FORM 10-QSB/A
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 500-1201 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
---------- ----------
This report on Form 10-QSB/A constitutes Amendment No. 1 to the Registrant's
Form 10-QSB for the quarter ended November 30, 2000. This report is intended to
amend certain information contained in Part I, Items 1 and 2. SEE Note 16 to the
Consolidated Financial Statements for the basis for such amendments.
Part I. FINANCIAL INFORMATION
- -------------------------------
Item 1. FINANCIAL STATEMENTS
HEALTHNET INTERNATIONAL INC.
(A DEVELOPMENT-STAGE COMPANY)
CONSOLIDATED BALANCE SHEETS
(IN UNITED STATES DOLLARS)
(Going Concern see NOTE 1)
(As restated--See Note 16)
AS AT AS AT
November 30, FEBRUARY 29,
2000 2000
$ $
- ---------------------------------------------------------------------------------------------------
ASSETS
CURRENT
Cash and cash equivalents -- 50,901
Accounts receivable [NOTES 5 & 16] 99,079 63,091
Prepaid expenses and deposits [NOTE 6] 65,622 52,698
- ---------------------------------------------------------------------------------------------------
164,701 166,690
OTHER ASSETS
Capital assets (net) [NOTE 7] 766,231 781,125
Restricted cash (NOTE 4) 51,449 17,000
Goodwill [NOTE 8] 118,916 190,266
- ---------------------------------------------------------------------------------------------------
1,101,297 1,155,081
===================================================================================================
LIABILITIES AND SHAREHOLDERS' DEFICIENCY
CURRENT
Bank indebtedness (NOTE 12) 237,390 --
Accounts payable and accrued liabilities [NOTES 9 & 16] 1,180,244 702,361
Notes payable [NOTE 11] 3,373,700 --
Accrued interest on notes payable (NOTE 11) 178,304 42,478
Amount due for business combination -- 69,022
Deferred revenue 13,115 --
- ---------------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 4,982,753 813,861
LONG-TERM
Notes payable [NOTE 11] -- 2,000,000
Obligation under capital leases [NOTE 10] 24,967 20,155
Commitments [NOTE 13]
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 in the development stage (5,590,453) (1,814,101)
- ---------------------------------------------------------------------------------------------------
TOTAL SHAREHOLDERS' DEFICIENCY (3,906,423) (1,678,935)
- ---------------------------------------------------------------------------------------------------
1,101,297 1,155,081
===================================================================================================
SEE ACCOMPANYING NOTES
HEALTHNET INTERNATIONAL INC.
(A DEVELOPMENT-STAGE COMPANY)
CONSOLIDATED STATEMENT OF
LOSS AND COMPREHENSIVE LOSS
(IN UNITED STATES DOLLARS)
(Going Concern see NOTE 1)
(As restated--See Note 16)
FOR THE THREE MONTHS ENDED FOR THE NINE MONTHS ENDED FOR THE PERIOD
NOVEMBER 30 NOVEMBER 30 FROM INCORP.
2000 1999 2000 1999 JAN 21 99 TO
$ $ $ $ NOV 30 00
- -------------------------------------------------------------------------------------------------------------------
Web site development revenue(NOTE 16) 15,481 -- 133,380 -- 133,380
Software license revenue 27,143 -- 162,135 -- 162,135
Internet marketing revenue 28,168 -- 59,663 -- 59,663
Monthly service fee 3,045 -- 3,045 -- 3,045
Royalty income 4,835 -- 5,028 -- 5,028
Product sales revenue 3,993 -- 6,878 -- 6,878
Cost of product sales (231) -- (4,870) -- (4,870)
- -----------------------------------------------------------------------------------------------------------------
82,434 -- 365,259 -- 365,259
- -----------------------------------------------------------------------------------------------------------------
EXPENSES
Salaries and benefits 588,284 189,100 1,645,619 283,347 2,244,141
Advertising, marketing and promotion
(NOTES 15 & 16) 304,593 89,320 755,888 120,296 1,139,907
General and administrative (NOTE 16) 357,930 147,788 942,205 211,891 1,310,940
Amortization 152,145 35,071 458,931 90,401 632,692
Professional fees(NOTE 15) 256,512 13,539 331,197 61,301 472,247
Provision for doubtful accounts(NOTES 5 & 16) 15,178 -- 15,178 -- 15,178
Foreign exchange (17,615) 3,790 (7,407) 4,100 3,008
Incorporation costs -- -- -- -- 2,441
Loss on write-down of capital assets -- -- -- -- 135,158
- ----------------------------------------------------------------------------------------------------------------
1,657,027 478,608 4,141,611 771,336 5,955,712
- ----------------------------------------------------------------------------------------------------------------
LOSS AND COMPREHENSIVE LOSS FOR THE PERIOD (1,574,593) (478,608) (3,776,352) (771,336) (5,590,453)
================================================================================================================
LOSS PER COMMON SHARE (.15) (0.05) (0.36) (.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)
(As restated--See Note 16)
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 plan shares (NOTE 15) 430,908 485,190 -- --
Shares issued in partial settlement
Of notes payable (NOTE 11) 1,000,000 1,000,000 --
Loss and comprehensive loss for
the 9 months ended November 30, 2000 -- -- -- (3,776,352)
- -------------------------------------------------------------------------------------------------------
BALANCE, NOVEMBER 30, 2000 12,005,471 1,632,459 51,571 (5,590,453)
=======================================================================================================
SEE ACCOMPANYING NOTES
HEALTHNET INTERNATIONAL INC.
