-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, OEpnKz6LbU5HBRhTyLL73XKw8a1T+bmvKgET5C6HaDCTyazkba4IX7cmmjn/MRkx tSYG8L/QrjAO4Zk3BraeUA== 0001015402-99-000947.txt : 19990901 0001015402-99-000947.hdr.sgml : 19990901 ACCESSION NUMBER: 0001015402-99-000947 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990531 FILED AS OF DATE: 19990831 FILER: COMPANY DATA: COMPANY CONFORMED NAME: GOLDEN PHARMACEUTICALS INC CENTRAL INDEX KEY: 0000312651 STANDARD INDUSTRIAL CLASSIFICATION: IN VITRO & IN VIVO DIAGNOSTIC SUBSTANCES [2835] IRS NUMBER: 840645174 STATE OF INCORPORATION: CO FISCAL YEAR END: 0831 FILING VALUES: FORM TYPE: 10QSB SEC ACT: SEC FILE NUMBER: 000-09065 FILM NUMBER: 99703805 BUSINESS ADDRESS: STREET 1: 370 17TH STREET STREET 2: SUITE 5200 CITY: DENVER STATE: CO ZIP: 80202-5638 BUSINESS PHONE: 3032799375 MAIL ADDRESS: STREET 1: 370 17TH STREET STREET 2: SUITE 5200 CITY: DENVER STATE: CO ZIP: 802025638 FORMER COMPANY: FORMER CONFORMED NAME: BENEDICT NUCLEAR PHARMACEUTICALS INC DATE OF NAME CHANGE: 19920703 10QSB 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-QSB [X] QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MAY 31, 1999 [ ] TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE EXCHANGE ACT FOR THE TRANSITION PERIOD FROM _______ TO _______ COMMISSION FILE NUMBER: 0-9065 DOCSALES.COM, INC. (EXACT NAME of small business issuer AS SPECIFIED in its charter) COLORADO 84-0645174 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 3000 W. WARNER AVENUE, SANTA ANA, CALIFORNIA 92704-5311 (Address of principal executive office)(Zip Code) (714) 754-2440 Issuer's telephone number GOLDEN PHARMACEUTICALS, INC. (FORMER NAME IF CHANGED SINCE THE LAST REPORT) Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES X No --- --- The number of shares of common stock outstanding as of JULY 20, 1999, was 3,910,770 Transitional Small Business Disclosure Format: Yes NO X --- --- PART I FINANCIAL INFORMATION --------------------- ITEM 1. FINANCIAL STATEMENTS
DOCSALES.COM, INC. AND SUBSIDIARIES (FORMERLY, GOLDEN PHARMACEUTICALS, INC.) CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) ASSETS ------ MAY 31, AUGUST 31, 1999 1998 ---------- ----------- CURRENT ASSETS Cash $ - $ 61,860 Trade receivables, net of allowance for doubtful accounts of $112,409 and $535,945 at May 31, 1999 and August 31, 1998 1,406,363 1,377,291 Notes receivable 139,797 139,797 Inventories 534,608 577,947 Prepaid expenses and other 105,762 141,144 Net assets held for sale - 173,000 ---------- ----------- TOTAL CURRENT ASSETS 2,186,530 2,471,039 PROPERTY, PLANT AND EQUIPMENT - AT COST 2,188,458 2,166,642 Less accumulated depreciation and amortization 1,117,370 873,325 ---------- ----------- TOTAL PROPERTY, PLANT & EQUIPMENT 1,071,088 1,293,317 OTHER ASSETS Intangibles - net of accumulated amortization of $2,333 and $1,933 at May 31, 1999 and August 31, 1998 9,467 10,067 Non-compete agreement 43,159 69,050 ---------- ----------- TOTAL OTHER ASSETS 52,626 79,117 ---------- ----------- TOTAL ASSETS $3,310,244 $ 3,843,473 ========== ===========
See Notes to Consolidated Financial Statements ITEM 1. FINANCIAL STATEMENTS (continued)
DOCSALES.COM, INC. AND SUBSIDIARIES (FORMERLY, GOLDEN PHARMACEUTICALS, INC.) CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) - continued LIABILITIES AND STOCKHOLDERS' DEFICIT ------------------------------------- MAY 31, AUGUST 31, 1999 1998 ------------- ------------- CURRENT LIABILITIES Notes payable $ 1,003,916 $ 833,639 Notes payable - related parties 500,000 5,014,200 Current maturities of long-term debt 50,000 212,228 Current maturities of capitalized lease obligations 228,960 224,588 Accounts payable 1,347,579 1,142,999 Deferred revenue - non-compete agreement 250,000 - Accrued liabilities Salaries, wages and other compensation 29,020 47,070 Interest 688,430 316,854 Other 94,093 114,653 ------------- ------------- TOTAL CURRENT LIABILITIES 4,191,998 7,906,231 LONG-TERM OBLIGATIONS, less current maturities Related Party 4,974,236 25,000 CAPITALIZED LEASE OBLIGATIONS, less current maturities 