Securities and Exchange Commission
Washington, D. C. 20549
_______________
Form 10-SB/A
Amendment No. 3
________________
GENERAL FORM FOR REGISTRATION OF SECURITIES
OF SMALL BUSINESS ISSUERS
Under Section 12(b) or 12(g) of the Securities Exchange Act of 1934
Commission File No. 0-27119
MEDI-HUT CO., INC.
(Name of Small Business Issuer in its charter)
Delaware 222-436-721
(State of incorporation) (I. R. S. Employer Identification No.)
1935 Swarthmore Ave.
Lakewood, New Jersey 08701
(732) 901-0606
(Address and telephone number of principal executive offices
and principal place of business)
Securities registered pursuant to Section 12(b) of the Act:
None
________________
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.001
Title of class
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FORWARD LOOKING STATEMENTS
In this registration statement references to "Medi-Hut" "we," "us," and
"our" refer to Medi-Hut Co., Inc.
This Form 10-SB contains certain forward-looking statements For this
purpose any statements contained in this Form 10-SB that are not statements of
historical fact may be deemed to be forward-looking statements. Without
limiting the foregoing, words such as "may," "will," "expect," "believe,"
"anticipate," "estimate" or "continue" or comparable terminology are intended
to identify forward-looking statements. These statements by their nature
involve substantial risks and uncertainties, and actual results may differ
materially depending on a variety of factors, many of which are not within
Medi-Hut's control. These factors include but are not limited to economic
conditions generally and in the industries in which Medi-Hut may participate;
competition within Medi-Hut's chosen industry, including competition from much
larger competitors; technological advances and failure by Medi-Hut to
successfully develop business relationships.
DESCRIPTION OF BUSINESS
Business Development
Indwest, Inc. was incorporated in the state of Utah on August 20, 1981 as
Gibraltor Energy. Gibraltor Energy effected several name changes over the
years: Gibraltor Group in 1986, Computermall of Philadelphia, Inc., in 1987,
Steering Control Systems, Inc. in late 1987 and Indwest, Inc. in 1995.
Indwest did not have operations since its inception. Medi-Hut Co., Inc. was
incorporated in the state of New Jersey on November 22, 1982 and was involved
in the business of selling wholesale medical supplies ("Medi-Hut, New
Jersey").
On January 28, 1998 Medi-Hut, New Jersey entered into an Agreement and
Plan of Reorganization with Indwest. Indwest was the surviving corporation of
the merger and changed its name to Medi-Hut Co. Inc., a Utah corporation
("Medi-Hut, Utah"). Pursuant to the merger agreement, the directors and
officers of Indwest resigned and the management of Medi-Hut, New Jersey filled
the vacancies, and the former shareholders of Medi-Hut, New Jersey obtained
55.4% of the voting power.
On February 2, 1998 Medi-Hut Co., Inc. was incorporated in the state of
Delaware. On February 27, 1998, Medi-Hut, Utah completed a change of
domicile merger with Medi-Hut. We currently are a Delaware corporation
holding a Certificate of Authority to do business in the state of New Jersey.
Our Business
We private label insulin syringes, condoms, alcohol prep pads, hot and
cold packs, and over-the-counter drugs through various suppliers. We hold a
patent for a passive device safety syringe and in June of 1995 we received a
510(k) Food and Drug Administration (the "FDA") approval to market our
patented Autoblock Safety Syringe (the "Autoblock Syringe"). (See, "Product
Development," below.) In April of 1999 we introduced our own "Elite" brand of
medical supplies and in September of 1999 we launched our Tru-Choice brand of
over-the-counter drugs ("Tru-Choice drugs"). We sell our products through drug
wholesalers who then sell the products to pharmacies and through mail order.
Principal Products.
During our fiscal year 1998, approximately 32% of our revenues come from
our alcohol prep pads. These alcohol preps complement our syringe product
line because they are primarily used as a topical antiseptic, anti-infective
prior to administering injections. Each soft, absorbent, non-woven pad is
impregnated with 70% isopropyl alcohol, USP. Our alcohol preps are made under
strict quality control guidelines in the United States. We produce our alcohol
preps in two sizes and package them 100 or 200 per box.
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Our condoms are made of natural rubber latex and are silicone lubricated
with a reservoir tip. Our latex condoms are made to exacting specifications,
with each condom electrically tested for holes during the manufacturing
process, dimensional checks are performed and leak tests using water are also
conducted. Our condoms are manufactured in Korea at a plant that is ISO 9002
approved and then our condoms are tested by the FDA prior to entering the
United States marketplace. (See, "Government Regulation," below.) Our condom
sales accounted for approximately 24% of our revenues during the fiscal year
1998. The FDA recently adopted a requirement that each individually wrapped
condom have a lot number and expiration date. We have been using lot numbers
and expiration dates on our condom packages for the last ten years. We have
not had any recalls or product complaints regarding our condoms.
Our medical products, which include our insulin syringes, hot and cold
packs, gauze, and paper products accounted for approximately 43% of our
revenues during fiscal year 1998. A further breakdown shows 16% of revenues
came from sales of syringes. No insulin syringes were sold during the 1998
fiscal year.
Our hot and cold therapy pack can be stored in a freezer for instant cold
therapy, or can be heated for heat therapy. Our hot and cold therapy pack
uses a non-toxic gel that naturally produces moist heat and has a soft
non-woven cover. When kept in the freezer for instant cold therapy the pack
remains flexible to mold to any area of the body. The pack can be heated
using a microwave, conventional oven or hot water. Our pack can be used over
and over again and remains effective for up to forty-five minutes and, we
believe, provides superior value over limited use or disposable packs. Our
packs are manufactured in the United States by Packaging Electronics and
Device Corporation, the company who holds the patent for our hot and cold
packs.
Our syringes are manufactured at an ISO 9002 facility in Korea. Our
insulin syringes are designed and calibrated specifically to allow precise
measurement of small amounts of insulin. Insulin syringes are longer and
slimmer than standard hypodermic syringes, have a maximum capacity of 1
milliliter, and are calibrated in biologically active insulin "units."
Insulin syringes are also designed to eliminate the amount of dead space in
the syringe tip to ensure that the full measured dose is injected.
In September of 1999 we launched our Tru-Choice drugs product line. This
product line includes pseudoephedrine, acetaminophen, ibuprofen, calcium
antacid, calcium carbonate, chlorpheniramine, aspirin, diphenhydramine,
simethicone and senna laxative. We have sold over $190,000 of these drug
products since their release.
Distribution
Our existing products are sold through large drug wholesale chains in the
United States who then sell them through pharmacies and mail order. We do not
use a large sales force. We conduct our sales to wholesale distributors from
our office located in Lakewood, New Jersey. We use three employees who
contact the wholesalers by telephone or make periodic visits. Once we have
made a sale to a wholesaler, we place a purchase order with one of our
third-party suppliers. Usually, the purchase order provides shipping
instructions to the third-party supplier for delivery of the product to the
wholesaler. In the event the product is not shipped by the third-party
supplier, we have the product delivered to our warehouse and then ship it
directly from our warehouse inventory to the wholesaler.
Our policy is to have at least 80% of a product in inventory prior to
generating a purchase order for the product. We carry a one month inventory
of products which are warehoused at the third-party manufacturer or assembly
facilities we use. Our customary business practice is for our large buyers to
place purchase orders several months in advance. This allows us to notify our
third-party suppliers in advance of needed product. All sales are on thirty
(30) day credit. Returned merchandise is minimal due to the vigorous tests
that our products endure prior to shipment.
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Principal Suppliers and Customers
We purchase products internationally from FDA registered and ISO 9002
approved medical device facilities, as well as, manufacturers here in the
United States. We rely on four suppliers of our products. Calatex, Inc.,
located in California, produces our condoms. H & P Industries, located in
Wisconsin, manufactures our alcohol preps and is currently in the process of
re-tooling its machines to increase its capacity. Shina Corporation, located
in Seoul, Korea, manufactures our syringes. Advanced Pharmaceutical, Inc.
produces our Tru-Choice drugs.
Banta Health Care Products, Inc., located in Michigan, produces our
miscellaneous paper products. We have teamed up with Packaging Electronics
and Device Corporation for production of our hot & cold packs. Packaging
Electronics and Device Corporation holds the patent to the hot and cold pack
we sell and allows us to distribute and use our Elite brand label on their
unique product. We are dependent upon these suppliers and the loss of any one
of these suppliers would have a material adverse effect on our operations.
However, we believe any of our suppliers could be replaced within sixty (60)
days.
Our ordinary course of business is to place a purchase order with our
third-party suppliers when we want to order product. We do not enter into
long term formal contracts with our third-party suppliers in regards to the
private brand labeling or manufacture of our products. However, we do require
such third-party suppliers to agree not to disclose confidential information
regarding the identity of our customers to third parties, to not directly or
indirectly compete with us, nor to contact our customers. We also require the
third-party supplier to agree to follow our delivery instructions in the
purchase order.
During the last three fiscal years our total number of customers has been
42, 38 & 35, respectively. We do not enter into formal long term agreements
with our customers. (See the "Distribution" section, above for a description
of our arrangements with our customers.) During our fiscal year 1997 we
relied on one major customer, Rugby Watson Pharmaceuticals, who purchased
primarily insulin syringes, condoms and alcohol preps for approximately 50%
($549,157) of our aggregate sales. In 1998 we relied on three major customers
for 80% ($620,361) of our aggregate sales, Rugby Watson Pharmaceuticals
(45.8%), Darby Drug Company (19.9%), and Oxbrook Marketing (13.7%). These
sales were primarily condoms and alcohol preps. The loss of any one of these
customers would have a material adverse effect on our results of operations.
For example, during our fiscal year 1998 we lost a major customer, Rugby
Watson Phamaceuticals, and that loss resulted in approximately a 32.4%
decrease in revenues which resulted in a net loss of $45,997 for fiscal year
1998.
Product Development.
We are committed to search out and develop safety products for the health
care profession and to supply the consumer with quality medical products for a
reasonable price. We incurred approximately $32,201 in research and
development costs during 1995 for FDA registration and patent protection of
our Autoblock Syringe. We have not had any other research and development
costs since that time.
Our Elite brand Autoblock Syringe is our newest product. Safety
syringes are defined as those products that incorporate features designed to
safely cover the sharp needle with minimal effort and danger to the user by
preventing accidental needle sticks. There are two types of anti-stick
syringes: 1) Active device - this product demands that the user in some way
make a physical movement to activate the device after the injection and prior
to disposal; 2) Passive device - this product activates automatically after
injection and should be designed not to interfere with the normal injection
procedure.
Our Autoblock Syringe is a passive device which had a 90% acceptance
rating in its clinical evaluations. The Autoblock Syringe incorporates a
transparent sleeve into which the needle will automatically retract after use.
Unlike the anti-stick syringes that are now in the marketplace, our Autoblock
Syringe can be activated using a one
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hand technique. We believe our Autoblock Syringe will decrease accidental
needle sticks of medical service providers. (See, "Managements' Discussion
and Analysis - Results of Operations," below.)
