SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [NO FEE REQUIRED]
For the fiscal year ended October 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES AND
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
Commission file number 0-27119
MEDI-HUT CO., INC.
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(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Delaware 222-436-721
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1935 Swarthmore Avenue, Lakewood, New Jersey 08701
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(Address of principal executive offices) (Zip code)
Issuer's telephone number, including area code: (732) 901-0606
Securities registered pursuant to Section 12(b) of the Act: None.
Securities registered pursuant to Section 12(g) of the Act: Common Stock
Check whether the issuer (1) 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 [ ]
Check if disclosure of delinquent filers in response to item 405 of Regulation
S-B is not contained herein, and will not be contained, to the best of
registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. [ ]
State issuer's revenue for its most recent fiscal year: $1,272,419
As of December 8, 1999, the registrant had 10,472,800 shares of common stock
outstanding. The aggregate market value of the voting stock held by
non-affiliates as of that date was $22,290,800.
Documents incorporated by reference: None.
Transitional Small Business Disclosure Format (check one): Yes [ ] No [X]
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PART I
Item 1. Description of business.............................................2
Item 2. Description of property.............................................6
Item 3. Legal proceedings...................................................6
Item 4. Submission of matters to a vote of security holders.................6
PART II
Item 5. Market for common equity and related stockholder matters............7
Item 6. Management's discussion and analysis or plan of operations..........8
Item 7. Financial statements...............................................11
Item 8. Changes in and disagreements with accountants on accounting and
financial disclosure...............................................11
PART III
Item 9. Directors, executive officers, promoters and control persons,
compliance with Section 16(a) of the Exchange Act..................11
Item 10. Executive compensation.............................................12
Item 11. Security ownership of certain beneficial owners and management.....12
Item 12. Certain relationships and related transactions.....................13
PART IV
Item 13. Exhibits and reports on Form 8-K...................................13
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ITEM 1. 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 condoms, alcohol prep pads, over-the-counter drugs and
medical devices through various suppliers, as well as, wholesale name brand
drugs and medical devices. 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.
We wholesale name brand drugs and medical devices. Name brand drugs are
drugs that are protected by patent or licensure, for example "Viagra". When a
drug is patented, no other person can produce or sell that drug for twenty
years without the patent owner's permission. In September of 1999 we began to
wholesale Certia XT Caps, Nubain, Terazosin HCL Caps and Viagra. These name
brand drugs were 35.4%, or $448,997, of our total revenues. Our medical
devices which include syringes, gauze bandages, adhesive bandages and paper
products accounted for approximately 22.6%, or $287,969, of our revenues
during fiscal year 1999.
During our fiscal year 1999, approximately 19.5%, or $248,155, of our
revenues come from our private labeled alcohol prep pads. These alcohol preps
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.
Our private label 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 14.7%, or
$187,155, of our revenues during the fiscal year 1999. 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.
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In September of 1999 we launched our private label 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 $30,067 of
these drug products since their release.
Distribution
Our products are sold through large drug wholesale chains in the United
States who then sell them through pharmacies and mail order. (See, "Principle
Suppliers and Customers," below.) 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.
Principle 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. Calatex, Inc., located in California, supplies our condoms. H
& P Industries, located in Wisconsin, manufactures our alcohol preps. Shina
Corporation, located in Seoul, Korea, manufactures our syringes. Banta Health
Care Products, Inc., located in Michigan, produces our miscellaneous paper
products. Advanced Pharmaceutical, Inc. produces our Tru-Choice drugs. King
Ray Inc. located in New York supplies our name brand drugs. 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 fiscal year 1999 our four major customers, drug wholesale chains,
included Rugby Watson Pharmaceuticals, Darby Drug Company, Jomar Marketing
and Vallar Consulting. These customers purchased name brand drugs, condoms,
alcohol preps and medical devices. These customers accounted for 84%, or
$1,067,217, of our total revenues. During fiscal year 1998 we relied on three
major customers, Rugby Watson Pharmaceuticals, Darby Drug Company, and Oxbrook
Marketing for 80%, or $620,361, of our revenues. These companies purchased
primarily condoms and alcohol preps. The loss of any one of these customers
would have a material adverse effect on our results of operations. As
discussed above, we do not enter into long term written agreements with our
customers. We accept orders from these customers by telephone, fax, mailed
purchase orders, or in person and immediately place the order with our
suppliers.
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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 hand technique. In December of 1999 we
improved our original design by reducing the number of parts and including a
lock tip which allows changing of a needle to facilitate drawing medications
from a medicine vial. 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 also compete with
companies large and small which wholesale name brand drugs and medical
devices.
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).
We maintain our competitive stance by offering a quality product for less
money. We price our products at least 15% lower than products sold by the
market leaders, which allows our third party wholesalers to realize greater
profits. Our alcohol preps are essentially identical to other alcohol preps
in the market. 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. 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 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
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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. In December of 1999 we filed an updated patent for the
Autoblock Syringe. 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. Based on FDA
registration and testing, we believe they are in compliance in all material
respects with the regulations. 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, as well as our foreign manufacturers,
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.
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
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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.
Available Information
We currently use an investor relations firm, Columbia Financial Group,
and interested persons may call at (888) 301-6271. On June 1, 1999 we entered
into another consultant agreement with Columbia Financial Group. Columbia
Financial provides consulting and services for investor relations, public
relations, publishing, advertising, fulfillment as well as Internet related
services. Columbia Financial provides such services for a term of 12 months
for a set fee, which has been paid for with 500,000 common warrants which
expire June 2, 2002. Either party may terminate the agreement with 60 days
written notice with certain conditional repayments. Columbia Financial has
also entered into an agreement on our behalf with Internet Stock Market
Resources for dissemination of our company information to its subscribers.