314,331 467,191 EXCESS LOSS ON INVESTMENT IN JOINT VENTURE 41,493 39,875 CONTINGENCIES AND COMMITMENTS - - MINORITY INTEREST 1,000,000 - STOCKHOLDERS' DEFICIT Common stock - no par value; 200,000,000 shares authorized; 128,451,873 issued; and 125,162,873 outstanding at May 31, 1999 and August 31, 1998, respectively 24,714,858 24,714,858 Preferred stock - no par value; 10,000,000 shares authorized Class A 15%/ 30% cumulative convertible, 29,653 shares, issued and outstanding at May 31, 1999 and August 31, 1998, respectively 292,558 292,558 Dividends accrued on preferred stock 240,533 236,419 ------------- ------------- 25,247,949 25,243,835 Accumulated deficit (32,365,631) (29,744,527) ------------- ------------- (7,117,682) (4,500,692) Less common stock in treasury at cost, 3,289,000 shares at May 31, 1999 and August 31, 1998, respectively 94,132 94,132 ------------- ------------- TOTAL STOCKHOLDERS' DEFICIT (7,211,814) (4,594,824) TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 3,310,244 $ 3,843,473 ============= =============
See Notes to Consolidated Financial Statements
DOCSALES.COM, INC. AND SUBSIDIARIES (FORMERLY, GOLDEN PHARMACEUTICALS, INC.) CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) THREE MONTHS ENDED MAY 31, ------------------------------- 1999 1998 ---------------- ------------- NET SALES $ 2,051,129 $ 1,880,708 COST OF SALES 1,587,399 1,441,535 ---------------- ------------- GROSS MARGIN 463,730 439,173 Selling, general and administrative expense 1,087,039 1,932,798 Unusual charge - impairment loss - 203,500 ---------------- ------------- OPERATING LOSS (623,309) (1,697,125) OTHER INCOME/ (EXPENSE) Interest expense (185,408) (168,094) Joint venture loss - (44,945) Settlement of accounts payable and other liabilities Gain on disposal of assets 111,939 Other income 18,023 25,803 ---------------- ------------- TOTAL OTHER INCOME (EXPENSE) (167,385) (75,297) ---------------- ------------- LOSS BEFORE INCOME TAX EXPENSE (790,694) (1,772,422) ---------------- ------------- INCOME TAX EXPENSE (BENEFIT) - 20,920 ---------------- ------------- LOSS BEFORE MINORITY INTEREST (790,694) (1,793,342) MINORITY INTEREST (15,123) 6,754 ---------------- ------------- NET LOSS $ (805,817) $ (1,786,588) ================ ============= BASIC AND DILUTED LOSS PER SHARE $ (0.21)* $ (0.45)* ================ ============= WEIGHTED AVERAGE SHARES OUTSTANDING 3,911,340 * 4,013,199 * ================ ============= * Adjusted and restated for 32:1 reverse stock split effective July 8, 1999.
See Notes to Consolidated Financial Statements ITEM 1. FINANCIAL STATEMENTS (continued)
DOCSALES.COM, INC. AND SUBSIDIARIES (FORMERLY GOLDEN PHARMACEUTICALS, INC.) CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) NINE MONTHS ENDED MAY 31, --------------- ------------- 1999 1998 --------------- ------------- NET SALES $ 5,743,743 $ 4,641,691 COST OF SALES 4,418,192 3,674,592 --------------- ------------- GROSS MARGIN 1,325,551 967,099 Selling, general and administrative expense 3,550,980 5,019,367 Unusual charge - impairment loss - 433,500 --------------- ------------- OPERATING LOSS (2,225,429) (4,485,768) OTHER INCOME/ (EXPENSE) Interest expense (599,325) (409,074) Joint venture loss (22,618) (107,888) Settlement of accounts payable and other liabilities 211,330 Gain on disposal of assets 112,074 Other income 41,679 77,354 --------------- ------------- TOTAL OTHER INCOME (EXPENSE) (368,934) (327,534) --------------- ------------- INCOME (LOSS) BEFORE INCOME TAX EXPENSE (2,594,363) (4,813,302) --------------- ------------- INCOME TAX EXPENSE (BENEFIT) 1,258 21,120 --------------- ------------- LOSS BEFORE MINORITY INTEREST (2,595,621) (4,834,422) MINORITY INTEREST (21,370) 423,464 --------------- ------------- NET LOSS $ (2,616,991) $ (4,410,958) =============== ============= BASIC AND DILUTED LOSS PER SHARE $ (0.67)* $ (1.10)* =============== ============= WEIGHTED AVERAGE SHARES OUTSTANDING 3,911,340 * 4,013,199 * =============== ============= * Adjusted and restated for 32:1 reverse stock split effective July 8, 1999.
