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, 2000
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.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Delaware 222-436-721
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1935 Swarthmore Avenue, Lakewood, New Jersey 08701
(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: $8,130,696
As of January 10, 2001, the registrant had 10,929,800 shares of common stock
outstanding. The aggregate market value of the voting stock held by
non-affiliates as of that date was $49,283,476.
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..........................................7
Item 3. Legal proceedings................................................7
Item 4. Submission of matters to a vote of security holders..............7
PART II
Item 5. Market for common equity and related stockholder matters.........7
Item 6. Management's discussion and analysis or plan of operations.......9
Item 7. Financial statements.............................................14
Item 8. Changes in and disagreements with accountants on
accounting and financial disclosure.............................14
PART III
Item 9. Directors, executive officers, promoters and control persons,
compliance with Section 16(a) of the Exchange Act...............14
Item 10.Executive compensation...........................................15
Item 11.Security ownership of certain beneficial owners and management...15
Item 12.Certain relationships and related transactions...................16
PART IV
Item 13.Exhibits and reports on Form 8-K.................................16
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FORWARD LOOKING STATEMENTS
In this annual report references to "Medi-Hut" "we," "us," and "our"
refer to Medi-Hut Co., Inc.
This annual report 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-KSB that are not statements
of historical fact may be deemed to be forward-looking statements. Without
limiting the foregoing, words such as "may," "will," "expect," "believe,"
"anticipate," "estimate" or "continue" or comparable terminology are intended
to identify forward-looking statements. These statements by their nature
involve substantial risks and uncertainties, and actual results may differ
materially depending on a variety of factors, many of which are not within
Medi-Hut's control. These factors include but are not limited to economic
conditions generally and in the industries in which Medi-Hut may participate;
competition within Medi-Hut's chosen industry, including competition from much
larger competitors; technological advances and failure by Medi-Hut to
successfully develop business relationships.
ITEM 1. DESCRIPTION OF BUSINESS
We wholesale name brand drugs, medical products, our anti-stick safety
syringe, our "Elite" brand and private label medical products and our
"Tru-Choice" over-the-counter drugs which are provided to us by various
suppliers. We sell our products through drug wholesalers who then sell the
products to pharmacies and through mail order. In April of 1999 we introduced
our own "Elite" brand of medical products and in September of 1999 we launched
our Tru-Choice brand of over-the-counter drugs ("Tru-Choice drugs"). Then in
October 2000 we introduced our Elite Safety Syringe, our anti-stick safety
syringe.
Principal Products.
Name Brand Drugs. We wholesale name brand drugs which 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 ACL Caps and Viagra. These name
brand drugs were 71.2%, or $5,790,185, of our total revenues for the 2000
fiscal year.
Medical Products. Our medical products include syringes, hot and cold
packs, gauze bandages, adhesive bandages and paper products, which accounted
for approximately 22.2%, or $1,803,605, of our revenues during fiscal year
2000.
Elite Safety Syringe. Our Elite Safety 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 minimize
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 Elite Safety Syringe is a passive device which incorporates a
transparent sleeve into which the needle will automatically retract after use.
The Elite Safety Syringe had a 90% acceptance rating in its clinical
evaluations. We hold a patent for this syringe and in June of 1995 we
received a 510(k) Food and Drug Administration (the "FDA") approval to market
this syringe. 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. Unlike many
anti-stick syringes that are now in the marketplace, our Elite Safety Syringe
can be activated using a one hand technique. We believe our Elite Safety
Syringe will decrease accidental needle sticks of
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medical service providers.
In October of 2000 we started production of the Elite Safety Syringe in
a FDA registered and ISO 9002 approved facility in Korea. In January 2001 we
received shipments of 1cc safety syringes and we anticipate shipments of 3cc
safety syringes before August 2001. As of December 31, 2000 we have sold
$11,020 of this product. We believe the Elite Safety Syringe is manufactured
using sophisticated, patented, high-tech machinery which allows production of
a precise quality product. We intend to contract out the manufacture of the
Elite Safety 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 Elite
Safety Syringe through hospital distributors that will handle the selling, in
house training of users, warehousing and distribution of this product.
Other Products. During our fiscal year 2000, our Elite brand and
private label products, which include alcohol prep pads and condoms, have
accounted for approximately 5.2% of our revenues and our Tru-Choice drugs were
1.4% of our revenues. The alcohol preps complement our syringe product line
because they are primarily used as a topical antiseptic, anti-infective prior
to administering injections. Each soft, absorbent, non-woven pad is
impregnated with 70% isopropyl alcohol, USP. Our alcohol preps are made under
strict quality control guidelines in the United States. We produce our alcohol
preps in two sizes and package them 100 or 200 per box.
Our condoms are made of natural rubber latex and are silicone lubricated
with a reservoir tip. Our latex condoms are made to exacting specifications,
with each condom electrically tested for holes during the manufacturing
process, dimensional checks are performed and leak tests using water are also
conducted. Our condoms are manufactured in Korea at a plant that is ISO 9002
approved, but they are tested by the FDA prior to entering the United States
marketplace. (See, "Government Regulation," below.) In 1999 the FDA 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.
Distribution
Our products are sold through large drug wholesale chains in the United
States who then sell them through pharmacies and mail order. We do not use a
large sales force. We conduct our sales to wholesale distributors from our
office located in Lakewood, New Jersey. We use three employees who contact
the wholesalers by telephone or make periodic visits. Once we have made a
sale to a wholesaler, we place a purchase order with one of our third-party
suppliers. Usually, the purchase order provides shipping instructions to the
third-party supplier for delivery of the product to the wholesaler. In the
event the product is not shipped by the third-party supplier, we have the
product delivered to our warehouse and then ship it directly from our
warehouse inventory to the wholesaler.
Our policy is to have at least 80% of a product in inventory prior to
generating a purchase order for the product. We carry a one month inventory
of products which are warehoused at the third-party manufacturer or assembly
facilities we use. Our customary business practice is for our large buyers to
place purchase orders several months in advance. This allows us to notify our
third-party suppliers in advance of needed product. All sales are on thirty
(30) day credit. Returned merchandise is minimal due to the vigorous tests
that our products endure prior to shipment.
Principal Suppliers
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.
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We purchase products internationally from FDA registered and ISO 9002
approved medical device facilities, as well as from manufacturers here in the
United States. 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. Kinray Inc. located in New York supplies our name brand drugs. Banta
Health Care Products, Inc., located in Michigan, produces our miscellaneous
paper products. Sam Woo Corporation located in Seoul, Korea supplies our
Elite Safety Syringe. We have teamed up with Packaging Electronics and Device
Corporation for production of our hot & cold packs. Packaging Electronics and
Device Corporation holds the patent to the hot and cold pack we sell and
allows us to distribute and use our Elite brand label on their unique product.
