FORM 10-QSB
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C., 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended: November 30, 2000
Or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period to
Commission file number: 000-26553
HEALTHNET INTERNATIONAL INC.
(Exact name of registrant as specified in its charter)
COLORADO 98-0206627
(State of Incorporation) (IRS Employer ID No.)
Suite 301-1201 West Pender Street
Vancouver, British Columbia
Canada V6E 2V2
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (604) 669-3573
As of November 30, 2000, the registrant had 12,005,471 shares of Common Stock
outstanding.
Transitional Small Business Disclosure Format (check one);
YES NO X
---------- ----------
Part I. FINANCIAL INFORMATION
- -------------------------------
Item 1. FINANCIAL STATEMENTS
HEALTHNET INTERNATIONAL INC.
(A DEVELOPMENT-STAGE COMPANY)
CONSOLIDATED BALANCE SHEETS
(IN UNITED STATES DOLLARS)
AS AT AS AT
November 30, FEBRUARY 29,
2000 2000
$ $
- ---------------------------------------------------------------------------------------------------
ASSETS
CURRENT
Cash and cash equivalents (237,390) 50,901
Restricted cash [NOTE 4] 51,449 17,000
Accounts receivable [NOTE 5] 113,952 63,091
Prepaid expenses and deposits [NOTE 6] 65,622 52,698
- ---------------------------------------------------------------------------------------------------
(6,368) 183,690
Capital assets (net) [NOTE 7] 766,231 781,125
OTHER ASSETS
Goodwill [NOTE 8] 116,555 190,266
- ---------------------------------------------------------------------------------------------------
876,419 1,155,081
===================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIENCY)
CURRENT
Notes payable [NOTE 11] 3,373,700 --
Accounts payable and accrued liabilities [NOTE 9] 1,330,283 744,839
Amount due for business combination -- 69,022
Deferred Revenue 13,115 --
- ---------------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 4,717,098 813,861
LONG-TERM
Notes payable [NOTE 11] -- 2,000,000
Obligation under capital lease [NOTE 10] 24,968 20,155
Commitments [NOTE 12]
SHAREHOLDERS' DEFICIENCY
Share capital
Preferred shares, 50,000,000 authorized, no par value
Common shares, 100,000,000 authorized, no par value,
12,005,471 issued and outstanding [February 29, 2000 -
10,536,251] 1,632,459 118,535
Additional paid-in capital 51,571 16,631
Deficit accumulated (5,549,677) (1,814,101)
- ---------------------------------------------------------------------------------------------------
TOTAL SHAREHOLDERS' EQUITY (DEFICIENCY) (3,865,647) (1,678,935)
- ---------------------------------------------------------------------------------------------------
876,419 1,155,081
===================================================================================================
SEE ACCOMPANYING NOTES
HEALTHNET INTERNATIONAL INC.
(A DEVELOPMENT-STAGE COMPANY)
CONSOLIDATED STATEMENT OF
LOSS AND COMPREHENSIVE LOSS
(IN UNITED STATES DOLLARS)
FOR THE THREE MONTHS ENDED FOR THE NINE MONTHS ENDED
NOVEMBER 30 NOVEMBER 30
2000 1999 2000 1999
$ $ $ $
- -----------------------------------------------------------------------------------------------------
Web site development revenue 79,951 -- 183,101 --
Software license revenue 20,233 -- 155,225 --
Internet marketing revenue 34,974 -- 79,825 --
Product sales revenue 13,716 -- 18,187 --
Cost of product sales (7,400) -- (12,039) --
- -----------------------------------------------------------------------------------------------------
141,474 -- 424,299 --
- -----------------------------------------------------------------------------------------------------
EXPENSES
Salaries and benefits 588,284 189,100 1,645,619 283,347
Advertising, marketing and promotion 350,075 89,320 801,369 120,296
General and administrative 343,224 112,283 927,498 145,410
Amortization 154,507 35,071 461,293 90,401
Accounting and professional fees 256,512 13,539 331,197 61,301
Foreign exchange (17,310) 3,790 (7,102) 4,100
Loss on write-down of capital assets -- -- -- --
- -----------------------------------------------------------------------------------------------------
1,675,291 478,608 4,159,874 771,336
- -----------------------------------------------------------------------------------------------------
LOSS AND COMPREHENSIVE LOSS FOR THE PERIOD (1,533,817) (478,608) (3,735,575) (771,619)
=====================================================================================================
LOSS PER COMMON SHARE (.14) (0.02) (0.35) (.07)
=====================================================================================================
Weighted average shares outstanding 10,746,916 10,500,000 10,631,596 10,500,000
=====================================================================================================
SEE ACCOMPANYING NOTES
HEALTHNET INTERNATIONAL INC.