We have not started production of the Autoblock Syringe, but in October
of 1999 we entered into a letter of intent and are currently negotiating the
production of the Autoblock Syringe in a FDA registered and ISO 9002 approved
facility in Korea. We anticipate that the Autoblock Syringe will be
manufactured using sophisticated, patented, high-tech machinery which will
allow production of a precise quality product. Management expects the $1
million raised in the August 1999 private placement to be adequate to fund
such production. Based on timely completion of the required assembling
machines, we expect to start production of the Autoblock Syringe in late 2000.
We intend to contract out the manufacture of the Autoblock Syringe at least
for the first 18 months so that we can enter the marketplace in an orderly and
timely manner. We expect to market our Autoblock Syringe through hospital
distributors that will handle the selling, in house training of users,
warehousing and distribution of this product.
Competition
Our markets are dominated by a few established companies which have been
in the market for several years and we believe the selling prices of our
products have become well established. The primary factors which allow us to
remain in the market is the price and quality of our products. During the
past seventeen years we have continued to operate in our markets even though
we believe we have less than a 1% share of such markets.
We compete with established companies such as The Kendall Corporation
which dominates the health profession alcohol preps market and Becton
Dickinson which dominates the consumer market for alcohol preps. The condom
market is dominated by Carter Wallace, Inc. (Trojan) and Durex Consumer
Products, Inc., a division of London International Group, Inc. (Sheik). 3M
and Becton Dickinson lead the hot and cold pack market. Becton Dickinson
dominates the insulin syringe market with 78% of the market and Sherwood
Medical has approximately 20% share and the remainder of manufacturers have
less than a 4% share.
We maintain our competitive stance by offering a quality product for less
money. We believe our products are priced lower than products sold by the
market leaders, which allows our third party wholesalers to realize greater
profits. We price our products based upon available data regarding the
selling prices of products being sold by the established companies in our
markets. Based on that data, management establishes a price for a product
which is lower than the price of the established company's product.
Our alcohol preps are essentially identical to other alcohol preps in the
market and are currently priced 16.6% less per box than those sold by The
Kendall Corporation. Our condoms are subjected to a battery of tests before
they are released on the market and during the past ten (10) years we have not
had a recall or product complaint. Our condoms are currently priced 71.7%
less per dozen than comparable Carter Wallace condoms. We have also used lot
numbers and expiration dating on the packaging of all of our condoms for
several years before it was required by the FDA. When the need for a latex
warning was deemed necessary by the FDA, we were one of the first companies to
comply with the law.
The market for insulin syringes is unique because this type of syringe is
used in a non-professional setting, namely diabetic patients. We believe our
syringe meets the needs of the diabetic patient because it is easy to read and
has a needle that is sharp enough to allow for a comfortable injection. We
also use packaging similar to the market leader Becton Dickinson, but
currently price our insulin syringes 54.8% less per box than Becton Dickinson.
We have teamed up with Packaging Electronics and Device Corporation for
the production of our hot and cold packs. Packaging Electronics holds the
patent for our particular hot and cold pack and, therefore, produces a unique
product at what we believe is a competitive price. Our hot and cold pack
incorporates a soft non-woven fabric that surrounds a non-toxic gel and can be
reused again and again. Our hot and cold pack currently cost
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approximately $1.00 more than hot and cold packs sold by 3M. However, the 3M
product is not identical to our product because it uses a plastic covering
with a disposable outer cover.
The safety syringe market is dominated by Becton Dickinson and Sherwood
Medical. Both of these companies manufacture an active device which requires
two hands and activates manually after the injection. Our Autoblock Syringe
can be activated using a one hand technique. We expect to price this product
lower than our competitors. Retractable Technology, a Texas Corporation, has
entered the market place recently with a passive device similar to our
Autoblock Syringe. However, we intend to price our Autoblock Syringe
approximately 15% less than this competitor's passive syringe device.
Trademark, License and Intellectual Property
Our Autoblock Syringe holds United States Patent No. 5,562,626, issued
October 8, 1996. We believe that this patent is of material importance to the
future growth of our business because of the anticipated growth in the safety
syringe markets. The Autoblock Syringe is classified as a passive anti-stick
safety syringe and is one of the few that can be activated with the ease of
use of a normal plastic disposable syringe. We also hold the FDA 510 (k)
#K933569 which allows us to assign the manufacturing rights of the Autoblock
Syringe. (See, "Government Regulation," below.) The 510(k) is listed as an
initial distributor of a Class II Special Controls device. We do not have any
licenses, franchise or concessions agreements in place for this product at
this time. We believe our future success will depend, in part, on our ability
to protect our Autoblock Syringe patent and to launch full scale manufacturing
of these syringes. However, if a third party infringes upon our patent we
could expend substantial costs in its protection.
Government Regulation
Our medical products are subject to regulation by the federal FDA and
various other federal and state agencies as well as by a number of foreign
governmental agencies. Our third-party manufacturers are primarily
responsible for our products meeting these regulations. We believe they are
in compliance in all material respects with the regulations based on the fact
that our third-party manufacturers are FDA registered and their products meet
FDA standards. Compliance with these regulations has not had, and is not
expected to have, a material adverse effect on our business.
The companies in the United States that manufacture our products must be
registered with the FDA. Our contract manufacturers must comply with an FDA
registration process and are subject to random and unannounced on-site FDA
periodic inspections. Our foreign suppliers finished products are analyzed
and tested by the FDA either once the product enters the United States, or
when it is taken off the shelf of a pharmacy or hospital. Our third party
manufacturers are responsible for education of their employees regarding FDA
requirements and receive all changes of rules applicable either to product
compliance or good manufacturing procedures as announced in the Federal
Register. We notify our suppliers of changes that we deem necessary or we are
aware of that are being discussed within the governmental agencies. By
keeping our third party manufacturers informed we help them remain on the
cutting edge of governmental changes in laws.
We filed a Section 510(k) notification of intent to market our Autoblock
Syringe and on March 14, 1995 the FDA granted approval to manufacture and
market the Autoblock Syringe in the United States. This 510(k) approval is
not FDA approval of the Autoblock Syringe, but approval to market the syringe.
The purpose of a 510(k) is to demonstrate that the medical device is
substantially equivalent to a legally marketed device that was or is currently
on the United States market. A device is substantially equivalent if, in
comparison to a legally marketed device it (a) has the same intended use as a
legally marketed device and has the same technological characteristics as such
device or (b) has the same intended use as such device; and has different
technological characteristics that have to be proved safe.
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In the case of our Autoblock Syringe, we were required to perform a
clinical evaluation study to prove that the Autoblock Syringe, as intended for
use, was similar to devices on the market that had no spring activation. We
then met with the FDA after the clinical evaluation. The FDA inquired about
the number of syringes used in the evaluation and where in the hospitals the
evaluations were located. After this meeting the FDA granted the 510(k)
without further inquiry.
Our FDA registration is listed as an initial distributor. If, and when
we decide to manufacture the Autoblock Syringe through another FDA registered
manufacturer or manufacture the Autoblock Syringe in-house, we will, if
necessary, register the manufacturer, or we will register Medi-Hut itself as a
manufacturer. After registration with the FDA, the FDA will inspect the
facility for compliance with the general controls. The general controls
provisions require annual registration, listing of devices, good manufacturing
practice, and labeling. It also prohibits misbranding and adulteration. The
Autoblock Syringe is classified as a Class II, Special Controls device which
is subject to additional controls. If the FDA has questions at the time of an
inspection, we will have a reasonable time to answer and comply with the
necessary governmental concerns.
We purchase product from international suppliers who we require to be ISO
9002 approved. ISO 9002, the International Quality System Standard, is a
quality assurance program with a principle focus on management responsibility,
planning, monitoring, corrective action, and documentation. These principles
are applied to the production and the installation aspects of a business. ISO
9002 applies in situations when:
a) The specified requirements for product are stated in terms of an
established design or specification, and
b) Confidence in product conformance can be attained by adequate
demonstration of a supplier's capabilities in production,
installation and servicing.
An ISO 9002 facility uses procedures that include management, quality
plans, contracts, document/data, purchasing, traceability, process control,
correct/prevent, storage/handle, quality records, auditing, training,
servicing, and statistics.
Employees
We have three employees, two of which are directors and officers.
Reports to Security Holders
We are required to comply with the reporting requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"). We must
file annual, quarterly and other reports with the Securities and Exchange
Commission (the "SEC"). We also are be subject to the proxy solicitation
requirements of the Exchange Act and, accordingly, will furnish an annual
report with audited financial statements to our stockholders.
Available Information
Copies of this registration statement may be inspected, without charge,
at the SEC's Public Reference Room at 450 Fifth Street N.W., Washington D.C.
20549 and at the Northeast Regional offices of the SEC located at 7 World
Trade Center, Suite 1300, New York, New York 10048. The public may obtain
information on the operation of the Public Reference Room by calling the SEC
at 1-800-SEC-0300. Copies of this material also should be available through
the Internet by using the SEC's EDGAR Archive, the address of which is
http://www.sec.gov.
We currently use an investor relations firm, Columbia Financial Group,
("Columbia Financial") and interested persons may call at (888) 301-6271. On
June 1, 1999 we entered into a second consultant agreement with Columbia
Financial. Columbia Financial provides consulting and services for investor
relations, public relations,
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publishing, advertising, fulfillment, as well as, Internet related services.
Columbia Financial provides such services for a term of twelve (12) months for
a set fee. Columbia Financial agreed to accept warrants to purchase 500,000
common shares for its services. These warrants were valued at $23,500 and
expire June 1, 2002. None of the warrants have been exercised as of the date
of this filing. We have recorded $18,790 for such consulting expenses as of
July 31, 1999. We do not reimburse Columbia Financial for expenses incurred
for its services. Either party may terminate the agreement with 60 days
written notice with certain conditional repayments. Columbia Financial Group
has also entered into an agreement on our behalf with Internet Stock Market
Resources for dissemination of our company information to its subscribers.
MANAGEMENT'S DISCUSSION AND ANALYSIS
Medi-Hut is in the business of selling wholesale medical supplies through
drug wholesalers. We realize revenue when products are shipped and title
passes to our wholesalers. Our inventory consists of finished products which
are warehoused at the third-party manufacturer's or supplier's facility or
when necessary at our own warehouse. Revenue is net of returns, which have
historically been less than 2% of gross sales. Costs of sales primarily
consist of the cost of the products purchased from third-party vendors and
shipping costs. Selling, general and administrative expenses include
employee salaries and benefits, employee travel expenses, advertising, office
expenses and occupancy costs. Our fiscal year ends on October 31 and the
interim period used in these discussions is the nine month period ended July
31, 1999.