(A DEVELOPMENT-STAGE COMPANY)
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN UNITED STATES DOLLARS)
(As restated--See Note 16)
FOR THE NINE MONTHS ENDED FOR THE PERIOD FROM
NOVEMBER 30, INCORPORATION ON JAN 21 99
2000 1999 TO NOVEMBER 30 00
$ $ $ $
- ---------------------------------------------------------------------------------------------------------------
OPERATING ACTIVITIES
Loss for the period (3,776,352) (771,336) (5,590,453)
Adjustment to reconcile loss to net cash used in
operating activities
Amortization 458,931 90,401 632,692
Expenses settled by issuance of Retainer Stock
Plan shares 485,190 -- 485,190
Share option compensation expense 34,940 -- 51,571
Loss on disposal of fixed assets -- -- 135,158
Allowance for doubtful accounts 15,178 -- 15,178
Accrued interest on notes payable 135,826 72,511 178,304
Changes in current assets and liabilities
Increase in accounts receivable (51,165) (12,377) (74,623)
Increase in prepaid expenses and deposits (12,924) (45,852) (66,403)
Increase in inventory -- (103) --
Increase in accounts payable and accrued 185,393 (48,295) 466,655
liabilities
Increase in deferred revenue 13,115 -- 13,115
- -------------------------------------------------------------------------------------------------------------
CASH USED IN OPERATING ACTIVITIES (2,511,868) (715,051) (3,753,616)
- -------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Increase in restricted cash (34,449) -- (51,449)
Additions to fixed assets (119,660) (332,456) (843,680)
Cash acquired from business combination -- -- 19,806
- -------------------------------------------------------------------------------------------------------------
CASH USED IN INVESTING ACTIVITIES (154,109) (332,456) (875,323)
- -------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Increase in notes payable 2,373,700 1,000,000 4,373,700
Increase in bank indebtedness 237,390 -- 237,390
Payment of amount due for business combination (69,022) -- (69,022)
Issuance of share capital for cash 28,734 -- 47,765
Increase in capital leases,
net of repayments 44,274 -- 39,106
- -------------------------------------------------------------------------------------------------------------
CASH PROVIDED BY FINANCING ACTIVITIES 2,615,076 1,000,000 4,628,939
- -------------------------------------------------------------------------------------------------------------
DECREASE IN CASH DURING THE PERIOD (50,901) (47,507) --
Cash, beginning of period 50,901 9,157 --
- -------------------------------------------------------------------------------------------------------------
CASH, END OF PERIOD -- (38,350) --
=============================================================================================================
SUPPLEMENTAL INFORMATION
Interest paid 8,880 -- 11,010
=============================================================================================================
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 and Going Concern
Healthnet International Inc. has two business units, ehealthstores and nject.
eHealthstores licenses applicable software, builds and maintains customized
e-commerce Web sites and provides marketing services for retailers and health
care providers who wish to sell vitamins, minerals and supplements (VMS)
products on the Internet. 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 beds and direct product
sales divisions.
