that was amortized during the quarter. We had current assets of
$3,265,741 including cash of $225,417, inventories of $1,669,785, prepaid
expenses and deferred advertising costs of $731,024, accounts receivable of
$139,515 and land and building held for sale of $500,000 as of December 31, 2000
as compared to current assets of $3,302,340 including cash of $164,128,
inventories of $1,674,002, prepaid expense of $637,425 and building and land
held for sale of $500,000 as of June 30, 2000. We have listed the facility in
Lonoke, Arkansas for $650,000. The purchase of Humboldt Industries eliminated
the original purpose of the facility, and the Company is prepared to sell the
Lonoke facility.
Goodwill, net of accumulated amortization, was $14,775,051 as of December 31,
2000 as compared to $17,524,514 as of June 30, 2000. The reduction in goodwill
reflects the quarterly amortization of goodwill resulting from the purchase of
Humboldt Industries, WeRPets.com, Chartendure Ltd., and AllPets.com. Goodwill
relates to recent acquisitions and we are amortizing these acquisitions on
schedules that vary between two and five years. We are still developing our
e-commerce strategy and believe the carrying amount of goodwill at December 31,
2000 is appropriate. Management has and will continue to evaluate the
recoverability in accounting for goodwill.
Intangible assets, net of accumulated amortization, in the amount of $486,744 as
of December 31, 2000 include capitalized costs associated with our website as
compared to $506,227 as of June 30, 2000. We anticipate website design and
development costs will continue and will be capitalized in conformity with
Statement of Position (SOP 98-1).
Liabilities and stockholders equity:
Liabilities: Total liabilities of $6,438,211 are reflected as of December 31,
2000 as compared to total liabilities as of $5,402,494 as of June 30, 2000.
Current liabilities total $6,438,211 as of December 31, 2000 as compared to
$5,141,558 as of June 30, 2000. They include accounts payable of $2,303,400 as
of December 31, 2000 as compared to $2,904,205 as of June 30, 2000. Accrued
expenses of $1,047,199 as of December 31, 2000 compared with $546,412 as of June
30, 2000. We had notes payable totaling $3,087,612 for the quarter ended
December 31, 2000 including notes payable to related parties and including a
$941,044 Debenture, net of discount which has been extended to May 5, 2001. This
compares to $1,951,877 in notes and capital leases payable as of June 30, 2000.
Related party notes in the amount of $329,989 are secured with a subordinated
position on the facility in Lonoke, Arkansas.
Stockholders equity: Common shares increased from 18,147,783 as of June 30, 2000
to 20,844,305, as of December 31, 2000. The increase is the result of the
issuance of an additional 850,000 shares through our equity line of credit and
136,657 shares were issued upon conversion from the Company's Series A
Preferred.
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Total shareholder equity was $12,670,634 as compared to $16,444,458 as of June
30, 2000. Total liabilities and stockholder's equity was $19,108,845, as of
December 31, 2000 as compared to $21,846,952 on June 30, 2000.
Liquidity and Capital Resources: Recently, we obtained additional loans to
provide for our cash deficiency. The Company has relied on the equity line of
credit to access capital, but given the recent share price the Company may not
be able to access the capital needed and is pursing alternative financings. We
are actively pursuing this financing; however, there is no assurance we will be
successful in these efforts.
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED DECEMBER 31, 2000 COMPARED WITH
THE THREE MONTHS ENDED DECEMBER 31, 1999.
Sales: Sales decreased to $3,548,401 for the quarter ended December 31, 2000
from $3,688,148 for the quarter ended December 31, 1999. This is a 4% decrease.
The short-fall resulted from a different catalog mailing schedule from the prior
year Quarter. Internet sales for the December 2000 quarter were $510,015 as
compared to 213,923 in the December 1999 quarter.
Cost of Sales: Cost of sales increased to $2,552,940 as of December 31, 2000 as
compared to $2,434,945 as of December 31, 1999. This is a 5% increase and is
partially the result of our free shipping policy for online orders received
through our allpets.com web site.