Merger Treatment
In an arms length transaction in February of 1998, Medi-Hut, New Jersey
became a public company by completing a merger with Indwest, Inc., a publicly
traded company seeking a merger candidate. Pursuant to the merger agreement,
Indwest issued 4,295,000 of its common shares to twenty shareholders of
Medi-Hut, New Jersey in exchange for 100% of the outstanding shares of that
company. Indwest was the surviving entity and changed its name to Medi-Hut
Co., Inc. ("Medi-Hut, Utah"). As a result of the merger Medi-Hut, Utah
acquired the business operations, products and assets of Medi-Hut, New Jersey.
The merger was structured as a tax free stock-for-stock exchange
according to Section 368(a)(1)(B) of the Internal Revenue Code of 1986, as
amended. For accounting purposes, the merger was treated as an acquisition of
Indwest by Medi-Hut, New Jersey, and a recapitalization of Medi-Hut, New
Jersey. Indwest and Medi-Hut, New Jersey negotiated the exchange ratio for
the transaction. Based on stockholders' equity Indwest issued shares valued
at $2,029 to Medi-Hut's shareholders and Medi-Hut's shareholders retained a
$51,560 interest in the combined entity which was valued at $93,079. As a
result of the merger, the former shareholders of Medi-Hut, New Jersey held
55.4% of Medi-Hut, Utah's outstanding common shares. Immediately after the
merger, affiliates held 5,419,789 common shares and non-affiliates held
2,326,011 common shares.
Subsequently, Medi-Hut, Utah changed its domicile from Utah to Delaware.
Indwest had no operations since inception and the surviving corporation's
operations are entirely those of the former and new Medi-Hut.
Liquidity and Capital Resources
In over seventeen years of business, the former and new Medi-Hut has had
adequate cash flows to operate business activities. We have required little
short term debt financing and management expects with the introduction of our
new product lines, we will meet our present requirements for working capital
and capital expenditures for at least the next twelve months. However, if we
decide to build our own manufacturing facility, additional funds will be
required. We have funded our cash requirements primarily through revenues and
sales of our common stock. As of July 31, 1999 we had $70,894 in cash with
total current assets of $345,649. We had current liabilities of $89,268
resulting in a positive net worth of $256,381. We posted an operating loss of
$117,168 for the nine month interim period ended July 31, 1999. We posted
current assets of $432,881 at the end of fiscal year 1998 with 47.3% of that
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sum represented by accounts receivable. The accounts receivable amount
reflected the sale of condoms to a new account in the last month of the fiscal
year.
A summary of our audited balance sheets for the years ended October 31,
1998 and 1997 and our unaudited balance sheet for the nine month interim
periods ended July 31, 1999 and 1998 are as follows:
Years Ended October 31, Interim Period Ended July 31,
1997 1998 1998 1999
------------ ------------ ------------ ------------
Cash/Cash Equivalents $ 116,144 $ 167,920 $ 210,136 $ 70,894
Current Assets 189,085 432,881 501,690 345,649
Total Assets 220,045 462,201 531,781 374,295
Total Current Liabilities 133,743 83,506 128,446 89,268
Total Stockholder's Equity 86,302 378,695 403,335 285,027
Total Liabilities &
Stockholder Equity 220,045 462,201 531,781 374,295
Net cash used for our operating activities was $235,718 for the 1998
fiscal year, compared to $26,164 net cash provided by operating activities for
1997. We recorded $120,682 net cash used by operating activities for the nine
month interim period ended July 31, 1999. The net loss posted for fiscal year
1998 was primarily due to decreased revenues. As of October 31, 1998, our
principal commitments consisted of office and warehouse space. Future minimum
lease payments are $36,080 through the year 2000 and our rent expenses have
totaled $22,639 and $26,661 for fiscal year 1998 and 1997, respectively.
During fiscal year 1997 net cash provided by financing activities was
$37,695 and was provided by a $50,000 line of credit. During fiscal year 1998
net cash provided by financing activities was $289,390, and came primarily
from sales of our common stock.
We sold 27,000 common shares for $67,500 in January of 1998 and 500,000
common shares in June of 1998 for $225,000. While we received the stated
amounts in consideration for those shares, we have revised the amounts stated
in our financial statements to reflect the average high/low market price of
the common shares on the date of issuance. We then applied a modest discount
for any restrictions on resale and lack of marketability. The difference
between the average high/low market price and issue price has been reflected
as common stock dividend. As a result of these changes, we posted a
constructive dividend of $25,650 for the January 1998 issuance and $578,000
for the June 1998 issuance.
In August of 1999 we raised $1,000,000 from the sale of 2,200,000 common
shares, which we intend to use to commence the production of our Autoblock
Syringe.
According to the line of credit agreement for $50,000 PNC Bank, N.A. has
agreed to make loans at 2% above the prime interest rate. This credit line
was renewed in August of 1999 and expires in August of 2000. We also had a
$150,000 revolving line of credit we obtained in October of 1997. Pursuant to
the agreement, PNC Bank, N.A. agreed to make loans to us at 3% above the prime
interest rate. This line of credit expired on October 10, 1999. Both lines
of credit were secured by all the assets of Medi-Hut and personal guarantees
of our executive officers. As of the fiscal years ended 1998 and 1997 there
was $39,195 and $37,695 outstanding, respectively, on the $50,000 line of
credit. As of July 31, 1999 the amount outstanding was $39,651. We had a $0
balance on the $150,000 credit line at the end of both fiscal years.
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On October 4, 1999, we received preliminary approval from the New Jersey
Economic Development Authority for $5.75 million in financial assistance to
build a Autoblock Syringe manufacturing facility in New Jersey. However, the
New Jersey Authority may not be able to allocate tax-exempt private activity
bonds if it receives financing requests which exceed its private activity bond
caps or if it determines that other projects should have priority over
Medi-Hut's project. We are awaiting their final decision.
If additional funds are needed for our future growth, we can not assure
that funds will be available from any source, or, if available, that we will
be able to obtain the funds on terms agreeable to us. The acquisition of
funding through the issuance of debt could result in a substantial portion of
our cash flows from operations being dedicated to the payment of principal and
interest on the indebtedness, and could render us more vulnerable to
competitive and economic downturns.
Any future securities offerings will be effected pursuant to applicable
exemptions under federal and state laws. The purchasers and manner of
issuance will be determined according to our financial needs and the available
exemptions. At this time we have not decided to offer securities and,
accordingly, have not determined the type of offering or the type or number of
securities which we might offer. We have no plans to make a public offering
of our common stock at this time. We also note that if we issue more shares
of our common stock our shareholders may experience dilution in the value per
share of their common stock.
Results of Operations
The following table summarizes the results of our operations for the
fiscal years ended October 31, 1998 and 1997 and for the nine month interim
periods ended July 31, 1999 and 1998.
Years Ended October 31, Interim Period Ended
1997 1998 July 31, 1998 July 31, 1999
------------ ------------ ------------- -------------
Sales $ 1,165,565 $ 779,537 $ 609,005 $ 544,491
Cost of Sales 818,573 552,173 432,621 392,903
Gross Profit 346,992 227,364 176,384 151,588
Selling, General &
Administrative Expenses 333,875 271,162 191,411 264,913
Operating Income (Loss) 13,117 (43,798) (15,027) (113,325)
Interest Income 1,328 2,126 2,348 1,779
Interest Expense (4,205) (4,000) (2,625) (3,082)
Provision for Income Taxes 3,650 325 175 (1,566)
Net Income (Loss) 6,590 (45,997) (21,358) (117,168)
NINE MONTHS ENDED JULY 31, 1999 AND 1998
Total sales were down by 10.5% for the 1999 interim period compared to
the 1998 interim period, while cost of sales remained relatively constant at
72.1% of total sales for the 1999 interim period compared to 70.8% for the
1998 interim period. Accordingly, gross profits decreased 14.0% from the 1998
interim period to the 1999 interim period, due to reduced sales.
General and administrative expenses were 48.6% of total sales for the
1999 interim period compared to 31.4% for the 1998 interim period. Such
expenses increased in the 1999 interim period primarily as a result of a
$42,280 increase in officers salaries and an additional $18,790 attributed to
consulting expenses. Our operating loss
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for the 1999 interim period was 20.8% of total sales compared to 2.4% for the
1998 interim period. Our net loss was 21.5% of total sales compared to 3.5%
for the 1998 interim period. We recorded $0.014 loss per share for the 1999
interim period compared to $0.006 for the 1998 interim period. The 1999
interim period loss is primarily a result of increased expenses related to
business operations and salaries and reduced sales.
YEARS ENDED OCTOBER 31, 1998 AND 1997
Sales. Sales decreased $386,028 from fiscal year 1997 to 1998. This
decrease in sales was a result of a decrease in sales of our private label
insulin syringe. We lost a major account due to that company's change in
ownership and the new management's decision to use a manufacturer who produced
the syringe in the United States. The loss of this account represented
approximately $375,000 in sales. As a result of the decrease in sales we
posted an operating loss in 1998 of $43,798 compared to an operating income of
$13,117 in 1997.
Cost of Sales. Cost of sales remained relatively constant, approximately
70% of sales, for fiscal year 1997, 1998.
Gross Profit. Gross profits decreased from 1997 to 1998, however, they
were 29.7% and 29.1% of total sales, respectively. Management believes this
amount of variation in a high volume, low margin industry is normal.
Selling, General and Administrative. For fiscal year 1998, selling,
general and administrative expenses decreased $62,713 from fiscal year 1997.
The decrease in these expenses resulted primarily from a $55,630 decrease in
officer and employee salaries and termination of the profit sharing plan in
fiscal year 1998. In the future we expect to see an increase in our general
and administrative expenses due to accounting and legal fees required for
preparation of annual and quarterly reports which are required of a fully
reporting company.
Income Tax. We have approximately $32,000 available net operating loss
carry forwards as of October 31, 1998. We may use these carry forwards to
reduce our Federal taxable income and tax liabilities in future years. The
carry forwards begin to expire October 31, 2012. As of July 31, 1999 we
recorded $1,566 for corporate business tax.
Net Income (Loss). We recorded a net loss of $45,997 or $0.008 per share
for fiscal year 1998 compared to net income of $6,590, or $65.92 per share for
the 1997 fiscal year.
Management expects our Tru-Choice drugs and the Autoblock Syringe to
provide new sources of revenue during fiscal year 2000. Management also
anticipates increases in user demand for safety syringes as states and OSHA
make regulatory changes requiring such devices. Currently, OSHA's Bloodborne
Pathogens Standard, adopted December 6, 1991, requires methods be used in the
workplace to eliminate or minimize employee exposure to blood or other
potential infectious materials. (29 CFR 1910.1030(d)(2) (I-ii).) OSHA has
recently requested information from health care providers to establish the
need for further regulations. On November 5, 1999 OSHA announced new
directives which did not establish new requirements, but reminded employers to
use readily-available technology in safety and health programs. However, OSHA
has not taken definitive action at this filing and we cannot assure that such
regulations requiring the use of safety syringes will be established in the
future. However, we believe that more medical care facilities are increasing
their use of safer medical devices to avoid accidental needle sticks.