Through its eHealthstores business unit, Healthnet is a provider of
comprehensive turnkey Web solutions and services to "brick & mortar" retailers,
clubs and healthcare associations. 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 the original comprehensive Web solution, and
eHealthstores Express is a streamlined version for customers requiring less
customization.
nject Creative (nject) was launched on February 29, 2000 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. Its name was changed on December 1, 2000, to HLNT Networks
(USA) Inc.
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. Its name was changed on December
1, 2000, to HLNT Networks (Canada) Inc.
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. Its name was changed on December 15,
2000, to HLNT Networks (Europe) Limited.
On February 29, 2000, the Company acquired Varcom Internet Communications and
Commerce Solutions Inc. a British Columbia company (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
$4,818,052, including notes payable on February 1, 2001 and May 31, 2001 in the
total amount of $3,373,700 (NOTE 11) and interest accrued thereon in the total
amount of $178,304 (NOTE 11). These conditions raise substantial doubt about the
Company's ability to continue as a going concern. The ability of the Company to
continue its operations is dependent upon its success in its present efforts to
secure additional debt financing and/or raise additional equity financing
through the sale of common stock by means of private placement to sophisticated
investors and/or complete the transaction to acquire 100% of the outstanding
shares of WorldPathway Technologies Inc (NOTE 14) and/or renegotiate the terms
of settlement of notes payable and/or successfully conclude certain large Web
site licensing agreements. There is, of course, no assurance that these present
efforts will be successful.
These financial statements do not include any adjustments to the amounts and
classification of assets and liabilities that may be necessary should the
company be unable to continue as a going concern.
HEALTHNET INTERNATIONAL INC.
(A DEVELOPMENT-STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
(IN UNITED STATES DOLLARS)
November 30, 2000
An additional debt financing of $25,000 has been received subsequent to the
quarter end and prior to March 7, 2001 and further immediate debt financing and
later equity financing is being planned.
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-QSB 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 software 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 software license,
production and setup fee, is recognized as revenue in equal amounts monthly over
the year to which it applies.
Earned royalty income and Internet 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 service 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 REVENUE
Charges for advertising on the Web sites are shared equally with the licensees
and the Company's share is recognized as revenue in equal monthly installments
over the period for which the charges are levied.
Charges for professional and other services are made in accordance with the fee
schedules contained in the contracts with the Licensees and other clients. These
charges are recognized as revenue when the results of the assignment are
delivered to, and accepted by the licensee or client.
Recent Accounting Pronouncements
The United States Securities and Exchange Commission has issued Staff Accounting
Bulletin 101 "Revenue Recognition in Financial Statements" (SAB 101) for
application effective December 1, 2000. The Company is of the opinion that it
has complied with the requirements of SAB 101 in these financial statements and
in the comparative financial statements for prior periods.
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 103,284 38,456
Other 8,595 9,475
GST receivable 2,378 15,160
Less: allowance for bad debts (15,178) --
- --------------------------------------------------------------------------------
99,079 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 55,951 172,948
Computer hardware under capital leases 108,643 30,601 78,042
Furniture and fixtures 114,789 13,020 101,769
Computer software 788,707 378,985 409,722
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) 118,916 190,266
---------------------------------------------------------------------------------------------------
118,916 190,266
===================================================================================================
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 600,818 310,912
Accrued expenses 270,403 60,000
Accrued expenses for capital asset purchases 211,240 307,547
Current obligations under capital lease [NOTE 10] 55,778 23,902
Deferred Revenue 42,005 --
- ---------------------------------------------------------------------------------------------------
1,180,244 702,361
===================================================================================================
10. CAPITAL LEASE OBLIGATIONS
At November 30, 2000, the Company had entered into capital leases for equipment.
The future payments are:
$
- ---------------------------------------------------------------------------------------------------
Nine months ended, February 28, 2001 16,596
Year ended, 2002 59,463
Year ended, 2003 15,050
- ---------------------------------------------------------------------------------------------------
Total minimum lease payments 91,109
Less amounts representing interest at rates varying from 11% to 20% 10,364
- ---------------------------------------------------------------------------------------------------
Present value of minimum lease payments 80,745
Current portion of capital lease obligations 55,778
- ---------------------------------------------------------------------------------------------------
Long-term portion of capital lease obligations 24,967
===================================================================================================
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:
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
===========================================================================================
Notes payable continuity schedule
March 1, November 30,
2000 Additions exchange for shares 2000
$ $
- -------------------------------------------------------------------------------------------------
Notes payable 1 2,000,000 2,173,700 (1,000,000) 3,173,700
Notes payable 2 -- 200,000 -- 200,000
--------- --------- ----------- ---------
2,000,000 2,373,700 (1,000,000) 3,373,700
=================================================================================================
Accrued interest on notes payable
March 1, November 30,
2000 Additions 2000
$ $
- ------------------------------------------------------------------------
Notes payable 1 42,478 128,493 170,971
Notes payable 2 -- 7,333 7,333
--------- --------- ---------
42,478 135,826 178,304
=========================================================================
The notes payable 1 are unsecured. During the third quarter period, the Company
incurred $48,382 of interest, which is due within the next twelve months.