On November 16, 2000, we entered into a joint venture with COA
International Industries, Inc., a Korean corporation. COA International
manufactures and exports medical disposable products, including disposable
syringes. The purpose of the joint venture is to establish a new syringe
production facility located in the Republic of Korea. We are currently
seeking Korean government validation or approvals for the formation of the
joint venture company, Medi-Hut International (Mfg.) Co., Ltd. We may be
unable to obtain such validations and approvals which would result in the
joint venture agreement being terminated. Management believes we will have
better control over the manufacture and distribution of the Elite Safety
Syringe if we have an ownership interest in the manufacturing facility.
Principal Customers.
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. The loss of
any one of these customers would have a material adverse effect on our results
of operations.
During fiscal year 2000 we relied on four major customers who are drug
wholesale distributors for 69.4%, or $5,641,930, of our total revenues. These
customers purchased name brand drugs and medical products. Jomar Marketing
accounted for $2,287,981, or 28.1%, of our revenues. 824 Drug Corp. accounted
for $1,235,661, or 15.2%; Colora accounted for $1,060,199, or 13.0%; and
Larval Corp. accounted for $1,058,089 or 13%.
During fiscal year 1999, we relied on three major customers for 41.3%,
or $1,962,808, of our revenues.
824 Drug Corp accounted for $723,137, or 15.2% of our revenues. Jomar
Marketing and Larval Corp. accounted for 13.0% each of our revenues with
$620,453 and $619,218, respectively.
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 Elite Safety Syringe. We have not had any other research
and development costs since that time. We currently are in the process of
filing for another patent for our Elite Safety Syringe.
Competition
We compete with companies large and small which wholesale name brand
drugs and medical products. We believe we have less than a 1% share of such
markets. We maintain our competitive stance by offering a quality product for
less money. We believe our products are priced lower than products sold by
the market leaders, which allows our third party wholesalers to realize
greater profits. We price our products based upon available data regarding
the selling prices of products being sold by the companies in our markets.
Based on that data, management establishes a price for a product which is
lower than the price of the market leaders.
The safety syringe market is dominated by Becton Dickinson and Sherwood
Medical. Both of these
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companies manufacture an active device which requires two hands and activates
manually after the injection. Our Elite Safety Syringe can be activated using
a one hand technique and is priced lower than our competitor's products.
Retractable Technology, a Texas Corporation, has entered the market place
recently with a passive device similar to our Elite Safety Syringe. However,
we intend to price our Elite Safety Syringe approximately 15% less than this
competitor's passive syringe device.
Patent, Trademark, License and Intellectual Property
Our Elite Safety Syringe holds United States Patent No. 5,562,626,
issued October 8, 1996. In December of 1999 we filed an updated patent for
the Elite Safety Syringe. Then in January 2001 we made another application for
a new patent for our Elite Safety 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 Elite Safety 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 Elite Safety 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 Elite
Safety Syringe patent, however, if a third party infringes upon our patent we
could expend substantial costs in its protection.
Government Regulation
Our medical products are subject to regulation by the federal FDA and
various other federal and state agencies as well as by a number of foreign
governmental agencies. Our third-party manufacturers are primarily
responsible for our products meeting these regulations. We believe they are
in compliance in all material respects with the regulations based on the fact
that our third-party manufacturers are FDA registered and their products meet
FDA standards. Compliance with these regulations has not had, and is not
expected to have, a material adverse effect on our business.
Manufacturers 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. After
registration with the FDA, the FDA will inspect the facility for compliance
with the general controls. The general controls provisions require annual
registration, listing of devices, good manufacturing practice, and labeling.
It also prohibits misbranding and adulteration. 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. 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.
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 Elite
Safety Syringe and on March 14, 1995 the FDA granted approval to manufacture
and market the Elite Safety Syringe in the United States. This 510(k)
approval is not FDA approval of the Elite Safety Syringe, but approval to
market the syringe. The purpose of a 510(k) approval 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
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technological characteristics that have to be proved safe.
In the case of our Elite Safety Syringe, we were required to perform a
clinical evaluation study to prove that the Elite Safety 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.
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 five full-time employees, two of which are directors and
officers.
Business Development
Indwest, Inc. was incorporated in the state of Utah on August 20, 1981
as Gibraltor Energy. 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 February 20, 1998, Medi-Hut, New Jersey merged
with Indwest and Indwest, the surviving corporation, changed its name to
Medi-Hut Co. Inc., a Utah corporation ("Medi-Hut, Utah").
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, Delaware. We currently are a Delaware
corporation holding a Certificate of Authority to do business in the state of
New Jersey.
In April 2000 we acquired Vallar Consulting as our wholly-owned
subsidiary and subsequently dissolved Vallar and consolidated its operations
with our own. (See, "Management's Discussion and Analysis or Plan of
Operations - Acquisition Treatment," below.)
Reports to Security Holders
We are required to comply with the reporting requirements of the
Securities Exchange Act of 1934, as amended ("Exchange Act"). We must file
annual, quarterly and other reports with the Securities and Exchange
Commission ("SEC"). We also are be subject to the proxy solicitation
requirements of the Exchange Act and, accordingly, will furnish an annual
report with audited financial statements to our stockholders.
Available Information
We currently use an investor relations firm, Columbia Financial Group,
("Columbia Financial") and interested persons may call at (888) 301-6271.
Columbia Financial has provided consulting and services for investor
relations, public relations, publishing, advertising, fulfillment, as well as
Internet related services to Medi-Hut for the past three years. In October
2000 we entered into another consultant agreement with Columbia
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Financial. Columbia Financial provides such services for a set term at a set
fee. The 2000 agreement may be terminated within the first four months and,
in that event, we are not obligated to make payments to Columbia Financial for
services rendered. Columbia Financial agreed to accept $1.2 million and
warrants to purchase 600,000 common shares for its services under the new 2000
agreement. These warrants were valued at $2,041,000, have an exercise price
of $5.00 and expire October 1, 2005. None of the warrants related to this
agreement have been exercised as of the date of this filing. We have recorded
$20,833 for such consulting expenses as of October 31, 2000. We do not
reimburse Columbia Financial for expenses incurred for its services. Either
party may terminate the agreement with 30 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 initial term of the lease was for five years with the
right to renew the lease for a period of five (5) years after the initial
term. We have renewed the lease for an additional year and it will expire in
February of 2001. 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 may cancel the lease with a 90 days written notice to
the landlord.
ITEM 3. LEGAL PROCEEDINGS
To the best of our knowledge 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.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Our common stock is traded over-the-counter and quoted on the NASD OTC
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. Such quotations represent prices between dealers and
may not include retail markups, markdowns, or commissions and may not
necessarily represent actual transactions.