ITEM 2. DESCRIPTION OF PROPERTY
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
or the purchase of commercial space which can accommodate our anticipated
growth.
ITEM 3. LEGAL PROCEEDINGS
We are not a party to any proceedings or threatened proceedings as of the
date of this filing.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
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PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
a) Market Information
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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, 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.
Year Quarter Ended High Low
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1998 April 30th 4.5 0.05
July 30th 3.375 0.9375
October 31st 1.125 0.28
1999 January 31st 0.53125 0.125
April 30th 0.52 0.23
July 31st 1.03125 0.22
October 31st 2.875 0.875
There were approximately 272 stockholders of record as of December 8,
1999. We have not declared dividends on our common stock and do not
anticipate paying dividends on our common stock in the foreseeable future.
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 voluntarily filed a Form 10-SB on August 23, 1999 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. It is unlikely that the SEC
will come to such a position in regards to the Form 10-SB prior to our
phase-in-date of February 9, 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.
b) Recent Sales of Unregistered Securities
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On August 4, 1999, we offered an aggregate of 2,200,000 common shares for
$990,000 pursuant to Rule 504 of Regulation D. Five accredited investors
purchased 2,200,000 common shares for the $1 million aggregate offering price.
A 1% commission was paid for this offering. We claim exemption from the
registration requirements of Section 5 of the Securities Act for this private
placement under the limited offering exemption provided by Regulation D.
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ITEM 6. MANAGEMENTS' DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
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 October 31st.
Merger Treatment
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. 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. 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.
Medi-Hut, Utah 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, we have had adequate cash flows to
operate our business activities. 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 expects with the introduction
of our new product lines, we will meet our present requirements for working
capital and capital expenditures for the next twelve months. Our working
capital at October 31, 1999 was $1,270,521 compared to $349,375 at October 31,
1998, an increase of $921,146, or 264%.
A summary of our audited balance sheets for the years ended October 31,
1999 and 1998 are as follows:
Years Ended October 31,
1998 1999
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Cash/Cash Equivalents $ 167,920 $ 374,518
Current Assets 432,881 1,741,504
Total Assets 462,201 1,788,716
Total Current Liabilities 83,506 470,983
Total Stockholder's Equity 378,695 1,317,733
Total Liabilities & Stockholder Equity 462,201 1,788,716
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As of October 31, 1999 we had $374,518 in cash with total current assets
of $1,741,504. Current assets increased $1,308,623, or 302%, from 1998
primarily due to the acquisition of $900,000 in marketable debt securities and
recording an accounts receivable amount 48.4% higher than the amount posted
for 1998. Current liabilities were $470,983 for 1999 compared to $83,506 for
1998. This 177% increase is due to an increase of $481,672, or 996%, related
to accounts payable and accrued expenses for customer orders placed in the
last month of our fiscal year.
Net cash provided by our operating activities was $176,506 for the 1999
fiscal year, compared to $235,718 net cash used by operating activities for
1998. The net loss posted for fiscal year 1998 was a result of decreased
revenues. As of October 31, 1999, our principal commitments consisted of
office and warehouse space. Future minimum rental payments are $10,757
through the year 2000 and our rent expenses.
Net cash provided by financing activities during fiscal year 1999 was
$930,092 compared to $289,390, for 1998 and came primarily from sales of our
common stock. 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.
Another source of cash is a working capital line of credit for $50,000
under which 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 will expire
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 but was renewed until October 10, 2000. 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 1999 and
1998 there was $0 and $39,195 outstanding, respectively, on the $50,000 line
of credit. We had a $0 balance on the $150,000 credit line at the end of both
fiscal years.
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 currently seeking an underwirter for the bonds.
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, 1999 and 1998.
Years Ended October 31,
1998 1999
-------------- -------------
Sales $ 779,537 $ 1,272,419
9
<PAGE>
Cost of Sales 552,173 1,019,495
Gross Profit 227,364 252,924
Selling, General & Administrative Expenses 271,162 330,641
Operating Income or (Loss) (43,798) (77,717)
Interest Income 2,126 8,109
Interest Expense (4,000) (4,554)
Provision for Income Taxes 325 300
Net Income (loss) (45,997) (74,462)
Sales. Sales increased $492,882 from fiscal year 1998 to 1999. This
increase in sales was a result of increased sales of name brand drugs and
medical devices. However, sales were low during fiscal year 1998 because we
lost the Rugby Laboratories 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 customer represented
approximately $375,000 in sales. As a result of the decrease in sales we
posted an operating loss in 1998 of $43,798. Sales remained down through our
third fiscal quarter, but as of October 1999 we received orders for our Elite
brand insulin syringes, Tru-Choice drugs, and name brand drugs.
Cost of Sales. During fiscal year 1999 as sales have increased the cost
of sales has also increased from 70.8% of sales in 1998 to 80.1% of sales in
1999. The increased costs are due to the smaller profit margin of the name
brand drugs which accounted for 35.4% of our revenues.
Selling, General and Administrative. In fiscal year 1999, selling,
general and administrative expenses increased $59,479 from fiscal year 1998.
The increase in expenses resulted primarily from a $12,991, or 361%, increase
in accounting and legal expenses, a $26,380, or 21%, increase in officer and
employee salaries and $9,267, or 52%, increase in insurance expenses. These
increases in our general and administrative expenses are reflections of the
additional expenses related to preparation of our Form 10-SB Registration
Statement.
Income Tax. We have approximately $60,000 available net operating loss
carry forwards as of October 31, 1999. 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, 2018.
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 products
below our competitors prices; 2) continued concern of the public and
government entities about sexually transmitted diseases; and 3) changes in
federal and state regulations which will require use of safety syringes by
health care workers.