Management believes the following factors will affect our future results
of operations: 1) Maintenance of our market share due to pricing our quality
products below our competitors prices; 2) continued concern of the public and
government entities about sexually transmitted diseases; 3) changes in federal
and state regulations which will require use of safety syringes by health care
workers; and 4) continued multi-dose injection regimes for insulin users.
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Quarterly Trends
We do not anticipate experiencing seasonal fluctuations in our operations
because sales of medical supplies is not seasonal in nature.
Year 2000 Compliance
We completed a review of our computer systems and operations to determine
the extent to which our business would be vulnerable to potential errors and
failures as a result of the "Year 2000" problem. Year 2000 failures could
result in system failures or miscalculations, causing disruptions of
operations, including, among other things, a temporary inability to process
transactions, send invoices, provide services or engage in similar activities.
These failures, miscalculations and disruptions could have a material adverse
effect on our business, operations and financial condition.
We concluded, based on our review of our operations and computer systems,
that our significant computer programs and operations will not be materially
affected by the Year 2000 problem. Our computer systems include a personal
computer using Write Plus software package. The computer calculates and
produces our inventory, pricing, accounting and invoicing. We completed an
in-house protocol check which demonstrated that the system was in full
compliance. Due to the minimal computer hardware and software we use, we
could modify or replace any programs that were not Year 2000 compliant at an
insignificant cost. We did not expend any funds for Year 2000 compliance and
do not expect to spend any additional funds for such compliance.
Under a reasonably likely worst case scenario, our operations could
experience accounting or billing errors and inventory miscalculations. As a
contingency plan we placed purchase orders with our suppliers into the first
quarter of 2000. We ordered these products under our current payment terms.
We also made inquiries to our third-party suppliers to ascertain if they
were Year 2000 compliant. Management was satisfied that two suppliers, H&P
Industries and Calatex, Inc., were Year 2000 compliant.
The remaining suppliers were making appropriate examinations and
necessary upgrades to insure Year 2000 readiness.
We and, to the best of our knowledge, our third-party suppliers and
customers did not experience any disruptions to operations as a result of Year
2000. We did not expend any additional funds for the Year 2000, and to the
best of our knowledge, neither did our principal suppliers and customers.
PROPERTIES
We lease 3500 square feet of office and warehouse space located in
Lakewood, New Jersey. The leased premises are part of a 35,000 square foot
industrial park. The term of the lease is for five years and will expire in
February of 2000. We currently pay $2,025.21 per month, but the monthly rent
payment is contingent upon increases in taxes, insurance and common area
maintenance expense. We have the right to renew the lease for a period of
five (5) years after the initial term and we may cancel the lease with a 90
days written notice to the landlord. We are currently negotiating a new lease
with additional space to accommodate our anticipated growth.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The following table sets forth the beneficial ownership of our
outstanding common stock of; (i) each person or group known by us to own
beneficially more than 5% of our outstanding common stock, (ii) each of our
executive officers, (iii) each of our director's and (iv) all executive
officers and directors as a group. Beneficial ownership is determined in
accordance with the rules of the SEC and generally includes voting or
investment power with respect
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<PAGE>
to securities. Except as indicated by footnote, the persons named in the
table below have sole voting power and investment power with respect to the
shares of common stock shown as beneficially owned by them. The percentage of
beneficial ownership is based on 10,472,800 shares of common stock outstanding
as of August 10, 1999.
MANAGEMENT
Common Stock Beneficially Owned
--------------------------------
Name and Address of Number of Shares of
Beneficial Owners Common Stock Percentage of Class
- ------------------------- --------------------- --------------------
Joseph A. Sanpietro 3,279,200 31.3 %
1935 Swarthmore Avenue
Lakewood, New Jersey 08701
Vincent J. Sanpietro 819,800 7.8 %
1935 Swarthmore Avenue
Lakewood, New Jersey 08701
Robert Russo 25,000** * %
1935 Swarthmore Avenue
Lakewood, New Jersey 08701
All executive officers and
directors as a group 4,124,000 39.3 %
* Less than one percent
** Mr. Russo shares voting and investment power with 20,000 shares held by
his wife, Carolyn Russo.
DIRECTORS AND EXECUTIVE OFFICERS
Our directors, executive officers and key employees and their respective
ages and positions with us are set forth below. Biographical information for
each of those persons is also presented below. Our bylaws provide for a Board
of Directors consisting of three directors. Our directors serve for terms of
one year. Our executive officers are chosen by our Board of Directors and
serve at its discretion. Joseph Sanpietro and Vincent Sanpietro are brothers.
Directors and Officers
Name Age Position Held
---------- ----- ------------------
Joseph A. Sanpietro 49 President, Director
Vincent J. Sanpietro 52 Secretary, Director
Robert Russo 40 Treasurer, Director
Joseph A. Sanpietro. President and Director of Medi-Hut since January 1998.
Since 1982 Mr Sanpietro served as President of Medi-Hut, New Jersey. He
graduated from Hofstra University in 1972, with a Bachelor of Science degree
in chemistry and he continued his education at Seton Hall University with
studies in chemistry and law. Mr. Sanpietro has had challenging careers with
Cooper Laboratories, as a front line analytical chemist; Schering-Plough as an
international analytical chemist leader where he was the youngest assistant
manager with both BS and MS chemists reporting directly to him. Mr. Sanpietro
was a project manager at Johnson & Johnson heading a multi-million dollar
relocation startup project.
Vincent Sanpietro. Secretary and Director of Medi-Hut since January 1998.
Mr. Sanpietro served as Secretary for Medi-Hut, New Jersey, since 1982. He
graduated with a B.S. degree in Business Administration from New York
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Institute of Technology. He held managerial positions in Wells Recruiting
Personnel and he was President of Focus Personnel, an Illinois Corporation.
Mr. Sanpietro was also Vice President of Sales of Focus Medical Products, Inc.
Robert Russo. Treasurer and a Director of Medi-Hut since March 1998. He is
the Managing Senior Partner of Koenig, Russo and Associates, LLC and has been
employed with that firm since 1982. Mr. Russo graduated from Seton Hall
University, New Jersey, with a degree in accounting and received his Masters
in Business Administration in business finance. He has extensive experience
in accounting, auditing, and business management. Mr. Russo has concentrated
his work in the field of taxes, employee benefit programs, business,
financial, estate and retirement planning. Mr. Russo is also a member of the
New Jersey Society of Certified Public Accountants and the American Institute
of Certified Public Accountants.
EXECUTIVE COMPENSATION
Indwest, Inc.'s executive officers did not receive any cash compensation,
bonuses, stock appreciation rights, long term compensation, stock awards or
long-term incentive rights during the fiscal year 1998. The following table
shows the compensation Medi-Hut, New Jersey paid to its executive officers
during the most recent fiscal year ended October 31, 1998.
SUMMARY COMPENSATION TABLE
Annual Compensation
-------------------
Fiscal Other
Name and Principal Position Year Salary ($) Bonus Annual Compensation
- ----------------------------- -------- ---------- ------- -------------------
Joseph A. Sanpietro,
President 1998 $ 83,940 0 0
and Director
Vincent J. Sanpietro,
Secretary 1998 59,540 0 0
and Director
Robert Russo, Treasurer and 1998 0 0 0
Director
Compensation of Directors
We do not have any standard arrangement for compensation of our directors
for any services provided as director, including services for committee
participation or for special assignments.
Employment Contracts
We have not entered into employment contracts with our current executive
officers. The entire Board of Directors, using their business judgment,
determines the yearly salary for each officer. We believe the salaries paid
to our executive officers are reasonable based on their experience and
responsibilities.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
For the fiscal year 1998 and 1997 we paid $6,260 and $6,550 to Koenig,
Russo & Associates LLC for the accounting services provided to us by Robert
Russo, our Treasurer. Mr. Russo owns a 100% interest in Keonig, Russo &
Associates LLC.
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LEGAL PROCEEDINGS
We are not a party to any proceedings or threatened proceedings as of the
date of this filing.
MARKET PRICE FOR COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS
Our common stock is traded over-the-counter and quoted on the OTC NASDAQ
Electronic Bulletin Board under the symbol "MHUT." The following table
presents the range of the high and low bid prices of our stock as reported by
the Nasdaq Trading and Market Services for each fiscal quarter for the last
two fiscal years ending October 31 and the nine month interim period ended
July 31, 1999. We had no market activity in our stock prior to February of
1998. Such quotations represent prices between dealers and may not include
retail markups, markdowns, or commissions and may not necessarily represent
actual transactions.
Quarter Ended High Low
-------------- ------ -------
April 30, 1998 4.5 0.05
July 30, 1998 3.375 0.9375
October 31, 1998 1.125 0.28
January 31, 1999 0.53125 0.125
April 30, 1999 0.52 0.23
July 31, 1999 1.03125 0.22
There were approximately 298 stockholders of record as of August 10,
1999. We have not declared dividends on our common stock and do not
anticipate paying dividends on our common stock in the foreseeable future.
Penny Stock
Our shares will be subject to the provisions of Section 15(g) and Rule
15g-9 of the Exchange Act, commonly referred to as the "penny stock rule."
Section 15(g) sets forth-certain requirements for transactions in penny stocks
and Rule 15g-9 (d) (1) incorporates the definition of penny stock that is
found in Rule 3a51-1 of the Exchange Act.
The SEC generally defines penny stock to be any equity security that has
a market price less than $5.00 per share, subject to certain exceptions. If
our shares are deemed to be a penny stock, trading in the shares will be
subject to additional sales practice requirements on broker-dealers who sell
penny stocks to persons other than established customers and accredited
investors. Accredited investors are persons with assets in excess of
$1,000,000 or annual income exceeding $200,000, or $300,000 together with
their spouse.
For transactions covered by these rules, broker-dealers must make a
special suitability determination for the purchase of such security and must
have received the purchasers written consent to the transaction prior to the
purchase. Additionally, for any transaction involving a penny stock, unless
exempt, the rules require the delivery, prior to the first transaction, of a
risk disclosure document relating to the penny stock. A broker-dealer also
must disclose the commissions payable to both the broker-dealer and the
registered representative, and current quotations for the securities.
Finally, monthly statements must be sent disclosing recent price information
for the penny stocks held in account and information on the limited market in
penny stocks. Consequently, these rules may restrict the ability of
broker-dealers to trade and/or maintain a market in our common stock and may
affect the ability of shareholders to sell their shares.
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OTC Bulletin Board Eligibility Rule
In January of 1999, the SEC granted approval of amendments to the NASD
OTC Bulletin Board Eligibility Rules 6530 and 6540. These amendments now
require a company listed on the OTC Bulletin Board to be a reporting company
and current in its reports filed with the SEC. As a result of this rule
change we have voluntarily filed this registration statement in order to
become a fully reporting company and maintain the listing of our common stock
on the OTC Bulletin Board. The NASD eligibility rule requires that the SEC
come to a position of no further comment regarding any Form 10 registration
statement before the NASD considers a company compliant. We cannot assure that
the SEC will come to such a position in regards to this registration statement
prior to our phase-in-date of February 2000. According to the eligibility
rule, if we are not in compliance at our phase-in date our common stock will
be removed from the OTC Bulletin Board. In that event, we intend to move our
listing to the National Quotation Bureau's Pink Sheets. This delisting may
adversely affect the market, if any, in our stock.