See Notes to Consolidated Financial Statements
DOCSALES.COM, INC. AND SUBSIDIARIES (FORMERLY, GOLDEN PHARMACEUTICALS, INC.) CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) FOR THE NINE MONTHS ENDED MAY 31, -------------------------- 1999 1998 ------------ ------------ CASH FLOWS USED IN OPERATING ACTIVITIES Net loss $(2,616,991) $(4,410,958) Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 270,537 767,221 Settlement of accounts payable and other liabilities (211,330) - Gain on sale of equipment (112,074) Minority interest - (423,464) Joint venture loss 22,618 107,887 Reduction in carrying value of fixed assets 366,000 Changes in assets and liabilities net of effects of acquisition and joint venture: (Increase) decrease in accounts receivable (29,071) 23,773 (Increase) decrease in inventories 66,339 130,064 (Increase) decrease in prepaid expenses and other 35,383 (19,781) Increase (decrease) in accounts payable 49,067 (2,266) Decrease in income taxes payable - (40,000) Increase in deferred revenue - non-compete agreement 250,000 - Increase in accrued liabilities 354,336 140,099 ------------ ------------ TOTAL ADJUSTMENTS 807,879 937,459 ------------ ------------ NET CASH USED IN OPERATING ACTIVITIES (1,809,112) (3,473,499) CASH FLOWS FROM INVESTING ACTIVITIES Purchase of property, plant, and equipment (21,816) (302,230) Proceeds from sale of equipment 150,000 198,901 Increase investment in joint venture (21,000) (63,000) Decrease in notes receivable - 112,703 ------------ ------------ NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 107,184 (53,626) CASH FLOWS FROM FINANCING ACTIVITIES Issuance of preferred shares in subsidiary 1,000,000 - Borrowings under notes payable - related parties 460,034 3,424,600 Issuance of common stock - 3,750 Borrowings under capitalized lease and other long-term obligations 21,816 185,005 Payments on capitalized lease and other long term obligations (170,047) (382,563) Borrowings on line of credit 6,448,972 7,731,513 Payments on line of credit (6,120,707) (7,429,276) ------------ ------------ NET CASH PROVIDED BY FINANCING ACTIVITIES 1,640,068 3,533,029 ------------ ------------ NET INCREASE (DECREASE) IN CASH (61,860) 5,904 CASH, BEGINNING OF YEAR 61,860 26,143 ------------ ------------ CASH, END OF QUARTER $ - $ 32,047 SUPPLEMENTAL DISCLOSURE OF CASH FLOW ACTIVITIES: Interest paid $ 266,734 $ 208,919 Income taxes paid $ 1,258 $ 61,120 ================================================================================== ============ ============
See Notes to Consolidated Financial Statements DOCSALES.COM, INC. AND SUBSIDIARIES (FORMERLY GOLDEN PHARMACEUTICALS, INC.) NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS NOTE 1. SUMMARY OF ACCOUNTING POLICIES The accompanying unaudited financial statements of docsales.com, inc., formerly Golden Pharmaceuticals, Inc., and its consolidated subsidiaries (collectively, the "Company") have been prepared in accordance with generally accepted accounting principles for interim financial information and pursuant to the rules and regulations of the Securities and Exchange Commission. Accordingly, they do not include all of the information and notes required by generally accepted accounting principles for annual financial statements. The accompanying unaudited condensed financial statements and disclosures reflect all adjustments which, in the opinion of the management, are necessary for a fair presentation of the results of operations, financial position, and cash flow of the Company. The results of operations for the periods indicated are not necessarily indicative of the results for the full year. The financial statements should be read in conjunction with the audited financial statements and the notes thereto included in the Company's Annual Report on Form 10-KSB for the year ended August 31, 1998, as filed with the Securities and Exchange Commission. Basic and diluted earnings per share for the nine months ended May 31, 1999 and 1998 is calculated as follows:
NINE MONTHS ENDED MAY 31, ------------------------------ 1999 1998 -------------- -------------- Net loss $ (2,616,991) $ (4,410,958) ============== ============== Weighted average number of shares outstanding Basic earnings per share Weighted average shares outstanding for Basic earnings per share calculation 3,911,340 ** 4,013,199 ** ============== ============== Diluted earnings per share Weighted average shares outstanding 3,911,340 ** 4,013,199 ** Effect of exercise of options * * Effect of conversion of Class A 15%/30% Cumulative convertible preferred stock and Accrued dividends thereon * * Effect of conversion of Series A redeemable convertible preferred stock of subsidiary * N/A -------------- -------------- Weighted average shares outstanding for Diluted earnings per share calculation 3,911,340 ** 4,013,199 ** ============== ============== ** Adjusted and restated for 32:1 reverse stock split effective July 8, 1999. * The effect of options and convertible shares was not included in the diluted earnings per share calculation for the nine months ended May 31, 1999 and 1998 as they would have been anti-dilutive. The total number of common shares not included in the diluted earnings per share calculation for the nine months ended May 31, 1999 and 1998 that could potentially dilute earnings per share in the future were 115,000 shares and 79,090 shares, respectively.