10
<PAGE>
Year 2000 Compliance
We have not experienced any Year 2000 errors or failures, nor disruptions
to our operations.
Acquisition of Vallar Consulting
In January of 2000, we agreed to acquire Vallar Consulting Corp., a
privately held New York corporation ("Vallar Consulting"). Vallar Consulting
is in the business of selling over-the-counter drugs and name brand
pharmaceuticals to distributors and wholesalers on a national basis. Pursuant
to the agreement, Vallar Consulting will become a wholly owned subsidiary of
Medi-Hut.
ITEM 7. FINANCIAL STATEMENTS
Our audited financial statements for the fiscal years ended October 31,
1999 and 1998, are attached.
ITEM 8. CHANGES IN 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.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS,
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
a) Directors and 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.
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
Institute of Technology. He held managerial positions in Wells Recruiting
Personnel and he was President of Focus
11
<PAGE>
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.
b) Compliance with Section 16(a) of the Exchange Act.
-------------------------------------------------
Section 16(a) of the Securities Exchange Act of 1934 requires our
directors, executive officers and persons who own more than five percent of a
registered class of our equity securities, to file with the Securities and
Exchange Commission (the "SEC") initial reports of ownership and reports of
changes in ownership of common stock and our other equity securities.
Officers, directors and greater than ten-percent beneficial owners are
required by SEC regulations to furnish Medi-Hut with copies of all Section
16(a) reports they file. Based solely upon review of the copies of such forms
furnished to us during the fiscal year ended October 31, 1999, Joseph and
Vincent Sanpietro and Robert Russo filed late their Form 3's, initial
statement of ownership, which were due upon the effective date of the Form
10-SB registration statement.
ITEM 10. EXECUTIVE COMPENSATION
The following table shows the compensation paid to our executive officers
during the fiscal years 1998 and 1999.
SUMMARY COMPENSATION TABLE
Annual Compensation
-----------------------
Fiscal
Name and Principal Position Year Salary ($) Bonus Other
- --------------------------- ------ ---------- ------- -----
Joseph A. Sanpietro, President 1999 $ 85,200 $ 0 $ 0
and Director 1998 75,167 0 0
Vincent J. Sanpietro, Secretary 1999 63,700 0 0
and Director 1998 47,353 0 0
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
12
<PAGE>
officers are reasonable based on their experience and responsibilities.
ITEM 11. 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 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 December 8, 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.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
For the fiscal year 1999 and 1998 we paid $6,260 and $5,635,
respectively, 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.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) 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
(incorporated by reference to Medi-Hut's Form 10- SB as
amended, file No. 0-27119, filed August 23, 1999.)
3.1 Articles of Incorporation of Medi-Hut (incorporated by
reference to Medi-Hut's Form 10-SB as amended, file No.
0-27119, filed August 23, 1999.)
3.2 Articles of Merger filed February 20, 1998 (incorporated by
reference to Medi-Hut's Form 10-SB as amended, file No.
0-27119, filed August 23, 1999.)
3.3 Articles of Merger filed February 27, 1998 (incorporated by
reference to Medi-Hut's Form 10-SB as amended, file No.
0-27119, filed August 23, 1999.)
3.4 Bylaws of Medi-Hut (incorporated by reference to Medi-Hut's
Form 10-SB as amended, file No. 0-27119, filed August 23,
1999.)
10.1 Lease between Medi-Hut and Stamos & Sommers, LLC, dated
December 12, 1997 (incorporated by reference to Medi-Hut's
Form 10-SB as amended, file No. 0-27119, filed August 23,
1999.)
10.2 Form of Confidential Agreement (incorporated by reference to
Medi-Hut's Form 10-SB as amended, file No. 0-27119, filed
August 23, 1999.)
10.3 Promissory Note between Medi-Hut and PNC Bank, N.A., dated
October 10, 1997 (incorporated by reference to Medi-Hut's Form
10-SB as amended, file No. 0-27119, filed August 23, 1999.)
10.4 Promissory Note between Medi-Hut and PNC Bank, N.A., dated
October 10, 1997 (attached)
10.5 Consultant Agreement between Columbia Financial Group and
Medi-Hut, dated June 1, 1999 (incorporated by reference to
Medi-Hut's Form 10-SB as amended, file No. 0-27119, filed
August 23, 1999.)
27 Financial Data Schedule (attached)
________________________
(b) Reports on Form 8/K
-------------------
None.
14
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act of
1934, the registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Medi-Hut Co., Inc.
1/26/2000 /s/ Joseph Sanpietro
Date: ____________________ By:__________________________________
Joseph Sanpietro, President
1/26/2000 /s/ Vincent Sanpietro
Date: _____________________ By: __________________________________
Vincent Sanpietro, Secretary
1/26/2000 /s/ Robert Russo
Date: _____________________ By:_________________________________
Robert Russo, Treasurer
15
<PAGE>
Medi-Hut Company, Inc.
Financial Statements
October 31, 1999 and 1998
<PAGE>
Medi-Hut Company, Inc.
Index to the Financial Statements
October 31, 1999 and 1998
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>
<Letterhead of
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,
1999 and 1998 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, 1999 and 1998, and the results of its operations, and its cash
flows for the years then ended in conformity with generally accepted
accounting principles.
/s/ Rosenberg Rich Baker Berman & Company
Bridgewater, New Jersey
December 20, 1999, except for NOTE 13 which is dated January 14, 2000.
<PAGE>
Medi-Hut Company, Inc.