(A DEVELOPMENT-STAGE COMPANY)
CONSOLIDATED STATEMENT OF
SHAREHOLDERS' DEFICIENCY
(IN UNITED STATES DOLLARS)
COMMON STOCK ADDITIONAL DEFICIT
--------------------------- PAID-IN ACCUMULATED IN THE
SHARES AMOUNT CAPITAL DEVELOPMENT STAGE
# $ $ $
- -------------------------------------------------------------------------------------------------------
BALANCE, FEBRUARY 29, 2000 10,536,251 118,535 16,631 (1,814,101)
Stock options exercised 38,312 28,734 -- --
Compensatory stock options -- -- 34,940 --
Retainer stock options 430,908 485,190 -- --
Shares issued in partial settlement 1,000,000 1,000,000 -- --
Loss and comprehensive loss for
the 9 months ended November 30, 2000 -- -- -- (3,735,576)
- -------------------------------------------------------------------------------------------------------
BALANCE, NOVEMBER 30, 2000 12,005,471 1,632,459 51,571 (5,549,677)
=======================================================================================================
SEE ACCOMPANYING NOTES
HEALTHNET INTERNATIONAL INC.
(A DEVELOPMENT-STAGE COMPANY)
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN UNITED STATES DOLLARS)
FOR THE NINE MONTHS ENDED
NOVEMBER 30,
2000 1999
$ $ $
- --------------------------------------------------------------------------------------
OPERATING ACTIVITIES
Loss for the period (3,735,576) (771,336)
Adjustment to reconcile loss to net cash used in
operating activities
Amortization 461,293 90,401
Retainer stock options 485,190 --
Share option compensation expense 34,940 --
Foreign exchange difference 1,662 --
Changes in current assets and liabilities
Increase in restricted cash (34,449) --
Increase in accounts receivable (50,861) (12,377)
Increase in prepaid expenses and deposits (424) (45,852)
Increase in inventory -- (103)
Increase in accounts payable and accrued 295,691 24,216
Liabilities
Increase in deferred revenue 13,115 --
- ---------------------------------------------------------------------------------------
CASH USED IN OPERATING ACTIVITIES (2,541,919) (715,051)
- ---------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Additions to fixed assets (119,660) (332,456)
- ---------------------------------------------------------------------------------------
CASH USED IN INVESTING ACTIVITIES (119,660) (332,456)
- ---------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Increase in notes payable 2,373,700 1,000,000
Issuance of share capital for cash 28,734 --
Decrease in capital leases,
net of repayments (29,147) --
- ---------------------------------------------------------------------------------------
CASH PROVIDED BY FINANCING ACTIVITIES 2,373,287 1,000,000
- ---------------------------------------------------------------------------------------
INCREASE/(DECREASE) IN CASH DURING THE PERIOD (288,291) (47,507)
Cash, beginning of period 50,901 9,157
- ---------------------------------------------------------------------------------------
CASH, END OF PERIOD (237,390) (38,350)
=======================================================================================
SUPPLEMENTAL INFORMATION
Interest paid 8,880 --
=======================================================================================
SEE ACCOMPANYING NOTES
HEALTHNET INTERNATIONAL INC.