Fiscal Year Quarter Ended High Low
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1999 January 31st 0.53 0.13
April 30th 0.41 0.23
July 31st 0.94 0.20
October 31st 2.75 0.84
2000 January 31st 4.69 1.53
April 30th 6.81 3.53
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July 31st 5.63 3.00
October 31st 6.31 2.75
There were approximately 240 stockholders of record as of December 18,
2000. We have not declared dividends on our common stock and do not
anticipate paying dividends on our common stock in the foreseeable future.
b) Recent Sales of Unregistered Securities
The following discussion describes all securities sold by us within the
past three years without registration:
On January 23, 1998, Indwest issued an aggregate of 1,751,251 common
shares to twelve persons for $33,333 in costs paid for or on behalf of Indwest
and for services rendered to Indwest in connection with the merger with
Medi-Hut, New Jersey. We relied on an exemption from registration under the
Securities Act of 1933 by reason of Section 4(2) as a private transaction not
involving a public distribution. The twelve persons had unrestricted access
to detailed material information regarding Indwest due to personal
relationships with Indwest's management and Indwest reasonably believed that
each possessed sufficient sophistication to evaluate the information provided
and was able to bear the economic risk of the purchase.
On March 2, 1998 we issued warrants to Columbia Financial Group to
purchase 200,000 shares of our common stock at an aggregate exercise price of
$775,000 in consideration for its public relations services. Such services
were valued at $50,500. We relied on an exemption from registration under the
Securities Act of 1933 by reason of Section 4(2) as a private transaction not
involving a public distribution. Columbia Financial was provided the same
kind of information regarding Medi-Hut as would be available in a registration
statement and Medi-Hut reasonably believed it possessed sufficient
sophistication to evaluate the information provided.
In March 17, 1998, we sold an aggregate of 27,000 common shares for
$67,500 to eight persons. We relied on an exemption from registration under
the Securities Act of 1933 by reason of Section 4(2) as a private transaction
not involving a public distribution. The eight persons had unrestricted
access to detailed material information regarding Medi-Hut due to personal
relationships with Medi-Hut's management and Medi-Hut reasonably believed that
each possessed sufficient sophistication to evaluate the information provided
and was able to bear the economic risk of the purchase.
On June 4, 1998, pursuant to Rule 504 of Regulation D, we sold 500,000
common shares to two accredited persons for $225,000. A 10% commission was
paid for this offering. We relied on an exemption from the registration
requirements under the Securities Act by reason of Section 3(b) and such
offering did not exceed the $1 million aggregate limitation for sales of
securities pursuant to Section 3(b) for the prior twelve months.
On June 1, 1999 we issued an aggregate of 500,000 warrants to Columbia
Financial in consideration for its consulting and investor relations services
as our public relations consultant. The warrants are exercisable upon
issuance for a period of three years, ending June 1, 2002, with an aggregate
exercise price of $437,500. Such services were valued at $26,625. We relied
on an exemption from registration under the Securities Act of 1933 by reason
of Section 4(2) as a private transaction not involving a public distribution.
Mid-West 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.
On August 4, 1999, we offered an aggregate of 2,200,000 common shares
for $1,000,000 pursuant to Rule 504 of Regulation D. Five accredited
investors purchased 2,200,000 common shares for the $1 million aggregate
offering price A 10% commission was paid for this offering. We relied on an
exemption from the registration requirements under the Securities Act by
reason of Section 3(b) and such offering did not exceed the $1 million
aggregate limitation for sales of securities pursuant to Section 3(b) for the
prior twelve months.
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On March 14, 2000 we issued 7,000 common shares to John E. Strydesky for
consulting services valued at $34,792.50. We relied on an exemption from
registration under the Securities Act by reason of Section 4(2) as a private
transaction not involving a public distribution. Mr. Strydesky had
unrestricted access to detailed material information regarding Medi-Hut due to
personal relationships with Medi-Hut's management and Medi-Hut reasonably
believed that he possessed sufficient sophistication to evaluate the
information provided and was able to bear the economic risk of the purchase.
On April 4, 2000 we agreed to issue 350,000 common shares valued at
$1,340,500 to Lawrence Marasco in exchange for the one outstanding share of
Vallar Consulting. We relied on an exemption from the registration under the
Securities Act by reason of Section 4(2). Mr. Marasco 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 exchange.
On October 1, 2000 we issued warrants to purchase 600,000 common shares
to Columbia Financial in consideration for its consulting and investor
relations services as our public relations consultant. The warrants were
valued at $2,041,000. The warrants are exercisable upon issuance for a period
of five years, ending October 1, 2005, with an exercise price of $5.00. We
relied on an exemption from registration under the Securities Act of 1933 by
reason of Section 4(2) as a private transaction not involving a public
distribution. Columbia 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.
On October 18, 2000 we agreed to issued warrants to purchase 100,000
common shares to John Clayton in consideration for his consulting services
rendered related to development of a business and management plan. Such
services were valued at $109,000. And the warrants had an exercise price of
$3.00 for a period of three years, ending October 18, 2003. We relied on an
exemption from registration under the Securities Act of 1933 by reason of
Section 4(2) as a private transaction not involving a public distribution.
Mr. Clayton was provided the same kind of information as would be available in
a registration statement regarding Medi-Hut and Medi-Hut reasonably believed
he possessed sufficient sophistication to evaluate the information provided.
On November 30, 2000 we agreed to sell, in a private placement, 475,000
units for $1,995,000 to Mid-West First Financial, Inc., an accredited
investor. Each unit consists of one common share and one warrant to purchase
one common share. The warrants are exercisable for a period of five years at
an exercise price of $5.25. We relied on an exemption from registration under
the Securities Act of 1933 by reason of Section 4(2) as a private transaction
not involving a public distribution. Mid-West First Financial was provided
the same kind of information as would be available in a registration statement
regarding Medi-Hut and Medi-Hut reasonably believed it possessed sufficient
sophistication to evaluate the information provided.
In each of the private transactions above we believe that each purchaser
(i) was aware that the securities had not been registered under federal
securities laws; (ii) acquired the securities for his/her/its own account for
investment purposes of the federal securities laws; (iii) understood that the
securities would need to be indefinitely held unless registered or an
exemption from registration applied to a proposed disposition; and (iv) was
aware that the certificate representing the securities would bear a legend
restricting its transfer. We believe that, in light of the foregoing, the
sale of our securities to the respective acquirers did not constitute the sale
of an unregistered security in violation of the federal securities laws and
regulations by reason of the exemptions provided under 4(2) of the Securities
Act, and the rules and regulations promulgated thereunder.
ITEM 6. MANAGEMENTS' DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
The following discussion and analysis should be read in conjunction with
our financial statements and notes which are attached to this report. 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
9
<PAGE>
facility or when necessary at our own warehouse. Revenue is net of returns,
which have historically been less than 2% of gross sales. Our fiscal year
ends on October 31st and the following discussions are based on the
consolidated financial statements of Medi-Hut and Vallar for the 2000 fiscal
year and restated financial statements for the 1999 fiscal year.
Acquisition Treatment
In April 2000, in an arm's length transaction, Medi-Hut acquired Vallar
Consulting, a privately held New York corporation in the business of 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 $120,211, or 9.4%, of our total revenues.
Pursuant to the agreement, dated January 10, 2000, we issued 350,000 common
shares valued at $1,340,500 to Lawrence Marasco, the sole owner of Vallar.
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
years of 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.