Balance Sheets
October 31,
-------------------------
1999 1998
------------ ------------
Assets
Current Assets
Cash $ 374,518 $ 167,920
Marketable securities 900,000 -
Accounts receivable 422,590 204,881
Inventory 28,500 38,739
Prepaid expenses 2,188 4,508
Prepaid consulting expense 13,708 16,833
------------ ------------
Total Current Assets 1,741,504 432,881
------------ ------------
Machinery and Equipment 27,316 27,316
Less: Accumulated Depreciation (27,316) (27,053)
------------ ------------
Net Machinery and Equipment - 263
Deferred charges 20,713 -
Capitalized Cost Reduction, net of accumulated
amortization of $4,164 and $3,216, respectively 632 1,580
Patent and Licensing Costs, net of accumulated
amortization of $6,334 and $4,724, respectively 25,867 27,477
------------ ------------
Total Assets 1,788,716 462,201
============ ============
Liabilities and Stockholders' Equity
Current Liabilities
Accounts payable and accrued expenses 470,983 44,311
Lines of credit - 39,195
------------ ------------
Total Current Liabilities 470,983 83,506
------------ ------------
Stockholders' Equity
Common stock, voting $.001 par value;
100,000,000 shares authorized; 10,472,800
and 8,272,800 shares issued and outstanding,
respectively 10,473 8,273
Additional paid-in capital 1,342,417 331,117
Retained earnings (deficit) (35,157) 39,305
------------ ------------
Total Stockholders' Equity 1,317,733 378,695
------------ ------------
Total Liabilities and Stockholders' Equity $ 1,788,716 $ 462,201
============ ============
See notes to the financial statements. 2
<PAGE>
Medi-Hut Company, Inc.
Statements of Operations
Year Ended October 31,
-------------------------
1999 1998
------------ ------------
Net Sales $ 1,272,419 $ 779,537
------------ ------------
Cost of Goods Sold
Beginning inventory 38,739 24,558
Net Purchases 1,002,862 554,539
Custom fees/freight 6,394 11,815
------------ ------------
Cost of Goods Available for Sale 1,047,995 590,912
Less: Ending Inventory 28,500 38,739
------------ ------------
Cost of Goods Sold 1,019,495 552,173
------------ ------------
Gross Profit 252,924 227,364
Selling, General and Administrative Expenses 330,641 271,162
------------ ------------
Loss from Operations (77,717) (43,798)
------------ ------------
Other Income Expense
Interest income 8,109 2,126
Interest expense (4,554) (4,000)
------------ ------------
Total Other Income Expense 3,555 (1,874)
------------ ------------
Loss Before Provision for Income Taxes (74,162) (45,672)
Provision for Income Taxes 300 325
------------ ------------
Net Loss $ (74,462) $ (45,997)
============ ============
Loss per Common Share $ (.008) $ (.008)
============ ============
Weighted Average of Common Shares Outstanding 8,809,238 5,953,263
============ ============
See notes to the financial statements. 3
<PAGE>
Medi-Hut Company, Inc.
Statement of Stockholders' Equity
Period from October 31, 1997 to October 31, 1999
<TABLE>
<CAPTION>
Common Stock (No
Common Par Value Prior to Additional Retained
Shares Recapitalization) Paid-in Earnings
Issued ($.001 Par Value) Capital (Deficit) Total
------------ ------------------ ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
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 27,000 27 67,473 - 67,500
Issuance of Common Shares
Pursuant to a Private
Placement Memorandum 500,000 500 224,500 - 225,000
Issuance of Warrants for
Services Provided - - 50,500 - 50,500
Net (Loss) Year Ended
October 31, 1998 - - - (45,997) (45,997)
------------ ----------------- -------------- ------------- -------------
Balances, October 31, 1998 8,272,800 8,273 331,117 39,305 378,695
Issuance of Common Shares
Pursuant to a Private
Placement Memorandum 2,200,000 2,200 987,800 - 990,000
Issuance of Warrants for
Services Provided - - 23,500 - 23,500
Net (Loss) Year Ended
October 31, 1999 - - - (74,462) (74,462)
------------ ----------------- -------------- ------------- -------------
Balances, October 31, 1999 10,472,800 $ 10,473 $ 1,342,417 $ (35,157) $ 1,317,733
============ ================= ============== ============= =============
See notes to the financial statements. 4
</TABLE>
<PAGE>
Medi-Hut Company, Inc.
Statements of Cash Flows
Year Ended October 31,
-------------------------
1999 1998
------------ ------------
Cash Flows From Operating Activities
Net Loss $ (74,462) $ (45,997)
Adjustments to Reconcile Net Loss to Net Cash
Provided (Used) by Operating Activities:
Depreciation and amortization 2,821 3,536
Amortization of prepaid consulting expense 26,625 33,667
Decrease (Increase) in Assets
Accounts receivable (217,709) (157,905)
Inventory 10,239 (14,181)
Prepaid expenses 2,320 (3,101)
Increase (Decrease) in Liabilities
Accounts payable and accrued expenses 426,672 (23,109)
Profit sharing plan payable - (28,628)
------------ ------------
Net Cash Provided (Used) by
Operating Activities 176,506 (235,718)
------------ ------------
Cash Flows From Investing Activities
Purchases of marketable securities (900,000) -
Purchase of capitalized cost reduction - (1,896)
------------ ------------
Net Cash (Used) by Investing Activities (900,000) (1,896)
------------ ------------
Cash Flows From Financing Activities
Proceeds from sale of common stock 990,000 287,890
Proceeds from lines of credit - 10,000
Repayment of lines of credit (39,195) (8,500)
Cash paid for deferred charges (20,713) -
------------ ------------
Net Cash Provided by Financing Activities 930,092 289,390
------------ ------------
Net Increase in Cash 206,598 51,776
Cash at Beginning of Period 167,920 116,144
------------ ------------
Cash at End of Period $ 374,518 $ 167,920
============ ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash Paid During the Period for:
Interest $ 4,554 $ 4,000
============ ============
Income taxes $ 300 $ 325
============ ============
SUPPLEMENTAL SCHEDULE OF NON-CASH FINANCING ACTIVITIES
Common stock purchase warrants were issued by the Company during 1999 and
1998 for consulting services received amounting to $23,500 and $50,500,
respectively.