The note payable 2 is collateralized by a personal guarantee of a principal
shareholder of 300,000 shares of Healthnet International Inc. Subsequent to the
quarter the payment date has been extended a further Ninety (90) days with an
annualized interest rate of 60%.
On September 28, 2000, the Company entered into agreement with the notes payable
1 holders to convert $1,000,000 of the notes payable 1 into 1,000,000 common
shares at $1.00 per share, which was the market value of the shares on that
date. The shares were issued on November 30, 2000.
12. BANK INDEBTNESS
The company entered into a $250,000 (in Canadian dollars) revolving demand
operating facility agreement with the Toronto Dominion Bank on August 23, 2000.
The interest rate is prime rate plus 1.25% per annum. On January 26, 2001 the
Company entered into an additional secured facility agreement (the Bulge loan)
for $250,000 (in Canadian dollars) with an interest rate of prime plus 1.25% per
annum. The facilities are collateralized by personal guarantees from the
Chairman of the Board and the President of the Company.
13. 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 $52,500 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 for the period ending January 31,
2001.
[iv] The Company has entered into an investor relation's 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 ending February 28, 2001,
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 ending February 28,
2001, 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 ending February 28, 2001, 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 will therefore, not become due and
payable.
14. SUBSEQUENT EVENTS
On December 13, 2000, the Company and WorldPathway Technologies Inc. (WPW), a
company specializing in the sale of home medical products, signed a letter of
intent concerning the WPW Acquisition. Following the end of the period, November
30, 2000, 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.
15. RETAINER STOCK PLAN
On September 18, 2000, the Board of Directors of the Company approved the
adoption of a stock plan and allotted 500,000 shares thereto, for the purpose of
compensating non-employee directors and consultants for services to the Company
(the "Plan"). The Plan was filed by way of an S-8 Registration Statement with
the United States Securities and Exchange Commission. On December 11, 2000, the
Board of Directors approved an amendment to the Plan, increasing the number of
shares allotted to the Plan to 1,000,000. On January 30, 2001, the Board of
Directors approved further amendment adding employees of the Company to the
class of persons entitled to benefit under the Plan.
During the 3rd quarter of fiscal 2001, the Company issued 430,908 shares under
the retainer stock plan in connection with payment of certain advertising,
marketing and promotion expenses as well as certain professional fees. The
shares were valued at the quoted market share price on the date the services
were provided and totaled $485,190.
16. RESTATEMENT OF FINANCIAL STATEMENTS FOR THE NINE MONTHS ENDED NOVEMBER
30, 2000
The Company identified accounting issues with respect to accounts receivable,
accounts payable and revenue subsequent to the issuance of the financial
statements for the quarter ended November 30, 2000. An allowance for doubtful
accounts was determined to be required. Also, the Company identified additional
liabilities, which were not accrued in the financial statements. Furthermore,
the Company has reversed revenue and expenses of $56,780 related to barter
transactions. The Company also increased the disclosure in Notes 1, 11, 12, 14,
and 15. As a result, the Company has restated its financial statements for the
nine months ended November 30, 2000.
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 statements 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.
Subsequent to the issue of the Company's financial statements for the quarter
ended November 30, 2000, the Company identified accounting issues with respect
to accounts receivable, accounts payable and revenue. As a result, the Company
has restated its financial statements for the 3rd quarter and nine months ended
November 30, 2000 in the form included with this Amendment No. 1 to Quarterly
Report on Form 10-QSB/A. The following discussion reflects, where appropriate,
changes as a result of such restatement. See Note 16 to the Company's attached
financial statements.
OPERATIONS
Losses for the fiscal quarter and nine months ended November 30, 2000 amounted
to $1,574,593 and $3,776,352.
Revenue during the period was $82,434 compared to $182,673 for the previous
quarter reflecting reduced Website development revenues.