Reclassification / Restatement- Certain reclassifications have been made to conform prior years' information with the current year presentation. Use of Estimates - In preparing the Company's consolidated financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities, at the date of the consolidated financial statements. Actual results could differ from those estimates. NOTE 2. REALIZATION OF ASSETS The accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company incurred operating losses of $2,617,000 and $10,131,000, respectively, during the nine months ended May 31, 1999 and during the fiscal year ended August 31, 1998. In addition, at May 31, 1999, the Company had a negative working capital position of $2,006,000 due primarily to $500,000 in short term borrowings and $1,348,000 in accounts payable. The Company had a total stockholders' deficit of $7,212,000. These factors among others raise substantial doubt that the Company will be able to continue as a going concern for a reasonable period of time. The financial statements do not include any adjustments related to the recoverability and classification of assets and liabilities that might be necessary should the Company be unable to continue as a going concern. The Company's continuation as a going concern is dependent upon its ability to generate sufficient cash flow to meet its obligations on a timely basis, to obtain working capital financing, to obtain sufficient equity financing to re-capitalize the Company, and ultimately to attain profitability (see Note 10.) NOTE 3. DISCONTINUED LINE OF BUSINESS On August 3, 1998, the Company and the other member ("Member") of Pharma Labs, LLC ("Pharma Labs") entered into an agreement for the dissolution and liquidation of Pharma Labs. In order to facilitate the liquidation of Pharma Labs, the Company entered into a Unit Purchase Agreement on October 8, 1998 with the Member, whereby the Company purchased the Member's 48% equity interest in Pharma Labs for $35,000. On December 3, 1998, the Company completed the sale of Pharma Labs' machinery and equipment to Adams Equities, Inc. ("Buyer") for $150,000, pursuant to the terms of a Purchase Agreement dated November 10, 1998. The Purchase Agreement also included a non-compete agreement between the Company and the Buyer, for which the Company received $250,000 at closing. In addition, the Buyer assumed Pharma Labs' obligations under two (2) equipment leases and an affiliate of Buyer entered into a sublease with the Company to sublease Pharma Labs' facility and reimbursed the Company $57,000 for a lease deposit. NOTE 4. UNUSUAL CHARGE - IMPAIRMENT LOSS AND UNCERTAINTY At the end of the quarter ended February 28, 1998, Pharma Labs recorded a non-cash impairment loss of $230,000 related to the write-down of property, plant, and equipment to estimated fair market value. During the quarter ended May 31, 1998, the Company wrote down certain assets related to Pharma Labs in the amount of $203,500. NOTE 5. NOTES PAYABLE AND LONG-TERM DEBT On April 2, 1999, the Company entered into an agreement with ALCO Financial Services, LLC ("ALCO") for a $1,500,000 revolving credit facility (the "ALCO Facility") bearing interest at prime plus three percent (3%). The first draw under this new credit facility was made on April 6, 1999 in the amount of $563,500 and was used to pay in full all amounts due under the Company's previous credit facility with Norwest Bank. The ALCO Facility is for a period of two years with a one year renewal term. The ALCO Facility is collateralized by inventory and accounts receivable, and availability under the ALCO Facility is determined based on eligible accounts receivable and inventory. As of July 12, 1999, the Company had $222,435 of accounts receivable and $12,135 of additional eligible inventory for the Borrowing Base and had $919,175 principal outstanding under the ALCO Facility. NOTE 6. SALE OF PREFERRED STOCK In January 1999, Quality Care Pharmaceuticals, Inc. ("QCP"), a wholly-owned subsidiary of the Company, sold 1,000,000 shares of its Series A Preferred Stock, no par value ("QCP Preferred Stock"), for an aggregate purchase price of $1,000,000 to one accredited investor pursuant to the exemption provided by Section 4(2) of the Securities Act of 1933, as amended. The QCP Preferred Stock is convertible at the option of the holder into shares of the Company's no par value common stock at a conversion price of $6.40 per share, which is subject to adjustment upon certain events. Dividends are cumulative and payable on each share of QCP Preferred Stock at the rate of $.06 per annum. The QCP Preferred Stock restricts the payment of dividends to the common stock holders of QCP until the payment of all accrued but unpaid dividends on the QCP Preferred Stock. Each share of QCP Preferred Stock is entitled to a liquidation preference of $1.00 per share plus all accrued but unpaid dividends. QCP may redeem the QCP Preferred Stock at any time on or after January 14, 2004 at a price equal to the liquidation preference. NOTE 7. RELATED PARTY TRANSACTIONS During fiscal 1999, and through April 15, 1999, the Company borrowed $174,600, net of repayments, from certain shareholders who are also officers and directors. During the nine months ended May 31, 1999, the Company recorded $397,000 in interest expense on loans from related parties. At May 31, 1999, the Company owed $4,974,234 in notes payable to one of the above shareholders, $30,000 to another of the above shareholders, and $470,000 in notes payable to a director of the Company. At May 31, 1999 $688,000 in accrued interest was payable on the preceding notes. Certain of these loans are payable on demand and all such loans bear interest at bank prime plus 2%. Certain of these loans ($1,425,000 payable to Charles R. Drummond and $470,000 payable to Arch G. Gothard