RECENT SALES OF UNREGISTERED SECURITIES
The following discussion describes all securities sold by us within the
past three years without registration:
On January 23, 1998, Indwest issued an aggregate of 1,751,251 common
shares to twelve persons for $33,333 in costs paid for or on behalf of Indwest
and for services rendered to Indwest in connection with the merger with
Medi-Hut, New Jersey. The issuance of such shares was exempt from
registration under the Securities Act of 1933 by reason of Section 4(2) as a
private transaction not involving a public distribution. The twelve persons
had unrestricted access to detailed material information regarding Indwest due
to personal relationships with Indwest's management and Indwest reasonably
believed that each possessed sufficient sophistication to evaluate the
information provided and was able to bear the economic risk of the purchase.
On March 2, 1998 we issued warrants to Columbia Financial Group to
purchase 200,000 shares of our common stock at an aggregate exercise price of
$775,000 in consideration for its public relations services. Such services
were valued at $50,500. (See, "Description of Securities - Warrants,"
below.) The issuance of such warrants was exempt from registration under the
Securities Act of 1933 by reason of Section 4(2) as a private transaction not
involving a public distribution. Columbia Financial was provided the same
kind of information regarding Medi-Hut as would be available in a registration
statement and Medi-Hut reasonably believed it possessed sufficient
sophistication to evaluate the information provided.
In March 17, 1998, we sold an aggregate of 27,000 common shares for
$67,500 to eight persons. The issuance of such shares was exempt from
registration under the Securities Act of 1933 by reason of Section 4(2) as a
private transaction not involving a public distribution. The eight persons
had unrestricted access to detailed material information regarding Medi-Hut
due to personal relationships with Medi-Hut's management and Medi-Hut
reasonably believed that each possessed sufficient sophistication to evaluate
the information provided and was able to bear the economic risk of the
purchase.
On June 4, 1998, pursuant to Rule 504 of Regulation D, we sold 500,000
common shares to two accredited persons for $225,000. A 10% commission was
paid for this offering. Such offering did not exceed the $1 million aggregate
limitation for sales of securities pursuant to Section 3(b) for the prior
twelve months.
On June 1, 1999 we issued an aggregate of 500,000 warrants to Columbia
Financial Group in consideration for its consulting and investor relations
services as our public relations consultant. The warrants are exercisable
upon issuance for a period of three years, ending June 1, 2002, with an
aggregate exercise price of $437,500. Such services were valued at $26,625.
(See, "Description of Securities - Warrants," below.) The issuance of such
warrants was exempt from registration under the Security Act of 1933 by reason
of Section 4(2) as a private transaction not involving a public distribution.
Columbia Financial was provided the same kind of information as would be
available in a registration statement regarding Medi-Hut and Medi-Hut
reasonably believed it possessed sufficient sophistication to evaluate the
information provided.
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<PAGE>
On August 4, 1999, we offered an aggregate of 2,200,000 common shares for
$1,000,000 pursuant to Rule 504 of Regulation D. Five accredited investors
purchased 2,200,000 common shares for the $1 million aggregate offering price
A 10% commission was paid for this offering. Such offering did not exceed the
$1 million aggregate limitation for sales of securities pursuant to Section
3(b) for the prior twelve months.
In each of the private transactions above we believe that each purchaser
(i) was aware that the securities had not been registered under federal
securities laws; (ii) acquired the securities for his/her/its own account for
investment purposes of the federal securities laws; (iii) understood that the
securities would need to be indefinitely held unless registered or an
exemption from registration applied to a proposed disposition; and (iv) was
aware that the certificate representing the securities would bear a legend
restricting its transfer. We believe that, in light of the foregoing, the
sale of our securities to the respective acquirers did not constitute the sale
of an unregistered security in violation of the federal securities laws and
regulations by reason of the exemptions provided under 4(2) of the Securities
Act, and the rules and regulations promulgated thereunder.
DESCRIPTION OF SECURITIES
Common Stock
We have 100,000,000 authorized common shares, par value $.001, of which
10,472,800 common shares are issued and outstanding. Each share of common
stock is entitled to one vote at shareholders meetings. Our shares of common
stock have no preemptive rights, conversion rights, no redemption or sinking
fund provisions, and are not liable to further call or assessment. Each share
is entitled to share ratably in any asset available for distribution to
holders of equity securities upon the liquidation of Medi-Hut.
Preferred Stock
Medi-Hut has not authorized or issued any preferred stock.
Warrants
Pursuant to consulting agreements with Columbia Financial Group, (See,
"Recent Sales of Unregistered Securities," above) we issued 200,000 common
stock purchase warrants on March 2, 1998 which vested upon issue and expire on
March 2, 2001. The exercise prices are for 50,000 shares at $3.00, $3.50,
$4.00 and $5.00. On June 1, 1999 we granted 500,000 common stock purchase
warrants which vested upon issue and expire on June 1, 2002. The exercise
prices are for 125,000 shares at $0.50, $0.75, $1.00 and $1.25. The warrants
remain outstanding as of July 31, 1999.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Our Articles of Incorporation and bylaws do not provide for
indemnification of our directors and officers. However, pursuant to Delaware
General Corporate Law Section 145 we must indemnify a present and former
director and officer of Medi-Hut who is successful on the merits or otherwise
in defense of an action or claim. We will indemnify such person for actual
and reasonable expenses incurred by such person only if we determine that such
indemnification is authorized. Such determination will be based upon whether
such person conducted himself in good faith and reasonably believed that his
conduct was in, or not opposed to, the our best interests. In a criminal
action the person must not have had a reasonable cause to believe his conduct
was unlawful. We may advance expenses if the person provides a written
affirmation that he will repay the advance if he is adjudged not to have met
the standard of conduct. Also, we are authorized to purchase insurance on
behalf of an individual for liabilities incurred whether or not we would have
the power or obligation to indemnify him.
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CHANGES AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURES
We have not had a change in or disagreement with our principal
independent accountant during the past two fiscal years.
FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements
Medi-Hut Comparative Financial Statements for the period ended July 31,
1999 and 1998 (unaudited)
Medi-Hut Co., Inc. Financial Statements ended October 31, 1998 (Restated)
and 1997
(b) Exhibits
Exhibit
Number Description
2.1 Agreement and Plan of Reorganization between Indwest, Inc. and
Medi-Hut Co., Inc, New Jersey, dated January 28, 1998 (filed
August 23, 1999)
3.1 Articles of Incorporation of Medi-Hut (filed August 23, 1999)
3.2 Articles of Merger filed February 20, 1998 (filed August 23,
1999)
3.3 Articles of Merger filed February 27, 1998 (filed August 23,
1999)
3.4 Bylaws of Medi-Hut (filed August 23, 1999)
10.1 Lease between Medi-Hut and Stamos & Sommers, LLC, dated
December 12, 1997 (filed August 23, 1999)
10.2 Form of Confidential Agreement (filed December 2, 1999)
10.3 Line of Credit between Medi-Hut and PNC Bank, N.A. (filed
December 2, 1999)
10.4 Consultant Agreement between Columbia Financial Group and
Medi-Hut, dated June 1, 1999 (filed December 2, 1999)
27 Financial Data Schedule (see attached)
________________________
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SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of 1934, the
registrant caused this registration statement to be signed on its behalf by
the undersigned, who is duly authorized.
5/24/00
Date: __________________ Medi-Hut Co., Inc.
Joseph Sanpietro
By: ________________________________
Joseph Sanpietro, President
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<PAGE>
Medi-Hut Co., Inc.
COMPARATIVE BALANCE SHEETS
July 31, 1999 and July 31, 1998
July 31, 1999 July 31, 1998
------------- --------------
ASSETS
CURRENT ASSETS
Checking account $ 9,727 $ 82,795
Money market account 61,167 127,341
Accounts Recievable 165,572 172,270
Deferred Insurance 5,173 858
Prepaid Expenses- Current 21,542 29,458
Merchandise Inventory 82,468 88,968
------------- --------------
TOTAL CURRENT ASSETS 345,649 501,690
PROPERTY AND EQUIPMENT
Furniture and Fixtures 27,316 27,316
Accumulated Depreciation(F&F) (27,316) (26,921)
------------- --------------
TOTAL PROPERTY AND EQUIPMENT 0 395
OTHER ASSETS
Auto Lease Cap Reduction 4,796 4,796
Accum Lease Amort Charge (3,927) (2,979)
Patent 32,501 32,201
Accum. Amort.-Patent (4,724) (4,322)
------------- --------------
TOTAL OTHER ASSETS 28,646 29,696
------------- --------------
TOTAL ASSETS $ 374,295 $ 531,781
============= ==============
LIABILITIES AND EQUITY
CURRENT LIABILITIES
Accounts Payable $ 49,275 $ 80,041
Fed. Witholding Tax Payable 0 0
Medicare tax payable 17 0
State Witholding Tax Payable 325 0
Sales Tax Payable 0 709
Line of Credit Payable 39,651 47,696
------------- --------------
TOTAL CURRENT LIABILITIES 89,268 128,446
EQUITY
Capital Stock 8,273 8,273
Additional paid in capital 958,267 934,767
Retained (Deficit) / Earnings (681,513) (539,705)
------------- --------------
TOTAL EQUITY 285,027 403,335
------------- --------------
TOTAL LIABILITIES AND EQUITY $ 374,295 $ 531,781
============= ==============
UNAUDITED
<PAGE>
Medi-Hut Co., Inc.
COMPARATIVE INCOME STATEMENTS
For The Periods Ended July 31, 1999 and July 31, 1998
November 01, 1998 November 01, 1997
to to
July 31, 1999 July 31, 1998
----------------- -----------------
SALES
Sales 547,948 610,246
Sales discounts (3,457) (1,241)
----------------- -----------------
Total SALES 544,491 609,005
COST OF SALES
BEGINNING INVENTORY 38,739 24,558
Purchases 441,443 489,164
Purchases discounts (6,916) (587)
Freight In 1,520 3,552
Ending Inventory (82,468) (88,968)
Freight out 585 4,902
----------------- -----------------
Total COST OF SALES 392,903 432,621
----------------- -----------------
Total GROSS PROFIT 151,588 176,384
GENERAL & ADMINISTRATIVE
Advertising 2,300 0
Brochures & catalogues 145 820
Rubbish collection 710 804
Delivery Expense 2,292 2,673
Selling Supplies 1,559 1,294
Insurance - General 19,598 15,724
Legal & accounting 337 3,125
Business Promotion 76 0
Outside services 2,500 0
Postage expense 132 303
Repairs & Maintenance 0 327
Travel & entertainment 7,365 1,337
Salaries Officers 119,660 77,380
Salaries Office 0 3,240
Salaries Warehouse 9,900 8,200
Accounting 14,825 19,285
Bank Charges 171 194
Burglar Alarm 403 502
Cleaning 101 28
Group Life Insurance 1,354 1,468
Heat, Light, And Power 1,427 1,676
Hospitilization 11,756 9,259
Insurance 1,754 4,788
UNAUDITED
<PAGE>
Medi-Hut Co., Inc.