The acquisition was treated as a pooling of interests for accounting
purposes and Vallar became our wholly-owned subsidiary. 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. Subsequently,
Vallar was dissolved and all assets, liabilities and equity were recorded on
our books and our financial statements have been restated to reflect these
allocations.
Results of Operations
The following table summarizes our results of operations for the fiscal
years ended October 31, 2000 and 1999.
Years Ended October 31,
2000 1999
------------- -------------
(Restated)
Net Sales $ 8,130,696 $ 4,758,268
Cost of Sales 7,396,343 4,267,363
Gross Profit 734,353 490,905
Selling, General & Administrative Expenses 498,835 581,346
Operating Income or (Loss) 235,518 (90,441)
Other Income (Expense) 62,146 3,555
Provision for Income Taxes 62,664 300
Net Income (Loss) 235,000 (87,186)
Earnings (Loss) per common share $ 0.02 $ (0.01)
10
<PAGE>
YEARS ENDED OCTOBER 31, 2000 AND 1999
Sales. Sales increased $3,372,428 from fiscal year 1999 to 2000 This
increase in sales was a result of increased sales of name brand drugs and
medical products.
Cost of Goods Sold. Costs of goods sold primarily consists of the cost
of the products purchased from third-party vendors and shipping costs. During
fiscal year 2000 as sales have increased the cost of goods sold has also
increased from 89.7% of sales in 1999 to 91.% of sales in 2000. The increased
costs are due to the smaller profit margin of the name brand drugs which
accounted for 71.2% of our revenues.
Selling, General and Administrative. Selling, general and
administrative expenses include employee salaries and benefits, employee
travel expenses, advertising, office expenses and occupancy costs. In fiscal
year 2000 these expenses decreased $82,511 from fiscal year 1999. The
decrease in expenses resulted primarily from reduced travel and office
expenses and occupancy costs.
Other Income (Expense). We recorded interest income of $62,146 for
fiscal year 2000 compared to $8,109 for the 1999 fiscal year. This income is
primarily from investments in commercial paper. We also incurred $4,554 of
interest expense on our line of credit during fiscal year 1999.
Income Taxes. We had $127,931 available net operating loss carry
forwards as of October 31, 2000. We may use these carry forwards to reduce
our Federal taxable income and tax liabilities in future years. The carry
forwards will be used in full on the October 31, 2000 corporate tax return.
Net Income (Loss). We posted a net income for the year 2000 compared
to a net loss for the 1999 fiscal year. The acquisition of Vallar and sales
of name brand drugs coupled with a reduction in selling, general and
administrative expenses were the primary reasons for the net income.
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. In addition, management expects our Elite Safety Syringe
to provide new sources of revenue during fiscal year 2001 as user demand for
safety syringes increases. Management believes the enactment of the
Needlestick Safety and Prevention Act in November 2000 and legislation in 16
states requiring the use of anti-stick syringes will increase demand for such
devices.
YEARS ENDED OCTOBER 31, 1999 AND 1998
Due to the acquisition and consolidation of Vallar, the financial
statements for the fiscal year ended 1999 reflect the combined entities
whereas the financial statements for the fiscal year 1998 are Medi-Hut's only.
The following discussions reflect this consolidation. Accordingly, we believe
a comparison of the results of our operations on a year-by-year basis is of
limited benefit.
Sales. Sales increased from $779,537 in 1998 to $4,758,268 in 1999.
This increase in sales was a result of the acquisition of Vallar. However,
sales were low during fiscal year 1998 because we lost a major customer, due
to that company's change in ownership and the new management's decision to use
a manufacturer who produced syringes in the United States. The loss of this
customer represented approximately $375,000 in sales.
Cost of Goods Sold. During fiscal year 1999 costs of goods sold were
$4,267,363 compared to $552,173 in 1998. Cost of goods sold were 70.8% of
sales in 1998 compared to 89.7% of sales in 1999. The increased costs are due
to the smaller profit margin of the name brand drugs.
Selling, General and Administrative. In fiscal year 1999, selling,
general and administrative expenses were $581,346 compared to $271,162 in
1998. The increase in expenses resulted primarily from increased accounting
and legal expenses, increased officer and employee salaries and increased
insurance expenses.
11
<PAGE>
Net Income (Loss). We posted a net loss of $45,997 in 1998 compared to
a net loss of $87,186 in 1999. Despite an increase in revenues, the gross
profit was decreased due to the costs of goods sold.
Quarterly Trends
We do not anticipate experiencing seasonal fluctuations in our
operations because sales of medical supplies is not seasonal in nature.
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 expects our revenues and sales of stock to satisfy our present
requirements for working capital and capital expenditures for the next twelve
months. Our working capital at October 31, 2000 was $1,192,188 compared to
$1,335,107 at October 31, 1999.
A summary of our audited balance sheets for the years ended October 31,
2000 and 1999 are as follows:
Years Ended October 31,
2000 1999
------------- -------------
(Restated)
Cash/Cash Equivalents $ 502,243 $ 384,733
Current Assets 2,908,632 1,812,701
Total Assets 3,572,298 1,839,200
Total Current Liabilities 2,016,444 477,594
Total Stockholder's Equity 1,555,854 1,361,606
Total Liabilities & Stockholder Equity $ 3,572,298 1,839,200
For the fiscal year 2000, total assets increased $1,733,098 from fiscal
year 1999 primarily due to prepaid consulting expenses related to our
agreement with our investor relations firm, Columbia Financial, and
acquisition of equipment and molds. Total current liabilities increased
$1,538,850 from fiscal year 1999 to fiscal year 2000. The increase was
primarily due to a deferred consulting payable of $900,000.
Net cash used by our operating activities was $37,749 for the 2000
fiscal year, compared to $170,865 net cash provided by operating activities
for 1999. Net cash provided by investing activities was $157,259 for fiscal
year 2000 compared to net cash used by investing activities of $900,000 for
fiscal year 1999. We purchased marketable debt securities in 1999 for
$900,000 which had a fixed interest rate of 5.26% and 5.29% per annum and were
unsecured. We redeemed $500,000 of the marketable debt securities during
fiscal year 2000. As of October 31, 2000, the debt securities held have a
fair value of $400,000, are due November 30, 2000 with a fixed interest rate
of 6.49% per annum and are unsecured.
Net cash used for financing activities during fiscal year 2000 was
$2,000, which were deferred charges related to costs incurred for seeking
small business loan financing. Financing activities provided net cash of
$938,592 for fiscal year 1999 which were primarily proceeds 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 used to commence the production of our Elite
Safety Syringe. While we received the stated amount of consideration for
those shares, we have revised the amounts stated in our financial statements
to reflect the average high and low market price of the common shares on the
date of issuance. We then applied a modest discount for lack of marketability.
The difference between the average high and low market price and issue price
has been reflected as common stock dividend. As a result of these
12
<PAGE>
change, we posted a constructive dividend of $866,250 for this issuance.
As of October 31, 2000, our principal commitments consisted of office
and warehouse space and an automobile lease. Monthly rental payments are
approximately $2,025 per month with total future minimum rental payments of
$16,183 through the fiscal year 2003. In the event we are able to form a
Korean corporation for the joint venture with COA International, we will be
committed to provide capital funding of $1,000,000 for that entity.