III at May 31, 1999) were payable on demand or no later than April 1, 1998, and, accordingly, were past due at May 31, 1999. By letter dated October 30, 1998, Charles R. Drummond committed not to demand payment of, or take action to collect, promissory notes, including those past due, owed to him until August 31, 1999 or such time as the Company has the ability to pay such notes. All amounts due to Mr. Drummond were at May 31, 1999 subordinate to all amounts due under the ALCO Facility. Loan proceeds were used for working capital. See "Management's Discussion and Analysis - Liquidity and Capital Resources." NOTE 8. INVESTMENT IN JOINT VENTURE In October 1998, the Company and VNA Home Health Systems ("VNA") signed an agreement pursuant to which VNA would withdraw from RxDirect, LLC ("RxDirect"). Under the terms for the withdrawal agreement, VNA was to pay the Company a $154,000 withdrawal fee by December 1, 1998. To date, the Company has collected $52,000 of such amount, including $16,000 collected during the most recent quarter, and is considering various collection alternatives with respect to the remaining $102,000. NOTE 9. CONTINGENCIES Quality Care Pharmaceuticals, Inc. ("QCP"), a wholly owned subsidiary of the Company, along with several other entities, including the manufacturers of the drugs, has been named as a defendant in approximately forty-seven lawsuits brought by numerous plaintiffs relating to personal injury claims caused by the use of phentermine and/or fenfluramine, collectively known as Phen-Fen. To date, QCP has been named in forty-five California lawsuits; however, it has been served court papers in only fifteen. Of the fifteen, the plaintiff from one lawsuit has recently dismissed QCP. QCP is also a third-party defendant in class action lawsuits in both Nevada and West Virginia. QCP's involvement in each of these lawsuits is limited to its distribution or repackaging of these drugs. Based on the recent dismissal, QCP's limited involvement with these Phen-Fen drugs and the defense being provided by the Company's insurance carrier, the Company currently believes that the outcome of these lawsuits will not have a material adverse effect on its business, financial condition, results of operations or future prospects. NOTE 10. SUBSEQUENT EVENTS On June 20, 1999, the Company announced an e-commerce initiative whereby the Internet will be used to reach a broader customer base with an expanded product line. On July 7, 1999, the shareholders approved a change in the name of Golden Pharmaceuticals, Inc. to docsales.com, inc. and authorized a reverse stock split of up to 40:1. The Board of Directors subsequently approved a 32:1 reverse stock split ratio. On July 13, 1999, the Company announced a joint software development with MasterChart, Inc. for prescription dispensing and management, including use with portable CE-based hand-held computer devices. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION The following discussion should be read in conjunction with the selected financial data and the financial statements and notes thereto filed herewith. The statements contained in this report, if not historical, are forward looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, and involve risks and uncertainties that could cause actual results to differ materially from the financial results described in such forward looking statements. These risks and uncertainties include, among others, the level and rate of growth in the Company's operations, the capital requirements of the Company and the ability of the Company to achieve earnings per share growth through internal investment, strategic alliances, joint ventures and other methods. The success of the Company's business operations is, in turn, dependent on factors such as the effectiveness of the Company's marketing strategies to grow its customer base, the appeal of the Company's mix of products, the Company's success at entering into and collaborating with others to conduct effective strategic alliances and joint ventures, general competitive conditions within the health care market and general economic conditions. Further, any forward looking statements speak only as of the date on which such statement was made, and the Company undertakes no obligation to update any forward looking statement or statements to reflect events or circumstances after the date on which such statement is made or to reflect the occurrence of unanticipated events. Therefore, forward looking statements should not be relied upon as a prediction of actual future results. RECENT DEVELOPMENTS The Company had a net loss of $2,617,000 during the nine months ended May 31, 1999, and, as of May 31, 1999, the Company's current liabilities exceeded its current assets by $2,005,000 and its total liabilities exceeded its total assets by $7,212,000. For the 1998 fiscal year and through the first nine months of fiscal 1999, the Company has been operating in a difficult environment, and the Company expects to continue to operate in a difficult environment for the foreseeable future. The Company's operations in fiscal 1998 and the first nine months of fiscal 1999 have consumed substantial amounts of cash and have generated significant net losses which reduced shareholders' equity to a deficit of $7,212,000 at May 31, 1999. Also, the Company has a current period operating loss and negative cash flow from operations, and is expected to have continuing losses and negative cash flow from operations in the near term. Although there is substantial doubt about the Company's future, the new e-commerce initiative and the expanded software systems offer substantial potential to capitalize on Internet-based healthcare activities. The Company's ability to continue as a going concern is dependent upon its ability to obtain funding to support the