SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[ X ] Quarterly Report Under Section 13 or 15(d) of the Securities
Exchange Act of 1934
For Quarter Ended: April 30, 2000
OR
[ ] Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Commission File No. 000-27119
MEDI-HUT CO., INC
(Exact name of registrant as specified in its charter)
Delaware 222-436-721
(State of incorporation) (I.R.S. Employer
Identification No.)
1935 Swarthmore Avenue
Lakewood, New Jersey 08701
(732) 901-0606
(Address and telephone number of principal executive offices
and principal place of business)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes [ X ] No [ ]
As of June 6, 2000, the Registrant had a total of 10,829,800 shares of
common stock issued and outstanding.
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TABLE OF CONTENTS
PART I: FINANCIAL INFORMATION
Item 1: Financial Statements................................................3
Item 2: Management's Discussion and Analysis or Plan of Operations.........11
PART II: OTHER INFORMATION
Item 2: Changes in Securities and Use of Proceeds...........................15
Item 6: Exhibits and Reports filed on Form 8-K.............................15
Signatures..................................................................16
2
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PART I: FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
Medi-Hut Co., Inc. Consolidated Financial Statements April 30, 2000.
Balance sheet F-1
Income statement F-3
Cash Flow Statement F-4
Notes F-5
3
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Medi-Hut Co., Inc.
Consolidated Condensed Interim Balance Sheet
April 30, 2000
April 30, 2000
--------------
ASSETS
CURRENT ASSETS
Checking account $ 71,332
Money market account 635,410
Investment - Commercial Paper 700,000
Accounts Receivable 321,761
Accrued Interest Receivable 1,862
Prepaid Insurance 11,665
Merchandise Inventory 175,362
--------------
TOTAL CURRENT ASSETS 1,917,392
PROPERTY AND EQUIPMENT, NET OF 16,734
ACCUMULATED DEPRECIATION
OTHER ASSETS 32,347
--------------
TOTAL ASSETS $ 1,966,473
==============
See Notes to Consolidated Condensed Interim Financial Statements.
**Unaudited**
F-1
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Medi-Hut Co., Inc.
Consolidated Condensed Interim Balance Sheet
April 30, 2000
April 30, 2000
--------------
LIABILITIES AND EQUITY
CURRENT LIABILITIES
Accounts Payable $ 550,552
Payroll Taxes Payable 2,331
Accrued Expenses 12,722
Line of Credit Payable 0
--------------
TOTAL CURRENT LIABILITIES 565,605
EQUITY
Capital Stock 10,543
Additional paid in capital 2,847,040
Prepaid Expenses- Current (59,468)
Retained (Deficit)/Earnings (1,397,247)
--------------
TOTAL EQUITY 1,400,868
--------------
TOTAL LIABILITIES AND EQUITY $ 1,966,473
==============
See Notes to Consolidated Condensed Interim Financial Statements.
**Unaudited**
F-2
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<TABLE>
<CAPTION>
Medi-Hut Co., Inc.
Consolidated Condensed Interim Income Statement
For the Quarters Ended and Six Months Ended April 30, 2000 and April 30, 1999
February 1, 2000 February 1, 1999 November 1, 1999 November 1, 1998
to to to to
April 30, 2000 April 30, 1999 April 30, 2000 April 30, 1999
---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
SALES
Sales $ 2,340,224 $ 1,074,006 $ 3,497,023 $ 2,121,251
Sales discounts (126) (1,480) (1,973) (3,107)
---------------- ---------------- ---------------- ----------------
Total SALES 2,340,098 1,072,526 3,495,050 2,118,144
COST OF SALES
BEGINNING INVENTORY 131,515 101,782 28,500 24,558
Purchases 2,133,778 965,917 3,298,451 1,973,163
Purchases discounts (10) (171) (63) (6,138)
Freight In 42 0 2,167 1,520
Ending Inventory (175,362) (105,250) (175,362) (105,250)
Freight out 2,869 154 3,524 1,372
---------------- ---------------- ---------------- ----------------
Total COST OF SALES 2,092,832 962,432 3,157,217 1,889,225
---------------- ---------------- ---------------- ----------------
Total GROSS PROFIT 247,266 110,094 337,833 228,919
GENERAL & ADMINISTRATIVE 155,053 137,287 278,575 311,863
---------------- ---------------- ---------------- ----------------
Total NET OPERATING
INCOME (LOSS) 92,213 (27,193) 59,258 (82,944)
OTHER (INCOME) AND EXPENSES
Interest Income (15,279) (494) (28,856) (1,359)
Interest Expense 0 934 0 1,662
Depreciation Expense 74 130 74 263
Amort of Organization
Expense 640 640 1,280 1,279
---------------- ---------------- ---------------- ----------------
Total OTHER (INCOME)
AND EXPENSES (14,565) 1,210 (27,502) 1,845
---------------- ---------------- ---------------- ----------------
NET INCOME (LOSS) BEFORE TAX 106,778 (28,403) 86,760 (84,789)
INCOME TAXES
Corp. Business Tax 3,924 315 4,781 854
---------------- ---------------- ---------------- ----------------
INCOME TAXES 3,924 315 4,781 854
---------------- ---------------- ---------------- ----------------
NET INCOME (LOSS) $ 102,854 $ (28,718) $ 81,979 $ (85,643)
================ ================ ================ ================
INCOME/(LOSS)PER COMMON SHARE 0.010 (0.003) 0.008 (0.010)
================ ================ ================ ================
INCOME/(LOSS) PER COMMON
SHARE ASSUMING DILUTION 0.010 0.008
================ ================
See Notes to Consolidated Condensed Interim Financial Statements
**Unaudited**
F-3
</TABLE>
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Medi-Hut Co., Inc.