(A DEVELOPMENT-STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
(IN UNITED STATES DOLLARS)
November 30, 2000
1. Nature of Business
Healthnet International Inc. has two business units, eHealthstores which
licenses applicable software, builds and maintains customized e-commerce Web
sites for retailers and health care providers who wish to sell vitamins,
minerals and supplements (VMS) products on the Internet. The second business
unit, nject (formerly Varcom), provides Internet design, graphic and marketing
services for clients. In addition, the Company's early prototype retail
operations (medicinecabinet.com, medicinecabinet.co.uk) continue to operate as
the research and development test bed and direct sales division.
The Company is currently capitalizing on four burgeoning global industries:
Health, E-commerce, Web design and Internet marketing. Through its eHealthstores
business unit, Healthnet is a leading provider of comprehensive turnkey Web
solutions and services to "brick & mortar" retailers, clubs and healthcare
associations. By providing established brick & mortar health retailers with
affordable, turnkey Internet sites, eHealthstores effectively converts these
businesses into "click & mortar" hybrids - each with a built-in regional
customer base and brand-name recognition. eHealthstores comprises two product
lines: eHealthstores is our original, comprehensive Web solution, and
eHealthstores Express is a streamlined version for customers requiring less
customization.
nject was launched to meet a growing demand for Web site design among partners,
clients and other companies looking to expand their business onto the Internet.
Healthnet International Inc. has four wholly owned subsidiaries; Healthnet
U.S.A. Inc., HNI Healthnet (Canada) Inc., Healthnet Europe Limited, and nject
Creative Inc.
Healthnet U.S.A. Inc. was incorporated on March 8, 1999. It was incorporated in
the state of Nevada and is intended to function as the operating company for the
United States market.
HNI Healthnet (Canada) Inc. was incorporated on May 18, 1999. It was
incorporated in the Province of British Columbia and is intended to function as
the operating company for the Canadian market.
Healthnet Europe Limited was incorporated on January 11, 2000. It was
incorporated in the Island of Guernsey and is intended to function as the
operating company for the European market.
On February 29, 2000, the Company acquired Varcom Internet Communications and
Commerce Solutions Inc. (VARCOM). Varcom subsequently changed its company's name
to nject Creative Inc. in June 2000.
Going Concern
As at November 30, 2000, the Company had a working capital deficit of $4,723,466
(including notes payable in the amount of $3,173,700 and $200,000 (note 11) and
interest accrued thereon in the amount of $170,971 and $7,333 (note 9) due on
May 31,2001 and February 1, 2001 respectively). The Company's ability to
continue its operations in the near term is uncertain and is dependent upon its
ability to raise additional funds. These financial statements do not include any
adjustments to the amounts and classification of assets and liabilities that
might be necessary should the Company be unable to raise such additional funds.
HEALTHNET INTERNATIONAL INC.
(A DEVELOPMENT-STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
(IN UNITED STATES DOLLARS)
November 30, 2000
Management believes that the additional revenue to be generated from the
increasing number of active eHealthstores and eHealthstores Express clients and
Web site design customers, together with additional debt and equity financing,
will enable the Company to continue its operations. $25,000 of additional debt
financing has been received subsequent to the quarter end and prior to January
22, 2001 and further immediate debt financing and later equity financing is
being planned.
During the quarter, the Company entered into negotiations with WorldPathway
Technologies Inc. (WPW), a company specializing in the sale of home medical
products, to discuss the potential of a merger. Following the end of the period,
Healthnet International Inc. agreed to acquire 100% of WPW in a one-for-one
share exchange after WPW raises $1,500,000 from the sale of its shares.
2. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the nine-month period ended November 30,
2000 are not necessarily indicative of the results that may be expected for the
year ended February 28, 2001.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
The balance sheet at February 29,2000 has been derived from the audited
financial statements at that date but does not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements.