See notes to the financial statements. 5
<PAGE>
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.
Investments in Marketable Securities
The Company invests in debt securities which are classified at the date
of purchase as held-to-maturity securities. Held-to-maturity securities are
reported at amortized cost, as the Company has both the ability and intent to
hold such securities until maturity.
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.
Deferred Charges
Deferred charges are comprised of costs incurred by the Company for
seeking small business loan financing. These charges will be amortized over
the loan period when and if such financing is obtained or expensed in full
should such financing not be obtained. No amortization expense has been
recognized during the years ended October 31, 1999 and 1998.
Depreciation
Machinery and equipment are stated at cost. Depreciation is computed
using the straight line method for financial reporting purposes which amounted
to $263 and $526 for the years ended October 31, 1999 and 1998 respectively.
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, 1999 and 1998 was $948 and $1,400, respectively.
<PAGE> 6
Medi-Hut Company, Inc.
Notes to the Financial Statements
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Continued
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, 1999 and 1998 was $1,610 for each
year.
Earnings (Loss) Per Common Share
Earnings (loss) per common share, in accordance with the provisions of
Financial Accounting Standards Board Statement 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.
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 Board
Statement 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 years ended October
31, 1999 and October 31, 1998.
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 Statement 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.
7
<PAGE>
Medi-Hut Company, Inc.
Notes to the Financial Statements
NOTE 3 - MARKETABLE SECURITIES
Cost and fair value of the Company's investments in Held-to-maturity debt
securities are as follows:
October 31,
------------------------
1999 1998
----------- ------------
Amortized Cost $ 900,000 $ -
Gross Unrealized Gains/Losses - -
----------- ------------
Fair Value $ 900,000 $ -
=========== ============
The amortized costs and fair values of debt securities Held-to-maturity
at October 31, 1999 by expected maturity are all due in one year or less.
NOTE 4 - INVENTORY
Inventory consists of purchased finished goods which totaled $28,500 and
$38,739 at October 31, 1999 and October 31, 1998, respectively.
NOTE 5 - 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, 1999 but was renewed until
October 10, 2000 and may be used to support and finance the Company's
commercial foreign letters of credit. As of October 31, 1999 and October 31,
1998, there were $0 outstanding on this line of credit.
At October 31, 1999 and 1998, 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, 1999, but was renewed
until August 30, 2000. As of October 31, 1999 and October 31, 1998, there was
$0 and $39,195 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 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,
1999.
Year Ending October 31, 2000 $ 10,757
-----------------
Total minimum payments required $ 10,757
=================
Rent expense for the years ended October 31, 1999 and 1998 amounted to
$22,237 and $22,639, respectively.
The office and warehouse lease contain provisions for contingent rental
payments based upon increases in taxes, insurance and common area maintenance
expense.
8
<PAGE>
Medi-Hut Company, Inc.
Notes to the Financial Statements
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, 1999 and 1998 was $0,
respectively.
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 Exercise Term
No. of Price Per -------------------------
Date of Grant Shares Share Start Expiration Vesting 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
Pursuant to another one year consulting agreement on June 1, 1999 for
public relations services, the Company additionally issued the following
warrants:
Exercise Exercise Term
No. of Price Per -------------------------
Date of Grant Shares Share Start Expiration Vesting Rights
- -------------- -------- ---------- ------------- ------------- -------------
June 1, 1999 125,000 $ 0.50 June 1, 1999 June 1, 2002 Upon Issue
June 1, 1999 125,000 0.75 June 1, 1999 June 1, 2002 Upon Issue
June 1, 1999 125,000 1.00 June 1, 1999 June 1, 2002 Upon Issue
June 1, 1999 125,000 1.25 June 1, 1999 June 1, 2002 Upon Issue
Consultant expense of $26,625 and $33,667 for the years ended October 31,
1999 and 1998, respectively, has been recorded in accordance with FASB
Statement No. 123 as a part of selling, general and administrative expenses.
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, 1999 and 1998; dividend yield
of 0%, risk-free interest of 5%, and expected lives of 3 years for the
warrants.
At October 31, 1999 and 1998, there were 700,000 and 200,000 shares
eligible for exercise, respectively, at prices ranging from $.50 to $5.00 per
share. The weighted average remaining contractual life of the warrants is 2
years and 3 years, respectively, for the years ended October 31, 1999 and
1998. The weighted average exercise price of the warrants is $1.73 and $3.88,
respectively, for the years ended October 31, 1999 and 1998.
9
<PAGE>
Medi-Hut Company, Inc.
Notes to the Financial Statements
NOTE 9 - MAJOR CUSTOMERS
For the years ended October 31, 1999 and 1998, the Company had four and
three major customers, respectively, sales to which represented approximately
84% ($1,067,217) and 80% ($620,361), respectively, of the Company's revenues.
The Company had accounts receivable balances due from these customers of
$271,538 and $126,345 at October 31, 1999 and October 31, 1998, 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,
---------------------
1999 1998
------------- -------------
Major Customer #1 $ 341,492 $ 357,598
Major Customer #2 307,608 155,546
Major Customer #3 297,906 -
Major Customer #4 120,211 -
Major Customer #5 - 107,217
------------- -------------
Total $ 1,067,217 $ 620,361
============= =============
NOTE 10 - RELATED PARTY TRANSACTIONS
Accounting services of $5,635 and $6,260 for years ended October 31, 1999
and 1998, respectively, were provided by a firm of which certain individuals
in that firm are shareholders/directors of the Company. The amounts include
accounting and legal ($5,635) in 1999 and acquisition costs ($2,660) and
accounting and legal ($3,600) in 1998.