Consolidated Condensed Interim Cash Flow Statements
For the Six Months Ended April 30, 2000 & April 30, 1999
Six Months Six Months
Ended Ended
April 30, 2000 April 30, 1999
-------------- --------------
Description
------------
Net Income (loss) for the period $ 81,979 $ (85,643)
Adjustments to Reconcile Net Income (loss)
to Net Cash Provided by Operating Activities - 221,387 149,903
-------------- --------------
Net Cash Provided by Operating Activities 303,366 64,260
Cash Flows from Investing Activities -
Purchases of patent and licensing costs (7,127) (300)
Purchase of equipment (16,808) 0
-------------- --------------
Net Cash Provided by Investing Activities (23,935) (300)
Cash Flows from Financing Activities -
Issuance of Common Stock 34,793 0
-------------- --------------
Net Cash Provided by Financing Activities 34,793 0
Net Increase in Cash 314,224 63,960
Cash at Beginning of Period 392,518 236,577
-------------- --------------
Cash at End of Period $ 706,742 $ 300,537
============== ==============
See Notes to Consolidated Condensed Interim Financial Statements
**Unaudited**
F-5
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Medi-Hut Co., Inc.
Notes to the Consolidated Condensed Interim Financial Statements
April 30, 2000 and 1999
NATURE OF ORGANIZATION
Medi-Hut Co., Inc. (the Company), is a company in the business of selling
wholesale medical supplies. The Company was incorporated on November 22, 1982
in the State of New Jersey. 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.
On April 4, 2000, the Company acquired Vallar Consulting Group in a
business combination accounted for as a pooling of interests. Vallar
Consulting Group, which engages in the sales of medical supplies, became a
wholly owned subsidiary of the Company through the exchange of 350,000
restricted shares of the Company's common stock for all of the outstanding
stock of Vallar Consulting Group. The accompanying financial statements for
April 30, 2000 are based on the assumption that the companies were combined
for the six months ended April 30, 2000 and financial statements of prior
years have been restated to give effect to the combination.
Summarized results of operations of the separate companies for the period
November 1, 1999 through April 30, 2000, are as follows:
Medi-Hut Co., Inc. Vallar Consulting Group
------------------ -----------------------
Net Sales $ 2,314,173 $ 1,180,877
Net Income/(Loss) $ 107,813 $ (25,834)
============ =============
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Medi-Hut
Co., Inc. and all of its wholly owned and majority-owned subsidiaries. All
significant intercompany balances and transactions have been eliminated.
F-5
<PAGE> 8
Medi-Hut Co., Inc.
Notes to the Consolidated Condensed Interim Financial Statements
April 30, 2000 and 1999
BASIS OF PRESENTATION
The accompanying unaudited consolidated condensed interim 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 three
months ended April 30, 2000 and 1999 are not necessarily indicative of the
results that may be expected for the years ended October 31, 2000 and 1999,
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 April 30, 2000 and 1999 there was $ 0 and $ 39,195 outstanding,
respectively.
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 as of April
30, 1999 since the effect would be anti-dilutive. At April 30, 2000, the
following amounts were used in computing earnings per share and the effect on
the weighted average number of shares of dilutive potential common stock. The
number of shares used in the calculations for April 30, 2000 reflect of the
common stock equivalents (warrants) if exercised:
Qtr Ended 6 Mos. Ended
4/30/00 4/30/00
------------- --------------
Weighted average number of common
shares used in basic EPS 10,573,756 10,402,028
Effect of Dilutive Securities:
Warrants 242,500 242,500
------------- --------------
Weighted average number of common
shares and dilutive potential
common stock used in diluted EPS 10,816,256 10,644,528
============= ==============
F-6
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Medi-Hut Co., Inc.