For further information, refer to the consolidated financial statements and
footnotes thereto included in the Registrant Company and Subsidiaries' annual
report on Form 10-KSB for the year ended February 29, 2000
3. SIGNIFICANT NEW ACCOUNTING POLICIES
Revenue recognition
eHEALTHSTORES AND eHEALTHSHOPS
Ninety percent of the initial license, production and setup fee relating to web
site development is recognized as revenue when the web site is made available
for access by customers of the Licensee. The remaining ten percent, which
represents the operation and maintenance fee for the first year of the license
agreement, is recognized as revenue in equal amounts monthly over that year.
The annual renewal fee, which is ten percent of the initial license, production
and setup fee, is recognized as revenue in equal amounts monthly over the year
to which it applies.
Earned royalty and marketing fees on product sales to customers of the Licensee
are recognized as revenue in the month during which the product is delivered to
the customer.
HEALTHNET INTERNATIONAL INC.
(A DEVELOPMENT-STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
(IN UNITED STATES DOLLARS)
November 30, 2000
EHEALTHSTORES EXPRESS
The monthly fee covering operation and maintenance is recognized as revenue in
the month for which the charge is made.
Product sales revenue is recognized as revenue in the month during which the
product is delivered to the customer.
OTHER CHARGES
Charges for advertising on the web sites are shared equally with the Licensee
and the Company's portion is recognized as revenue in equal monthly amounts over
the period for which the charges are made.
Professional and other services fees are recognized as revenue when the results
of the assignment are delivered to, and accepted by, the client.
4. RESTRICTED CASH
November 30, February 29,
2000 2000
$ $
- --------------------------------------------------------------------------------
Term deposits 51,449 17,000
- --------------------------------------------------------------------------------
51,449 17,000
================================================================================
The above term deposits are held by Canadian Western Bank and Canadian Imperial
Bank of Commerce as security for computer leases [note 10].
5. ACCOUNTS RECEIVABLE
November 30, February 29,
2000 2000
$ $
- --------------------------------------------------------------------------------
Amounts due from trade customers 102,979 38,456
Other 8,595 9,475
GST receivable 2,378 15,160
- --------------------------------------------------------------------------------
113,952 63,091
================================================================================
6. PREPAID EXPENSES AND DEPOSITS
Prepaid expenses and deposits comprise:
November 30, February 29,
2000 2000
$ $
- --------------------------------------------------------------------------------
Equipment lease deposits 3,058 1,582
Deposits paid to suppliers on portions of work
completed 6,257 6,337
Deposits held by merchant bank -- 16,400
Other -- 10,185
Prepaid expenses 56,307 18,194
- --------------------------------------------------------------------------------
65,622 52,698
================================================================================
HEALTHNET INTERNATIONAL INC.
(A DEVELOPMENT-STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
(IN UNITED STATES DOLLARS)
November 30, 2000
7. CAPITAL ASSETS
Capital assets are recorded at cost less accumulated depreciation and comprise:
ACCUMULATED NET BOOK
COST DEPRECIATION VALUE
$ $ $
- ---------------------------------------------------------------------------------------------------
November 30, 2000
Computer hardware and equipment 228,899 55,950 172,949
Computer hardware under capital leases 108,643 30,601 78,042
Furniture and fixtures 114,789 13,020 101,769
Computer software 798,707 378,985 409,722
Domain name 10,000 6,250 3,750
- ---------------------------------------------------------------------------------------------------
1,251,038 484,807 766,231
===================================================================================================
February 29, 2000
Computer hardware and equipment 111,516 3,892 107,624
Computer hardware under capital leases 49,165 2,654 46,511
Furniture and fixtures 75,172 2,598 72,574
Computer software 630,136 83,220 546,916
Domain name 10,000 2,500 7,500
- ---------------------------------------------------------------------------------------------------
875,989 94,864 781,125
===================================================================================================
8. GOODWILL
November 30, February 29,
2000 2000
$ $
- ---------------------------------------------------------------------------------------------------
Goodwill (net of accumulated amortization of $71,350
as at November 30, 2000) 116,555 190,266
- ---------------------------------------------------------------------------------------------------
116,555 190,266
===================================================================================================
HEALTHNET INTERNATIONAL INC.