NOTE 11 - 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.
10
<PAGE>
Medi-Hut Company, Inc.
Notes to the Financial Statements
NOTE 12 - INCOME TAXES
The income tax provision (benefit) is comprised of the following:
Federal State Total
---------- ----------- -----------
Year Ended October 31, 1999
Current $ - $ 300 $ 300
Deferred - - -
---------- ----------- -----------
$ - $ 300 $ 300
========== =========== ===========
Year Ended October 31, 1998
Current $ - $ 325 $ 325
Deferred - - -
---------- ----------- -----------
$ - $ 325 $ 325
========== =========== ===========
Deferred taxes are 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, 1999, which may be used to reduce Federal and State taxable income and tax
liabilities in future years, approximating $60,000 which begin to expire
October 31, 2018.
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,
1999 1998
------------ -------------
Tax (benefit) (15)% (15)%
Valuation allowance 15 % 15 %
------------ -------------
Effective tax rate - -
============ =============
The Company's total deferred tax asset and valuation allowance at October
31, 1999 is as follows:
October 31,
1999 1998
------------ -------------
Total deferred tax asset $ 15,000 $ 3,000
Less valuation allowance (15,000) (3,000)
------------ -------------
Net deferred tax asset $ - $ -
============ =============
The change in the valuation allowance amounted to $12,000 and $0 for the
years ended October 31, 1999 and 1998, respectively.
NOTE 13 - SUBSEQUENT EVENT
In January of 2000, the Company entered into an agreement to acquire a
private company in the business of selling over-the-counter and name brand
pharmaceuticals to distributors and wholesalers throughout the continental
U.S. Pursuant to the agreement, the Company will issue 350,000 restricted
common shares for all of the outstanding shares of the private company, which
will become a wholly-owned subsidiary of Medi-Hut.
11
<PAGE>
<Letterhead of
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 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, 1999 and 1998 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
December 20, 1999
12
<PAGE>
Medi-Hut Company, Inc.
Schedules of Selling, General and Administrative Expenses
Year Ended
October 31,
--------------------------
1999 1998
------------ -------------
Officers' salaries $ 148,900 $ 122,520
Warehouse salaries 13,500 12,700
Selling supplies 1,559 1,294
Delivery expense 3,170 3,177
Advertising 2,300 -
Business promotion 521 880
License and permits 397 860
General insurance 27,010 17,743
Payroll taxes 13,615 11,258
Rent 22,237 22,639
Office supplies and expense 2,185 2,523
Postage 264 370
Accounting and legal 16,591 3,600
Consultant expense 26,625 33,667
Bank charges 366 69
Repairs and maintenance 101 327
Utilities 2,474 2,240
Depreciation 263 526
Employee welfare 16,914 13,122
Amortization 2,558 3,010
Garbage removal 960 1,137
Auto expense 11,964 11,736
Annual report 80 40
Contributions - 13
Outside services 2,777 82
Travel and entertainment 7,544 1,189
Telephone 4,581 4,440
Miscellaneous taxes 1,185 -
------------ -------------
$ 330,641 $ 271,162
============ =============
13
<PAGE>
PROMISSORY NOTE
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Principal Loan Date Maturity Loan No. Call Collateral Account Officer Initials
$150,000.00 10-10-1997 10-10-1998 501 0043 5887948 56211
- --------------------------------------------------------------------------------------
References in the shaded area are for Lender's use only and do not limit the
applicability of this document to any particular loan or item.
- --------------------------------------------------------------------------------------
</TABLE>
Borrower: Lender:
MEDI-HUT CO.,INC.,(TIN: 22-2436721) PNC BANK, NATIONAL ASSOCIATION
1935 SWARTHMORE AVENUE TWO TOWER CENTER BOULEVARD
LAKEWOOD, NJ 08701 EAST BRUNSWICH, NJ 08816
______________________________________________________________________________
Principal Amount: $150,000.00
Initial Rate: 11.500%
Date of Note: October 10, 1997
PROMISE TO PAY. MEDI-HUT CO., INC. ("Borrower") promises to pay PNC BANK,
NATIONAL ASSOCIATION ("Lender"), or order, in lawful money of the United
States of America, the principal amount of One Hundred Fifty Thousand & 00/100
Dollars ($150,000.00) or so much as may be outstanding, together with interest
on the unpaid outstanding principal balance of each advance. Interest shall
be calculated from the date of each advance until repayment of each advance.
Borrower also promises to pay all applicable fees and expenses.
PAYMENT. Borrower will pay this loan in accordance with the following payment
schedule:
Borrower will pay regular monthly payments of accrued interest beginning
NOVEMBER 10, 1997, and all subsequent interest payments are due on the
same day of each month after that. Borrower will pay this loan in one
payment of all outstanding principal plus accrued unpaid interest on the
Expiration Date. Borrower may borrow, repay and reborrow hereunder until
the Expiration Date, subject to the terms and conditions of this Note.
The "Expiration Date" shall mean OCTOBER 10, 1998, or such later date as
may be designated by written notice from Lender to Borrower. Borrower
acknowledges and agrees that in no event will Lender be under any
obligation to extend or renew the loan or this Note beyond the initial
Expiration Date. In no event shall the aggregate unpaid principal amount
of advances under this Note exceed the face amount of this Note.