Notes to the Consolidated Condensed Interim Financial Statements
April 30, 2000 and 1999
SUBSEQUENT EVENT
On April 16, 2000 we agreed to sell 500,000 units to Midwest First
Financial, Inc., an accredited investor, for $1.5 million in a private
placement. Each unit consisted of one common share and one warrant to purchase
one common share. The warrants are exercisable for a period of three years
and expire on February 15, 2003. The issuance of such units is exempt from
registration under the Securities Act by reason of Section 4(2) as a private
transaction not involving a public distribution. Midwest First 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. The transaction was not
finalized as of April 30, 2000.
F-7
<PAGE> 10
In this quarterly report references to "Medi-Hut," "we," "us," and "our"
refer to Medi-Hut Co., Inc.
FORWARD LOOKING STATEMENTS
This Form 10-QSB contains certain forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995. For this
purpose any statements contained in this Form 10-QSB 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-Huts' 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-Huts' chosen industry, including competition from
much larger competitors; technological advances and failure by Medi-Hut to
successfully develop business relationships.
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS
We are in the business of selling wholesale medical supplies and drugs
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. General and administrative expenses include employee salaries
and benefits, employee travel expenses, selling expenses, office expenses and
occupancy costs and legal and accounting fees. Our fiscal year ends October
31st.
Vallar Acquisition
In an arm's length transaction, we acquired Vallar Consulting Corp., a
New York corporation ("Vallar ") on April 4, 2000. Vallar is a privately held
business selling over-the-counter and name brand pharmaceuticals to
distributors and wholesalers nationwide. Vallar had been one of our major
customers during our 1999 fiscal year representing $151,091, or 11.8%, of our
total revenues.
Medi-Hut issued 350,000 common shares, valued at $1,340,500, to Lawrence
Marasco, the sole owner of Vallar. Vallar became our wholly-owned subsidiary
and we entered into an employment agreement with Mr. Marasco as the key
employee of Vallar. For accounting purposes the acquisition was treated as a
pooling of interests. The acquisition was structured as a tax free
stock-for-stock exchange pursuant to Section 368(a)(1)(B) of the Internal
Revenue Code of 1986 as amended.
11
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The parties negotiated the acquisition price for Vallar rather than using
typical valuation models. Vallar's value was established at approximately $1.3
million, based upon posted revenues in excess of 3.5 million during its 1999
fiscal year, anticipated sales over a five year period, Mr. Marasco's 26 to 27
year experience in the industry and the value of Vallar's client base. The
assets involved in the transaction were primarily accounts receivable since
Vallar did not own physical plants, equipment or property. Vallar recorded
revenues of $1,180,877, or 50.4%, of our consolidated revenues for the second
quarter ended April 30, 2000.
Results of Operations
The following table summarizes the results of our operations for the six
month periods ended April 30, 2000 and 1999. The April 30, 2000 numbers are
based on the assumption that we and Vallar have been combined for the six
months ended April 30, 2000.
Three Months Ended Six Months Ended
April 30, April 30,
1999 2000 1999 2000
------------- ------------ ------------ ------------
Net Sales $ 1,072,526 $ 2,340,098 $ 2,118,144 $ 3,495,050
Cost of Sales 962,432 2,092,832 1,889,225 3,157,217
------------- ------------ ------------ ------------
Gross Profit 110,094 247,266 228,919 337,833
General & Administrative 137,287 155,053 311,863 278,575
Expenses
Net Operating Income or
(Loss) (27,193) 92,213 (82,944) 59,258
Other (Income) and Expenses 1,210 (14,565) 1,845 (27,502)
Corporate taxes 315 3,924 854 4,781
Net Income (Loss) (28,718) 102,854 (85,643) 81,979
Net sales increased 64.0% for the six month period and 118.1% for the
second quarter ended April 30, 2000 compared to the comparable periods of
1999. This increase in sales for the six month period was primarily the
result of our acquisition of Vallar and adding name brand pharmaceuticals to
our product line.
Cost of sales remained relatively the same at approximately 89% of sales
for the comparable periods. Our gross profit increased 124.5% for the second
quarter and 47.5% for the six month period compared to the 1999 periods. Our
gross profit remained approximately 10% of sales for the 1999 and 2000
periods.
12
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General and administrative expenses increased $17,766 for the 2000 second
quarter compared to the 1999 second quarter, but decreased $33,288 for the
2000 six month period compared to the six month period for 1999. The increase
in the second quarter was primarily due to legal and accounting expenses. The
overall decrease for the six month period resulted primarily from lower
officer salaries and related payroll expenses compared to 1999.
As a result of our increased sales we have recorded net operating income
for the 2000 periods versus an operating loss for the 1999 periods.
We posted interest income of $15,279 for the second quarter of 2000 and
$28,856 for the six month period of 2000 compared to $494 for the second
quarter of 1999 and $1,359 for the six month period. The interest income for
the second quarter and six month period of 2000 was primarily a result of a
$700,000 investment into short-term commercial paper.