Company's operating losses and capital requirements. The Company is currently pursuing both debt and equity financing, but there can be no assurance as to the results. RESULTS OF OPERATIONS NINE MONTHS ENDED MAY 31, 1999, COMPARED TO NINE MONTHS ENDED MAY 31, 1998, ($ ROUNDED TO NEAREST THOUSAND) NET SALES - Net sales for the nine months ended May 31, 1999, increased 24% to $5,744,000 from $4,642,000 for the same period last year. This sales gain was primarily because of the expansion of QCP sales into the following new business areas: sales to new government accounts, $411,000, and sales of new products, $306,000. Partially offsetting the QCP sales gain was lower sales at Pharma Labs, which declined 92% to $29,000 in the nine months from $340,000 for the comparable nine months last year. Pharma Labs discontinued operations on October 9, 1998. COST OF SALES - Cost of sales as a percentage of sales decreased 2%, to 77%, for the nine months ended May 31, 1999, as compared to 79%, for the same period last year. Contributing to this decrease was a write-down of Pharma Lab inventory by $200,000 to net realizable value recognized in the nine months ended May 31, 1999. SELLING GENERAL AND ADMINISTRATIVE - Selling, general and administrative expenses ("SG&A") were $3,551,000 for the nine months ended May 31, 1999, a decrease of $1,468,000 or 29% compared to $5,019,000 for the same three quarters last year. Pharma Labs' SG&A decreased $313,000 to $51,498 as a result of the liquidation of this business which discontinued operations on October 9, 1998. The balance of the SG&A expense decrease was primarily the result of overhead cost reductions in the current period. OTHER INCOME (EXPENSE) - Interest expense increased to $599,000 from $409,000 in the comparable period last year. This increase is because of interest payable on additional working capital borrowings from a shareholder who is also an officer and director. See "Note 7" to "Notes to Condensed Consolidated Financial Statements." The joint venture loss from RxDirect decreased to $23,000 from $108,000 during the comparable period last year. This reduction in loss was the result of overhead cost reductions and a substantial reduction in operations at RxDirect, which is now 100% owned by the Company. The $211,000 gain on settlement of accounts payable and other liabilities during the nine months ended May 31, 1999, resulted from the settlement of a payable due the other member of Pharma Labs under a non-compete agreement, $125,000, and the resolution of other Pharma Labs payables and liabilities, $86,000. UNUSUAL CHARGE / IMPAIRMENT LOSS - At the end of the nine months ended May 31, 1999, Pharma Labs recorded a non-cash impairment loss of $433,500 related to the write-down of property, plant and equipment to estimated net market value. NET LOSS - The Company had a net loss of $2,617,000 for the nine months ended May 31, 1999 compared to a $4,411,000 net loss for the comparable period last year. The improved results are primarily because of reduced overhead expenses, $853,000, including cost savings from the wind-down of Pharma Labs of $620,000 and a $211,000 gain on the settlement of Pharma Labs liabilities. Partially offsetting the above reductions was an increase in interest expense of $190,000 as a result of increased short-term borrowings. THREE MONTHS ENDED MAY 31, 1999, COMPARED TO THREE MONTHS ENDED MAY 31, 1998 ($ rounded to nearest thousand.) NET SALES - Net sales for the three months ended May 31, 1999 were $2,051,000, an increase of $170,000 or 9% compared to $1,881,000 for the same period last year. The increase is because of the expansion of QCP's sales into the business areas of government accounts, $145,000, and new product line sales, $140,000, plus new customers. Partially offsetting the QCP sales gain was the Pharma Labs discontinued operations on October 9, 1998, resulting in a reduction in sales of $245,000 from the quarter ended May 31, 1998. COST OF SALES - Cost of sales as a percentage of sales was 77.4%, or $1,587,000, in the quarter ended May 31, 1999, compared to 77%, or $1,442,000, for the comparable quarter last year. SELLING, GENERAL AND ADMINISTRATIVE - SG&A expenses decreased to $1,087,000 in the quarter ended May 31, 1999 from $1,933,000 during the same period last year. Pharma Labs SG&A decreased by $137,000 during the quarter ended May 31, 1999 due to discontinued operations on October 9, 1998. OTHER INCOME (EXPENSE) - Interest expense increased to $185,000 from $168,000 in the comparable quarter last year. This increase results from interest on additional working capital borrowings from shareholders who are also officers and directors. See "Note 7" to "Notes to Consolidated Financial Statements." UNUSUAL CHARGE / IMPAIRMENT LOSS - In the quarter ended May 31, 1998, Pharma Labs recorded a non-cash impairment loss of $203,500 related to the write-down of certain assets to estimated net market value. NET LOSS - The Company reported a net loss of $806,000 in the quarter ended May 31, 1999, compared to a net loss of $1,787,000 for the comparable period last year. Losses from operations were $623,000 in the quarter ended May 31, 1999, compared to an operating loss of $1,697,000 in the third quarter of fiscal 1998. The improved results, as discussed above, are primarily due to a reduction in SG&A of $267,000 and the non-cash impairment losses in Pharma Labs that occurred in the second quarter of fiscal 1998. Partially offsetting the above reductions was an increase in interest expense of $17,000 in the quarter ended May 31, 1999 compared to the second quarter of 1998. LIQUIDITY AND CAPITAL RESOURCES The following table is presented to facilitate the discussion of the Company's current liquidity and sets forth the Company's liquidity position as of May 31, 1999, as compared to August 31, 1998.