(A DEVELOPMENT-STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
(IN UNITED STATES DOLLARS)
November 30, 2000
9. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts payable and accrued liabilities comprise:
November 30, February 29,
2000 2000
$ $
- ---------------------------------------------------------------------------------------------------
Trade payable 812,058 310,912
Interest payable [NOTE 11] 178,304 42,478
Accrued expenses 242,139 60,000
Accrued expenses for capital asset purchases -- 307,547
Current obligations under capital lease [NOTE 10] 55,778 23,902
Deposits for incomplete development work 42,004 --
- ---------------------------------------------------------------------------------------------------
1,330,283 744,839
===================================================================================================
10. CAPITAL LEASE OBLIGATIONS
At November 30, 2000, the Company had entered into capital lease for equipment.
The future payments are:
$
- ---------------------------------------------------------------------------------------------------
Nine months ended, February 28, 2001 16,596
Year ended, 2002 59,464
Year ended, 2003 15,050
- ---------------------------------------------------------------------------------------------------
Total minimum lease payments 91,110
Less amounts representing interest at rates varying from 11% to 20% 10,364
- ---------------------------------------------------------------------------------------------------
Present value of minimum lease payments 80,746
Current portion of capital lease obligations 55,778
- ---------------------------------------------------------------------------------------------------
Long-term portion of capital lease obligations 24,968
===================================================================================================
Three of the equipment leases require the Company to pledge term deposits for a
total of $51,449 [note 4]. The term deposits are interest bearing and will be
returned upon the expiry of the respective lease.
HEALTHNET INTERNATIONAL INC.
(A DEVELOPMENT-STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
(IN UNITED STATES DOLLARS)
November 30, 2000
11. NOTES PAYABLE
Notes payable comprise and are due to:
November 30, February 29,
RATE OF 2000 2000
DUE DATE INTEREST $ $
- -------------------------------------------------------------------------------------------
Notes payable 1 May 31, 2001 5% 3,173,700 2,000,000
Notes payable 2 February 1, 2001 44% 200,000 --
--------- ---------
3,373,700 2,000,000
===========================================================================================
The notes payable are unsecured. During the third quarter period, the Company
incurred $48,382 of interest which is due within the next twelve months.
Management believes the fair value of the note approximates its carrying value.
On November 30, 2000, the Company issued 1,000,000 shares at $1.00 per share to
settle note payable 1.
12. COMMITMENTS
[i] At November 30, 2000, the Company has entered into commitments
for leases of premises. The future payments are:
$
- -------------------------------------------------------------------------
Three months ended February 28 2001 46,509
Year ended 2002 235,719
Year ended 2003 230,302
- -------------------------------------------------------------------------
512,530
=========================================================================
Rent expense for the quarter ended November 30, 2000 was $40,436.
[ii] The Company has signed an agreement with a company which
publishes and distributes a health related database. The
agreement allows the Company and its customers to use the
database. The Company is committed to pay a further $40,000 in
the next year in connection with this agreement.
[iii] The Company has entered into an agreement with a company which
provides marketing services to the Company. The Company is
committed to pay the greater of $2,000 per month or 2% of
monthly net sales generated through marketing services
provided to the Company.
[iv] The Company has entered into an investor relations agreement
which provides internet marketing and information services.
The Company is committed to pay $9,000 per month beginning
September 1, 2000 for a period of twelve months. This
commitment may be cancelled with 30 days notice.
[v] The Company acquired nject (formerly known as VARCOM) on
February 29, 2000. There is contingent consideration
associated with this acquisition:
[a] If nject achieves sales of greater than $550,000 but less than
$760,000 in the current fiscal year, the Company will be
obligated to pay a further $70,000 of consideration via the
issuance of common shares.
[b] If nject achieves sales of greater than $760,000 but less than
$1,030,000 in the current fiscal year, the Company will be
obligated to pay a further $240,000 of consideration via the
issuance of $210,000 of common shares as well as $30,000 in
cash.
[c] If nject achieves sales of greater than $1,030,000 in the
current fiscal year, the Company will be obligated to pay a
further $340,000 of consideration via the issuance of $310,000
of common shares as well as $30,000 in cash.