COMPARATIVE INCOME STATEMENTS
For The Periods Ended July 31, 1999 and July 31, 1998
November 01, 1998 November 01, 1997
to to
July 31, 1999 July 31, 1998
----------------- -----------------
Legal 494 0
Consulting Expense 18,790 0
Licenses and Permits 397 860
Office supplies and expense 5,523 1,937
Payroll Tax 10,630 7,559
Car Lease 8,973 8,745
Rent 18,409 16,533
Telephone General 3,332 3,350
----------------- -----------------
Total GENERAL & ADMINISTRATIVE 264,913 191,411
Total NET OPERATING INCOME (LOSS) (113,325) (15,027)
OTHER (INCOME) AND EXPENSES
Interest Income (1,779) (2,348)
Interest Expense 3,082 2,625
Depreciation Expense 263 393
Amort of Organization Expense 711 5,486
----------------- -----------------
Total OTHER (INCOME) AND EXPENSES 2,277 6,156
----------------- -----------------
NET INCOME (LOSS) BEFORE TAX (115,602) (21,183)
INCOME TAXES
Corp. Business Tax 1,566 175
----------------- -----------------
INCOME TAXES 1,566 175
----------------- -----------------
NET INCOME (LOSS) (117,168) (21,358)
================= =================
LOSS PER COMMON SHARE (0.014) (0.006)
================= =================
WEIGHTED AVERAGE OF
COMMON SHARES OUTSTANDING 8,272,900 3,519,267
================= =================
UNAUDITED
<PAGE>
Medi-Hut Company, Inc.
Cash Flows Statement
July 31, 1999
Description Amount
- ------------------------------------- -------------
Net Loss for the period 11/1/98-7/31/99 $ (117,168)
Adjustments to Reconcile Net Loss
to Net Cash Provided by Operating Activities -
Depreciation & Amortization 974
Decrease/(Increase) in Assets
Accounts Receivable 39,309
Inventory (43,729)
Prepaid Expenses (665)
Prepaid Consulting - (4,709)
Increase/(Decrease) in Liabilities
Accounts Payable 4,964
Payroll Taxes Payable 342
-------------
Net Cash Provided by Operating Activities (120,682)
Cash Flows from Investing Activities -
Purchases of patent and licensing costs (300)
-------------
Net Cash Provided by Investing Activities (300)
Cash Flows from Financing Activities -
Proceeds from line of credit 456
Issuance of warrants for consulting fees 23,500
-------------
Net Cash Provided by Financing Activities 23,956
-------------
Net Decrease in Cash (97,026)
Cash at Beginning of Period 167,920
-------------
Cash at End of Period $ 70,894
=============
UNAUDITED
<PAGE>
Medi-Hut Company, Inc.
Cash Flows Statement
July 31, 1998
Description Amount
- ------------------------------------ ------------
Net Loss for the period 11/1/97-7/31/98 $ (21,358)
Adjustments to Reconcile Net Loss
to Net Cash Provided by Operating Activities -
Depreciation & Amortization 5,879
Decrease/(Increase) in Assets
Accounts Receivable (125,294)
Inventory (64,410)
Prepaid Expenses 549
Prepaid Consulting - (29,458)
Increase/(Decrease) in Liabilities
Accounts Payable 12,621
Sales Tax Payable 709
Profit Sharing Plan Payable (28,628)
Payroll Taxes Payable 0
------------
Net Cash Provided by Operating Activities (249,390)
Cash Flows from Investing Activities -
Cash paid for lease (2,900)
Purchases of capitalized cost reduction (2,109)
------------
Net Cash Provided by Investing Activities (5,009)
Cash Flows from Financing Activities -
Proceeds from line of credit 10,001
Proceeds from sale of common stock 338,390
------------
Net Cash Provided by Financing Activities 348,391
------------
Net Decrease in Cash 93,992
Cash at Beginning of Period 116,144
------------
Cash at End of Period $ 210,136
============
UNAUDITED
Medi-Hut Co., Inc.
Notes to the Condensed Financial Statements
July 31, 1999 and 1998
BASIS OF PRESENTATION
The accompanying unaudited condensed financial statements have been
prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to item 310 of
Regulation S-B. 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 months ended
July 31, 1999 and 1998 are not necessarily indicative of the results that may
be expected for the years ended October 31, 1999 and 1998, respectively.
NOTES PAYABLE
The Company has in place a $ 50,000 working capital line of credit under
which the bank has agreed to make loans at 2% above the prime interest rate.
As of July 31, 1999 and 1998 there was $ 39,651 and $ 47,696 outstanding,
respectively.
SUBSEQUENT EVENT
Pursuant to Rule 504 of Regulation D, an aggregate of 2,200,000 common
shares were issued for $ 1,000,000 on August 4, 1999.
EARNINGS (LOSS) PER COMMON SHARE
Earnings (loss) per common share, in accordance with the provisions of
Financial Accounting Standards Board No. 128, "Earnings per Share", is
computed by dividing net income (loss) by the weighted average number of
shares of common stock outstanding during the period. Common stock
equivalents (warrants) have not been included in this computation since the
effect would be anti-dilutive.
<PAGE>
Medi-Hut Co., Inc.
Notes to the Condensed Financial Statements
July 31, 1999 and 1998
Continued -
COMMON STOCK DIVIDENDS
Common stock dividends amounting to $ 603,650 during 1998 were recognized
as to the difference between the average high/low market price and issue price
of the 527,000 common shares issued in accordance with the private placement
memorandum.
<PAGE>
Medi-Hut Company, Inc.
Financial Statements
October 31, 1998 (Restated) and 1997
<PAGE>
Medi-Hut Company, Inc.
Index to the Financial Statements
October 31, 1998 (Restated) and 1997
Page
Independent Auditors' Report on the Financial Statements................1
Financial Statements
Balance Sheets......................................................2
Statements of Operations............................................3
Statement of Stockholders' Equity...................................4
Statements of Cash Flows............................................5
Notes to the Financial Statements... ...............................6-11
Independent Auditors' Report on the Additional Information..........12
Additional Information
Schedules of Selling, General and Administrative Expenses..........13
<PAGE>
Rosenberg Rich
Baker Berman
& Company
_________________
a Professional Association of
CERTIFIED PUBLIC ACCOUNTANTS
380 Foothill Road * PO Box 6483 * Bridgewater, NJ 08807-0483
Phone: 908-231-1000 * Fax: 908-231-6894
Independent Auditors' Report
To the Board of Directors and Stockholders of
Medi-Hut Company, Inc.
We have audited the balance sheets of Medi-Hut Company, Inc. as of October 31,
1998 and 1997 and the related statements of operations, stockholders' equity
and cash flows for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Medi-Hut Company, Inc. as of
October 31, 1998 and 1997, and the results of their operations, and cash flows
for the years then ended in conformity with generally accepted accounting
principles.
As discussed in Note - 14 to the financial statements, the Company revised
its valuation of the stock issued in accordance with its private placement
memorandum and the warrants issued and, accordingly, the October 31, 1998
financial statements have been restated to reflect the revised valuations.
/s/Rosenberg, Rich, Baker, Berman & Company
Bridgewater, New Jersey
November 23, 1998, except for Note 14 which is dated February 29, 2000.
<PAGE>
Medi-Hut Company, Inc.
Balance Sheets
October 31,
------------------------
1998 1997
------------ ------------
(Restated)
Assets
Current Assets
Cash $ 167,920 $ 116,144
Accounts receivable 204,881 46,976
Inventory 38,739 24,558
Prepaid expenses 4,508 1,407
Prepaid consulting expense - current 16,833 -
------------ ------------
Total Current Assets 432,881 189,085
------------ ------------
Machinery and Equipment 27,316 27,316
Less: Accumulated Depreciation (27,053) (26,528)
------------ ------------
Net Machinery and Equipment 263 788
Capitalized Cost Reduction, net of accumulated
amortization of $3,216 and $1,815, respectively 1,580 1,085
Patent and Licensing Costs, net of accumulated
amortization of $4,724 and $3,114, respectively 27,477 29,087
------------ ------------
Total Assets 462,201 220,045
============ ============
Liabilities and Stockholders' Equity
Current Liabilities
Accounts payable and accrued expenses 44,311 67,420
Lines of credit 39,195 37,695
Profit sharing plan payable - 28,628
------------ ------------
Total Current Liabilities 83,506 133,743
------------ ------------
Stockholders' Equity
Common stock 8,273 1,000
Additional paid-in capital 934,767 -
Retained earnings (deficit) (564,345) 85,302
------------ ------------
Total Stockholders' Equity 378,695 86,302
------------ ------------
Total Liabilities and Stockholders' Equity $ 462,201 $ 220,045
============ ============
See notes to the financial statements.
<PAGE> 2
Medi-Hut Company, Inc.
Statements of Operations
Year Ended October 31,
------------------------
1998 1997
------------ ------------
(Restated)
Net Sales $ 779,537 $ 1,165,565
------------ ------------
Cost of Goods Sold
Beginning inventory 24,558 35,400
Net Purchases 554,539 755,887
Custom fees/freight 11,815 51,844
Cost of Goods Available for Sale 590,912 843,131
------------ ------------
Less: Ending Inventory 38,739 24,558
Cost of Goods Sold 552,173 818,573
------------ ------------
Gross Profit 227,364 346,992
Selling, General and Administrative Expenses 271,162 333,875
------------ ------------
Income (Loss) from Operations (43,798) 13,117
------------ ------------
Other Income (Expense)
Interest income 2,126 1,328
Interest expense (4,000) (4,205)
------------ ------------
Total Other Income (Expense) (1,874) (2,877)
------------ ------------
Income (Loss) Before Provision for Income Taxes (45,672) 10,240
Provision for Income Taxes 325 3,650
------------ ------------
Net Income (Loss) $ (45,997) $ 6,590
============ ============
Earnings (Loss) per Common Share $ (.008) $ 65.92
============ ============
Weighted Average of Common Shares Outstanding 5,953,263 100
============ ============
Supplemental Earnings (Loss) per Common Share $ 0.004
============
Supplemental Weighted Average of Common Shares
Outstanding 1,699,549
============
See notes to the financial statements.
<PAGE> 3
Medi-Hut Company, Inc.