MAY 31, AUGUST 31, 1999 1998 ------------ ------------ Current assets $ 2,187,000 $ 2,471,000 Current liabilities 4,192,000 7,906,000 ------------ ------------ Net working capital (deficiency) $(2,005,000) $(5,435,000) ============ ============
At May 31, 1999, current liabilities were $4,192,000, a decrease of $3,714,000 from August 31, 1998. Current liabilities decreased as a result of the reclassification of a note payable from a short-term to a long-term obligation. Long-term obligations were $4,974,000 an increase of $4,949,000 primarily due to the following: reclassification of short-term to long-term obligations, additional borrowings, $439,000, from a shareholder who is also an officer and director (see "Note 7"to "Notes to Consolidated Financial Statement"), an increase in accrued interest of $372,000 and a $250,000 increase in deferred revenue on a non-compete agreement (see "Note 3" to "Notes to Consolidated Financial Statements"). Partially offsetting the above increases was a $179,000 decrease in the principal amount of the Company's credit facility and a $125,000 decrease in a payable to the other Pharma Labs member resulting from the settlement of a non-compete agreement. To help meet its working capital requirements, the Company has borrowed money from certain shareholders and directors of the Company. The loans are evidenced by promissory notes which provide for interest at the prime plus 2%. The promissory notes are unsecured obligations. The amounts outstanding under the promissory notes in the aggregate were $5,014,200 ($4,594,200 payable to Charles R. Drummond; $470,000 payable to Arch G. Gothard, III) and $5,474,200, ($4,974,200 payable to Charles R. Drummond; $470,000 payable to Arch G. Gothard, III; $30,000 payable to John H. Grant) at August 31, 1998 and May 31, 1999, respectively. Certain of the promissory notes ($1,425,000 payable to Charles R. Drummond and $470,000 payable to Arch G. Gothard III, at May 31, 1999) were payable on demand or no later than April 1, 1998 and, accordingly, are past due. Pursuant to a letter dated October 30, 1998, Charles R. Drummond committed not to demand payment of, or take any action to collect, the promissory notes owed him until August 31, 1999 or such time as the Company has the ability to repay such promissory notes. The promissory notes payable to Charles R. Drummond at May 31, 1999, were fully subordinated to the amounts due under the ALCO Revolving Facility. In April, 1999, all promissory notes payable to Mr. Drummond became fully subordinated to the amounts due, or to become due, under the ALCO Facility, and accordingly were reclassified to long-term obligations. The Company has suffered substantial recurring losses from operations. The Company incurred a net loss of ($10,068,000) during the fiscal year ended August 31, 1998 and a net loss of ($2,617,000) during the nine months ended May 31, 1999. As of May 31, 1999, the Company's current liabilities exceeded its current assets by $2,005,000 and its total liabilities exceeded its total assets by $7,212,000. These factors, in combination with the matters discussed in the previous paragraphs raise substantial doubt about the Company's ability to continue as a going concern. Approximately $400,000 may be required to support the Company's ongoing operations, exclusive of debt repayments, through August 31, 1999. As previously reported, the ALCO Revolving Credit Agreement of April 2, 1999, was for $1,500,000. Except for the ALCO Facility, the Company does not have any other commitments for financing and there can be no assurance that any additional financing will be available to the Company on terms acceptable to the Company, if at all. The Company's ability to continue as a going concern is dependent upon its ability to obtain funding for the Company's capital requirements and operating losses. The Company's shareholder deficit, and continuing losses create serious risk of loss for the holders of the Company's securities. DISCLOSURE OF SIGNIFICANT RISK AND UNCERTAINTY At August 31, 1998, the Company conducted a test for asset impairment in accordance with financial Accounting Standard 121. It is management's opinion that, exclusive of the write-downs for Pharma Labs and the write-off of goodwill, no additional impairment loss occurred. QCP has a current period operating loss and negative cash flow from operations, and is expected to have continuing losses in the near term. Key assumptions in the asset impairment test include reversal of recent operating losses and sales declines, several years of significant sales growth, and product cost reduction achieved through purchasing and volume efficiencies. Management feels this projection is achievable considering the size of the retail pharmacy market, estimated to be $84 billion, the growth rate of competitors in the industry, and based on estimates of growth potential made by companies participating in the industry. If management's assumptions prove too optimistic, an impairment charge, based on an undiscounted cash flow analysis, would be required. The impairment charge would be computed based on the excess of carrying value over the fair value of assets. Accordingly, it is possible that the results of the impairment test may change in the future and an impairment loss may result. YEAR 2000 The Company recognizes the need to ensure its operations will not be adversely impacted by year 2000 software failures. The Company is addressing this risk to the availability and integrity of financial systems and the reliability of operational systems. The Company has established processes for evaluating and managing the risks and costs associated with this problem. The Company is currently installing a new software package to accommodate year 2000 issues. This upgrade is year 2000 compliant. An initial assessment has been completed and the incremental cost of achieving Year 2000 compliance is estimated to be not material. Timely installation of the upgrade to the business software package is critical to year 2000 compliance. Cost will be expensed as incurred and are estimated to continue through fiscal 1999. RISK FACTORS In addition to the other information contained in this Report, the Company cautions stockholders and potential investors that the following important factors, among others, in