(d) Management is of the opinion that nject will not reach the
revenue targets indicated in note v (a, b, c) and that this
future consideration indicated will therefore, not become due
and payable.
Item 2. MANAGEMENT DISCUSSION AND ANALYSIS
(All figures are in US dollars)
FORWARD LOOKING INFORMATION
Healthnet International Inc. (the "Company" or "Healthnet") cautions readers
that certain important factors may affect the Company's actual results and could
cause such results to differ materially from any forward-looking statements that
may be deemed to have been made in this Form 10-QSB, or that are otherwise made
by or on behalf of the Company. Such factors include, among others, the
speculative nature of the industry in which the Company operates, technology
failures, environmental or government regulations, availability of financing,
force majeure events, and other risk factors as described from time to time in
the Company's filings with the Securities and Exchange Commission. Many of these
factors are beyond the Company's ability to control or predict. For this
purpose, any statements contained in the registration statement that are not
statements of historical fact may be deemed to be forward-looking statements.
Without limiting the generality of the foregoing, words such as "may", "expect",
believe", "anticipate", "intend", "could", "estimate" or "continue" or the
negative or other variations of comparable terminology, are intended to identify
forward-looking statements. The Company disclaims any intent or obligation to
update its forward-looking statements, whether as a result of receiving new
information, the occurrence of future events, or otherwise.
OPERATIONS
Losses for the fiscal quarter ended November 30, 2000 amounted to $1,533,817.
Revenue during the period was $141,474 compared to $182,673 for the previous
quarter. Expenses for the quarter increased to $1,675,291 from $1,266,816 in the
prior quarter as the Company continued development of several licensees'
websites, the launch of the eHealthstores Express product line and the
development of nject client websites. Website development revenue was generated
from several new nject clients including the University of British Columbia
Museum of Anthropology. Nject received two awards during the period: The Merit
of Distinction Award for Best E-Commerce Website at the 2000 Lotus Awards and
the Best Creative Achievement Award at the Baddeck International New Media
Festival.
The Company's current plan of operation is to derive revenues from its two
business units: eHealthstores and nject. Revenue from the eHealthstores business
unit is generated from the units' two programs, which are eHealthstores and
eHealthstores Express. These programs generate revenue from Internet marketing
services, advertising and sponsorship on licensee Web sites, and Web site
development fees. However, the eHealthstores program differs from the
eHealthstores Express program in that it also generates revenue through Software
licensing fees and royalties from the sales of natural products, where as the
eHealthstores Express program generates revenue through a monthly service fee
for the Web site, as well as profit on the sales of natural products. The
Company's second business unit, nject, generates revenue through Web site
development fees. The Company cautions readers that the future magnitude of
these revenue streams is uncertain due to the fact that both Healthnet and the
Internet itself are in the early stages at this time.
During the period, the Company signed 3 new eHealthstores licensees, completed
and launched 3 eHealthstores. It also signed 40 additional letters of intent for
eHealthstore Express Web sites and sixteen eHealthstore Express sites were built
and launched. To date, the eHealthstores network comprises 26 Web sites (10
eHealthstores, 16 eHealthstores Express) representing over 80 brick & mortar
retail businesses. These hybrid websites are complete, turnkey e-commerce
solutions. The eHealthstores Express program provides an alternative for the VMS
retailer who does not need the comprehensive level of customization offered by
the original eHealthstores program, which includes extensive health information
and content, and full customer support. The Company is in active discussion to
license additional Web sites in the current fiscal year.
Revenue streams will continue to be generated through software licensing
(eHealthstores), monthly Web site service fees (eHealthstores Express), website
development services, royalties (eHealthstores) and profit share (eHealthstores
Express) from the sale of natural products on licensee sites, revenue from the
sale of natural products through MedicineCabinet sites, advertising and
sponsorships on licensee Websites, and Internet marketing services. It is
anticipated that the Internet will continue to become a more effective medium
and the market opportunities for the Company are expected to continue to expand.