Due to the increase in sales and interest income we recorded a net income
for the second quarter and the six month period of 2000 compared to net losses
for the comparable periods in 1999. We had income per share of $.008 for the
2000 six month period compared to a loss per share of $.010 for the 1999
period.
Liquidity and Capital Resources
We have funded our cash requirements primarily through revenues and sales
of our common stock. We have required little short term debt financing and
management anticipates we will meet our present requirements for working
capital and capital expenditures for the next twelve months if we do not build
our own syringe manufacturing facility. Our working capital was $1,351,787
for the 2000 six month period. For that period we recorded $706,742 in cash
reserves with total current assets of $1,917,392 and total current liabilities
of $565,605. Compared to $374,578 in cash reserves with total current assets
of $1,741,504 and total current liabilities of $470,983 for the fiscal year
ended October 31, 1999.
36.5 % of our total currents assets for the 2000 six month period were
allocated to marketable securities and 16.8% to accounts receivable, compared
to 51.6 % to marketable securities and 24.2% to accounts receivable for the
fiscal year 1999. The marketable debt securities had 5.29% interest due on
November 24, 1999.
Our principal commitments consist of office and warehouse space with
future annual minimum rental payments of $10,757 through the year 2000.
Net cash provided by our operating activities was $303,366 for the six
month period of 2000 compared to $64,260, for the 1999 six month period. As
discussed above this increase is due to increased sales.
Net cash used in investing activities for the six month period of 2000
was $23,935 compared to $300 for the 1999 six month period. We invested
$1,808 in computer equipment
13
<PAGE>
and $15,000 on our syringe molds and an additional $7,127 was spent for new
product patent and licensing costs.
Net cash provided by financing activities was $34,793 for the six month
period of 2000 compared to $0 for the 1999 six month period. This amount was
acquired from the issuance of 7,000 shares for consulting services.
We have a working capital line of credit for $50,000 with PNC Bank, N.A.
who makes loans to us at 2% above the prime interest rate. This credit line
will expire in August of 2000. We also had a $150,000 revolving line of
credit we obtained in October of 1997. Under this loan PNC Bank, N.A. makes
loans to us at 3% above the prime interest rate. This line of credit expires
October 10, 2000. Both lines of credit are secured by all the assets of
Medi-Hut and personal guarantees of our executive officers. We had a $0
balance on both lines of credit at the end of the six month period.
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 manufacturing facility in New Jersey for our Elite safety syringe
(formerly referred to as our Autoblock Syringe). 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 currently seeking an underwriter for the bonds. We
anticipate that we will rely on a Korean facility to manufacture our Elite
safety syringe until we are able to complete the funding and construction of a
New Jersey facility.
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 agreed to sell 500,000 units to an
accredited investor for $1.5 million in a private placement. We are currently
taking the necessary steps to close this transaction. We intend to use 80% of
the proceeds from this transaction for manufacture of our Elite safety syringe
and 20% for working capital. 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.
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.
14
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PART II: OTHER INFORMATION
ITEM 2: CHANGES IN SECURITIES AND USE OF PROCEEDS
The following discussion describes all securities sold by us during the
most recent quarter without registration.
On March 14, 2000 we issued 7,000 common shares to John E. Strydesky for
consulting services valued at $34,792.50 related to our application for
economic development bonds. The issuance of such shares was exempt from
registration under the Securities Act by reason of Section 4(2) as a private
transaction not involving a public distribution. Mr. Strydesky was provided
the same kind of information as would be available in a registration statement
regarding Medi-Hut and Medi-Hut reasonably believed that he possessed
sufficient sophistication to evaluate the information provided and was able to
bear the economic risk of the purchase.
On April 16, 2000 we agreed to sell 500,000 units to Midwest First
Financial, Inc., an accredited investor, for $1.5 million in a private
placement. Each unit consisted of one common share and one warrant to
purchase one common share. The warrants are exercisable for a period of three
years and expire on February 15, 2003. The issuance of such units is exempt
from registration under the Securities Act by reason of Section 4(2) as a
private transaction not involving a public distribution. Midwest First 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.
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
(a) Part I Exhibits.
Exhibit Description
------- ------------
27 Financial Data Schedule
(b) Reports on Form 8-K.
None.
15
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned who are duly authorized.
Medi-Hut Co., Inc.
6/13/00 /s/ Joseph Sanpietro
Date: __________________________ By:________________________________
Joseph Sanpietro, President
6/13/00 /s/ Vincent Sanpietro
Date: __________________________ By: ________________________________
Vincent Sanpietro, Secretary
6/13/00 /s/ Robert Russo
Date: ___________________________ By: ________________________________
Robert Russo, Treasurer