some cases have affected, and in the future could affect, the Company's actual results of and could cause the Company's actual results to differ materially from those expressed in any forward-looking statements made by on or on-behalf of, the Company. The following information is not intended to limit in any way the characterization of other statements or information under other captions as cautionary statements for such purpose: - - The Company has incurred a significant amount of indebtedness, and the Company's cash flow from operations is not sufficient to fund debt service related thereto. - - Because of the current indebtedness, the Company's ability to obtain additional financing in the future and the Company's flexibility in reacting to changes in the industry and economic conditions generally may be limited. - - The ALCO Facility is subject to a variable rate of interest and a substantial increase in interest rates could adversely affect the Company's ability to service the debt obligations under the ALCO Facility. - - The Company's ability to attract and retain highly qualified management and product development personnel cannot be assured and if the Company is not able to attract and retain such personnel, that may impact the Company's results from operations. - - The Company's ability to anticipate changing technology and products and to efficiently develop, introduce or obtain the rights to technological advancements and new products that will gain customer acceptance cannot be assured and the failure to develop, introduce or obtain such rights may impact the Company's results from operations. PART II OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS. Quality Care Pharmaceuticals, Inc. ("QCP"), a wholly-owned subsidiary of the Company, along with multiple other parties, including the manufacturers of the drugs, has been named as a defendant in approximately forty-seven lawsuits brought by numerous plaintiffs relating to personal injury claims caused by the use of phentermine and/or fenfluramine, collectively known as Phen-Fen. To date, QCP has been named in forty-five California lawsuits; however, it has been served in only fifteen. Of the fifteen, the plaintiff from one lawsuit has recently dismissed QCP. Further, QCP is a third-party defendant in class action lawsuits in both Nevada and West Virginia. QCP's involvement in each of these lawsuits is limited to its distribution or repackaging of these drugs. Based on the recent dismissal, QCP's limited involvement with these Phen-Fen drugs and the defense being provided by the Company's insurance carrier, the Company currently believes that the outcome of these lawsuits will not have a material adverse effect on its business, financial condition, results of operations or prospects. ITEM 2. CHANGES IN SECURITIES. In June 1999, two accredited investors purchased common stock of the Company for a total amount of $125,000. No underwriter participated in this transaction, and the offering and sale of the securities was made solely to accredited investors under the exemption provided by Section 4(2) of the Securities Act of 1933 as the sale was limited strictly to accredited investors. The proceeds of the sales were used by the Company for working capital purposes. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. On July 7, 1999, the Company held a Special Meeting of Shareholders at which shareholders were asked to consider and vote upon: 1) a resolution authorizing an amendment to the Company's Articles of Incorporation to effect a change in the Company's name to docsales.com, inc.; 2) a resolution authorizing a reverse split of the Common Stock of the Company of up to forty for one; 3) the re-election of Arch G. Gothard III and Jeffrey L. Wertz to serve as directors of the Company until their successors are duly elected and qualified (Charles R. Drummond, Ladd A. Drummond and John H. Grant are also currently directors and their terms continued after the meeting); 4) a resolution approving Grant Thornton LLP as independent auditors for the Company for the fiscal year ending August 31, 1999. A total of 99,336,668 shares were represented at the meeting. Such shares were voted in favor of each matter as follows: Proposal #1 Proposal to amend the Company's Articles of Incorporation to change the company name from Golden Pharmaceuticals, Inc. to docsales.com, inc. For Against Withheld/Abstain ---------- ------- ---------------- 98,049,753 669,079 617,836 Proposal #2 Proposal to amend the Company's Articles of Incorporation to effect a reverse stock split of its no par value common stock in a ration not to exceed forty-to-one. For Against Withheld/Abstain ---------- --------- ---------------- 97,819,194 1,116,644 400,830 Proposal #3 Election of Directors For Withhold ---------- -------- Mr. Arch G. Gothard III 98,760,748 575,920 Mr. Jeffrey L. Wertz 98,741,588 595,080 Proposal #4 Proposal for ratification of selection of Grant Thornton LLP as the Company's independent auditors for the fiscal year ending August 31, 2000. For Against Withheld/Abstain ---------- ------- ---------------- 99,061,049 152,553 123,066 ITEM 5. OTHER INFORMATION. The stockholders approved up to a forty to one reverse stock split on July 7, 1999, and the directors subsequently approved a 32 to 1 reverse stock split. The reverse split went into effect July 8th and the common stock is currently being quoted and traded on a post-reverse stock split basis. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. a) Exhibits 27 Financial Data Schedule.* * Filed herewith b) Reports on Form 8-K No Current Reports on Form 8-K were filed during the period covered by this report. SIGNATURES In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. docsales.com, inc. ------------------- (Registrant) DATED: August 28, 1999 BY: /s/ John H. Grant ------------------------------------- John H. Grant, Vice Chairman (Chief Accounting Officer) Exhibit Index Exhibit No. Description - ----------- ----------- 27 Financial Data Schedule* * Filed herewith EX-27 2
5 1 3-MOS AUG-31-1999 MAR-01-1999 MAY-31-1999 0 0 1658569 112409 534608 2186530 2188458 1117370 3310244 4191998 4974236 0 0 24714858 (32365631) 3310244 2051129 2051129 1587399 2674438 0 0 185408 (790694) 0 (790694) 0 0 0 (805817) (.21) (.21)
-----END PRIVACY-ENHANCED MESSAGE-----