This growth is expected to attract potential new competitors. In order to
maintain sales growth, the Company intends to expand the content and to improve
the services on its network of Websites, as well as researching and developing
other projects that are expected to utilize its existing facilities and
expertise.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
The Company secured $464,753 US through debt financing during the Quarter. Cash
flow used in operations for the three months ended November 30, 2000 was
$962,163. Revenue from natural product sales has commenced as a result of the
launch of Websites and further license; natural product and other revenues will
be generated in the foreseeable future. No assurance can be given that revenues
from sales will initially meet expenses and, as such, the Company may finance
operations through existing and additional debt financing from arm's length
private lenders until such time as revenues from sales meet or exceed expenses.
In addition, the Company may consider raising additional equity financing
through the sale of common stock of the Company through private placements to
sophisticated investors.
The $5,533 used in investing activities during the quarter consisted primarily
of computer technologies.
At November 30, 2000 there was a net cash deficiency of $237,390 compared to a
net balance of cash on hand of $50,901 at February 29, 2000.
Outlook
The Company believes it is still too early to forecast revenue from online sales
operation with accuracy given the early stages of the project, the expansive
growth rate of new licensees, and the infancy of e-commerce. In the quarter,
Healthnet successfully launched three more eHealthstores licensee sites:
gnc.co.uk for GNC the world's largest vitamin retailer, findvitamin.com and
Vitamin Hi-Way. These stores join Supersup.com, Healthstore.com,
medicinecabinet, pro body Inc., Forces of Nature, GNC-UK, Life's Vigor, and
NewsGurus.com as active "eHealthstores" licensees, and members of the co-branded
eHealthstores network. Management is confident and optimistic about Healthnet's
business model.
In the quarter, 40 additional eHealthstores Express agreements were signed,
bringing the total to 55. As well, 16 new eHealthstore Express Web sites were
launched, bringing the total number of revenue producing Web sitse to 26 (10
eHealthstore, 16 eHealthstore Express) at the end of the period period.
Management is confident that this rate of new client acquisition will continue
for the next several quarters, and will eventually lead to profitability in the
next fiscal year. Healthnet's ability to expand revenue increases with each new
client that joins the network, as the Company generates revenue from licensing,
marketing services, advertising, royalties and profit from online sales.
Healthnet International's Web solutions are fast becoming the industry standard
by which our competition measures itself.
As of September 2000, Healthnet International's shares were listed on the Berlin
Stock Exchange. The "FreeBroker" German Securities Firm of Berliner Freiverkehr
(Aktien) Handel AG sponsored the listing of Healthnet International's shares. It
is common practice for a German Securities Firm to Sponsor the listing
application for a US public company, independent of the company's participation.
The Company believes the dual listing of its shares will increase its exposure
to European investors.
During the quarter, the Company entered into negotiations with WorldPathway
Technologies Inc. (WPW), a company specializing in the sale of home medical
products, to discuss the potential of a merger. Following the end of the
period, the Company agreed to acquire 100% of WPW in a one-for-one share
exchange after WPW raises $1,500,000 from the sale of its shares. Management
believes that the merger represents a cost effective strategy to develop a new
market vertical that is demographically compelling. The Company has identified
significant opportunities in other market verticals for its turnkey e-commerce
solution. The Company will investigate these opportunities, while continuing to
expand operations within the health market vertical, such as the health and
fitness industry. Management is also committed to improving operational
efficiencies, while exploring other industries that demonstrate synergistic
features, for both of its business units.
Part II - OTHER INFORMATION
- -----------------------------
Item 6 - EXHIBITS AND REPORTS ON FORM 8-K
(b) There are no reports on Form 8-K that were filed for the quarter.
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.
HEALTHNET INTERNATIONAL INC.
(Registrant)
Date: January 22, 2000 /s/ GRANT JOHNSON
------------------------------------
Grant R. Johnson
President and CEO
Date: January 22, 2000 /s/ RAY HARRIS
------------------------------------
Ray Harris
Acting Chief Financial Officer