Financing. We have a working capital line of credit for $50,000 with
PNC Bank, N.A. with an interest rate of 2% above the prime interest rate,
which expires August 31, 2001. We also have a $150,000 revolving line of
credit which expires October 10, 2001. PNC Bank, N.A. makes loans to us at 3%
above the prime interest rate for the revolving line of credit. Both lines of
credit are secured by all the assets of Medi-Hut and personal guarantees of
our executive officers. As of the fiscal years ended 2000 and 1999 there were
no amounts outstanding on either line of credit.
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.
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 Sam Woo Corporation to
manufacture our Elite Safety Syringe for the short term.
On November 30, 2000 we agreed to sell, in a private placement, 475,000
units for $1,995,000 to Mid-West First Financial, Inc., an accredited
investor. Each unit consists of one common share and one warrant to purchase
one common share. The warrants are exercisable for a period of five years at
an exercise price of $5.25. As part of this transaction we also agreed to
register for resale the 950,000 common shares underlying the units. In
addition we agreed to register 1,300,000 common shares underlying warrants
issued to Columbia Financial for its services. On January 16, 2001 we filed a
registration statement on Form SB-2 registering the 2,250,000 common shares.
Management anticipates the private placement with Mid-West to be completed
upon the Form SB-2 being declared effective by the SEC. If all the warrants
are exercised related to the registered shares, we could receive up to
$6,706,250.
Management anticipates that we may seek additional funding through
future securities offerings which will be effected pursuant to applicable
exemptions under federal and state laws. We will determine the purchasers and
manner of issuance according to our financial needs and the available
exemptions. 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.
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.
13
<PAGE>
ITEM 7: FINANCIAL STATEMENTS
Reference is made to the financial statements attached to this Form
10-KSB report.
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 50 President, Director
Vincent J. Sanpietro 53 Secretary, Director
Robert Russo 41 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 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.
14
<PAGE>
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, 2000, we believe all
filing requirements under Section 16(a) were complied with in a timely manner.
ITEM 10. EXECUTIVE COMPENSATION
The following table shows the compensation paid to our named executive
officers in all capacities during the past three fiscal years.
SUMMARY COMPENSATION TABLE
Annual Compensation
-------------------------------
Fiscal
Name and Principal Position Year Salary ($) Bonus Other
-------------------------------- ------- ----------- --------- --------
Joseph A. Sanpietro, President 2000 $ 77,225 $ 0 $ 6,000 (1)
and Director 1999 85,200 0 0
1998 83,940 0 0
Vincent J. Sanpietro, Secretary 2000 51,428 0 5,000 (1)
and Director 1999 63,700 0 0
1998 47,353 0 0
Robert Russo 2000 0 0 23,302 (2)
Treasurer and Director 1999 0 0 5,635 (2)
1998 0 0 6,260 (2)
(1) Personal benefits: Lease payments for automobile.
(2) Paid to Koenig, Russo & Associates for accounting services performed
for Medi-Hut by Mr. Russo.
Compensation of Directors
We do not have any standard arrangement for compensation of our
directors for any services provided as director, including services for
committee participation or for special assignments.
Employment Contracts
We have not entered into employment contracts with our current executive
officers. The entire Board of Directors, using their business judgment,
determines the yearly salary for each officer. We believe the salaries paid
to our executive officers are reasonable based on their experience and
responsibilities.
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
15
<PAGE>
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 10,929,800 shares of common stock outstanding as of December 18, 2000.
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 30.0 %
1935 Swarthmore Avenue
Lakewood, New Jersey 08701
Vincent J. Sanpietro 554,800 5.1 %
1935 Swarthmore Avenue
Lakewood, New Jersey 08701
Robert Russo 25,000 (1) * %
1935 Swarthmore Avenue
Lakewood, New Jersey 08701
All executive officers and
directors as a group 3,859,000 35.3 %
* Less than one percent
(1) Mr. Russo shares voting and investment power of 20,000 shares held by his
wife.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
For the fiscal year 2000 and 1999, we paid $23,302 and $5,635,
respectively, to Koenig, Russo & Associates LLC for the accounting services
provided to us by Robert Russo, our Treasurer and Director. Mr. Russo is the
Managing Member of 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 exhibit 2.1 to Medi-Hut's Form 10-SB as amended,
file No. 0-27119, filed August 23, 1999.)
2.2 Agreement and Plan of Reorganization between Medi-Hut and Vallar
Consulting, dated January 10, 2000. (Incorporated by reference to
Medi-Hut's 10-KSB, as amended, filed January 26, 2000)
16
<PAGE>
3.1 Articles of Incorporation of Medi-Hut (Incorporated by reference to
exhibit 3.1 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 exhibit 3.2 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 exhibit 3.3 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 exhibit 3.4 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 exhibit 10.1 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 exhibit
10.2 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 exhibit 10.3 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 (Incorporated by reference to exhibit 10.4 Medi-Hut's
10-KSB, as amended, filed January 26, 2000.)
10.5 Consultant Agreement between Columbia Financial Group and Medi-Hut,
dated October 1, 2000. (Incorporated by reference to the Form SB-2,
filed January 16, 2001.)
10.6 Registration Rights Agreement between Medi-Hut, Mid-West, Columbia
Financial and Mutual Ventures, dated November 30, 2000. (Incorporated
by reference to exhibit 10.6 to the Form SB-2, filed January 16,
2001.)
21.1 Subsidiaries of Medi-Hut (Incorporated by reference to exhibit 21.1
to the Form SB-2, filed January 16, 2001.)
________________________
(b) Reports on Form 8/K
On August 25, 2000, we filed a current report on Form 8-K under Item 5
regarding the termination of a private offering to Mid-West First Financial.
17
<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.
1/17/01
Date: _____________ By: _/s/ Joseph Sanpietro
________________________________
Joseph Sanpietro, President
1/17/01
Date:_______________ By: /s/ Vincent Sanpietro
__________________________________
Vincent Sanpietro, Secretary
Date: 1/17/01 By: /s/ Robert Russo
_______________ ____________________________________
Robert Russo, Treasurer
18
<PAGE>
FINANCIAL STATEMENTS
Medi-Hut Company, Inc.
Financial Statements
October 31, 2000 and 1999 (Restated)
<PAGE> 19
Medi-Hut Company, Inc.
Index to the Financial Statements
October 31, 2000 and 1999 (Restated)
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............................................5-6
Notes to the Financial Statements..................................7-14
Independent Auditors' Report on the Additional Information...........15
Additional Information
Schedules of Selling, General and Administrative Expenses............16
<PAGE> 20
Rosenberg Rich
Baker Berman
& Company
A Professional Association of
Certified Public Accountants
380 Foothill Road * PO Box 6483 * Bridgewater NJ 08807-0483
908-231-1000 * Fax: 908-231-6894 * E-mail: [email protected]
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,
2000 and 1999 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, 2000 and 1999, 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, 2000
<PAGE> 21
Medi-Hut Company, Inc.