The annual interest rate for this Note is computed on a 365/360 basis; that
is, by applying the ratio of the annual interest rate over a year of 360 days,
multiplied by the outstanding principal balance, multiplied by the actual
number of days the principal balance is outstanding. Borrower will pay Lender
at Lender's address shown above or at such other place as Lender may designate
in writing. Unless otherwise agreed or required by applicable law, payments
will be applied first to accrued unpaid interest, then to principal, and any
remaining amount to any unpaid collection costs and late charges.
VARIABLE INTEREST RATE. The interest rate on this Note is subject to change
from time to time based on changes in an index which is the Lender's prime
rate (the "index"). The index is a rate per annum as publicly announced by
Lender from time to time as its prime rate. The prime rate is not tied to any
external rate or index and it does not necessarily reflect the lowest rate of
interest actually charged by Lender to any particular class or category of
customers. Lender will tell Borrower the current index rate upon Borrower's
request. Borrower understands that Lender may make loans based on other rates
as well. The interest rate change will not occur more often than each day.
The index currently is 8.500% per annum. The interest rate to be applied to
the unpaid principal balance of this Note will be at a rate of 3.000
percentage points over the index, resulting in an initial rate of 11.500% per
annum. NOTICE: Under no circumstances will the interest rate on this Note be
more than the maximum rate allowed by applicable law.
REPAYMENT. Borrower may pay without penalty all or a portion of the amount
owed earlier than it is due. Early payments will not, unless agreed to by
Lender in writing, relieve Borrower of Borrower's obligation to continue to
make payments of accrued unpaid interest. Rather, they will reduce the
principal balance due.
LATE CHARGE. If a payment is 15 days or more late, Borrower will be charged
5.000% of the unpaid portion of the regularly scheduled payment or $100.00,
whichever is less. This late charge shall be paid to Lender by Borrower for
the purpose of defraying the expense incident to the handling of the
delinquent payment.
DEFAULT. Borrower will be in default if any of the following happens: (a)
Borrower fails to make any payment when due. (b) Borrower breaks any promise
Borrower has made to Lender, or Borrower fails to comply with or to perform
when due any other term, obligation, covenant, or condition contained in this
Note or any agreement related to this Note, or in any other agreement or loan
Borrower has with Lender. (c) Any representation or statement made or
furnished to Lender by Borrower or on Borrower's behalf is false or misleading
in any material respect either now or at the time made or furnished. (d)
Borrower becomes insolvent, a receiver is appointed for any part of Borrower's
property, Borrower makes an assignment for the benefit of creditors, or any
proceeding is commenced either by Borrower or against Borrower under any
bankruptcy or insolvency laws. (e) Any creditor tries to take any of
Borrower's property on or in which Lender has a lien or security interest.
This includes a garnishment or levy on any of Borrower's accounts with Lender.
(f) Any guarantor dies or any of the other events described in this default
section occurs with respect to any guarantor of this Note. (g) A material
adverse change occurs in Borrower's financial condition, or Lender believes
the prospect of payment or performance of the indebtedness is impaired.
LENDER'S RIGHTS. Upon default, Lender may declare the entire unpaid principal
balance on this Note and all accrued unpaid interest immediately due, without
notice, and then Borrower will pay that amount. Upon default, including
failure to pay upon final maturity, Lender, at its option, may also, if
permitted under applicable law, increase the variable interest rate on this
Note to 8.000 percentage points over the index. The interest rate will not
exceed the maximum rate permitted by applicable law. Lender may hire someone
else to help collect this Note if Borrower does not pay. Borrower also will
pay Lender that amount. This includes, subject to any limits under applicable
law, Lender's attorneys' fees and Lender's legal expenses whether or not there
is a lawsuit, including attorneys's fees and legal expenses for bankruptcy
proceedings (including efforts to modify or vacate any automatic stay or
injunction), appeals, and any anticipated post-judgement collection services.
If not prohibited by applicable law, Borrower also will pay any court costs,
in addition to all other sums provided by law. This Note has been delivered
to Lender and accepted by Lender in the State of New Jersey. If there is a
lawsuit, Borrower agrees upon Lender's request to submit to the jurisdiction
of the courts of MIDDLESEX County, the State of New Jersey. Lender and
Borrower hereby waive the right to any jury trial in any action ,proceeding,
or counterclaim brought by either Lender or Borrower against the other. This
Note shall be governed by and construed in accordance with the laws of the
State of New Jersey.
RIGHT OF SET OFF. Borrower grants to Lender a contractual possessory security
interest, in and hereby assigns, conveys, delivers, pledges, and transfers to
Lender all Borrower's right, title and interest in and to, Borrower's accounts
with Lender (whether checking, savings, or some other account), including
without limitation all accounts held jointly with someone else and all
accounts Borrower may open in the future, excluding however all IRA and Keogh
accounts, and all trust accounts for which the grant of a security interest
would be prohibited by law. Borrower authorizes Lender, to the extent
permitted by applicable law, to charge or setoff all sums owing on this Note
against any and all such accounts.