Statement of Stockholders' Equity
Period from November 1, 1996 to October 31, 1998
<TABLE>
<CAPTION>
Common Stock
(No Par Value
Common Prior to Re-
Shares capitalization) Paid In Retained
Issued ($.001 Par Value) Capital Earnings Total
------------ ----------------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Balances, October 31, 1996 100 $ 1,000 $ - $ 78,710 $ 79,710
Net Income, Year Ended October 31, 1997 - - - 6,592 6,592
------------ ----------------- --------- ---------- ----------
Balances, October 31, 1997 100 1,000 - 85,302 86,302
Recapitalization of Medi-Hut Company, Inc.:
Exchange of all common shares with Indwest (100) (1,000) 1,000 - -
Outstanding common shares of Indwest prior
to exchange 1,699,549 1,700 (1,700) - -
Issuance of common shares prior to
exchange with Medi-Hut 1,751,251 1,751 31,582 - 33,333
Exchange of Indwest common shares for all
common shares of Medi-Hut 4,099,000 4,099 (4,099) - -
Issuance of common shares 196,000 196 84,304 - 84,500
Acquisition costs related to above - - (122,443) - (122,443)
Issuance of Common Shares Pursuant to a
Private Placement Memorandum (Note 9)
(Restated - Note 14):
Shares Issued at discounted market value 27,000 27 93,123 - 93,150
Dividend related to the difference between
the issue price and discounted market value - - - (25,650) (25,650)
Shares issued at discounted market value 500,000 500 802,500 - 803,000
Dividend related to the difference between
the issuance price and discounted market
value - - - (578,000) (578,000)
Issuance of Warrants for Services
Provided (Restated) - - 50,500 - 50,500
Net (Loss) Year Ended October 31, 1998
(Restated) - - - (45,997) (45,997)
------------ ----------------- --------- ---------- ----------
Balances, October 31, 1998 (Restated) 8,272,800 $ 8,273 $934,767 $(564,345) $ 378,695
============ ================= ========= ========== ==========
See notes to the financial statements.
</TABLE>
<PAGE> 4
Medi-Hut Company, Inc.
Statements of Cash Flows
<TABLE>
Year Ended October 31,
--------------------------
1998 1997
------------ -------------
(Restated)
<S> <C> <C>
Cash Flows From Operating Activities
Net Income (Loss) $ (45,997) $ 6,592
Adjustments to Reconcile Net Income (Loss) to Net Cash
Provided (Used) by Operating Activities:
Depreciation and amortization 3,536 3,589
Deferred income taxes - 3,500
Amortization of prepaid consulting expense 33,667 -
Decrease (Increase) in Assets
Accounts receivable (157,905) 19,334
Inventory (14,181) 10,842
Prepaid expenses (3,101) (757)
Increase (Decrease) in Liabilities
Accounts payable and accrued expenses (23,109) (14,183)
Profit sharing plan payable (28,628) (2,753)
------------ -------------
Net Cash Provided (Used) by Operating Activities (235,718) 26,164
------------ -------------
Cash Flows From Investing Activities
Purchases of patent and licensing costs - (975)
Purchase of capitalized cost reduction (1,896) -
------------ -------------
Net Cash (Used) by Investing Activities (1,896) (975)
------------ -------------
Cash Flows From Financing Activities
Proceeds from sale of common stock 287,890 -
Proceeds from lines of credit 10,000 50,000
Repayment of lines of credit (8,500) (12,305)
------------ -------------
Net Cash Provided by Financing Activities 289,390 37,695
------------ -------------
Net Increase in Cash 51,776 62,884
Cash at Beginning of Period 116,144 53,260
------------ -------------
Cash at End of Period $ 167,920 $ 116,144
============ =============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash Paid During the Period for:
Interest $ 4,000 $ 3,855
============ =============
Income taxes $ 325 $ 150
============ =============
SUPPLEMENTAL SCHEDULE OF NON-CASH FINANCING ACTIVITIES
Common stock purchase warrants were issued by the Company during 1998 for consulting services
received amounting to $50,500.
Common stock dividends amounting to $603,650 during 1998 were recognized as to the difference
between the average high/low market price and issue price of the 527,000 common shares issued
in accordance with the private placement memorandum (Note 9).
See notes to the financial statements.
</TABLE>
<PAGE> 5
Medi-Hut Company, Inc.
Notes to the Financial Statements
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Organization
Medi-Hut Company, Inc. ("Medi-Hut" or "the Company"), a company in the
business of selling wholesale medical supplies, was originally incorporated in
the State of New Jersey on November 22, 1982. On January 28, 1998, the
Company entered into an Agreement and Plan of Reorganization (APR) with a
public company Indwest, Inc. (Indwest), a Utah company incorporated on August
20, 1981 (formerly known as Gibraltor Energy, Gibraltor Group, Computermall of
Philadelphia, Inc. and Steering Control Systems, Inc.). Pursuant to the APR,
Medi-Hut's shareholders exchanged 100% of their common shares for 4,295,000
newly issued shares of Indwest on March 3, 1998.
For accounting purposes, the acquisition has been treated as an acquisition of
Indwest by Medi-Hut and a recapitalization of Medi-Hut. The historical
financial statements prior to January 28, 1998 are those of Medi-Hut.
Pro-forma information is not presented since the combination is considered a
recapitalization. Subsequent to the exchange, Medi-Hut merged with Indwest
whereby Medi-Hut ceased to exist and Indwest, the surviving corporation,
changed its name to Medi-Hut Company, Inc. On February 2, 1998, Medi-Hut
Company, Inc. changed its state of domicile from Utah to Delaware. The
surviving corporation's operations are entirely those of the former and new
Medi-Hut.
Accounts Receivable
No reserve for doubtful accounts has been established since management
believes that all accounts receivable are collectible in full.
Inventory
Inventory is stated at the lower of cost (determined on a first-in, first-out
basis) or market. Market values represent the lower of replacement cost or
estimated net realizable value.
Depreciation
Machinery and equipment are stated at cost. Depreciation is computed using
the straight line method for financial reporting purposes which amounted to
$526 for the years ended October 31, 1998 and 1997. The estimated useful
lives of the machinery and equipment assets for financial statement purposes
are five years. For income tax purposes, recovery of capital costs for
machinery and equipment is made using accelerated methods over the asset's
class life. Repairs and maintenance expenditures which do not extend the
useful lives of the related assets are expensed as incurred.
Amortization
The capitalized cost reduction on the auto lease is being amortized over the
life of the lease (24 months). Total amortization for the years ended October
31, 1998 and 1997 was $1,400 and $1,452, respectively.
Research and Development
The only research and development costs incurred relate to patent and
licensing costs which are being amortized over their remaining useful lives of
20 years on a straight line basis beginning on the patent application date of
September 11, 1995. The patent was approved on October 8, 1996. Total
amortization for the year ended October 31, 1998 and 1997 was $1,610 each
year.
Earnings (Loss) Per Common Share
Earnings (loss) per common share, in accordance with the provisions of
Financial Accounting Standards Board No. 128, "Earnings Per Share", is
computed by dividing net income (loss) by the weighted average number of
shares of common stock outstanding during the period which are those of the
former Medi-Hut for years ended October 31, 1998 and 1997, respectively.
Common stock equivalents (warrants) have not been included in this computation
since the effect would be anti-dilutive.
6
<PAGE>
Medi-Hut Company, Inc.
Notes to the Financial Statements
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Continued
Supplemental Earnings (Loss) Per Common Share
The supplemental earnings (loss) per common share gives effect to the APR as
if the transaction had occurred on November 1, 1996. Accordingly, the
weighted average number of shares of common stock outstanding during the
period in computing supplemental earnings (loss) per common share are those of
Indwest for the year ended October 31, 1997.
Revenue Recognition
Revenue from product sales is recognized at the time of shipment provided that
the resulting receivable is deemed probable of collection.
Income Taxes
In accordance with the provisions of Financial Accounting Standards No. 109,
"Accounting for Income Taxes" (SFAS No. 109"), deferred taxes are recognized
for operating losses that are available to offset future taxable income.
Valuation allowances are established when necessary to reduce deferred tax
assets to the amount expected to realized. The Company incurred net operating
losses for financial-reporting and tax-reporting purposes. Accordingly, the
deferred tax asset has been offset entirely by a valuation allowance against
the related deferred tax asset for the year ended October 31, 1998 and October
31, 1997.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Securities Issued for Services
The Company accounts for common stock and common stock purchase warrants
issued for services by reference to the fair market value of the Company's
stock on the date of stock issuance or warrant grant in accordance with
Financial Accounting Standards Board No. 123 "Accounting for Stock-Based
Compensation. (FASB 123)" Compensation/consultant expense is recorded for the
fair market value of the stock and warrants issued.
NOTE 2 - CONCENTRATIONS OF CREDIT AND BUSINESS RISK
The Company maintains cash balances in a financial institution. Accounts at
the institution are insured by the Federal Deposit Insurance Corporation up to
$100,000 per account, of which the Company's accounts may, at times, exceed
the federally insured limits.
The Company provides credit in the normal course of business to customers
located primarily in the northeastern portion of the U.S. The Company
performs ongoing credit evaluations of its customers.
NOTE 3 - INVENTORY
Inventory consists of purchased finished goods which totaled $38,739 and
$24,558 at October 31, 1998 and October 31, 1997, respectively.
7
<PAGE>
Medi-Hut Company, Inc.
Notes to the Financial Statements
NOTE 4 - LINES OF CREDIT
On October 10, 1997, the Company obtained a $150,000 revolving line of credit
under which the bank has agreed to make loans at 3% above the prime interest
rate. The line expired on October 10, 1998 but was renewed until October 10,
1999 and may be used to support and finance the Company's commercial foreign
letters of credit. As of October 31, 1998 and October 31, 1997, there were $0
outstanding on this line of credit.
At October 31, 1998 and 1997, the Company had a $0 open letters of credit.
Also on October 10, 1997, the Company obtained a $50,000 working capital line
of credit under which the bank has agreed to make loans at 2% above the prime
interest rate. The line expired on August 30, 1998, but was renewed until
August 30, 1999. As of October 31, 1998 and October 31, 1997, there was
$39,195 and $37,695 outstanding on this line of credit, respectively.
Both lines of credit are secured by all of the Company's assets and personal
guarantees of the Company's officers.
NOTE 5 - COMMON STOCK
At October 31, 1998: voting, $.001 par value; 100,000,000 shares authorized;
8,272,800 shares issued and outstanding.
At October 31, 1997: voting, no par value; 100 shares authorized, issued and
outstanding.
NOTE 6 - OPERATING LEASE COMMITMENTS
The Company leases certain office and warehouse space (90 days cancelable) and
an automobile under operating leases.
The following is a schedule of future minimum rental payments (exclusive of
common area charges) required under operating leases that have initial or
remaining non-cancelable lease terms in excess of one year as of October 31,
1998.
Year Ending October 31,
1999 $ 25,323
2000 10,757
-----------
Total minimum payments required $ 36,080
===========
Rent expense for the years ended October 31, 1998 and 1997 amounted to $22,639
and $26,661, respectively.
The office and warehouse lease contain provisions for contingent rental
payments based upon increases in taxes, insurance and common area maintenance
expense.