Balance Sheets
October 31,
---------------------------
2000 1999
------------- -------------
(Restated)
Assets
Current Assets
Cash $ 502,243 $ 384,733
Marketable securities 400,000 900,000
Accounts receivable 863,597 496,805
Inventory 238,808 28,975
Prepaid expenses 3,984 2,188
Deferred consulting fees 900,000 -
------------- -------------
Total Current Assets 2,908,632 1,812,701
------------- -------------
Machinery and Equipment 29,124 27,316
Molds 154,800 -
Less: Accumulated Depreciation (40,789) (27,316)
------------- -------------
Net Machinery and Equipment and Molds 143,135 -
Deposit on equipment 183,267 -
Deferred consulting fees, net of current portion 300,000 -
Capitalized Cost Reduction, net of accumulated
amortization of $4,796 and $4,164, respectively - 632
Patent and Licensing Costs, net of accumulated
amortization of $8,018 and $6,334, respectively 37,264 25,867
------------- -------------
Total Assets 3,572,298 1,839,200
============= =============
Liabilities and Stockholders' Equity
Current Liabilities
Accounts payable and accrued expenses 753,780 477,594
Deferred consulting payable 900,000 -
Income taxes payable 45,540 -
Deferred income taxes payable 17,124 -
------------- -------------
Total Current Liabilities 1,716,444 477,594
Deferred consulting payable, net of current portion 300,000 -
------------- -------------
Total Liabilities 2,016,444 477,594
------------- -------------
Stockholders' Equity
Common stock, voting $.001 par value; 100,000,000
shares authorized; 10,829,800 and 10,822,800
shares issued and outstanding, respectively 10,830 10,823
Additional paid-in capital 4,887,753 2,827,967
Consultant services to be provided (2,041,000) (13,708)
Deferred charges (57,506) (20,713)
Retained earnings (deficit) (1,244,223) (1,442,763)
------------- -------------
Total Stockholders' Equity 1,555,854 1,361,606
------------- -------------
Total Liabilities and Stockholders' Equity $ 3,572,298 $ 1,839,200
============= =============
See notes to the financial statements. 2
<PAGE> 22
Medi-Hut Company, Inc.
Statements of Operations
Year Ended October 31,
---------------------------
2000 1999
------------- -------------
(Restated)
Net Sales $ 8,130,696 $ 4,758,268
------------- -------------
Cost of Goods Sold
Beginning inventory 28,500 38,739
Net Purchases 7,593,591 4,251,205
Custom fees/freight 13,060 6,394
------------- -------------
Cost of Goods Available for Sale 7,635,151 4,296,338
Less: Ending Inventory 238,808 28,975
------------- -------------
Cost of Goods Sold 7,396,343 4,267,363
------------- -------------
Gross Profit 734,353 490,905
Selling, General and Administrative Expenses 498,835 581,346
------------- -------------
Income (Loss) from Operations 235,518 (90,441)
------------- -------------
Other Income (Expense)
Interest income 62,146 8,109
Interest expense - (4,554)
------------- -------------
Total Other Income (Expense) 62,146 3,555
------------- -------------
Income (Loss) Before Provision for Income Taxes 297,664 (86,886)
Provision for Income Taxes 62,664 300
------------- -------------
Net Income (Loss) $ 235,000 $ (87,186)
============= =============
Earnings (Loss) per Common Share $ 0.02 $ (0.01)
============= =============
Earnings (Loss) per Common Share-assuming dilution $ 0.02 $ (0.01)
============= =============
See notes to the financial statements. 3
<PAGE> 23
Medi-Hut Company, Inc.
Statement of Stockholders' Equity
Period from October 31, 1998 to October 31, 2000
<TABLE>
<CAPTION>
Common Stock
(No Par Value
Prior to Consultant
Common Recapitalization) Additional Services Retained
Shares ($.001 Par Paid-In To Be Deferred Earnings
Issued Value) Capital Provided Charges (Deficit) Total
------------- ---------------- ----------- ------------- --------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances, October 31, 1998 8,272,800 $ 8,273 $ 934,767 $ - $ - $ (564,345) $ 378,695
Issuance of Common Shares
Pursuant to a Private
Placement Memorandum
Shares Issued at
discounted market value 2,200,000 2,200 1,854,050 - - - 1,856,250
Dividend related to the
difference between the
issue price and
discounted market value - - - - - (866,250) (866,250)
Issuance of Warrants for
Services Provided - - 23,500 (23,500) - - -
Funds expended for
Deferred Charges - - - - (20,713) - (20,713)
Amortization of
Consultant Services - - - 9,792 - - 9,792
Net (Loss) Year Ended
October 31, 1999
(Restated) - - - - - (87,186) (87,186)
------------- ---------------- ----------- ------------- --------- ------------ -----------
Balances, October 31, 1999 10,472,800 10,473 2,812,317 (13,708) (20,713) (1,517,781) 1,270,588
Issuance of Common Shares
Pursuant to the acquisition
of Vallar Consulting Group 350,000 350 15,650 - - 75,018 91,018
------------- ---------------- ----------- ------------- --------- ------------ -----------
Balances, October 31, 1999
(as Restated) 10,822,800 10,823 2,827,967 (13,708) (20,713) (1,442,763) 1,361,606
Dissolution of Vallar
Consulting Group - - (16,000) - - (36,460) (52,460)
Funds expended for
Deferred Charges - - - - (2,000) - (2,000)
Stock issued to non-employee
for deferred charges 7,000 7 34,786 - (34,793) - -
Issuance of Warrants and
Payment Agreement for
Services to be Provided - - 2,041,000 (2,041,000) - - -
Amortization of
Consultant Services - - - 13,708 - - 13,708
Net Income Year Ended
October 31, 2000 - - - - - 235,000 235,000
------------- ---------------- ----------- ------------- --------- ------------ -----------
Balances, October 31, 2000 10,829,800 $ 10,830 $4,887,753 $ (2,041,000) $(57,506) $(1,244,223) $1,555,854
============= ================ =========== ============= ========= ============ ===========
See notes to the financial statements. 4
</TABLE>
<PAGE> 24
<TABLE>
<CAPTION>
Medi-Hut Company, Inc.