LINE OF CREDIT. This Note evidences a revolving line of credit. Advances
under this Note may be requested orally by Borrower or by an authorized
person. Lender may, but need not, require that all oral requests be confirmed
in writing. All communications, instructions, or directions by telephone or
otherwise to Lender are to be directed to Lender's office shown above. The
following party or parties are authorized to request advances under the line
of credit until Lender receives from Borrower at Lender's address shown above
written notice of revocation of their authority: JOSEPH A. SANPIETRO,
<PAGE>
10/10/97 PROMISSORY NOTE PAGE 2
Loan No. (Continued)
_____________________________________________________________________________
PRESIDENT; and VINCENT J. SANPIETRO, VICE PRESIDENT. Borrower agrees to be
liable for all sums either: (a) advanced in accordance with the instructions
of an authorized person or (b) credited to any of Borrower's accounts with
Lender. The unpaid principal balance owing on this Note at any time may be
evidenced by endorsements on this Note or by Lender's internal records,
including daily computer print-outs. Lender will have no obligation to
advance funds under this Note if: (a) advanced in accordance with the
instructions of an authorized person or (b) credited to any of Borrower's
accounts with Lender. The unpaid principal balance owing on this Note at any
time may be evidenced by endorsements on this Note or by Lender's internal
records, including daily computer print-outs. Lender will have no obligation
to advance funds under this Note if: (a) Borrower or any guarantor is in
default under the terms of this Note or any agreement that Borrower or any
guarantor has with Lender, including any agreement made in connection with the
signing of this Note; (b) Borrower or any guarantor ceases doing business or
is insolvent; (c) any guarantor seeks, claims or otherwise attempts to limit,
modify or revoke such guarantor's guarantee of this Note or any other loan
with Lender; or (d) Borrower has applied funds provided pursuant to this Note
for purposes other than those authorized by Lender.
RIGHT OF SET OFF. In addition to all liens upon and rights of setoff against
the moneys, securities or other property of the undersigned given to Lender by
law, Lender shall have, with respect to the undersigned's obligations to
Lender hereunder and to the extent permitted by law, a contractual possessory
security interest in and right of setoff against, and the undersigned hereby
assigns, conveys, delivers, pledges, and transfers to Lender all of the
undersigned's right, title and interest in and to, Lender, whether held in a
general or special account or deposit, whether or not held jointly with
someone else, or whether held for safekeeping or otherwise, excluding however,
all IRA, Keogh and trust accounts. Every such security interest and right of
setoff may be exercised without demand upon or notice to the undersigned and
without any prior action of any kind by Lender. No security interest or right
of setoff shall be deemed to have been waived by any act or conduct on the
part of Lender or by any neglect to exercise such right of setoff or to
enforce such security interest or by any delay in so doing. Every right of
setoff and security interest shall continue in full force and effect until
such fight of setoff or security interest is specifically waived or released
by an instrument in writing executed by Lender.
FINANCIAL INFORMATION PROVISION. Borrower agrees to deliver any financial and
other business information concerning Borrower that Lender may request from
time to time, such as annual and interim financial statements (all of which
shall be prepared in accordance with generally accepted accounting principles)
and federal income tax returns.
PRIOR NOTE. THIS NOTE IS A RENEWAL OF AND INCREASE IN A NOTE IN THE PRINCIPAL
AMOUNT OF $100,000.00 PAYABLE TO LENDER DATED AUGUST 30, 1996 (THE "ORIGINAL
NOTE"). HOWEVER, WITHOUT DUPLICATION, THIS RENEWAL NOTE SHALL IN NO WAY
EXTINGUISH BORROWER'S OBLIGATION TO REPAY ALL INDEBTEDNESS EVIDENCED BY THE
ORIGINAL NOTE. NOTHING HEREIN IS INTENDED TO IMPAIR THE PRIORITY OR EFFECT OF
ANY SECURITY AGREEMENT WITH RESPECT TO THE BORROWER'S OBLIGATIONS HEREUNDER
AND UNDER ANY OTHER DOCUMENT RELATING HERETO.
GENERAL PROVISIONS. Lender may delay or forgo enforcing any of its rights or
remedies under this Note without losing them. Borrower and any other person
who signs, guarantees or endorses this Note, to the extent allowed by law,
waive presentment, demand for payment, protest and notice of dishonor. Upon
any change in the terms of this Note, and unless otherwise expressly stated in
writing, no party who signs this Note, whether as maker, guarantor,
accommodation maker or endorser, shall be released from liability. All such
parties agree that Lender may renew or extend (repeatedly and for any length
of time) this loan, or release any party or guarantor or collateral; or
impair, fail to realize upon or perfect Lender's security interest in the
collateral; and take any other action deemed necessary by Lender without the
consent of or notice to anyone. All such parties also agree that Lender may
modify this loan without the consent of or notice to anyone other than the
party with whom the modification is made.
PRIOR TO SIGNING THIS NOTE, BORROWER READ AND UNDERSTOOD ALL THE PROVISIONS OF
THIS NOTE, INCLUDING THE VARIABLE INTEREST RATE PROVISIONS. BORROWER AGREES
TO THE TERMS OF THE NOTE AND ACKNOWLEDGES RECEIPT OF A COMPLETED COPY OF THE
NOTE.
BORROWER:
MEDI-HUT CO., INC.
/s/ Joseph Sanpietro
By: _________________________________________(SEAL)
JOSEPH A. SANPIETRO, PRESIDENT
_____________________________________________________________________________
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1999
<PERIOD-END> OCT-31-1999
<CASH> 374,518
<SECURITIES> 900,000
<RECEIVABLES> 422,590
<ALLOWANCES> 0
<INVENTORY> 28,500
<CURRENT-ASSETS> 1,741,504
<PP&E> 27,316
<DEPRECIATION> 27,316
<TOTAL-ASSETS> 1,788,717
<CURRENT-LIABILITIES> 470,983
<BONDS> 0
0
0
<COMMON> 10,473
<OTHER-SE> 1,307,260
<TOTAL-LIABILITY-AND-EQUITY> 1,788,716
<SALES> 1,272,419
<TOTAL-REVENUES> 1,280,528
<CGS> 1,019,495
<TOTAL-COSTS> 330,641
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,554
<INCOME-PRETAX> (74,162)
<INCOME-TAX> 300
<INCOME-CONTINUING> (74,462)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (74,462)
<EPS-BASIC> (.008)
<EPS-DILUTED> (.008)
</TABLE>