NOTE 7 - PROFIT SHARING PLAN
The Company sponsored a qualified profit sharing plan (the plan) effective
October 31, 1993 which set forth certain requirements for eligibility,
vesting and contributions for all full time employees. Contributions to the
plan were discretionary and determined annually by management. The plan was
terminated in February 1998. The profit sharing plan expense for the years
ended October 31, 1998 and 1997 was $0 and $28,678, respectively.
8
<PAGE>
Medi-Hut Company, Inc.
Notes to the Financial Statements
NOTE 8 - WARRANTS
Pursuant to a one year consulting agreement beginning on March 2, 1998 for
public relations services, the Company issued common stock purchase warrants
as follows:
Exercise Term
No. of Price Per -------------------------- Vesting
Date of Grant Shares Share Start Expiration Rights
- -------------- ------- --------- ------------- ------------- -----------
March 2, 1998 50,000 $ 3.00 March 2, 1998 March 2, 2001 Upon Issue
March 2, 1998 50,000 3.50 March 2, 1998 March 2, 2001 Upon Issue
March 2, 1998 50,000 4.00 March 2, 1998 March 2, 2001 Upon Issue
March 2, 1998 50,000 5.00 March 2, 1998 March 2, 2001 Upon Issue
Consultant expense of $33,667 and $0 for the years ended October 31, 1998 and
1997, respectively, has been recorded in accordance with FASB 123 as a part of
selling, general and administrative expenses (see Note 14). The fair value of
each warrant issued is estimated on the grant date using the black scholes
pricing model with the following weighted-average assumptions used for grants
for the years ended October 31, 1998 and 1997; dividend yield of 0%, risk-free
interest of 5%, and expected lives of 3 years for the warrants.
At October 31, 1998 and 1997, there were 200,000 and 0 shares eligible for
exercise, respectively, at prices ranging from $3.00 to $5.00 per share. The
weighted average remaining contractual life of the warrants is 3 years and 0
years, respectively, for the years ended October 31, 1998 and 1997. The
weighted average exercise price of the warrants is $3.88 and $0, respectively,
for the years ended October 31, 1998 and 1997.
NOTE 9 - PRIVATE PLACEMENT MEMORANDUM
The Company, beginning on March 16, 1998 and lasting up to September 16, 1998,
issued a Private Placement Memorandum (PPM) which complied with the offering
exemptions from registration and qualification under the Securities Act of
1933 and applicable state securities law. Additional capital has been raised
for $67,500 as 27,000 common shares were issued as a result of this PPM as
well as $225,000 (500,000 common shares at $.50 per share less a 10%
commission) through October 31, 1998.
NOTE 10 - MAJOR CUSTOMERS
For the years ended October 31, 1998 and 1997, the Company had three and one
major customers, respectively, sales to which represented approximately
80%($620,361) and 50% ($549,157), respectively, of the Company's revenues.
The Company had accounts receivable balances due from these customers of
$126,345 and $20,749 at October 31, 1998 and October 31, 1997, respectively.
The loss of these customers would have a materially adverse effect on the
Company.
The following indicates the revenues from each of the major customers:
Year Ended October 31,
-----------------------
1998 1997
----------- -----------
Major Customer #1 $ 357,598 $ 549,157
Major Customer #2 155,546 -
Major Customer #3 107,217 -
----------- -----------
$ 620,361 $ 549,157
=========== ===========
NOTE 11 - RELATED PARTY TRANSACTIONS
Accounting services of $6,260 and $6,550 for years ended October 31, 1998 and
1997, respectively, were provided by a firm of which certain individuals in
that firm are shareholders/directors of the Company. The amounts are included
in acquisition costs ($2,660) and accounting and legal ($3,600) in 1998 and
entirely to accounting and legal ($6,550) in 1997.
9
<PAGE>
Medi-Hut Company, Inc.
Notes to the Financial Statements
NOTE 12 - FAIR VALUE OF FINANCIAL INSTRUMENTS
Cash, Accounts Receivable, Accounts Payable and Lines of Credit
The carrying amount approximates fair value because of the short maturity of
these instruments.
Limitations
Fair value estimates are made at a specific point in time, based on relevant
market information and information about the financial instrument. These
estimates are subjective in nature and involve uncertainties and matters of
significant judgement and therefore cannot be determined with precision.
Changes in assumptions could significantly affect the estimates.
NOTE 13 - INCOME TAXES
The income tax provision (benefit) is comprised of the following:
Federal State Total
---------- ---------- ----------
Year Ended October 31, 1998
Current $ - $ 325 $ 325
Deferred - - -
---------- ---------- ----------
$ - $ 325 $ 325
========== ========== ==========
Year Ended October 31, 1997
Current $ - $ 150 $ 150
Deferred 2,180 1,320 3,500
---------- ---------- ----------
$ 2,180 $ 1,470 $ 3,650
========== ========== ==========
Deferred taxes recognized for temporary differences between the basis of
assets and liabilities for financial statement and income tax purposes. The
differences relate entirely to net operating loss carryforwards for both
Federal and State income tax purposes.
The Company has available net operating loss carryforwards at October 31,
1998, which may be used to reduce Federal taxable income and tax liabilities
in future years, approximating $32,000 which begin to expire October 31, 2012
and are subject to certain annual limitations.
The differences between income tax provision (benefit) in the financial
statements and the tax expense (benefit) computed at the U.S. Federal
Statutory rate are as follows:
October 31,
1998 1997
------------ ------------
Tax provision (benefit) (15)% 35 %
Valuation reserve 15 % (35)%
------------ ------------
Effective tax rate - -
============ ============
The Company's total deferred tax asset and valuation allowance at October 31,
1998 is as follows:
October 31,
1998 1997
------------- ------------
Total deferred tax asset $ 3,000 $ 3,000
Less valuation allowance (3,000) (3,000)
------------- ------------
Net deferred tax asset $ - $ -
============= ============
The change in the valuation allowance amounted to $0 for the years ended
October 31, 1998 and 1997, respectively.
10
<PAGE>
Medi-Hut Company, Inc.
Notes to the Financial Statements
NOTE 14 - RESTATEMENT
The Company revised its valuation of the warrants (Note 8) issued on March 2,
1998. The warrants pertain to a one year consulting agreement with a firm
providing public relation services in lieu of cash beginning on March 2, 1998.
Accordingly, the financial statements for the year ended October 31, 1998 have
been restated to reflect a portion of the $50,500 valuation as consultant
expense ($33,667) with the remainder set up for the subsequent period as a
prepaid asset ($16,833).
The Company has also revised the number of shares that were issued pursuant to
a private placement memorandum (Note 9) from 250,000 to 500,000. This increase
resulted from a drop in market price from the agreement date to the delivery
date of the shares. The effects of this restatement is a $500 increase to
common stock with a corresponding decrease of $500 to Additional Paid-in
Capital. The weighted average of common shares outstanding also increased
103,425 shares due to this restatement.
The Company has also revised the amount by which the 27,000 and 500,000 common
share issuance pursuant to the private placement memorandum (Note 9) were
presented in the accompanying financial statements for the year ended October
31, 1998. Initially, these issuances were reflected at their issuance price.
The revised amounts reflect the share issuances at the average high/low market
price of the common shares on the date of issuance (less a modest discount for
restrictions, lack of marketability and other factors). The difference
between the average high/low market price and the issue price has been
reflected as a common stock dividend (i.e. reduction to Retained Earnings).
11
<PAGE>
Rosenberg Rich
Baker Berman
& Company
_________________
a Professional Association of
CERTIFIED PUBLIC ACCOUNTANTS
380 Foothill Road * PO Box 6483 * Bridgewater, NJ 08807-0483
Phone: 908-231-1000 * Fax: 908-231-6894
Independent Auditors' Report on the Additional Information
To the Board of Directors and Stockholders of
Medi-Hut Company, Inc.
Our report on the basic financial statements of Medi-Hut Company, Inc. as of
October 31, 1998 and 1997 appears on page 1. Those audits were made for the
purpose of forming an opinion on the basic financial statements taken as a
whole. The additional information on the following page is presented for
purposes of additional analysis and is not a required part of the basic
financial statements. Such information has been subjected to the auditing
procedures applied in the audits of the basic financial statements and, in our
opinion, is fairly stated in all material respects in relation to the basic
financial statements taken as a whole.
/s/ Rosenberg, Rich, Baker, Berman & Company
Bridgewater, New Jersey
November 23, 1998, except for Note 14 which is dated February 29, 2000
12
<PAGE>
Medi-Hut Company, Inc.
Schedules of Selling, General and Administrative Expenses
Year Ended
October 31,
1998 1997
------------ -----------
Officers' salaries $ 122,520 $ 180,100
Warehouse salaries 12,700 10,750
Selling supplies 1,294 1,097
Delivery expense 3,177 2,173
Advertising - 422
Business promotion 880 200
License and permits 860 544
General insurance 17,743 18,975
Payroll taxes 11,258 14,916
Rent 22,639 26,661
Office supplies and expense 2,523 841
Postage 370 384
Accounting and legal 3,600 6,550
Consultant expense 33,667 -
Profit sharing plan expense - 28,678
Bank charges 69 450
Repairs and maintenance 327 251
Utilities 2,240 2,300
Depreciation 526 526
Employee welfare 13,122 12,614
Amortization 3,010 3,063
Garbage removal 1,137 1,189
Auto expense 11,736 12,352
Annual report 40 80
Contributions 13 130
Outside services 82 777
Travel and entertainment 1,189 2,951
Telephone 4,440 4,782
Miscellaneous taxes - 117
------------ -----------
$ 271,162 $ 333,873
============ ===========
<PAGE> 13
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 9-MOS YEAR
<FISCAL-YEAR-END> OCT-31-1999 OCT-31-1998
<PERIOD-END> JUL-31-1999 OCT-31-1998
<CASH> 70,894 167,920
<SECURITIES> 0 0
<RECEIVABLES> 165,572 204,881
<ALLOWANCES> 0 0
<INVENTORY> 82,468 38,739
<CURRENT-ASSETS> 345,649 432,881
<PP&E> 27,316 27,316
<DEPRECIATION> (27,316) (27,053)
<TOTAL-ASSETS> 374,295 462,201
<CURRENT-LIABILITIES> 89,268 83,506
<BONDS> 0 0
0 0
0 0
<COMMON> 8,273 8,273
<OTHER-SE> 276,934 370,422
<TOTAL-LIABILITY-AND-EQUITY> 374,295 462,201
<SALES> 544,491 779,537
<TOTAL-REVENUES> 544,491 779,537
<CGS> 392,903 552,173
<TOTAL-COSTS> 265,887 271,162
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 1,303 1,874
<INCOME-PRETAX> (115,602) (45,672)
<INCOME-TAX> 1,566 325
<INCOME-CONTINUING> (117,168) (45,997)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (117,168) (45,997)
<EPS-BASIC> (.014) (.008)
<EPS-DILUTED> (.014) (.008)
</TABLE>