Statements of Cash Flows
Year Ended October 31,
-----------------------------
2000 1999
-------------- --------------
(Restated)
<S> <C> <C>
Cash Flows From Operating Activities
Net Income (Loss) $ 235,000 $ (87,186)
Adjustments to Reconcile Net Income (Loss) to Net Cash
Provided (Used) by Operating Activities:
Depreciation and amortization 15,789 2,821
Amortization of prepaid consulting expense 13,708 26,625
Deferred income taxes 17,124 -
Dissolution of Vallar Consulting Group (62,675) -
Decrease (Increase) in Assets
Accounts receivable (366,792) (231,428)
Inventory (209,833) 9,764
Prepaid expenses (1,796) 2,320
Increase (Decrease) in Liabilities
Accounts payable and accrued expenses 276,186 447,949
Income taxes payable 45,540 -
-------------- --------------
Net Cash Provided(Used) by Operating Activities (37,749) 170,865
-------------- --------------
Cash Flows From Investing Activities
Cash acquired from acquisition of Vallar 10,215 -
Purchases of marketable securities - (900,000)
Redemption of marketable securities 500,000 -
Cash paid for molds and equipment (156,608) -
Cash paid for patent and licensing costs (13,081) -
Cash paid for deposit on equipment (183,267) -
-------------- --------------
Net Cash Provided (Used) by Investing Activities 157,259 (900,000)
-------------- --------------
Cash Flows From Financing Activities
Proceeds from sale of common stock - 998,500
Repayment of lines of credit - (39,195)
Cash paid for deferred charges (2,000) (20,713)
-------------- --------------
Net Cash Provided (Used)by Financing Activities (2,000) 938,592
-------------- --------------
Net Increase in Cash 117,510 209,457
Cash at Beginning of Period 384,733 175,276
-------------- --------------
Cash at End of Period $ 502,243 $ 384,733
============== ==============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash Paid During the Period for:
Interest $ - $ 4,554
============== ==============
Income taxes $ 300 $ 300
============== ==============
See notes to the financial statements. 5
</TABLE>
<PAGE> 25
Medi-Hut Company, Inc.
Statements of Cash Flows,Continued
SUPPLEMENTAL SCHEDULE OF NON-CASH FINANCING ACTIVITIES
Common stock purchase warrants ($2,041,000) and a payment schedule
($1,200,000) were issued by the Company during 2000 for consultant services to
be provided totaling $3,241,000.
Common stock purchase warrants were issued by the Company during 1999 for
consultant services to be provided amounting to $23,500.
Common stock dividends amounting to $866,250 during 1999 were recognized as to
the difference between the average high/low market price and issue price of
the 2,200,000 common shares issued in accordance with the private placement
memorandum.
Common stock was issued in 2000 for deferred charges amounting to $34,793.
The Company acquired Vallar Consulting Group in a business combination
accounted for under the pooling of interests method during 2000:
Assets $ 74,690
Liabilities (6,611)
Equity (78,294)
Cash Received $ 10,215
See notes to the financial statements 6
<PAGE> 36
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.
Acquisition of Vallar Consulting Group and Restatement
On April 4, 2000, the Company acquired Vallar Consulting Group (Vallar) 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. Vallar was subsequently dissolved and all
the assets, liabilities and equity was recorded on the books of Medi-Hut. The
accompanying financial statements for October 31, 2000 and 1999 are based on
the assumption that the companies were combined for the years ended October
31, 2000 and 1999 and financial statements of prior years have been restated
to give effect to the combination.
The following is a reconciliation of the amounts of net sales and net income
(loss) previously reported for the year ended October 31, 1999 with restated
amounts:
Net Sales
As previously reported $ 1,272,419
Vallar Consulting Group 3,485,849
----------------
As Restated $ 4,758,268
================
Net Income (Loss)
As previously reported $ (74,462)
Vallar Consulting Group (12,724)
----------------
As Restated $ (87,186)
================
7
<PAGE> 27
Medi-Hut Company, Inc.
Notes to the Financial Statements
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Continued
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, 2000 and 1999.
Depreciation
Machinery and equipment are stated at cost. Depreciation is computed using
the straight line method for financial reporting purposes which amounted to
$13,473 and $263 for the years ended October 31, 2000 and 1999 respectively.
The estimated useful lives of the machinery and equipment assets for financial
statement purposes are five years. The estimated useful lives of molds for
financial statement purposes are three years. For income tax purposes,
recovery of capital costs for machinery and equipment and molds are 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, 2000 and 1999 was $632 and $948, respectively.
Research and Development
The only research and development costs incurred relate to patent and
licensing costs which are being amortized over their remaining useful lives of
20 years on a straight line basis beginning on the patent application dates.
Total amortization for the years ended October 31, 2000 and 1999 was $1,685
and $1,610, respectively.
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 depreciation differences between book and tax methods
and 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.
8
<PAGE> 28
Medi-Hut Company, Inc.
Notes to the Financial Statements
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Continued
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.
NOTE 3 - MARKETABLE SECURITIES
Cost and fair value of the Company's investments in Held-to-maturity debt
securities are as follows:
October 31,
2000 1999
-------------- --------------
Amortized Cost $ 400,000 $ 900,000
Gross Unrealized Gains/Losses - -
-------------- --------------
Fair Value $ 400,000 $ 900,000
============== ==============
The debt securities held at October 31, 2000 are due November 30, 2000, have a
fixed interest rate of 6.49% per annum and are unsecured. The debt securities
held at October 31, 1999 were due between November 24, 1999 to November 26,
1999, had a fixed interest rate of 5.26% and 5.29% per annum and are
unsecured.
The amortized costs and fair values of debt securities Held-to-maturity at
October 31, 2000 and 1999 by expected maturity are all due in one year or
less.
NOTE 4 - INVENTORY
Inventory consists of purchased finished goods which totaled $238,808 and
$28,975 at October 31, 2000 and October 31, 1999 (Restated), respectively.
9
<PAGE> 29
Medi-Hut Company, Inc.
Notes to the Financial Statements
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, 2000 but was renewed until October 10,
2001 and may be used to support and finance the Company's commercial foreign
letters of credit. As of October 31, 2000 and October 31, 1999, there were $0
outstanding on this line of credit.
At October 31, 2000 and 1999, 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, 2000, but was renewed until
August 30, 2001. As of October 31, 2000 and October 31, 1999, there were no
amounts 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,
2000.
Year Ending October 31,
2001 $ 6,697
2002 6,697
2003 2,789
---------
Total minimum payments required $ 16,183
=========
Rent expense for the years ended October 31, 2000 and 1999 (Restated) amounted
to $27,347 and $27,713, respectively.
The office and warehouse lease contain provisions for contingent rental
payments based upon increases in taxes, insurance and common area maintenance
expense.
NOTE 7 - 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
October 31, 1999 since the effect would be anti-dilutive. At October 31,
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 October 31, 2000
reflect of the common stock equivalents (warrants) if exercised:
10
<PAGE> 30
Medi-Hut Company, Inc.
Notes to the Financial Statements
NOTE 7 - EARNINGS (LOSS) PER COMMON SHARE, Continued
Year Ended October 31,
---------------------------
2000 1999
------------- -------------
(Restated)
Weighted average number of common shares
used in basic EPS 10,679,013 9,159,238
Effect of Dilutive Securities:
Warrants 1,400,000 -
------------- -------------
Weighted average number of common shares
and dilutive potential common stock used
in EPS - assuming dilution 12,079,013 9,159,238
============= =============
NOTE 8 - WARRANTS/DEFERRED CONSULTING FEES/CONSULTANT SERVICES TO BE PROVIDED
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
Price Exercise Term
No. of 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
Price Exercise Term
No. of 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
On October 1, 2000, the Company executed an additional 16 month agreement for
public relations services to be provided that requires cash payments of
$100,000 per month, totaling $1,200,000 beginning February 1, 2001. Moreover,
600,000 warrants have also been included as part of the agreement which
entitles the holder to an exercise price of $5.00 per share, full vesting
rights upon issuance and an expiration date of October 1, 2005. The Company
has a four month trial period in which the entire agreement may be rendered
null and void by the Company up to February 1, 2001 at which time, should the
agreement continue in effect, straight-line amortization of the Deferred
Consulting Fees and Consultant Services to be Provided will begin and extend
over a twelve month period.