Website development revenues were $15,481 and $133,380 for the three and nine
months ended November 30, 2000, reflecting nject Website development fees and
customized design work for some ehealthstore clients. 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 provided website development
services in exchange for promotional consideration which have not been reflected
on the financial statements.
Software license revenues were $27,143 and $162,135 for the three and nine
months ended November 30, 2000, reflecting 3 new ehealthstore licensees. Three
additional licensees were completed and launched during the period, bringing the
total number to 10. eHealthstore software license revenues reflect a shift in
corporate emphasis to the eHealthstore Express product line although the company
is in active discussion to license additional ehealthstores in the current
fiscal year.
Internet marketing revenues were $28,168 and $59,663 for the three and nine
months ended November 30, 2000, reflecting demand from our client base for
search engine, online advertising, email campaigns and other marketing activity.
On average during the fiscal quarter ended November 30, 2000 over 100,000 unique
visitors visited the network of ehealthstore sites each month. Advertising and
sponsorship fees have been nominal to date as the networks build critical mass.
Monthly service fees revenue were $3,045 for the fiscal quarter reflecting the
initial prorated monthly charge for 16 ehealthstore express clients launched in
mid to late November. While not reflected in monthly service fee revenue this
period, the company also signed 40 additional letters of intent for eHealthstore
Express Web sites during the fiscal quarter.
Royalty income was $4,835 and $5,028 for the three and nine months ended
November 30, 2000, reflecting royalties on product sales growth on our
ehealthstore client sites.
Product sales revenues were $3,993 and $6,878 for the three and nine months
ended November 30, 2000, for sales for medicinecabinet.com and
medicinecabinet.co.uk reflecting minimal marketing activity and corporate focus
on the other business units.
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.
Expenses for the fiscal quarter increased to $1,657,027 from $1,266,816 in the
prior quarter and to $4,141,611 for the nine months ended November 30, 2000. The
increase in the quarter reflects the higher cost of advertising, marketing,
promotion and professional fees.
Salaries and Benefits expenses were $588,284 and $1,645,619 for the three and
nine months ended November 30, 2000, reflecting increased staffing as the
company commenced client production for ehealthstores, the acquisition of Varcom
and the growth of the company's client base.
Advertising, marketing and promotion expenses were $304,593 and $755,888 for the
three and nine months ended November 30, 2000, reflecting trade show activity to
support the launch of ehealthstore express and an increase for advertisement
consulting.
General and administrative expenses were $357,930 and $942,205 for the three and
nine months ended November 30, 2000, reflecting an increase from comparative
periods a year ago due to the company's growth.
Professional fees were $331,197 for the nine months ended November 30, 2000 and
are mainly as a result of receipt of billings from the Company's legal firm for
services provided to the Company.
Revenue streams will continue to be generated through software licensing and
renewal fees (eHealthstores), monthly Web site service fees (eHealthstores
Express), website development services (nject), 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, and Internet marketing services including advertising and
sponsorships on Websites. The Internet marketing revenue is added value
services, which is generated across all of our clients, whether or not they have
purchased nject, ehealthstores or Express services. These services supplement
the development of websites by generating traffic to these sites via
professional services or the resale of services as a markup. 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 improve the services on its
network of Websites, achieve operational efficiencies as well as researching and
developing other projects that are expected to utilize its existing facilities
and expertise.
LIQUIDITY AND CAPITAL RESOURCES
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The Company obtained $464,753 US through debt financing during the 3RD Quarter.
Cash flow used in operations for the three months ended November 30, 2000 was
$932,112. 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 Company's ability to continue its operations in the
near tern is very uncertain (refer to NOTE 1).
The $5,533 used in investing activities during the 3RD quarter consisted
primarily of computer technologies.
At November 30, 2000 there was a net balance of cash on hand of nil compared to
a net balance of cash on hand of $50,901 at February 29, 2000. At November 30,
2000, the Company had bank indebtedness of $237,390.
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.
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 sites to 26 (10
eHealthstore, 16 eHealthstore Express) representing over 80 bricks and mortar
stores at the end of the period. 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.
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 signed a letter of intent and 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
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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: March 7, 2001 /s/ GRANT JOHNSON
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Grant R. Johnson
President and CEO
Date: March 7, 2001 /s/ RAY HARRIS
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Ray Harris
Acting Chief Financial Officer