Gross margin: Our gross margins declined to 28% for the quarter ended December
31, 2000 as compared to 34% for the same period in 1999. The lower margins are a
direct result of our free shipping policy for online sales through our
allpets.com web site and an increase in product costs for all divisions.
Selling expenses: Selling expenses of $590,629 for the quarter ended December
31, 2000 and compare with $596,452 for the quarter ended December 31, 1999. The
majority of the selling expenses were attributed to the cost of the catalogs.
Administrative and general expenses increased to $1,400,348 during the quarter
ended December 31, 2000 as compared to $1,470,949 for the quarter ended December
31, 1999. This reflects a 5% decrease. Recently, we have reduced payroll
expenses and believe other reductions will occur during the next several
quarters. Depreciation and amortization expenses for the quarter were $1,432,154
as compared to $445,783 in the quarter ended December 31 , 2000. The increase is
attributed to the amortizations of goodwill relating to the acquisitions of
WeRPets.com, Chartendure, Ltd., and AllPets.com. These acquisitions were
completed after the end of the December 1999 quarter. The amortizations are
expected to continue for one and one-half to three and one-half more years.
Loss from operations was $2,427,670 as of December 31, 2000 as compared to
$1,259,981 as of December 31, 1999. The largest part of the increase is from the
increased amortization from the acquisitions made during the past year.
Interest expense was $283,722 for the quarter ended December 31, 2000 as
compared to $149,913 for the same period in 1999. This increase is due to
interest costs of $210,000 charged in the second quarter relating to the
beneficial conversion component of extending the convertible debenture.
Income tax benefit: We currently have substantial net operating losses (NOL'S)
from inception through December 31, 2000. At this time, no income tax benefit
has been recognized.
Net loss: We had a $2,707,987 loss for the quarter as compared to a $2,742,323
loss for the quarter ended December 31, 1999. Non-cash items include the
goodwill amortization of Humboldt Industries, WeRPets.com, Chartendure Ltd., and
AllPets.com, depreciation expense, and stock compensation
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expense and the interest costs associated with the beneficial conversion
component of the convertible debenture.
Recent Events: The Company had a note due on April 15, 2001 in the amount of
$1,450,000. We have negotiated an extension of the note until July 10, 2001 with
interest paid current. The note has a secured senior lien on PQ Acquisition
Corporation (Humboldt and Maplewood Industries).
RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED DECEMBER 31, 2000 COMPARED WITH
THE SIX MONTHS ENDED DECEMBER 31, 1999.
Sales: Sales for the six-months were $7,521,735 as of December 31, 2000 as
compared to $6,198,900 for the six months ended December 31, 1999. Cost of sales
was $5,368,949 as of December 31, 2000 as compared to $4,113,152 as of June 30,
2000. Gross margin was $2,152,786 at the end of the six months as compared to
$2,085,748 for the same period in 1999.
Operating expenses and costs total $7,671,192 for the six months ended December
31, 2000 as compared to $3,842,802 for the same period in 1999. The increase
partially reflects expenses associated with overhead from the acquisitions made
in the last year. Additionally, the increase in depreciation and amortization
for the six months ended December 31, 2000 as compared to December 31, 1999
reflects a portion of the costs associated with the acquisitions of WeRPets.com,
Chartendure, Ltd., and AllPets.com. Loss from operations was $5,518,406 for the
six months ended December 31, 2000 as compared to a $1,757,054 loss for the
period ended December 31, 1999.
Other income (expense): Total other expense decreased from $2,245,629 as of
December 31, 1999 to $365,807 as of December 31, 2000. The decrease reflects
loan origination fees and charges associated with the bridge loan in the prior
period.
Net Loss: Net loss increased to $5,884,213 for the six months ended December 31,
2000 as compared to $4,002,683 as of December 31, 1999. Net loss per share
decreased from ($0.30) for the six months ended December 31, 2000 as compared to
($0.36) as of December 31, 1999.
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