On October 18, 2000, the Company issued to a consultant 100,000 warrants for
future services to be provided over a three year period. The exercise price
is $3.00 per share, full vesting rights upon issuance and an expiration date
of October 18, 2003.
11
<PAGE> 31
Medi-Hut Company, Inc.
Notes to the Financial Statements
NOTE 8 -WARRANTS/DEFERRED CONSULTING FEES/CONSULTANT SERVICES TO BE PROVIDED.
Continued
Consultant expense of $20,883 and $26,625 for the years ended October 31, 2000
and 1999, 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, 2000 and 1999; dividend yield of 0%,
risk-free interest of 5%, and expected lives of 3-5 years for the warrants.
Warrants issued for consultant services to be provided have been valued at
$2,041,000 and $23,500 at October 31, 2000 and 1999, respectively, and are
reflected as contra equity accounts on the balance sheets.
At October 31, 2000 and 1999, there were 1,400,000 and 700,000 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 one year,3
months and 2 years, respectively, for the years ended October 31, 2000 and
1999. The weighted average exercise price of the warrants is $3.22 and $1.73,
respectively, for the years ended October 31, 2000 and 1999.
NOTE 9 - MAJOR CUSTOMERS
For the years ended October 31, 2000 and 1999 (Restated), the Company had six
major customers, sales to which represented approximately 78% ($6,323,926) and
61% ($2,909,814), respectively, of the Company's revenues. The Company had
accounts receivable balances due from these customers of $633,686 and $345,753
at October 31, 2000 and October 31, 1999 (Restated), 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,
----------------------------
2000 1999
-------------- -------------
(Restated)
Major Customer #1 $ 402,109 $ 341,492
Major Customer #2 279,887 307,608
Major Customer #3 2,287,981 297,906
Major Customer #4 1,060,199 620,453
Major Customer #5 1,058,089 619,218
Major Customer #6 1,235,661 723,137
-------------- -------------
Total $ 6,323,926 $ 2,909,814
============== =============
NOTE 10 - RELATED PARTY TRANSACTIONS
Accounting services of $23,302 and $5,635 for years ended October 31, 2000 and
1999, respectively, were provided by a firm of which certain individuals in
that firm are shareholders/directors of the Company.
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 estimate.
12
<PAGE> 32
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, 2000
Current $ 37,001 $ 8,539 $ 45,540
Deferred 13,913 3,211 17,124
------------ ----------- ------------
$ 50,914 $ 11,750 $ 62,664
============ =========== ============
Year Ended October 31, 1999
Current $ - $ 300 $ 300
Deferred - - -
------------ ----------- ------------
$ - $ 300 $ 300
============ =========== ============
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 in 1999 and depreciation differences in
2000.
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,
----------------------------
2000 1999
------------- --------------
Federal statutory rate 39% -
State tax rate 9% -
Depreciation (27%) -
Benefit from net operating loss
carryforwards - (15)%
Valuation allowance - 15 %
------------- ---------------
Effective tax rate 21% -
============= ===============
The Company's total deferred tax (attributable to depreciation differences
in 2000 and net operating loss carry forwards in 1999) and valuation allowance
at October 31, 2000 is as follows:
October 31,
---------------------------
2000 1999
------------- -------------
Deferred tax asset $ - $ 15,000
Deferred tax liability (17,124) -
Less valuation allowance - (15,000)
------------- -------------
Net deferred tax asset (liability) $ (17,124) $ -
============= =============
The change in the valuation allowance amounted to $15,000 and $12,000 for the
years ended October 31, 2000 and 1999, respectively.
13
<PAGE> 33
Medi-Hut Company, Inc.
Notes to the Financial Statements
NOTE 13 - SUBSEQUENT EVENTS
On November 16, 2000, the Company entered into a joint venture agreement with
a South Korean company whereby Medi-Hut shall contribute $1,000,000 for a 44%
interest in the anticipated entity. The joint venture formation is subject to
approval by the South Korean government. The new entity will provide a
facility for production of the Company's patented safety syringe and allow for
better control over the manufacturing and distribution process.
On November 30,2000, the Company entered into an agreement to issue and sell
475,000 units to an investor in accordance with the provisions of Section 4(2)
and Regulation D of the Securities Act of 1933. Each unit will have a price of
$4.20 and shall be comprised of one share of the Company's common stock and
one warrant to purchase a share of common stock in the Company which shall be
exercisable beginning on the closing date of the transaction and extend over a
five year period thereafter and shall grant to the investor or holder the
right to purchase one additional share of the Company's common stock at a
price of $5.25 per share. If this transaction had occurred prior to the
October 31, 2000 balance sheet date, the weighted average of common shares
outstanding for purposes of calculating earnings per share-assuming dilution
would have increased by 950,000 common shares to 13,029,013 resulting in no
change to the presently calculated $.02 earnings per share-assuming dilution.
On December 18, 2000, 100,000 warrants were exercised by a warrant holder
totaling $300,000 of proceeds to the Company and the issuance of 100,000
shares of common stock.
14
<PAGE> 34
Rosenberg Rich
Baker Berman
& Company
A Professional Association of
Certified Public Accountants
380 Foothill Road * PO Box 6483 * Bridgewater NJ 08807-0483
908-231-1000 * Fax: 908-231-6894 * E-mail: [email protected]
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, 2000 and 1999 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, 2000
<PAGE> 35
Medi-Hut Company, Inc.
Schedules of Selling, General and Administrative Expenses
Year Ended
October 31,
---------------------------
2000 1999
------------- -------------
(Restated)
Officers' salaries $ 128,653 $ 148,900
Sales salaries 37,800 15,500
Office and warehouse salaries 24,900 13,500
Delivery expense 816 4,078
Advertising 513 5,552
License and permits 4,345 397
General insurance 29,001 40,794
Payroll taxes 17,049 13,615
Rent 27,347 27,713
Office supplies and expense 40,541 117,713
Postage 444 264
Accounting and legal 44,736 17,203
Consultant expense 20,883 26,625
Bank charges 2,605 366
Repairs and maintenance 294 101
Utilities 1,974 13,010
Depreciation 13,473 263
Employee welfare 32,136 16,914
Amortization 2,317 2,558
Garbage removal 351 960
Auto expense 19,948 18,696
Bad debts 35,235 -
Travel and entertainment 5,001 84,660
Telephone 4,806 4,581
Miscellaneous 3,667 7,383
------------- -------------
$ 498,835 $ 581,346
============= =============
